-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SBJ2mB8LclMxoNlAXBpH5keoXZIuRILGJCW6U2uHAf6a3x58T5Kr8gab5Bqw6vo4 TBjuuFx7wkX5FleMyTwOpA== 0000892569-99-001453.txt : 19990518 0000892569-99-001453.hdr.sgml : 19990518 ACCESSION NUMBER: 0000892569-99-001453 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IXC COMMUNICATIONS INC CENTRAL INDEX KEY: 0001009532 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 752644120 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-20803 FILM NUMBER: 99626016 BUSINESS ADDRESS: STREET 1: 1122 CAPITAL OF TEXAS HGWY S STREET 2: STE 200 CITY: AUSTIN STATE: TX ZIP: 78746 BUSINESS PHONE: 5123281112 MAIL ADDRESS: STREET 1: 5000 PLAZA ON THE LAKE STREET 2: SUITE 200 CITY: AUSTIN STATE: TX ZIP: 79746-1050 10-Q 1 FORM 10-Q FOR THE QUARTERLY PERIOD MARCH 31, 1999 1 ================================================================================ 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, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______________ TO _______________. COMMISSION FILE NUMBER 0-20803 ------------------------ IXC COMMUNICATIONS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ------------------------ DELAWARE 75-2644120 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 1122 CAPITAL OF TEXAS HIGHWAY SOUTH, AUSTIN, TEXAS 78746-6426 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE): (512) 328-1112 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 [ ] The number of shares of Common Stock, $.01 par value, outstanding (the only class of common stock of the Company outstanding) was 36,682,381 on May 11, 1999. ================================================================================ 2 IXC COMMUNICATIONS, INC. AND SUBSIDIARIES REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999 TABLE OF CONTENTS
PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) Condensed Consolidated Balance Sheets March 31, 1999 and December 31, 1998........................ 3 Condensed Consolidated Statements of Operations Three Months Ended March 31, 1999 and 1998.................. 4 Condensed Consolidated Statements of Cash Flows Three Months Ended March 31, 1999 and 1998.................. 5 Notes to Condensed Consolidated Financial Statements........ 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 9 Item 3. Quantitative and Qualitative Disclosure About Market Risk... 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings........................................... 13 Item 2. Changes in Securities and Use of Proceeds................... 13 Item 3. Defaults Upon Senior Securities............................. 13 Item 4. Submission of Matters to a Vote of Security Holders......... 13 Item 5. Other Information........................................... 14 Item 6. Exhibits and Reports on Form 8-K............................ 14 SIGNATURES............................................................ 18
2 3 IXC COMMUNICATIONS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) ASSETS
MARCH 31, DECEMBER 31, 1999 1998 ----------- ------------ (UNAUDITED) Cash and cash equivalents................................... $ 261,741 $ 264,826 Accounts and other receivables, net of allowance for doubtful accounts of $21,606 at March 31, 1999 and $16,664 at December 31, 1998...................................... 119,187 107,558 Current portion of notes receivable......................... 6,910 63,748 Note receivable from Westel................................. 8,671 9,421 Other current assets........................................ 12,048 10,965 ---------- ---------- Total current assets.................................... 408,557 456,518 Property and equipment...................................... 1,337,793 1,193,655 Less: accumulated depreciation.............................. (241,826) (209,979) ---------- ---------- Property and equipment, net............................. 1,095,967 983,676 Non-current marketable securities........................... 453,165 219,880 Investments in unconsolidated subsidiaries.................. 12,854 9,505 Deferred charges and other non-current assets............... 75,555 78,658 ---------- ---------- Total assets........................................ $2,046,098 $1,748,237 ========== ========== LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) Current portion of long-term debt and capital lease obligations............................................... $ 13,551 $ 13,984 Accounts payable trade...................................... 97,562 33,558 Accrued service cost........................................ 43,973 43,177 Accrued liabilities......................................... 82,688 72,307 Current portion of unearned revenue......................... 55,547 33,640 ---------- ---------- Total current liabilities............................... 293,321 196,666 Long-term debt and capital lease obligations, less current portion................................................... 676,016 679,016 Unearned revenue -- noncurrent.............................. 530,317 488,395 Other noncurrent liabilities................................ 80,776 8,848 7 1/4% Junior Convertible Preferred Stock; $.01 par value; 3,000,000 shares of all classes of Preferred Stock authorized; 1,074,500 shares issued and outstanding at March 31, 1999 and December 31, 1998 (aggregate liquidation preference of $107,450 at March 31, 1999)..... 103,733 103,623 12 1/2% Junior Exchangeable Preferred Stock; $.01 par value; 3,000,000 shares of all classes of Preferred Stock authorized; 360,356 and 349,434 shares issued and outstanding at March 31, 1999 and December 31, 1998 respectively (aggregate liquidation preference of $365,976 at March 31, 1999 including accrued dividends of $5,620)................................................... 355,575 344,235 Stockholders' equity (deficit): 6 3/4% Cumulative Convertible Preferred Stock, $.01 par value; 3,000,000 shares of all classes of Preferred Stock authorized; 155,250 shares issued and outstanding at March 31, 1999 and December 31, 1998 (aggregate liquidation preference of $155,250 at March 31, 1999)................. 2 2 Common Stock, $.01 par value; 100,000,000 shares authorized; 36,640,351 shares issued and outstanding at March 31, 1999 and 36,409,709 shares issued and outstanding at December 31, 1998.................................................. 366 364 Additional paid-in capital.................................. 241,374 253,429 Unrealized gain on marketable securities.................... 133,195 -- Accumulated deficit......................................... (368,577) (326,341) ---------- ---------- Total stockholders' equity (deficit)........................ 6,360 (72,546) ---------- ---------- Total liabilities, redeemable preferred stock and stockholders' equity (deficit)...................... $2,046,098 $1,748,237 ========== ==========
See accompanying notes. 3 4 IXC COMMUNICATIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED MARCH 31, -------------------- 1999 1998 -------- -------- (UNAUDITED) Net operating revenue: Private line service...................................... $ 70,864 $ 43,340 Long distance switched services........................... 77,747 113,767 Data and Internet services................................ 5,175 476 Other..................................................... 7,572 -- -------- -------- 161,358 157,583 Operating expenses: Cost of services.......................................... 104,804 107,949 Operations and administration............................. 51,809 29,336 Depreciation and amortization............................. 36,278 20,152 Merger costs.............................................. 55 (36) -------- -------- Operating loss......................................... (31,588) 182 Interest income............................................. 5,824 1,597 Interest expense............................................ (11,017) (6,311) Equity (loss) from unconsolidated subsidiaries.............. (2,871) (11,265) Other, net.................................................. 35 143 -------- -------- Loss before provision for income taxes and minority interest.................................................. (39,617) (15,654) Provision for income taxes.................................. (2,411) (2,068) Minority interest........................................... (208) (173) -------- -------- Net loss.................................................... (42,236) (17,895) -------- -------- Dividends applicable to preferred stock..................... (16,018) (11,736) -------- -------- Net loss applicable to common stockholders.................. (58,254) (29,631) -------- -------- Other comprehensive income, net of tax effect of $71,720: Unrealized gain on marketable securities.................... 133,195 -- -------- -------- Comprehensive income (loss)................................. $ 74,941 $(29,631) ======== ======== Basic and diluted loss per share............................ $ (1.60) $ (.83) ======== ======== Weighted average shares outstanding......................... 36,411 35,522 ======== ========
See accompanying notes. 4 5 IXC COMMUNICATIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
FOR THE THREE MONTHS ENDED MARCH 31, ----------------------- 1999 1998 --------- -------- (UNAUDITED) Net cash provided by (used in) operating activities......... $ 114,502 $(15,379) --------- -------- Investing activities: Purchase of property and equipment........................ (108,081) (64,585) Proceeds from payments of notes receivable................ 750 -- Investments in unconsolidated subsidiaries................ (6,220) (7,880) --------- -------- Net cash used in investing activities....................... (113,551) (72,465) --------- -------- Financing activities: Proceeds from sale of 9% Senior Notes..................... -- 128,000 Proceeds from debt and capital lease obligations.......... 48 9,016 Principal payments on debt and capital lease obligations............................................ (3,481) (2,942) Stock option exercises.................................... 3,965 1,445 Payment of dividends on preferred stock................... (4,568) -- Other financing activities................................ -- (748) --------- -------- Net cash provided by (used in) financing activities......... (4,036) 134,771 --------- -------- Net increase (decrease) in cash and cash equivalents........ (3,085) 46,927 Cash and cash equivalents at beginning of period............ 264,826 155,855 --------- -------- Cash and cash equivalents at end of period.................. $ 261,741 $202,782 ========= ========
See accompanying notes. 5 6 IXC COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES 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 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 management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation for the periods indicated have been included. Operating results for the three month periods ended March 31, 1999 are not necessarily indicative of the results that may be expected for the year ended December 31, 1999. The accompanying unaudited Condensed Consolidated Financial Statements have been restated for all periods presented to include the operations of Eclipse Telecommunications, Inc., formerly Network Long Distance, Inc. ("Eclipse"),which was acquired on June 3, 1998, in a transaction accounted for as a pooling of interests. The Condensed Consolidated Balance Sheet at December 31, 1998 has been derived from the audited financial statements for the Company but does not include all of the information and notes required by generally accepted accounting principles for complete financial statements. The accompanying financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto for the year ended December 31, 1998. Certain amounts shown in the Company's 1998 financial statements have been reclassified to conform to the 1999 presentation. 2. MARKETABLE SECURITIES We own approximately 10.2 million shares of common stock of PSINet, Inc. This investment had a fair market value of approximately $435.4 million as of March 31, 1999. Of the total fair value, $240.0 million was recorded as unearned revenue because it represented the sale to PSINet of an agreement for an indefeasible right to use ("IRU") capacity on our network. We accounted for the remaining fair value of $204.9 million as an Unrealized Gain on Marketable Securities because the PSINet investment is considered to be "available- for-sale" as defined in Statement of Financial Accounting Standards #115. The change in the unrealized gain amount is included, net of tax, in Other Comprehensive Income on the accompanying condensed consolidated statement of operations. We own an investment in common stock of DCI Telecommunications, Inc. ("DCI"). The stock acquisition agreement under which we acquired the investment requires DCI to issue us additional cash or common stock if the market value of our shares does not reach $18 million by June 1, 1999. On April 30, 1999, trading on DCI's common stock was suspended pending resolution of certain accounting issues by DCI. The fair value of our investment is equal to its carrying value due to the guarantee to receive additional consideration if the price of the stock is outside of the specified range. 3. INCOME TAXES The provision for income taxes recorded during interim periods is calculated based on an estimated annual effective tax rate. For 1999, the effective tax rate is negative and includes the impact of IRU transactions anticipated to occur during the year. We have applied a valuation allowance against the deferred tax assets arising during 1999 due to uncertainty regarding their realizability. 4. COMMITMENTS AND CONTINGENCIES From time to time we are involved in legal proceedings arising in the ordinary course of business, some of which are covered by insurance. In the opinion of management, none of the claims relating to such proceedings will have a material adverse effect on our financial condition or results of operations. 6 7 IXC COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 5. SEGMENT REPORTING Our financial reporting segments are based on the way management organizes the company for making operating decisions and assessing performance. These segments are based on the different types of products we offer. The segments consist of the private line segment, the switched long distance segment, and the data/ Internet segment. The segments are separately evaluated because the products or services sold are subject to different market forces and sales strategies. Management reviews the gross profits of each reporting segment, but views the costs of the network and administrative functions as supporting all business segments. Therefore, assets (other than accounts receivable), liabilities, general and administrative expenses, interest expense and income, and other expenses are not charged to any one segment. Losses from equity method subsidiaries are not charged to any one segment because those subsidiaries may have operations in multiple segments. All operating revenue shown is derived from sales to external customers. Revenue related to the sale of options in fibers that are jointly owned with other carriers are not reported in any segment. The summarized segment data for the quarters ended March 31, 1999 and 1998 are as follows:
PRIVATE SWITCHED LONG DATA & 1999 LINE DISTANCE INTERNET UNALLOCATED TOTAL ---- ------- ------------- -------- ----------- -------- Net operating revenue..................... $70,864 $ 77,747 $ 5,175 $7,572 $161,358 Cost of service........................... 26,104 74,329 4,371 -- 104,804 ------- -------- ------- ------ -------- Gross profit.............................. 44,760 3,418 804 7,572 56,554 Operations and administration............. 51,809 Depreciation and amortization............. 36,278 Merger costs.............................. 55 -------- Operating loss............................ (31,588) Interest income........................... 5,824 Interest expense.......................... (11,017) Loss from unconsolidated subsidiaries..... (2,871) Other, net................................ 35 -------- Loss before provision for income taxes, minority interest, and extraordinary loss.................................... $(39,617) ========
PRIVATE SWITCHED LONG DATA & 1998 LINE DISTANCE INTERNET UNALLOCATED TOTAL ---- ------- ------------- -------- ----------- -------- Net operating revenue..................... $43,340 $113,767 $ 476 $ -- $157,583 Cost of service........................... 19,189 86,917 1,843 -- 107,949 ------- -------- ------- ------ -------- Gross profit.............................. 24,151 26,850 (1,367) -- 49,634 Operations and administration............. 29,336 Depreciation and amortization............. 20,152 Merger costs.............................. (36) -------- Operating loss............................ 182 Interest income........................... 1,597 Interest expense.......................... (6,311) Loss from unconsolidated subsidiaries..... (11,265) Other, net................................ 143 -------- Loss before provision for income taxes, minority interest, and extraordinary loss.................................... $(15,654) ========
7 8 IXC COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 6. SUBSEQUENT EVENTS On May 10, 1999, we acquired Coastal Telecom Limited Company, and other related companies under common control ("Coastal"). Coastal is a retail long distance reseller. The purchase price amounted to approximately $100 million and was paid with a combination of $62.5 million of cash, $35 million of notes payable, and stock warrants to purchase 75,000 shares of common stock. Of the $35 million of notes payable, we are obligated to pay up to $25 million in either cash or common stock by June 3, 1999. In connection with the acquisition we completed a credit agreement with a commercial bank pursuant to which our Eclipse subsidiary borrowed $27 million and used the proceeds to fund a portion of the Coastal purchase price. The credit agreement has a 3 year term, may be extended for successive one-year terms, and is subject to a borrowing base calculation based on eligible accounts receivable. Amounts outstanding thereunder bear interest at either the bank's prime rate or LIBOR plus a 2.25% margin. The credit agreement is secured by the assets of our Eclipse subsidiary, including the assets acquired in the Coastal transaction. We must comply with various financial covenants under the credit agreement, including maintaining certain minimum cash flow ratios. On May 11, 1999, we announced that we will begin to scale back operations in the switched wholesale business. As a result, we expect to record a non-recurring charge in the second quarter of $25-$35 million. The planned charge will include costs related to staffing reductions, termination costs, equipment write-downs and decommissioning costs. The restructuring should result in future cost savings in bad debt expense, back office support costs, access costs, off-net transmission expense and network facility and administrative costs. 7. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes accounting and reporting standards requiring that derivative instruments be recorded in the balance sheet as either an asset or liability measured at its fair value. Because we have not entered into derivative financial instruments, the implementation of SFAS No. 133 will not have an impact on the results of operations or financial position. In April 1998, the Accounting Standards Executive Committee issued Statement of Position ("SOP") 98-5, "Reporting on the costs of Start-Up Activities." The SOP requires costs of start-up activities and organization costs to be expensed as incurred, and is effective for fiscal years beginning after December 15, 1998. Adoption of this standard did not have a material impact on our financial position or results of operations. In March 1998 the Accounting Standards Executive Committee issued SOP 98-1 "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." This standard provides guidance on accounting for certain costs incurred for software developed for internal use. We began following the provisions of this standard this quarter, and adoption did not have a material impact on our financial position or results of operations. 8 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Except for the historical information contained below, the matters discussed in this item are forward-looking statements that involve a number of risks and uncertainties. Our actual liquidity needs, capital resources and results may differ materially from the discussion set forth in the forward-looking statements. For a discussion of important factors that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements, see "Business -- Risk Factors" in our Form 10-K for the fiscal year ended December 31, 1998. In light of such risks and uncertainties, there can be no assurance that the forward-looking information contained in this item will in fact transpire. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1999 COMPARED WITH THE THREE MONTHS ENDED MARCH 31, 1998 Net operating revenue for the first quarter of 1999 increased to $161.4 million from $157.6 million in the first quarter of 1998. Net operating revenue in the current quarter included $70.9 million from private line, $5.2 million from data/Internet, $77.7 million from switched services, and $7.6 million of other revenue, from the sale of an option on usage rights in fibers that are owned jointly with another carrier. Compared to the first quarter of 1998, private line revenues increased 63.5%, and data/Internet services increased more than ten-fold. Switched services declined 31.7%, driven largely by the migration of our largest switched services customer, Excel Communications, to its own switched network. On May 11, 1999, we announced that we will begin to scale back operations in the switched wholesale business. As a result, we expect to record a non-recurring charge in the second quarter of $25-$35 million. The planned charge will include costs related to staffing reductions, termination costs, equipment write-downs and decommissioning costs. The restructuring should result in future cost savings in bad debt expense, back office support costs, access costs, off-net transmission expense and network facility and administrative costs, which should more than offset the reduction in revenue. Cost of services primarily reflects access charges paid to Local Exchange Carriers ("LEC's") and transmission lease payments (monetary and non-monetary) to other carriers. Cost of service decreased 2.9% to $104.8 million in 1999. Transmission lease expense increased 16.1% over the first quarter of 1998 related primarily to the 63.5% growth in private line revenue. Access costs declined to $67.2 million from $78.0 million in the first quarter of 1998, but increased as a percentage of switched revenue to 86.4% versus 68.6% in the prior year's first quarter. This increase in access costs, relative to switched revenues, is due primarily to the institution of largely fixed-cost tandem trunking charges and special assessments as part of the FCC-mandated access reform implemented in July 1998. Gross profit for the quarter increased 13.9% to $56.6 million compared with $49.6 million in the first quarter of 1998. The improvement relates to the $7.6 million of other revenue. Excluding the other revenue, gross profit declined slightly versus the first quarter, 1998, but the gross margin percentage improved to 31.9% from 31.5% in the prior year's first quarter due to the increased amount of private line traffic carried on our network in the current quarter. Operating and administrative costs for the quarter increased 76.6% over the first quarter of 1998, to $51.8 million. This increase was due to the additional costs associated with the expanded fiber network, development of the IT infrastructure and sales administrative costs related to expanding the sales force of Eclipse, our retail operation. Included in these additional costs is the impact of increasing employees from 1,059 in March 1998 to 1,771 in March 1999. These costs are expected to grow due to the Coastal acquisition, tempered by the reduction due to downsizing the wholesale switched business. Interest income increased $4.2 million to $5.8 million in the first quarter of 1999. Interest income increased because we had more cash on hand during 1999 than in the prior year, primarily from cash received related to IRU transactions and various financing arrangements entered into during 1998, including the bank credit facility completed in October 1998. 9 10 Interest expense increased from $6.3 million in the first quarter of 1998 to $11.0 million in the first quarter of 1999. Interest expense increased because we had more debt in 1999 than in the prior year, including the bank credit facility and the $450 million Senior debt. The increase was partially offset by an increase in capitalized interest from higher amounts of construction in process in 1999. Depreciation and amortization increased from $20.2 million in the first quarter of 1998 to $36.3 million in the first quarter of 1999. This 80.0% increase was due to the expanded fiber network in 1999. At March 31, 1999, our gross property and equipment increased 69.1% over the balance at March 31, 1998. Losses from unconsolidated subsidiaries decreased from $11.3 million in 1998 to $2.9 million in 1999. This is primarily due to the fact that we no longer recognize losses from our investments in Marca-Tel and PSINet. Marca-Tel losses accounted for $6.5 million of the total losses from unconsolidated subsidiaries in the first quarter of 1998. During 1998 we stopped recognizing losses from Marca-Tel because our investment had a negative balance from previously incurred losses. We stopped recognizing PSINet losses and began accounting for this investment using the cost method during the second quarter of 1998 because our level of ownership and influence of PSINet was diminished. Income tax expense increased slightly from $2.1 million in 1998 to $2.4 million in 1999. The effective tax rate continues to be negative as a result of IRU sales, which are taxable as the transactions are consummated. A valuation allowance is applied against tax assets arising during the year due to the uncertainty of their realization. Our net loss applicable to common shareholders amounted to $58.3 million compared to $29.6 million for the first quarter of 1998. The net loss increased as a result of the factors discussed above plus an increase of $4.3 million in preferred stock dividends. The increased dividends in 1999 are due primarily to the effect of the 6 3/4% Convertible Preferred Stock issued in March 1998. SEGMENTS INFORMATION PRIVATE LINE SERVICES Private line revenue for the first quarter of 1999 increased 63.5% to $70.9 million, from $43.3 million in the first quarter of 1998. The increase was due primarily to the net impact of the $265 million ISP contract and revenue from the revised Excel contract which has an increased private line component. Private line gross profit increased 85.3% to $44.8 million, and gross margin improved to 63.2% from 55.7% in the prior year's first quarter. The improvement resulted from the lower growth of transmission lease expense versus significant revenue growth, as we realized economies from running a larger portion of the private line traffic on our expanding fiber network. SWITCHED LONG DISTANCE SERVICES Switched long distance revenue for the first quarter of 1999 declined 31.7% to $77.7 million from $113.8 million in the first quarter of 1998. The decrease was due primarily to the net migration of Excel Communications to its own switched network. Switched long distance gross profit declined $23.4 million, or 87.3% due to the revenue decline and the higher proportion of access costs to switched revenues - the result of FCC-mandated access reform which increased fixed access costs, and other special assessment charges. Access cost, as a percentage of switched revenues rose to 86.4% versus 68.6% in the first quarter of 1998. DATA/INTERNET Data/Internet revenues for the first quarter of 1999 improved to $5.2 million from $.5 million in the first quarter of 1998. The increase is related to ATM/frame relay and Internet products produced by the Internet companies acquired during 1998 and sold by those companies as well as through our Eclipse retail distribution channel. The data/Internet gross profit was positive for the first time in the current quarter, at $.8 million versus $(1.4) million in the first quarter of 1998, due primarily to increasing revenue against a relatively fixed operating costs structure. 10 11 LIQUIDITY AND CAPITAL RESOURCES The Company is financing the expansion of its network through the issuance of debt and equity securities and the sale of IRU agreements for capacity and fiber rights. Cash provided by operating activities was $114.5 million for the three months ended March 31, 1999 compared to $15.4 million of cash used in the comparable period of 1998. This change occurred primarily because of payments received in 1999 related to IRU agreements. Cash used in investing activities for the three months ended March 31, 1999 was $113.6 million compared to $72.5 million for the comparable period of 1998. The $41.1 million increase is primarily due to an increase in capital expenditures related to our network expansion. We expect that its capital expenditures will continue to require a significant amount of cash through the end of fiscal year 1999 and thereafter. Cash used in financing activities was $4.0 million for the three months ended March 31, 1999 compared to cash provided by financing activities of $134.8 million in the comparable period of 1998. The decrease is primarily due to net proceeds from debt and equity financing in the first quarter of 1998. There was no such activity in 1999. As of March 31, 1999, the Company had $261.7 million in cash. We expect that the primary sources for cash over the next 12 months will be cash on hand, cash generated by operations, proceeds of IRU sales, proceeds from the credit facility and the proceeds from any additional debt, vendor and working capital financing we may seek. In addition, we have the ability to sell or borrow against our investments in marketable securities, including the PSINet stock. We seek to obtain sufficient funding from these sources for the following major uses of cash: - our network expansion and other capital expenditures; - acquisitions; - debt service; - lease payments; - working capital; - downsizing the wholesale switched service business; and - dividends on preferred stock. Additionally, on May 11, 1999, we acquired Coastal for $62.5 million in cash plus $35 million in notes receivable. Of the notes payable, we are obligated to pay $25 million in cash or stock by June 3, 1999. Capital spending in 1999 is projected to be over $600 million. After 1999, capital expenditures are expected to continue to be substantial. There can be no assurance that we will be successful in obtaining the necessary financing to meet our needs. A failure to raise cash would delay or prevent capital expenditures including the construction of our network expansion. The foregoing capital expenditure and cash requirements for 1999 and thereafter do not take into account any acquisitions other than Coastal that may occur. We are required to make payments under our existing debt and capital lease arrangements of $13.5 million, $11.8 million, and $9.1 million for the remainder of 1999, 2000, and 2001, respectively. We are also required to make quarterly interest payments on amounts outstanding under our $600 million credit facility and to make semi-annual interest payments on our 9% Senior Subordinated Notes and the remaining 12 1/2% Senior Notes. Additionally, we will be required to make payments under the new $27 million Eclipse line of credit. The line of credit amount, based on eligible accounts receivable, is due on May 1, 2002, and may be extended for successive one-year terms. We are required to pay quarterly dividends on the 7 1/4% Convertible Preferred Stock at an annual rate of 7 1/4%. We are required to pay quarterly dividends on the 12 1/2% Exchangeable Preferred Stock at an annual rate of 12 1/2%; such dividends must be paid in cash except that we have the option of paying dividends in additional shares of 12 1/2% Exchangeable Preferred Stock through February 15, 2001. Dividends on our 6 3/4% Convertible Preferred Stock are payable quarterly in cash 11 12 at the annual rate of 6 3/4%. If we are prohibited from paying dividends in cash under the terms of our debt agreements, then we may pay dividends on this stock in common stock valued at 95% of the average price of the common stock for 5 business days prior to the dividend payment date. We anticipate that such debt and equity service payments during 1999 will be made from cash on hand, except for the dividends on the 12 1/2% Exchangeable Preferred Stock which are anticipated to be paid in kind with stock dividends. We are required to make minimum annual lease payments for facilities, equipment and transmission capacity used in operating our business. In 1999, 2000, 2001, and 2002, these payments are expected to amount to approximately $33.2 million, $22.8 million, $17.9 million, and $11.8 million, respectively, on operating leases. We expect to incur additional operating lease costs in connection with the expansion of our network and the retail and Internet operations. Additionally, in connection with our network expansion, from time to time we enter into various construction and installation agreements with contractors. The forward-looking statements set forth above with respect to the estimated cash requirements relating to capital expenditures, our ability to meet such cash requirements and our ability to service our debt are based on certain assumptions as to future events. Important assumptions, which if not met, could adversely affect our ability to achieve satisfactory results include that: (a) there will be no significant delays with respect to our network expansion; (b) our contractors and partners in cost-saving arrangements will perform their obligations; (c) rights-of-way can be obtained in a timely, cost-effective basis; (d) we will continue to increase traffic on our network; and (e) we will be able to obtain vendor or additional debt financing. YEAR 2000 RISKS The Year 2000 issue is the result of computer software programs being coded to use two digits rather than four to define the year. It is possible that some of our existing computer programs that have date-sensitive coding may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in system failures or miscalculations causing disruption of operations, which could have a material adverse effect on our ability to conduct business after January 1, 2000, including an inability to provide telecommunications services to our customers or to accurately invoice customers or collect payments. Substantially all of our network was built in the last three years. As a result, we believe that we do not have a significant investment in legacy systems having substantial Year 2000 exposure. However, we have established a project team to identify, evaluate and address any existing Year 2000 issues. This Year 2000 effort covers the fiber optic network and supporting infrastructure related to providing switched, private line and data telecommunications services, and other operational and financial information technology ("IT") systems and applications. Also included in this effort are various other systems such as building operations and individual personal computers. The project team is reviewing the status of the Year 2000 compliance effort of key suppliers and other business partners, and is developing business continuity plans related to Year 2000 issues. While the Year 2000 project team is evaluating all potentially non-compliant systems, the Year 2000 effort is structured to give priority to those systems identified as "mission critical." The project team has identified the following principal phases of the project: a) assessment and planning, b) remediation, c) testing, and d) contingency planning. The assessment and planning phase was substantially complete at December 31, 1998. We have established a target date of June 30, 1999, for remediation of mission critical systems. Of the applications identified as critical, many have already been remediated and are being tested. Testing on these applications is expected to be completed by September 30, 1999. In addition, all new components being purchased as part of the ongoing network and IT infrastructure expansion are being evaluated to ensure compliance. There can be no assurances that third parties, including customers, suppliers, and other business partners, will convert their critical systems and processes in a timely manner. Such failure by any of these parties could disrupt our business. Therefore, in addition to evaluating our own internal systems, we are in the process of evaluating and documenting the status of Year 2000 compliance efforts by key suppliers. We currently project incurring expense of approximately $3.3 million through the end of 2000 in connection with the Year 2000 remediation project, of which approximately $1.4 million was incurred and 12 13 expensed as of March 31, 1999. Such amounts are exclusive of amounts which were already anticipated to be spent on new hardware and software purchases resulting from the expansion of our network and other business operations. We believe that a portion of the Year 2000 expenses will not be incremental costs, but rather will represent the redeployment of existing IT resources. This redeployment may cause delays in making other IT or network upgrades or enhancements; however, the delays are not expected to have a material adverse effect on our operations. We are still in the process of reviewing Coastal's environment for Year 2000 issues. We expect to complete this review by June 1999 and take any required corrective actions during the last six months of 1999. Until our review is complete, we can not estimate the cost, if any, of rectifying Year 2000 issues at Coastal. As part of its Year 2000 initiative, we are evaluating scenarios that may occur as a result of the century change and are developing contingency and business continuity plans tailored for Year 2000-related problems. We are in the process of completing an enterprise-wide business contingency plan. The target date for the final product is June 30, 1999. Elements of the plan are already in place, including working disaster recovery documents, a key supplier/business partner survey campaign, and a risk management program. The above information regarding cost estimates, risks, and estimated readiness are forward looking statements based on numerous assumptions of future events, including the availability and future costs of certain technological and other resources, third party modification actions and other factors. Given the complexity of these issues and other unidentified risks, actual results may vary materially from those anticipated and discussed above. Specific factors that might cause such differences include, among others, the availability and cost of personnel trained in this area, the ability to locate and correct all affected computer code, the timing and success of remedial efforts of our third party suppliers and similar uncertainties. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK We are exposed to market risk related to changes in interest rates because the interest rate on approximately $200 million of our debt at March 31, 1999 is indexed to floating interest rates. We monitor the risk associated with interest rates on an ongoing basis, but we have not entered into any interest rate swaps or other financial instruments to actively hedge the risk of changes in prevailing interest rates. Significantly all of our revenue is derived from domestic operations, so we believe the risk related to foreign currency exchange rates is minimal. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. 13 14 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits
EXHIBIT NUMBER DESCRIPTION ------- ----------- 3.1 Restated Certificate of Incorporation of IXC Communications, Inc., as amended (incorporated by reference to Exhibit 3.1 of the IXC Communications, Inc.'s Quarterly Report Form 10-Q for the quarter ended September 30, 1998 filed with the Commission on November 16, 1998). 3.2 Bylaws of IXC Communications, Inc., as amended (incorporated by reference to Exhibit 3.2 of the IXC Communications, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 1997 filed with the Commission on November 14, 1997). 4.1 Indenture dated as of October 5, 1995, by and among IXC Communications, Inc., on its behalf and as successor-in-interest to I-Link Holdings, Inc. and IXC Carrier Group, Inc., each of IXC Carrier, Inc., on its behalf and as successor-in-interest to I-Link, Inc., CTI Investments, Inc., Texas Microwave Inc. and WTM Microwave Inc., Atlantic States Microwave Transmission Company, Central States Microwave Transmission Company, Telcom Engineering, Inc., on its behalf and as successor-in-interest to SWTT Company and Microwave Network, Inc., Tower Communication Systems Corp., West Texas Microwave Company, Western States Microwave Transmission Company, Rio Grande Transmission, Inc., IXC Long Distance, Inc., Link Net International, Inc. (collectively, the "Guarantors"), and IBJ Schroder Bank & Trust Company, as Trustee (the "Trustee"), with respect to the 12 1/2% Series A and Series B Senior Notes due 2005 (incorporated by reference to Exhibit 4.1 of IXC Communications, Inc.'s and each of the Guarantor's Registration Statement on Form S-4 filed with the Commission on April 1, 1996 (File No. 333-2936) (the "S-4")). 4.2 Form of 12 1/2% Series A Senior Notes due 2005 (incorporated by reference to Exhibit 4.6 of the S-4). 4.3 Form of 12 1/2% Series B Senior Notes due 2005 and Subsidiary Guarantee (incorporated by reference to Exhibit 4.8 of IXC Communications, Inc.'s Amendment No. 1 to Registration Statement on Form S-1 filed with the Commission on June 13, 1996 (File No. 333-4061) (the "S-1 Amendment")). 4.4 Amendment No. 1 to Indenture and Subsidiary Guarantee dated as of June 4, 1996, by and among IXC Communications, Inc., the Guarantors and the Trustee (incorporated by reference to Exhibit 4.11 of the S-1 Amendment). 4.5 Purchase Agreement dated as of March 25, 1997, by and among IXC Communications, Inc., Credit Suisse First Boston Corporation ("CS First Boston") and Dillon Read & Co. Inc. ("Dillon Read") (incorporated by reference to Exhibit 4.12 of IXC Communications, Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, filed with the Commission on May 15, 1997 (the "March 31, 1997 10-Q")). 4.6 Registration Rights Agreement dated as of March 25, 1997, by and among IXC Communications, Inc., CS First Boston and Dillon Read (incorporated by reference to Exhibit 4.13 of the March 31, 1997 10-Q). 4.7 Amendment to Registration Rights Agreement dated as of March 25, 1997, by and between IXC Communications, Inc. and Trustees of General Electric Pension Trust (incorporated by reference to Exhibit 4.14 of the March 31, 1997 10-Q). 4.8 Registration Rights Agreement dated as of July 8, 1997, among IXC Communications, Inc. and each of William G. Rodi, Gordon Hutchins, Jr. and William F. Linsmeier (incorporated by reference to Exhibit 4.15 of IXC Communications, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, as filed with the Commission on August 6, 1997 (the "June 30, 1997 10-Q")). 4.9 Registration Rights Agreement dated as of July 8, 1997, among IXC Communications, Inc. and each of William G. Rodi, Gordon Hutchins, Jr. and William F. Linsmeier (incorporated by reference to Exhibit 4.16 of the June 30, 1997 10-Q).
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EXHIBIT NUMBER DESCRIPTION ------- ----------- 4.10 Indenture dated as of August 15, 1997, between IXC Communications, Inc. and The Bank of New York (incorporated by reference to Exhibit 4.2 of IXC Communications, Inc.'s Current Report on Form 8-K dated August 20, 1997, and filed with the Commission on August 28, 1997 (the "8-K")). 4.11 First Supplemental Indenture dated as of October 23, 1997, among IXC Communications, Inc., the Guarantors, IXC International, Inc. and IBJ Schroder Bank & Trust Company (incorporated by reference to Exhibit 4.13 of IXC Communications, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1997, and filed with the Commission on March 16, 1998 (the "1997 10-K")). 4.12 Second Supplemental Indenture dated as of December 22, 1997, among IXC Communications, Inc., the Guarantors, IXC Internet Services, Inc., IXC International, Inc. and IBJ Schroder Bank & Trust Company (incorporated by reference to Exhibit 4.14 of the 1997 10-K). 4.13 Third Supplemental Indenture dated as of January 6, 1998, among IXC Communications, Inc., the Guarantors, IXC Internet Services, Inc., IXC International, Inc. and IBJ Schroder Bank & Trust Company (incorporated by reference to Exhibit 4.15 of the 1997 10-K). 4.14 Fourth Supplemental Indenture dated as of April 3, 1998, among IXC Communications, Inc., the Guarantors, IXC Internet Services, Inc., IXC International, Inc., and IBJ Schroder Bank & Trust Company (incorporated by reference to Exhibit 4.15 of IXC Communications, Inc.'s Registration Statement on Form S-3 filed with the Commission on May 12, 1998 (File No. 333-52433)). 4.15 Purchase Agreement dated as of March 25, 1998, among IXC Communications, Inc., Goldman Sachs & Co. ("Goldman"), CS First Boston, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill") and Morgan Stanley & Co. Incorporated ("Morgan Stanley") (incorporated by reference to Exhibit 4.1 IXC Communications, Inc.'s Current Report on Form 8-K dated March 30, 1998, and filed with the Commission on April 7, 1998 (the "April 7, 1998 8-K")). 4.16 Registration Rights Agreement dated as of March 30, 1998, among IXC Communications, Inc., Goldman, CS First Boston, Merrill and Morgan Stanley (incorporated by reference to Exhibit 4.2 of the April 7, 1998 8-K). 4.17 Deposit Agreement dated as of March 30, 1998, between IXC Communications, Inc. and BankBoston N.A. (incorporated by reference from Exhibit 4.3 of the April 7, 1998 8-K). 4.18 Purchase Agreement dated as of April 16, 1998, by and among IXC Communications, Inc., CS First Boston, Merrill, Morgan Stanley and Nationsbanc Montgomery Securities LLC (incorporated by reference to Exhibit 4.1 of IXC Communications, Inc.'s Current Report on Form 8-K dated April 21, 1998, and filed with the Commission on April 22, 1998 (the "April 22, 1998 8-K"). 4.19 Registration Rights Agreement dated as of April 16, 1998, by and among IXC Communications, Inc., Credit Suisse First Boston Corporation, Merrill, Morgan Stanley and Nationsbanc Montgomery Securities LLC (incorporated by reference to Exhibit 4.2 of the April 22, 1998 8-K). 4.20 Indenture dated as of April 21, 1998, between IXC Communications, Inc. and IBJ Schroder Bank & Trust Company, as Trustee (incorporated by reference to Exhibit 4.3 of the April 22, 1998 8-K). 4.21 Rights Agreement dated as of September 9, 1998, between IXC Communications, Inc. and U.S. Stock Transfer Corporation (incorporated by reference to Exhibit 4.1 of IXC Communications, Inc.'s Form 8-K dated September 8, 1998 and filed with Commission on September 11, 1998). 10.1 Office Lease dated as of June 21, 1989 with USAA Real Estate Company, as amended (incorporated by reference to Exhibit 10.1 of the S-4).
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EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.2 Equipment Lease dated as of December 1, 1994, by and between DSC Finance Corporation and Switched Services Communications, L.L.C.; Assignment Agreement dated as of December 1, 1994, by and between Switched Services Communications, L.L.C. and DSC Finance Corporation; and Guaranty dated December 1, 1994, made in favor of DSC Finance Corporation by IXC Communications, Inc. (incorporated by reference to Exhibit 10.2 of the S-4). 10.3 Amended and Restated 1994 Stock Plan of IXC Communications, Inc., as amended (incorporated by reference to Exhibit 10.3 of the June 30, 1997 10-Q). 10.4* Form of Non-Qualified Stock Option Agreement under the 1994 Stock Plan of IXC Communications, Inc. (incorporated by reference to Exhibit 10.4 of the S-4). 10.5 Amended and Restated Development Agreement by and between Intertech Management Group, Inc. and IXC Long Distance, Inc. (incorporated by reference to Exhibit 10.7 of IXC Communications, Inc.'s and the Guarantors' Amendment No. 1 to Registration Statement on Form S-4 filed with the Commission on May 20, 1996 (File No. 333-2936) ("Amendment No. 1 to S-4")). 10.6 Third Amended and Restated Service Agreement dated as of April 16, 1998, among IXC Long Distance, Inc., IXC Carrier, Inc., IXC Broadband, Inc. and Excel Telecommunications, Inc. (incorporated by reference to Exhibit 10.6 of IXC Communications, Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, filed with the Commission on May 15, 1998 (the "March 31, 1998 10-Q")). 10.7 Equipment Purchase Agreement dated as of January 16, 1996, by and between Siecor Corporation and IXC Carrier, Inc. (incorporated by reference to Exhibit 10.9 of the S-4). 10.8* 1996 Stock Plan of IXC Communications, Inc., as amended (incorporated by reference to Exhibit 10.10 of the IXC Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1996 and filed with the Commission on March 28, 1997 (the "1996 10-K")). 10.9 IRU Agreement dated as of November 1995 between WorldCom, Inc. and IXC Carrier, Inc. (incorporated by reference to Exhibit 10.11 of Amendment No. 1 to the S-4). 10.10* IXC Communications, Inc. Outside Directors' Phantom Stock Plan 1998 Restatement (incorporated by reference to Exhibit 10.10 of the IXC Communications, Inc.'s Quarterly Report Form 10-Q for the quarter ended September 30, 1998 filed with the Commission on November 16, 1998). 10.11 Business Consultant and Management Agreement dated as of March 1, 1998, by and between IXC Communications, Inc. and Culp Communications Associates (incorporated by reference to Exhibit 10.11 of the March 31, 1998 10-Q). 10.12 Employment Agreement dated as of December 28, 1995, by and between IXC Communications, Inc. and James F. Guthrie (incorporated by reference to Exhibit 10.14 of the S-1 Amendment). 10.13* Special Stock Plan of IXC Communications, Inc. (incorporated by reference to Exhibit 10.16 of the 1996 10-K). 10.14 Lease dated as of June 4, 1997, between IXC Communications, Inc. and Carramerca Realty, L.P. (incorporated by reference to Exhibit 10.17 of the June 30, 1997 10-Q). 10.15 Loan and Security Agreement dated as of July 18, 1997, among IXC Communications, Inc., IXC Carrier, Inc. and NTFC Capital Corporation ("NTFC") (incorporated by reference to Exhibit 10.18 of the June 30, 1997 10-Q). 10.16 IRU and Stock Purchase Agreement dated as of July 22, 1997, between IXC Internet Services, Inc. and PSINet Inc. (incorporated by reference to Exhibit 10.19 of IXC Communications, Inc.'s Amendment No. 1 to Form 10-Q/A for the quarter ended September 30, 1997 filed with the Commission on December 12, 1997 (the "September 30, 1997 10-Q/A")).
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EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.17 Joint Marketing and Services Agreement dated as of July 22, 1997, between IXC Internet Services, Inc. and PSINet Inc. (incorporated by reference to Exhibit 10.20 of the September 30, 1997 10-Q/A). 10.18 Employment Agreement dated as of September 9, 1997, between Benjamin L. Scott and IXC Communications, Inc. (incorporated by reference to Exhibit 10.21 of IXC Communication Inc.'s Amendment No. 1 to Registration Statement on S-4 filed with the Commission on December 15, 1997 (File No. 333-37157) ("Amendment No. 1 to the EPS S-4")). 10.19* IXC Communications, Inc. 1997 Special Executive Stock Plan (incorporated by reference to Exhibit 10.22 of Amendment No. 1 to the EPS S-4). 10.20 First Amendment to Loan and Security Agreement dated as of December 23, 1997, among IXC Communications, Inc., IXC Carrier, Inc., NTFC and Export Development Corporation ("EDC") (incorporated by reference to Exhibit 10.21 of the 1997 10-K). 10.21 Second Amendment to Loan and Security Agreement dated as of January 21, 1998, among IXC Communications, Inc., IXC Carrier, Inc., NTFC and EDC (incorporated by reference to Exhibit 10.22 of the 1997 10-K). 10.22* IXC Communications, Inc. 1998 Stock Plan (incorporated by reference to Exhibit 10.22 of the IXC Communications, Inc.'s Quarterly Report Form 10-Q for the quarter ended September 30, 1998 filed with the Commission on November 16, 1998). 10.23 Credit Agreement, dated as of October 27, 1998 among the Borrower, NationsBank, N.A., as a Lender and Administrative Agent, NationsBanc Montgomery Securities, LLC, as Lead Arranger, and Credit Suisse First Boston, Goldman Sachs Credit Partners, L.P., EDC and TD Securities (USA), Inc., each as a Lender and Co-Syndication Agent (incorporated by reference to Exhibit 10.1 of IXC Communications, Inc. Current Report on Form 8-K dated October 27, 1998 and filed with the Commission on November 4, 1998). 10.24 Office Lease Agreement dated as of December 7, 1998, between B.O. III, LTD and IXC Communications Services, Inc. 10.25 Employment Agreement, by and between IXC Communications, Inc. and Michael W. Vent. 27.1** Financial Data Schedule.
- --------------- * Management contract or executive compensation plan or arrangement required to be indicated as such and filed as an exhibit pursuant to applicable rules of the Commission. ** Filed herewith. (b) Reports on Form 8-K. (1) Form 8-K dated January 11, 1999 and filed with the Commission on January 20, 1999 with respect to a press release reporting on the Company's agreement to acquire all the membership interests in the limited liability companies which operate as Coastal Telephone Company. (2) Form 8-K dated February 4, 1999 and filed with the Commission on February 4, 1999 with respect to a press release announcing the Company's results of operations for the year ended December 31, 1998. (3) Form 8-K dated April 12, 1999 and filed with the Commission on April 14, 1999 with respect to a press release reporting on an agreement with Electric Lightwave Inc. 17 18 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. IXC COMMUNICATIONS, INC. By: /s/ JAMES F. GUTHRIE ------------------------------------ James F. Guthrie Executive Vice President and Chief Financial Officer Dated: May 14, 1999 18 19 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION ------- ----------- 3.1 Restated Certificate of Incorporation of IXC Communications, Inc., as amended (incorporated by reference to Exhibit 3.1 of the IXC Communications, Inc.'s Quarterly Report Form 10-Q for the quarter ended September 30, 1998 filed with the Commission on November 16, 1998). 3.2 Bylaws of IXC Communications, Inc., as amended (incorporated by reference to Exhibit 3.2 of the IXC Communications, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 1997 filed with the Commission on November 14, 1997). 4.1 Indenture dated as of October 5, 1995, by and among IXC Communications, Inc., on its behalf and as successor-in-interest to I-Link Holdings, Inc. and IXC Carrier Group, Inc., each of IXC Carrier, Inc., on its behalf and as successor-in-interest to I-Link, Inc., CTI Investments, Inc., Texas Microwave Inc. and WTM Microwave Inc., Atlantic States Microwave Transmission Company, Central States Microwave Transmission Company, Telcom Engineering, Inc., on its behalf and as successor-in-interest to SWTT Company and Microwave Network, Inc., Tower Communication Systems Corp., West Texas Microwave Company, Western States Microwave Transmission Company, Rio Grande Transmission, Inc., IXC Long Distance, Inc., Link Net International, Inc. (collectively, the "Guarantors"), and IBJ Schroder Bank & Trust Company, as Trustee (the "Trustee"), with respect to the 12 1/2% Series A and Series B Senior Notes due 2005 (incorporated by reference to Exhibit 4.1 of IXC Communications, Inc.'s and each of the Guarantor's Registration Statement on Form S-4 filed with the Commission on April 1, 1996 (File No. 333-2936) (the "S-4")). 4.2 Form of 12 1/2% Series A Senior Notes due 2005 (incorporated by reference to Exhibit 4.6 of the S-4). 4.3 Form of 12 1/2% Series B Senior Notes due 2005 and Subsidiary Guarantee (incorporated by reference to Exhibit 4.8 of IXC Communications, Inc.'s Amendment No. 1 to Registration Statement on Form S-1 filed with the Commission on June 13, 1996 (File No. 333-4061) (the "S-1 Amendment")). 4.4 Amendment No. 1 to Indenture and Subsidiary Guarantee dated as of June 4, 1996, by and among IXC Communications, Inc., the Guarantors and the Trustee (incorporated by reference to Exhibit 4.11 of the S-1 Amendment). 4.5 Purchase Agreement dated as of March 25, 1997, by and among IXC Communications, Inc., Credit Suisse First Boston Corporation ("CS First Boston") and Dillon Read & Co. Inc. ("Dillon Read") (incorporated by reference to Exhibit 4.12 of IXC Communications, Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, filed with the Commission on May 15, 1997 (the "March 31, 1997 10-Q")). 4.6 Registration Rights Agreement dated as of March 25, 1997, by and among IXC Communications, Inc., CS First Boston and Dillon Read (incorporated by reference to Exhibit 4.13 of the March 31, 1997 10-Q). 4.7 Amendment to Registration Rights Agreement dated as of March 25, 1997, by and between IXC Communications, Inc. and Trustees of General Electric Pension Trust (incorporated by reference to Exhibit 4.14 of the March 31, 1997 10-Q). 4.8 Registration Rights Agreement dated as of July 8, 1997, among IXC Communications, Inc. and each of William G. Rodi, Gordon Hutchins, Jr. and William F. Linsmeier (incorporated by reference to Exhibit 4.15 of IXC Communications, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, as filed with the Commission on August 6, 1997 (the "June 30, 1997 10-Q")). 4.9 Registration Rights Agreement dated as of July 8, 1997, among IXC Communications, Inc. and each of William G. Rodi, Gordon Hutchins, Jr. and William F. Linsmeier (incorporated by reference to Exhibit 4.16 of the June 30, 1997 10-Q).
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EXHIBIT NUMBER DESCRIPTION ------- ----------- 4.10 Indenture dated as of August 15, 1997, between IXC Communications, Inc. and The Bank of New York (incorporated by reference to Exhibit 4.2 of IXC Communications, Inc.'s Current Report on Form 8-K dated August 20, 1997, and filed with the Commission on August 28, 1997 (the "8-K")). 4.11 First Supplemental Indenture dated as of October 23, 1997, among IXC Communications, Inc., the Guarantors, IXC International, Inc. and IBJ Schroder Bank & Trust Company (incorporated by reference to Exhibit 4.13 of IXC Communications, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1997, and filed with the Commission on March 16, 1998 (the "1997 10-K")). 4.12 Second Supplemental Indenture dated as of December 22, 1997, among IXC Communications, Inc., the Guarantors, IXC Internet Services, Inc., IXC International, Inc. and IBJ Schroder Bank & Trust Company (incorporated by reference to Exhibit 4.14 of the 1997 10-K). 4.13 Third Supplemental Indenture dated as of January 6, 1998, among IXC Communications, Inc., the Guarantors, IXC Internet Services, Inc., IXC International, Inc. and IBJ Schroder Bank & Trust Company (incorporated by reference to Exhibit 4.15 of the 1997 10-K). 4.14 Fourth Supplemental Indenture dated as of April 3, 1998, among IXC Communications, Inc., the Guarantors, IXC Internet Services, Inc., IXC International, Inc., and IBJ Schroder Bank & Trust Company (incorporated by reference to Exhibit 4.15 of IXC Communications, Inc.'s Registration Statement on Form S-3 filed with the Commission on May 12, 1998 (File No. 333-52433)). 4.15 Purchase Agreement dated as of March 25, 1998, among IXC Communications, Inc., Goldman Sachs & Co. ("Goldman"), CS First Boston, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill") and Morgan Stanley & Co. Incorporated ("Morgan Stanley") (incorporated by reference to Exhibit 4.1 IXC Communications, Inc.'s Current Report on Form 8-K dated March 30, 1998, and filed with the Commission on April 7, 1998 (the "April 7, 1998 8-K")). 4.16 Registration Rights Agreement dated as of March 30, 1998, among IXC Communications, Inc., Goldman, CS First Boston, Merrill and Morgan Stanley (incorporated by reference to Exhibit 4.2 of the April 7, 1998 8-K). 4.17 Deposit Agreement dated as of March 30, 1998, between IXC Communications, Inc. and BankBoston N.A. (incorporated by reference from Exhibit 4.3 of the April 7, 1998 8-K). 4.18 Purchase Agreement dated as of April 16, 1998, by and among IXC Communications, Inc., CS First Boston, Merrill, Morgan Stanley and Nationsbanc Montgomery Securities LLC (incorporated by reference to Exhibit 4.1 of IXC Communications, Inc.'s Current Report on Form 8-K dated April 21, 1998, and filed with the Commission on April 22, 1998 (the "April 22, 1998 8-K"). 4.19 Registration Rights Agreement dated as of April 16, 1998, by and among IXC Communications, Inc., Credit Suisse First Boston Corporation, Merrill, Morgan Stanley and Nationsbanc Montgomery Securities LLC (incorporated by reference to Exhibit 4.2 of the April 22, 1998 8-K). 4.20 Indenture dated as of April 21, 1998, between IXC Communications, Inc. and IBJ Schroder Bank & Trust Company, as Trustee (incorporated by reference to Exhibit 4.3 of the April 22, 1998 8-K). 4.21 Rights Agreement dated as of September 9, 1998, between IXC Communications, Inc. and U.S. Stock Transfer Corporation (incorporated by reference to Exhibit 4.1 of IXC Communications, Inc.'s Form 8-K dated September 8, 1998 and filed with Commission on September 11, 1998). 10.1 Office Lease dated as of June 21, 1989 with USAA Real Estate Company, as amended (incorporated by reference to Exhibit 10.1 of the S-4).
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EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.2 Equipment Lease dated as of December 1, 1994, by and between DSC Finance Corporation and Switched Services Communications, L.L.C.; Assignment Agreement dated as of December 1, 1994, by and between Switched Services Communications, L.L.C. and DSC Finance Corporation; and Guaranty dated December 1, 1994, made in favor of DSC Finance Corporation by IXC Communications, Inc. (incorporated by reference to Exhibit 10.2 of the S-4). 10.3 Amended and Restated 1994 Stock Plan of IXC Communications, Inc., as amended (incorporated by reference to Exhibit 10.3 of the June 30, 1997 10-Q). 10.4* Form of Non-Qualified Stock Option Agreement under the 1994 Stock Plan of IXC Communications, Inc. (incorporated by reference to Exhibit 10.4 of the S-4). 10.5 Amended and Restated Development Agreement by and between Intertech Management Group, Inc. and IXC Long Distance, Inc. (incorporated by reference to Exhibit 10.7 of IXC Communications, Inc.'s and the Guarantors' Amendment No. 1 to Registration Statement on Form S-4 filed with the Commission on May 20, 1996 (File No. 333-2936) ("Amendment No. 1 to S-4")). 10.6 Third Amended and Restated Service Agreement dated as of April 16, 1998, among IXC Long Distance, Inc., IXC Carrier, Inc., IXC Broadband, Inc. and Excel Telecommunications, Inc. (incorporated by reference to Exhibit 10.6 of IXC Communications, Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, filed with the Commission on May 15, 1998 (the "March 31, 1998 10-Q")). 10.7 Equipment Purchase Agreement dated as of January 16, 1996, by and between Siecor Corporation and IXC Carrier, Inc. (incorporated by reference to Exhibit 10.9 of the S-4). 10.8* 1996 Stock Plan of IXC Communications, Inc., as amended (incorporated by reference to Exhibit 10.10 of the IXC Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1996 and filed with the Commission on March 28, 1997 (the "1996 10-K")). 10.9 IRU Agreement dated as of November 1995 between WorldCom, Inc. and IXC Carrier, Inc. (incorporated by reference to Exhibit 10.11 of Amendment No. 1 to the S-4). 10.10* IXC Communications, Inc. Outside Directors' Phantom Stock Plan 1998 Restatement (incorporated by reference to Exhibit 10.10 of the IXC Communications, Inc.'s Quarterly Report Form 10-Q for the quarter ended September 30, 1998 filed with the Commission on November 16, 1998). 10.11 Business Consultant and Management Agreement dated as of March 1, 1998, by and between IXC Communications, Inc. and Culp Communications Associates (incorporated by reference to Exhibit 10.11 of the March 31, 1998 10-Q). 10.12 Employment Agreement dated as of December 28, 1995, by and between IXC Communications, Inc. and James F. Guthrie (incorporated by reference to Exhibit 10.14 of the S-1 Amendment). 10.13* Special Stock Plan of IXC Communications, Inc. (incorporated by reference to Exhibit 10.16 of the 1996 10-K). 10.14 Lease dated as of June 4, 1997, between IXC Communications, Inc. and Carramerca Realty, L.P. (incorporated by reference to Exhibit 10.17 of the June 30, 1997 10-Q). 10.15 Loan and Security Agreement dated as of July 18, 1997, among IXC Communications, Inc., IXC Carrier, Inc. and NTFC Capital Corporation ("NTFC") (incorporated by reference to Exhibit 10.18 of the June 30, 1997 10-Q). 10.16 IRU and Stock Purchase Agreement dated as of July 22, 1997, between IXC Internet Services, Inc. and PSINet Inc. (incorporated by reference to Exhibit 10.19 of IXC Communications, Inc.'s Amendment No. 1 to Form 10-Q/A for the quarter ended September 30, 1997 filed with the Commission on December 12, 1997 (the "September 30, 1997 10-Q/A")).
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EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.17 Joint Marketing and Services Agreement dated as of July 22, 1997, between IXC Internet Services, Inc. and PSINet Inc. (incorporated by reference to Exhibit 10.20 of the September 30, 1997 10-Q/A). 10.18 Employment Agreement dated as of September 9, 1997, between Benjamin L. Scott and IXC Communications, Inc. (incorporated by reference to Exhibit 10.21 of IXC Communication Inc.'s Amendment No. 1 to Registration Statement on S-4 filed with the Commission on December 15, 1997 (File No. 333-37157) ("Amendment No. 1 to the EPS S-4")). 10.19* IXC Communications, Inc. 1997 Special Executive Stock Plan (incorporated by reference to Exhibit 10.22 of Amendment No. 1 to the EPS S-4). 10.20 First Amendment to Loan and Security Agreement dated as of December 23, 1997, among IXC Communications, Inc., IXC Carrier, Inc., NTFC and Export Development Corporation ("EDC") (incorporated by reference to Exhibit 10.21 of the 1997 10-K). 10.21 Second Amendment to Loan and Security Agreement dated as of January 21, 1998, among IXC Communications, Inc., IXC Carrier, Inc., NTFC and EDC (incorporated by reference to Exhibit 10.22 of the 1997 10-K). 10.22* IXC Communications, Inc. 1998 Stock Plan (incorporated by reference to Exhibit 10.22 of the IXC Communications, Inc.'s Quarterly Report Form 10-Q for the quarter ended September 30, 1998 filed with the Commission on November 16, 1998). 10.23 Credit Agreement, dated as of October 27, 1998 among the Borrower, NationsBank, N.A., as a Lender and Administrative Agent, NationsBanc Montgomery Securities, LLC, as Lead Arranger, and Credit Suisse First Boston, Goldman Sachs Credit Partners, L.P., EDC and TD Securities (USA), Inc., each as a Lender and Co-Syndication Agent (incorporated by reference to Exhibit 10.1 of IXC Communications, Inc. Current Report on Form 8-K dated October 27, 1998 and filed with the Commission on November 4, 1998). 10.24 Office Lease Agreement dated as of December 7, 1998, between B.O. III, LTD and IXC Communications Services, Inc. 10.25 Employment Agreement, by and between IXC Communications, Inc. and Michael W. Vent. 27.1** Financial Data Schedule.
- --------------- * Management contract or executive compensation plan or arrangement required to be indicated as such and filed as an exhibit pursuant to applicable rules of the Commission. ** Filed herewith. EX-27.1 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 261,741 453,165 119,187 21,606 0 408,557 1,337,793 241,826 2,046,098 293,321 676,016 459,308 2 366 5,992 2,046,098 0 161,358 0 104,804 51,809 16,301 11,017 39,617 2,411 (42,236) 0 0 0 (42,236) (1.60) (1.60)
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