Delaware | 0-15658 | 47-0210602 | ||
(State or other | (Commission File | (IRS employer | ||
jurisdiction of incorporation) | Number) | Identification No.) | ||
1025 Eldorado Blvd., Broomfield, Colorado (Address of principal executive offices) | 80021 (Zip code) |
23.1 | Consent of Ernst & Young LLP. |
99.1 | Audited consolidated financial statements of tw telecom as of December 31, 2013 and 2012 and for the years ended December 31, 2013, 2012 and 2011. |
99.2 | Unaudited condensed consolidated financial statements of tw telecom as of March 31, 2014 and December 31, 2013 and for the periods ended March 31, 2014 and 2013. |
99.3 | Unaudited pro forma condensed combined financial statements of Level 3 as of and for the three months ended March 31, 2014 and for the year ended December 31, 2013. |
1) | Registration Statements (Form S-3 Nos. 333-53914, 333-156709, 333-160493, 333‑162854 and 333-178060) of Level 3 Communications, Inc. and |
2) | Registration Statements (Form S-8 Nos. 333-79533, 333-42465, 333-68447, 333-58691, 333-52697, 333-115472, 333-115751, 333-174354, 333‑177977 and 333-189832) of Level 3 Communications, Inc. |
PAGE | ||
Report of Independent Registered Public Accounting Firm: Ernst & Young LLP | ||
2013 | 2012 | ||||||
(amounts in thousands, except per share amounts) | |||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 284,419 | $ | 806,728 | |||
Investments | 194,576 | 167,564 | |||||
Receivables, less allowances of $6,748 and $7,067, respectively | 107,258 | 99,703 | |||||
Prepaid expenses and other current assets | 22,545 | 19,164 | |||||
Deferred income taxes | 54,026 | 76,160 | |||||
Total current assets | 662,824 | 1,169,319 | |||||
Property, plant and equipment | 4,675,335 | 4,247,868 | |||||
Less accumulated depreciation | (2,980,379 | ) | (2,755,622 | ) | |||
1,694,956 | 1,492,246 | ||||||
Deferred income taxes | 96,087 | 101,885 | |||||
Goodwill | 412,694 | 412,694 | |||||
Intangible assets, net of accumulated amortization | 11,555 | 17,578 | |||||
Other assets, net | 44,344 | 30,015 | |||||
Total assets | $ | 2,922,460 | $ | 3,223,737 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 38,454 | $ | 55,857 | |||
Deferred revenue | 48,371 | 45,471 | |||||
Accrued taxes, franchise and other fees | 55,043 | 60,844 | |||||
Accrued interest | 21,606 | 20,343 | |||||
Accrued payroll and benefits | 52,604 | 45,727 | |||||
Accrued carrier costs | 25,507 | 30,765 | |||||
Current portion debt and capital lease obligations, net | 32,470 | 374,969 | |||||
Other current liabilities | 35,241 | 29,163 | |||||
Total current liabilities | 309,296 | 663,139 | |||||
Long-term debt and capital lease obligations, net | 1,916,775 | 1,384,242 | |||||
Long-term deferred revenue | 20,046 | 23,177 | |||||
Other long-term liabilities | 40,274 | 41,240 | |||||
Commitments and contingencies (Note 10) | |||||||
Stockholders’ equity: | |||||||
Preferred stock, $0.01 par value, 20,000 shares authorized, no shares issued and outstanding | — | — | |||||
Common stock, $0.01 par value, 439,800 shares authorized, 153,760 and 151,953 shares issued, respectively | 1,538 | 1,520 | |||||
Additional paid-in capital | 1,701,356 | 1,843,126 | |||||
Treasury stock, 12,593 and 556 shares, at cost, respectively | (357,974 | ) | (10,979 | ) | |||
Accumulated deficit | (708,979 | ) | (721,793 | ) | |||
Accumulated other comprehensive income | 128 | 65 | |||||
Total stockholders’ equity | 636,069 | 1,111,939 | |||||
Total liabilities and stockholders’ equity | $ | 2,922,460 | $ | 3,223,737 |
2013 | 2012 | 2011 | |||||||||
(amounts in thousands, except per share amounts) | |||||||||||
Revenue: | |||||||||||
Data and Internet services | $ | 851,297 | $ | 746,297 | $ | 646,682 | |||||
Voice services | 373,666 | 363,743 | 338,655 | ||||||||
Network services | 308,818 | 330,088 | 350,709 | ||||||||
Intercarrier compensation | 30,120 | 30,127 | 30,845 | ||||||||
Total revenue | 1,563,901 | 1,470,255 | 1,366,891 | ||||||||
Costs and expenses (a): | |||||||||||
Operating (exclusive of depreciation, amortization and accretion shown separately below) | 658,080 | 617,553 | 571,461 | ||||||||
Selling, general and administrative | 392,132 | 341,423 | 325,538 | ||||||||
Depreciation, amortization and accretion | 308,768 | 284,292 | 283,329 | ||||||||
Total costs and expenses | 1,358,980 | 1,243,268 | 1,180,328 | ||||||||
Operating income | 204,921 | 226,987 | 186,563 | ||||||||
Interest expense | (96,136 | ) | (93,757 | ) | (87,718 | ) | |||||
Debt extinguishment costs | (39,314 | ) | (77 | ) | — | ||||||
Interest income | 692 | 793 | 545 | ||||||||
Income before income taxes | 70,163 | 133,946 | 99,390 | ||||||||
Income tax expense | 33,705 | 57,058 | 41,479 | ||||||||
Net income | $ | 36,458 | $ | 76,888 | $ | 57,911 | |||||
Earnings per share: | |||||||||||
Basic | $ | 0.25 | $ | 0.51 | $ | 0.39 | |||||
Diluted | $ | 0.24 | $ | 0.50 | $ | 0.38 | |||||
Weighted average shares outstanding: | |||||||||||
Basic | 144,920 | 147,675 | 147,247 | ||||||||
Diluted | 146,480 | 150,059 | 149,349 |
Operating | $ | 2,178 | $ | 1,904 | $ | 2,327 | |||||
Selling, general and administrative | $ | 36,654 | $ | 27,396 | $ | 25,490 |
2013 | 2012 | 2011 | |||||||||
(amounts in thousands) | |||||||||||
Net income | $ | 36,458 | $ | 76,888 | $ | 57,911 | |||||
Other comprehensive income, net of tax: | |||||||||||
Unrealized gain on cash flow hedging activities, net of tax | — | — | 1,816 | ||||||||
Unrealized gain on available for sale securities, net of tax | 63 | 46 | 32 | ||||||||
Other comprehensive income, net of tax | 63 | 46 | 1,848 | ||||||||
Comprehensive income | $ | 36,521 | $ | 76,934 | $ | 59,759 |
2013 | 2012 | 2011 | |||||||||
(amounts in thousands) | |||||||||||
Cash flows from operating activities: | |||||||||||
Net income | $ | 36,458 | $ | 76,888 | $ | 57,911 | |||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
Depreciation, amortization and accretion | 308,768 | 284,292 | 283,329 | ||||||||
Deferred income taxes | 30,738 | 48,559 | 35,756 | ||||||||
Stock-based compensation | 38,832 | 29,300 | 27,817 | ||||||||
Loss on debt extinguishment | 39,314 | 77 | — | ||||||||
Discount on debt, amortization of deferred debt issue costs and other | 10,727 | 25,469 | 23,388 | ||||||||
Changes in operating assets and liabilities: | |||||||||||
Accounts receivable, net | (7,555 | ) | (3,521 | ) | (14,584 | ) | |||||
Prepaid expenses and other current and noncurrent assets | (1,558 | ) | 1,498 | (7,627 | ) | ||||||
Accounts payable | (11,099 | ) | (429 | ) | (6,338 | ) | |||||
Accrued interest | 1,197 | 6,393 | (1,261 | ) | |||||||
Accrued payroll and benefits | 7,001 | 1,469 | 2,566 | ||||||||
Deferred revenue, current and noncurrent | (231 | ) | 4,099 | 11,797 | |||||||
Other current and noncurrent liabilities | (14,131 | ) | (10,418 | ) | (9,166 | ) | |||||
Net cash provided by operating activities | 438,461 | 463,676 | 403,588 | ||||||||
Cash flows from investing activities: | |||||||||||
Capital expenditures | (372,868 | ) | (338,118 | ) | (340,731 | ) | |||||
Purchases of investments | (312,526 | ) | (243,048 | ) | (223,638 | ) | |||||
Proceeds from sale of investments | 283,845 | 204,629 | 208,340 | ||||||||
Equipment purchases in advance of installation and other, net | (14,570 | ) | 2,566 | 3,230 | |||||||
Net cash used in investing activities | (416,119 | ) | (373,971 | ) | (352,799 | ) | |||||
Cash flows from financing activities: | |||||||||||
Proceeds from issuance of common stock upon exercise of stock options | 64,325 | 23,424 | 16,973 | ||||||||
Taxes paid related to net share settlement of equity awards | (20,830 | ) | (9,962 | ) | (7,007 | ) | |||||
Purchases of treasury stock | (406,514 | ) | (13,409 | ) | (58,562 | ) | |||||
Excess tax benefits from stock-based compensation | 692 | 1,213 | 1,385 | ||||||||
Proceeds from modification of debt, net of financing costs | 49,684 | — | — | ||||||||
Retirement of debt obligations | (991,978 | ) | (101,518 | ) | — | ||||||
Proceeds from issuance of debt, net of financing costs | 765,800 | 470,796 | — | ||||||||
Payment of debt and capital lease obligations | (5,830 | ) | (6,915 | ) | (7,106 | ) | |||||
Net cash provided by (used in) financing activities | (544,651 | ) | 363,629 | (54,317 | ) | ||||||
Increase (decrease) in cash and cash equivalents | (522,309 | ) | 453,334 | (3,528 | ) | ||||||
Cash and cash equivalents at beginning of period | 806,728 | 353,394 | 356,922 | ||||||||
Cash and cash equivalents at end of period | $ | 284,419 | $ | 806,728 | $ | 353,394 | |||||
Supplemental disclosures of cash flow information: | |||||||||||
Cash paid for interest | $ | 85,209 | $ | 63,082 | $ | 67,566 | |||||
Cash paid for debt extinguishment costs | $ | 32,662 | $ | — | $ | — | |||||
Cash paid for income taxes, net of refunds | $ | 4,634 | $ | 7,801 | $ | 3,231 | |||||
Non-cash investing & financing activities: | |||||||||||
Addition of capital lease obligation | $ | 129,019 | $ | 5,307 | $ | 2,000 |
Common Stock | Treasury Stock | Additional paid-in capital | Accumulated deficit | Accumulated other comprehensive income (loss) | Total stockholders’ equity | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||
(amounts in thousands) | |||||||||||||||||||||||||||||
Balance at December 31, 2010 | 151,953 | $ | 1,520 | (2,707 | ) | $ | (45,821 | ) | $ | 1,802,946 | $ | (790,175 | ) | $ | (1,829 | ) | $ | 966,641 | |||||||||||
Net income | — | — | — | — | — | 57,911 | — | 57,911 | |||||||||||||||||||||
Other comprehensive income, net of tax | — | — | — | — | — | — | 1,848 | 1,848 | |||||||||||||||||||||
Excess tax benefits (shortfalls) from stock-based compensation, net | — | — | — | — | 100 | — | — | 100 | |||||||||||||||||||||
Purchases of treasury stock | — | — | (3,172 | ) | (58,562 | ) | — | — | — | (58,562 | ) | ||||||||||||||||||
Exercise of stock options net of withholdings to satisfy employee tax obligations upon vesting of stock awards | — | — | 1,458 | 25,527 | (7,901 | ) | (7,660 | ) | — | 9,966 | |||||||||||||||||||
Stock-based compensation | — | — | 1,512 | 25,700 | 28,711 | (26,594 | ) | — | 27,817 | ||||||||||||||||||||
Balance at December 31, 2011 | 151,953 | 1,520 | (2,909 | ) | (53,156 | ) | 1,823,856 | (766,518 | ) | 19 | 1,005,721 | ||||||||||||||||||
Net income | — | — | — | — | — | 76,888 | — | 76,888 | |||||||||||||||||||||
Other comprehensive income, net of tax | — | — | — | — | — | — | 46 | 46 | |||||||||||||||||||||
Excess tax benefits (shortfalls) from stock-based compensation, net | — | — | — | — | (69 | ) | — | — | (69 | ) | |||||||||||||||||||
Purchases of treasury stock | — | — | (596 | ) | (13,409 | ) | — | — | — | (13,409 | ) | ||||||||||||||||||
Exercise of stock options net of withholdings to satisfy employee tax obligations upon vesting of stock awards | — | — | 1,768 | 32,503 | (12,616 | ) | (6,425 | ) | — | 13,462 | |||||||||||||||||||
Stock-based compensation | — | — | 1,181 | 23,083 | 31,955 | (25,738 | ) | — | 29,300 | ||||||||||||||||||||
Balance at December 31, 2012 | 151,953 | 1,520 | (556 | ) | (10,979 | ) | 1,843,126 | (721,793 | ) | 65 | 1,111,939 | ||||||||||||||||||
Net income | — | — | — | — | — | 36,458 | — | 36,458 | |||||||||||||||||||||
Other comprehensive income, net of tax | — | — | — | — | — | — | 63 | 63 | |||||||||||||||||||||
Reacquisition of the equity component of convertible debentures | — | — | — | — | (179,195 | ) | — | — | (179,195 | ) | |||||||||||||||||||
Purchases of treasury stock | — | — | (14,784 | ) | (415,523 | ) | — | — | — | (415,523 | ) | ||||||||||||||||||
Exercise of stock options net of withholdings to satisfy employee tax obligations upon vesting of stock awards | 1,309 | 13 | 2,531 | 65,787 | (5,401 | ) | (16,904 | ) | — | 43,495 | |||||||||||||||||||
Stock-based compensation | 498 | 5 | 216 | 2,741 | 42,826 | (6,740 | ) | — | 38,832 | ||||||||||||||||||||
Balance at December 31, 2013 | 153,760 | $ | 1,538 | (12,593 | ) | $ | (357,974 | ) | $ | 1,701,356 | $ | (708,979 | ) | $ | 128 | $ | 636,069 |
Buildings and improvements | 10-20 years or lease term, if shorter |
Communications network equipment | 5-15 years |
Vehicles and other equipment | 3-10 years |
Fiber and right to use | 20 years or lease term, if shorter |
Years ended December 31, | |||||||||||
2013 | 2012 | 2011 | |||||||||
(amounts in thousands, except per share amounts) | |||||||||||
Numerator | |||||||||||
Net income | $ | 36,458 | $ | 76,888 | $ | 57,911 | |||||
Allocation of net income to unvested restricted stock awards | (700 | ) | (1,604 | ) | (1,093 | ) | |||||
Net income allocated to common stockholders, basic | 35,758 | 75,284 | 56,818 | ||||||||
Net income allocated to common stockholders, diluted | $ | 35,758 | $ | 75,284 | $ | 56,818 | |||||
Denominator | |||||||||||
Basic weighted average shares outstanding | 144,920 | 147,675 | 147,247 | ||||||||
Dilutive potential common shares: | |||||||||||
Stock options | 923 | 1,679 | 1,495 | ||||||||
Unvested restricted stock | 637 | 705 | 607 | ||||||||
Diluted weighted average shares outstanding | 146,480 | 150,059 | 149,349 | ||||||||
Basic earnings per share | $ | 0.25 | $ | 0.51 | $ | 0.39 | |||||
Diluted earnings per share | $ | 0.24 | $ | 0.50 | $ | 0.38 |
December 31, | |||||||
2013 | 2012 | ||||||
(amounts in thousands) | |||||||
Cash equivalents: | |||||||
U.S. Treasury money market mutual funds | $ | 28,845 | $ | 262,967 | |||
Commercial paper | 1,335 | 30,692 | |||||
Prime money market mutual funds | — | 425,165 | |||||
Certificates of deposit | — | 8,000 | |||||
Debt securities issued by U.S. Government agencies | — | 4,999 | |||||
Total cash equivalents | $ | 30,180 | $ | 731,823 | |||
Investments: | |||||||
Commercial paper | $ | 75,460 | $ | 32,480 | |||
Debt securities issued by the U.S. Treasury | 69,628 | 89,870 | |||||
Debt securities issued by U.S. Government agencies | 49,488 | 45,214 | |||||
Total investments | $ | 194,576 | $ | 167,564 | |||
Total cash equivalents and investments | $ | 224,756 | $ | 899,387 |
December 31, | |||||||
2013 | 2012 | ||||||
(amounts in thousands) | |||||||
Communications network equipment | $ | 3,090,976 | $ | 2,869,304 | |||
Fiber and right to use | 1,283,472 | 1,089,210 | |||||
Vehicles and other equipment | 239,510 | 227,977 | |||||
Land, buildings and improvements | 61,377 | 61,377 | |||||
4,675,335 | 4,247,868 | ||||||
Less accumulated depreciation | (2,980,379 | ) | (2,755,622 | ) | |||
Total | $ | 1,694,956 | $ | 1,492,246 |
Years ended December 31, | |||||||||||
2013 | 2012 | 2011 | |||||||||
(amounts in thousands) | |||||||||||
Asset retirement obligations: | |||||||||||
Balance at January 1 | $ | 29,552 | $ | 25,138 | $ | 23,141 | |||||
Accretion expense | 2,791 | 2,273 | 2,085 | ||||||||
Liabilities incurred | 1,640 | 2,483 | — | ||||||||
Liabilities settled | — | (342 | ) | (88 | ) | ||||||
Change in estimate | (10,192 | ) | — | — | |||||||
Balance at December 31 | $ | 23,791 | $ | 29,552 | $ | 25,138 |
December 31, 2013 | December 31, 2012 | ||||||||||||||||||||||
Gross Carrying Value | Accumulated Amortization | Net Carrying Value | Gross Carrying Value | Accumulated Amortization | Net Carrying Value | ||||||||||||||||||
(amounts in thousands) | |||||||||||||||||||||||
Customer relationships | $ | 59,086 | $ | (53,177 | ) | $ | 5,909 | $ | 59,086 | $ | (49,059 | ) | $ | 10,027 | |||||||||
Other | 12,392 | (6,746 | ) | 5,646 | 12,392 | (4,841 | ) | 7,551 | |||||||||||||||
$ | 71,478 | $ | (59,923 | ) | $ | 11,555 | $ | 71,478 | $ | (53,900 | ) | $ | 17,578 |
Date of | Outstanding balance | ||||||||||||||||||
Issuance/ | Interest | Interest | Original | as of December 31, | |||||||||||||||
Amendment | Maturity | Payments | Rate | Principal | 2013 | 2012 | |||||||||||||
(amounts in thousands) | |||||||||||||||||||
Term Loan B—December 2016 tranche (1) | Dec 2010 | Dec 2016 | At least quarterly | Eurodollar rate + 3.25% | $ | 474,100 | $ | — | $ | 463,019 | |||||||||
Term Loan B | Apr 2013 | Apr 2020 | At least quarterly | Eurodollar rate + 2.50% | 520,000 | 517,400 | — | ||||||||||||
8% Senior Notes | Mar 2010 | Mar 2018 | Mar/Sept | 8% | 430,000 | 23,479 | 430,000 | ||||||||||||
53/8% Senior Notes | Oct 2012 | Oct 2022 | Apr/Oct | 5 3/8% | 480,000 | 480,000 | 480,000 | ||||||||||||
53/8% Senior Notes | Aug 2013 | Oct 2022 | Apr/Oct | 5 3/8% | 450,000 | 450,000 | — | ||||||||||||
63/8% Senior Notes | Aug 2013 | Sept 2023 | Mar/Sept | 6 3/8% | 350,000 | 350,000 | — | ||||||||||||
23/8% Convertible Senior Debentures | Mar 2006 | Apr 2026 | Apr/Oct | 2 3/8% | 373,750 | — | 373,743 | ||||||||||||
Total debt | $ | 1,820,879 | $ | 1,746,762 | |||||||||||||||
Unamortized discounts | (18,680 | ) | (7,642 | ) | |||||||||||||||
Current portion | (28,592 | ) | (373,026 | ) | |||||||||||||||
Total long-term debt | $ | 1,773,607 | $ | 1,366,094 |
(1) | The Term Loan B due December 2016 was amended in April 2013 to increase the Term Loan to $520 million and extend the maturity date to April 2020. See further discussion below. |
2014 (1) | $ | 28,679 | |
2015 | 5,200 | ||
2016 | 5,200 | ||
2017 | 5,200 | ||
2018 | 5,200 | ||
Thereafter | 1,771,400 | ||
Total payments | $ | 1,820,879 |
(1) | In January 2014, tw telecom holdings inc. notified holders of the 8% Senior Notes due 2018 that all outstanding notes will be redeemed on March 1, 2014. Therefore, the maturity date of these notes is reflected in 2014 (see "Subsequent Event - 2018 Notes" below). |
• | The Term Loan is a secured obligation, on a first lien basis, of Holdings and is guaranteed by the Company and Holdings’ subsidiaries. Repayments of the Term Loan are due quarterly in an amount equal to ¼ of 1% of the aggregate principal amount on the last day of each quarter. Interest is reset periodically. Based on the Eurodollar rate in effect at December 31, 2013, the effective interest rate was 2.67%. In accordance with applicable |
• | The Revolver is secured and guaranteed in the same manner as the Term Loan. Interest on outstanding Revolver amounts, if any, will be computed based on a specified Eurodollar rate plus 1.75% to 2.75%, depending on the Company's consolidated total leverage ratio, as defined in the Revolver, and will be reset periodically. The Company is required to pay a commitment fee on the undrawn commitment amounts on a quarterly basis of 0.375% to 0.5% per annum. The Amendment and Restatement contains customary affirmative and negative covenants. Most of the Revolver covenants apply whether or not the Company draws on that facility. In addition, if the Revolver were drawn, certain financial covenants would apply. |
Year | Redemption Price | |
2017 | 102.688% | |
2018 | 101.792% | |
2019 | 100.896% | |
2020 | 100.000% |
Year | Redemption Price | |
2014 | 104.000% | |
2015 | 102.000% | |
2016 | 100.000% |
Year | Redemption Price | |
2017 | 102.688% | |
2018 | 101.792% | |
2019 | 100.896% | |
2020 | 100.000% |
Year | Redemption Price | |
2018 | 103.188% | |
2019 | 102.125% | |
2020 | 101.063% | |
2021 | 100.000% |
2013 | 2012 | ||||||
Principal amount of Convertible Debentures | $ | — | $ | 373,743 | |||
Unamortized discount | — | (5,643 | ) | ||||
Net carrying amount of Convertible Debentures | $ | — | $ | 368,100 |
2013 | 2012 | 2011 | |||||||||
Interest expense, contractual amount at 23/8% | $ | 3,800 | $ | 8,877 | $ | 8,876 | |||||
Interest expense, amortization of discount | 5,642 | 21,414 | 19,675 | ||||||||
Interest expense, amortization of deferred debt issuance costs | 275 | 1,098 | 1,098 | ||||||||
Total interest expense for Convertible Debentures | $ | 9,717 | $ | 31,389 | $ | 29,649 | |||||
Effective interest rate on liability component | 3.0 | % | 8.5 | % | 8.5 | % |
Years Ended December 31, | |||||||||||
2013 | 2012 | 2011 | |||||||||
(amounts in thousands) | |||||||||||
Term Loan B - all instruments | $ | 16,063 | $ | 18,800 | $ | 22,295 | |||||
8% Senior Notes | 24,190 | 35,980 | 35,980 | ||||||||
53/8% Senior Notes, issued October 2012 | 26,652 | 6,681 | — | ||||||||
53/8% Senior Notes, issued August 2013 | 9,375 | — | — | ||||||||
63/8% Senior Notes | 8,000 | — | — | ||||||||
23/8% Convertible Senior Debentures | 9,717 | 31,389 | 29,649 | ||||||||
Revolving Credit Facility (undrawn) | 664 | 624 | 501 | ||||||||
Interest expense from debt | $ | 94,661 | $ | 93,474 | $ | 88,425 | |||||
Other interest expense | 1,475 | 283 | (707 | ) | |||||||
Total interest expense | $ | 96,136 | $ | 93,757 | $ | 87,718 |
• | Level 1—Quoted prices in active markets for identical assets or liabilities. Level 1 assets that are measured at fair value on a recurring basis consist of the Company’s investments in prime money market mutual funds and U.S. Treasury money market mutual funds that are traded in an active market with sufficient volume and frequency of transactions, and are included as a component of cash and cash equivalents in the consolidated balance sheets. |
• | Level 2—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets that are measured at fair value on a recurring basis consist of the Company’s investments in certificates of deposit, commercial paper and debt securities issued by the U.S. Treasury and government agencies using observable inputs in less active markets and are included as components of cash and cash equivalents and investments in the consolidated balance sheets. Level 2 liabilities that are measured, but not carried, at fair value on a recurring basis include the Company’s long-term debt. The Company's long-term debt has not been listed on any securities exchange or quoted on an inter-dealer automated quotation system. The Company has estimated the fair value of its long-term debt based on indicative pricing published by certain investment banks or trading levels in our long-term debt. |
• | Level 3—Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities. The Company did not have any Level 3 assets or liabilities that were measured at fair value at December 31, 2013 and 2012. |
Fair Value Measurements At December 31, 2013 | Assets/Liabilities at Fair Value | ||||||||||||||
Level 1 | Level 2 | Level 3 | |||||||||||||
(amounts in thousands) | |||||||||||||||
Assets | |||||||||||||||
U.S. Treasury money market mutual funds | $ | 28,845 | $ | — | $ | — | $ | 28,845 | |||||||
Commercial paper | — | 1,335 | — | 1,335 | |||||||||||
Investments included in cash and cash equivalents | $ | 28,845 | $ | 1,335 | $ | — | $ | 30,180 | |||||||
Commercial paper | — | 75,460 | — | 75,460 | |||||||||||
Debt securities issued by the U.S. Treasury | — | 69,628 | — | 69,628 | |||||||||||
Debt securities issued by U.S. Government agencies | — | 49,488 | — | 49,488 | |||||||||||
Short-term investments | $ | — | $ | 194,576 | $ | — | $ | 194,576 | |||||||
Total assets | $ | 28,845 | $ | 195,911 | $ | — | $ | 224,756 |
Fair Value Measurements At December 31, 2012 | Assets/Liabilities at Fair Value | ||||||||||||||
Level 1 | Level 2 | Level 3 | |||||||||||||
(amounts in thousands) | |||||||||||||||
Assets | |||||||||||||||
Prime money market mutual funds | $ | 425,165 | $ | — | $ | — | $ | 425,165 | |||||||
U.S. Treasury money market mutual funds | 262,967 | — | — | 262,967 | |||||||||||
Commercial paper | — | 30,692 | — | 30,692 | |||||||||||
Certificates of deposit | — | 8,000 | — | 8,000 | |||||||||||
Debt securities issued by U.S. Government agencies | — | 4,999 | — | 4,999 | |||||||||||
Investments included in cash and cash equivalents | $ | 688,132 | $ | 43,691 | $ | — | $ | 731,823 | |||||||
Debt securities issued by the U.S. Treasury | — | 89,870 | — | 89,870 | |||||||||||
Debt securities issued by U.S. Government agencies | — | 45,214 | — | 45,214 | |||||||||||
Commercial paper | — | 32,480 | — | 32,480 | |||||||||||
Short-term investments | $ | — | $ | 167,564 | $ | — | $ | 167,564 | |||||||
Total assets | $ | 688,132 | $ | 211,255 | $ | — | $ | 899,387 |
December 31, 2013 | December 31, 2012 | ||||||||||||||
Carrying Value | Fair Value Level 2 | Carrying Value | Fair Value Level 2 | ||||||||||||
(amounts in thousands) | |||||||||||||||
Term Loan B—December 2016 tranche | $ | — | $ | — | $ | 463,019 | $ | 465,334 | |||||||
Term Loan B, net of discount | 515,063 | 519,987 | — | — | |||||||||||
8% Senior Notes, net of discount | 23,392 | 24,594 | 428,001 | 470,850 | |||||||||||
53/8% Senior Notes, issued October 2012 | 480,000 | 474,000 | 480,000 | 505,200 | |||||||||||
53/8% Senior Notes, net of discount, issued August 2013 | 433,744 | 444,375 | — | — | |||||||||||
63/8% Senior Notes | 350,000 | 364,000 | — | — | |||||||||||
23/8% Convertible Senior Debentures, net of discount | — | — | 368,100 | 512,159 | |||||||||||
Total debt | $ | 1,802,199 | $ | 1,826,956 | $ | 1,739,120 | $ | 1,953,543 |
Years ended December 31, | |||||||||||
2013 | 2012 | 2011 | |||||||||
(amounts in thousands) | |||||||||||
Current: | |||||||||||
Federal | $ | 312 | $ | 3,525 | $ | 1,317 | |||||
State | 2,655 | 4,974 | 4,406 | ||||||||
2,967 | 8,499 | 5,723 | |||||||||
Deferred: | |||||||||||
Federal | 29,736 | 46,611 | 34,800 | ||||||||
State | 1,002 | 1,948 | 1,826 | ||||||||
30,738 | 48,559 | 36,626 | |||||||||
Income tax benefit of change in valuation allowance | — | — | (870 | ) | |||||||
Income tax expense | $ | 33,705 | $ | 57,058 | $ | 41,479 |
Years ended December 31, | ||||||||
2013 | 2012 | 2011 | ||||||
Federal statutory income tax expense | 35.0 | % | 35.0 | % | 35.0 | % | ||
Compensation limitation | 6.3 | 2.8 | 2.1 | |||||
State income tax expense, net of federal income tax benefit | 3.9 | 3.9 | 4.7 | |||||
Stock compensation | 1.8 | 0.3 | — | |||||
Other | 1.0 | 0.6 | 0.8 | |||||
Change in valuation allowance | — | — | (0.9 | ) | ||||
Income tax expense | 48.0 | % | 42.6 | % | 41.7 | % |
December 31, | |||||||
2013 | 2012 | ||||||
(amounts in thousands) | |||||||
Deferred tax assets: | |||||||
Net operating loss carryforwards | $ | 235,737 | $ | 253,827 | |||
Accrued liabilities | 23,329 | 25,897 | |||||
Stock compensation | 8,868 | 18,794 | |||||
AMT and other business credit carryforwards | 8,772 | 6,277 | |||||
Other | 11,027 | 19,356 | |||||
Total deferred tax assets | 287,733 | 324,151 | |||||
Deferred tax liabilities: | |||||||
Depreciation and amortization | (110,865 | ) | (108,988 | ) | |||
Other | (2,270 | ) | (3,893 | ) | |||
Total deferred tax liabilities | (113,135 | ) | (112,881 | ) | |||
Less: Valuation allowance | (26,996 | ) | (33,225 | ) | |||
Total deferred tax asset, net | $ | 147,602 | $ | 178,045 | |||
Balance sheet classification of deferred taxes: | |||||||
Deferred income tax asset, net - current | $ | 54,026 | $ | 76,160 | |||
Deferred income tax asset, net - noncurrent | 96,087 | 101,885 | |||||
Deferred income tax liability, net - noncurrent | (2,511 | ) | — | ||||
Total deferred tax asset, net | $ | 147,602 | $ | 178,045 |
Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life | Aggregate Intrinsic Value | |||||||||
(thousands) | (in years) | (thousands) | ||||||||||
Options outstanding at January 1, 2013 | 4,860 | $ | 16.36 | |||||||||
Granted | — | — | ||||||||||
Exercised | (3,841 | ) | 16.75 | |||||||||
Forfeited | (3 | ) | 11.03 | |||||||||
Expired | (16 | ) | 17.93 | |||||||||
Options outstanding at December 31, 2013 | 1,000 | $ | 14.85 | 3.35 | $ | 15,628 | ||||||
Vested and expected to vest at December 31, 2013 | 1,000 | $ | 14.85 | 3.35 | $ | 15,622 | ||||||
Exercisable at December 31, 2013 | 860 | $ | 14.74 | 2.90 | $ | 13,526 |
Shares | Weighted Average Grant Date Fair Value | |||||
(thousands) | ||||||
Nonvested at January 1, 2013 | 4,573 | $ | 17.30 | |||
Granted | 1,412 | 27.50 | ||||
Vested | (1,932 | ) | 26.96 | |||
Forfeited | (64 | ) | 20.35 | |||
Nonvested at December 31, 2013 | 3,989 | $ | 21.45 |
Capital Leases | Operating Leases | Fixed Maintenance Obligations | |||||||||
(amounts in thousands) | |||||||||||
Year ended December 31: | |||||||||||
2014 | $ | 10,517 | $ | 55,192 | $ | 4,380 | |||||
2015 | 10,110 | 49,141 | 5,242 | ||||||||
2016 | 10,003 | 42,992 | 5,242 | ||||||||
2017 | 9,566 | 38,612 | 5,242 | ||||||||
2018 | 11,751 | 34,583 | 5,242 | ||||||||
Thereafter | 207,342 | 138,989 | 62,318 | ||||||||
Total minimum lease payments | $ | 259,289 | $ | 359,509 | $ | 87,666 | |||||
Less amount representing interest | (112,243 | ) | |||||||||
Present value of obligations under capital leases | 147,046 | ||||||||||
Less current portion of obligations under capital leases | (3,878 | ) | |||||||||
Obligations under capital leases, excluding current portion | $ | 143,168 |
Three Months Ended | |||||||||||||||
March 31 | June 30 | September 30 | December 31 | ||||||||||||
(amounts in thousands, except per share amounts) | |||||||||||||||
Year ended December 31, 2013 | |||||||||||||||
Total revenue | $ | 381,209 | $ | 389,483 | $ | 393,190 | $ | 400,019 | |||||||
Operating income | 52,170 | 53,262 | 46,932 | 52,557 | |||||||||||
Net income (loss) | 13,144 | 17,347 | (9,434 | ) | 15,401 | ||||||||||
Basic earnings (loss) per share | $ | 0.09 | $ | 0.12 | $ | (0.07 | ) | $ | 0.11 | ||||||
Diluted earnings (loss) per share | $ | 0.09 | $ | 0.11 | $ | (0.07 | ) | $ | 0.11 | ||||||
Year ended December 31, 2012 | |||||||||||||||
Total revenue | $ | 358,925 | $ | 364,503 | $ | 368,934 | $ | 377,893 | |||||||
Operating income | 55,248 | 56,468 | 58,672 | 56,599 | |||||||||||
Net income | 19,332 | 19,319 | 20,969 | 17,268 | |||||||||||
Basic earnings per share | $ | 0.13 | $ | 0.13 | $ | 0.14 | $ | 0.11 | |||||||
Diluted earnings per share | $ | 0.13 | $ | 0.13 | $ | 0.14 | $ | 0.11 |
Parent Guarantor | Issuer | Combined Subsidiary Guarantors | Eliminations | Consolidated | |||||||||||||||
(amounts in thousands) | |||||||||||||||||||
ASSETS | |||||||||||||||||||
Current assets: | |||||||||||||||||||
Cash and cash equivalents | $ | 24,546 | $ | 259,873 | $ | — | $ | — | $ | 284,419 | |||||||||
Investments | — | 194,576 | — | — | 194,576 | ||||||||||||||
Receivables, net | — | — | 107,258 | — | 107,258 | ||||||||||||||
Prepaid expenses and other current assets | — | 14,434 | 8,111 | — | 22,545 | ||||||||||||||
Deferred income taxes | — | 54,006 | 20 | — | 54,026 | ||||||||||||||
Intercompany receivable | 917,932 | 1,475,298 | — | (2,393,230 | ) | — | |||||||||||||
Total current assets | 942,478 | 1,998,187 | 115,389 | (2,393,230 | ) | 662,824 | |||||||||||||
Property, plant and equipment, net | — | 75,142 | 1,619,814 | — | 1,694,956 | ||||||||||||||
Deferred income taxes | — | 95,603 | 484 | — | 96,087 | ||||||||||||||
Goodwill | — | — | 412,694 | — | 412,694 | ||||||||||||||
Intangible and other assets, net | — | 36,001 | 19,898 | — | 55,899 | ||||||||||||||
Total assets | $ | 942,478 | $ | 2,204,933 | $ | 2,168,279 | $ | (2,393,230 | ) | $ | 2,922,460 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | |||||||||||||||||||
Current liabilities: | |||||||||||||||||||
Accounts payable | $ | — | $ | 8,298 | $ | 30,156 | $ | — | $ | 38,454 | |||||||||
Current portion debt and capital lease obligations, net | — | 29,008 | 3,462 | — | 32,470 | ||||||||||||||
Other current liabilities | — | 87,333 | 151,039 | — | 238,372 | ||||||||||||||
Intercompany payable | — | — | 2,393,230 | (2,393,230 | ) | — | |||||||||||||
Total current liabilities | — | 124,639 | 2,577,887 | (2,393,230 | ) | 309,296 | |||||||||||||
Losses in subsidiary in excess of investment | 306,440 | 858,499 | — | (1,164,939 | ) | — | |||||||||||||
Long-term debt and capital lease obligations, net | — | 1,773,607 | 143,168 | — | 1,916,775 | ||||||||||||||
Long-term deferred revenue | — | — | 20,046 | — | 20,046 | ||||||||||||||
Other long-term liabilities | — | 10,526 | 29,748 | — | 40,274 | ||||||||||||||
Stockholders’ equity (deficit) | 636,038 | (562,338 | ) | (602,570 | ) | 1,164,939 | 636,069 | ||||||||||||
Total liabilities and stockholders’ equity (deficit) | $ | 942,478 | $ | 2,204,933 | $ | 2,168,279 | $ | (2,393,230 | ) | $ | 2,922,460 |
Parent Guarantor | Issuer | Combined Subsidiary Guarantors | Eliminations | Consolidated | |||||||||||||||
(amounts in thousands) | |||||||||||||||||||
ASSETS | |||||||||||||||||||
Current assets: | |||||||||||||||||||
Cash and cash equivalents | $ | 24,544 | $ | 782,184 | $ | — | $ | — | $ | 806,728 | |||||||||
Investments | — | 167,564 | — | — | 167,564 | ||||||||||||||
Receivables, net | — | — | 99,703 | — | 99,703 | ||||||||||||||
Prepaid expenses and other current assets | — | 11,270 | 7,894 | — | 19,164 | ||||||||||||||
Deferred income taxes | — | 76,140 | 20 | — | 76,160 | ||||||||||||||
Intercompany receivable | 1,864,694 | 506,610 | — | (2,371,304 | ) | — | |||||||||||||
Total current assets | 1,889,238 | 1,543,768 | 107,617 | (2,371,304 | ) | 1,169,319 | |||||||||||||
Property, plant and equipment, net | — | 48,686 | 1,443,560 | — | 1,492,246 | ||||||||||||||
Deferred income taxes | — | 101,401 | 484 | — | 101,885 | ||||||||||||||
Goodwill | — | — | 412,694 | — | 412,694 | ||||||||||||||
Intangible and other assets, net | 275 | 20,634 | 26,684 | — | 47,593 | ||||||||||||||
Total assets | $ | 1,889,513 | $ | 1,714,489 | $ | 1,991,039 | $ | (2,371,304 | ) | $ | 3,223,737 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | |||||||||||||||||||
Current liabilities: | |||||||||||||||||||
Accounts payable | $ | — | $ | 7,141 | $ | 48,716 | $ | — | $ | 55,857 | |||||||||
Current portion debt and capital lease obligations, net | 368,100 | 5,475 | 1,394 | — | 374,969 | ||||||||||||||
Other current liabilities | 2,219 | 64,564 | 165,530 | — | 232,313 | ||||||||||||||
Intercompany payable | — | — | 2,371,304 | (2,371,304 | ) | — | |||||||||||||
Total current liabilities | 370,319 | 77,180 | 2,586,944 | (2,371,304 | ) | 663,139 | |||||||||||||
Losses in subsidiary in excess of investment | 407,286 | 862,681 | — | (1,269,967 | ) | — | |||||||||||||
Long-term debt and capital lease obligations, net | — | 1,366,463 | 17,779 | — | 1,384,242 | ||||||||||||||
Long-term deferred revenue | — | — | 23,177 | — | 23,177 | ||||||||||||||
Other long-term liabilities | — | 7,024 | 34,216 | — | 41,240 | ||||||||||||||
Stockholders’ equity (deficit) | 1,111,908 | (598,859 | ) | (671,077 | ) | 1,269,967 | 1,111,939 | ||||||||||||
Total liabilities and stockholders’ equity (deficit) | $ | 1,889,513 | $ | 1,714,489 | $ | 1,991,039 | $ | (2,371,304 | ) | $ | 3,223,737 |
Parent Guarantor | Issuer | Combined Subsidiary Guarantors | Eliminations | Consolidated | |||||||||||||||
(amounts in thousands) | |||||||||||||||||||
Total revenue | $ | — | $ | — | $ | 1,563,901 | $ | — | $ | 1,563,901 | |||||||||
Costs and expenses: | |||||||||||||||||||
Operating, selling, general and administrative | — | 270,955 | 779,257 | — | 1,050,212 | ||||||||||||||
Depreciation, amortization and accretion | — | 27,989 | 280,779 | — | 308,768 | ||||||||||||||
Corporate expense allocation | — | (298,944 | ) | 298,944 | — | — | |||||||||||||
Total costs and expenses | — | — | 1,358,980 | — | 1,358,980 | ||||||||||||||
Operating income | — | — | 204,921 | — | 204,921 | ||||||||||||||
Interest expense, net | (9,717 | ) | (74,747 | ) | (10,980 | ) | — | (95,444 | ) | ||||||||||
Debt extinguishment costs | (327 | ) | (38,987 | ) | — | — | (39,314 | ) | |||||||||||
Interest expense allocation | 10,044 | 113,734 | (123,778 | ) | — | — | |||||||||||||
Income before income taxes and equity in undistributed earnings of subsidiaries | — | — | 70,163 | — | 70,163 | ||||||||||||||
Income tax expense | — | 32,051 | 1,654 | — | 33,705 | ||||||||||||||
Net income (loss) before equity in undistributed earnings of subsidiaries | — | (32,051 | ) | 68,509 | — | 36,458 | |||||||||||||
Equity in undistributed earnings of subsidiaries | 36,458 | 68,509 | — | (104,967 | ) | — | |||||||||||||
Net income | $ | 36,458 | $ | 36,458 | $ | 68,509 | $ | (104,967 | ) | $ | 36,458 |
Parent Guarantor | Issuer | Combined Subsidiary Guarantors | Eliminations | Consolidated | |||||||||||||||
(amounts in thousands) | |||||||||||||||||||
Total revenue | $ | — | $ | — | $ | 1,470,255 | $ | — | $ | 1,470,255 | |||||||||
Costs and expenses: | |||||||||||||||||||
Operating, selling, general and administrative | — | 221,340 | 737,636 | — | 958,976 | ||||||||||||||
Depreciation, amortization and accretion | — | 24,268 | 260,024 | — | 284,292 | ||||||||||||||
Corporate expense allocation | — | (245,608 | ) | 245,608 | — | — | |||||||||||||
Total costs and expenses | — | — | 1,243,268 | — | 1,243,268 | ||||||||||||||
Operating income | — | — | 226,987 | — | 226,987 | ||||||||||||||
Interest expense, net | (31,388 | ) | (54,420 | ) | (7,156 | ) | — | (92,964 | ) | ||||||||||
Debt extinguishment costs | — | (77 | ) | — | — | (77 | ) | ||||||||||||
Interest expense allocation | 31,388 | 54,497 | (85,885 | ) | — | — | |||||||||||||
Income before income taxes and equity in undistributed earnings of subsidiaries | — | — | 133,946 | — | 133,946 | ||||||||||||||
Income tax expense | — | 55,310 | 1,748 | — | 57,058 | ||||||||||||||
Net income (loss) before equity in undistributed earnings of subsidiaries | — | (55,310 | ) | 132,198 | — | 76,888 | |||||||||||||
Equity in undistributed earnings of subsidiaries | 76,888 | 132,198 | — | (209,086 | ) | — | |||||||||||||
Net income | $ | 76,888 | $ | 76,888 | $ | 132,198 | $ | (209,086 | ) | $ | 76,888 |
Parent Guarantor | Issuer | Combined Subsidiary Guarantors | Eliminations | Consolidated | |||||||||||||||
(amounts in thousands) | |||||||||||||||||||
Total revenue | $ | — | $ | — | $ | 1,366,891 | $ | — | $ | 1,366,891 | |||||||||
Costs and expenses: | |||||||||||||||||||
Operating, selling, general and administrative | — | 209,677 | 687,322 | — | 896,999 | ||||||||||||||
Depreciation, amortization and accretion | — | 22,170 | 261,159 | — | 283,329 | ||||||||||||||
Corporate expense allocation | — | (231,847 | ) | 231,847 | — | — | |||||||||||||
Total costs and expenses | — | — | 1,180,328 | — | 1,180,328 | ||||||||||||||
Operating income | — | — | 186,563 | — | 186,563 | ||||||||||||||
Interest expense, net | (29,648 | ) | (45,302 | ) | (12,223 | ) | — | (87,173 | ) | ||||||||||
Interest expense allocation | 29,648 | 45,302 | (74,950 | ) | — | — | |||||||||||||
Income before income taxes and equity in undistributed earnings of subsidiaries | — | — | 99,390 | — | 99,390 | ||||||||||||||
Income tax expense | — | 39,927 | 1,552 | — | 41,479 | ||||||||||||||
Net income (loss) before equity in undistributed earnings of subsidiaries | — | (39,927 | ) | 97,838 | — | 57,911 | |||||||||||||
Equity in undistributed earnings of subsidiaries | 57,911 | 97,838 | — | (155,749 | ) | — | |||||||||||||
Net income | $ | 57,911 | $ | 57,911 | $ | 97,838 | $ | (155,749 | ) | $ | 57,911 |
Parent Guarantor | Issuer | Combined Subsidiary Guarantors | Eliminations | Consolidated | ||||||||||||||||
(amounts in thousands) | ||||||||||||||||||||
Net income | $ | 36,458 | $ | 36,458 | $ | 68,509 | $ | (104,967 | ) | $ | 36,458 | |||||||||
Other comprehensive income, net of tax: | ||||||||||||||||||||
Unrealized gain on available-for-sale securities | 63 | 63 | — | (63 | ) | 63 | ||||||||||||||
Other comprehensive income, net of tax | 63 | 63 | — | (63 | ) | 63 | ||||||||||||||
Comprehensive income | $ | 36,521 | $ | 36,521 | $ | 68,509 | $ | (105,030 | ) | $ | 36,521 |
Parent Guarantor | Issuer | Combined Subsidiary Guarantors | Eliminations | Consolidated | ||||||||||||||||
(amounts in thousands) | ||||||||||||||||||||
Net income | $ | 76,888 | $ | 76,888 | $ | 132,198 | $ | (209,086 | ) | $ | 76,888 | |||||||||
Other comprehensive income, net of tax: | ||||||||||||||||||||
Unrealized gain on available-for-sale securities | 46 | 46 | — | (46 | ) | 46 | ||||||||||||||
Other comprehensive income, net of tax | 46 | 46 | — | (46 | ) | 46 | ||||||||||||||
Comprehensive income | $ | 76,934 | $ | 76,934 | $ | 132,198 | $ | (209,132 | ) | $ | 76,934 |
Parent Guarantor | Issuer | Combined Subsidiary Guarantors | Eliminations | Consolidated | ||||||||||||||||
(amounts in thousands) | ||||||||||||||||||||
Net income | $ | 57,911 | $ | 57,911 | $ | 97,838 | $ | (155,749 | ) | $ | 57,911 | |||||||||
Other comprehensive income, net of tax: | ||||||||||||||||||||
Unrealized gain on cash flow hedging activities | 1,816 | 1,816 | — | (1,816 | ) | 1,816 | ||||||||||||||
Unrealized gain on available-for-sale securities | 32 | 32 | — | (32 | ) | 32 | ||||||||||||||
Other comprehensive income, net of tax | 1,848 | 1,848 | — | (1,848 | ) | 1,848 | ||||||||||||||
Comprehensive income | $ | 59,759 | $ | 59,759 | $ | 97,838 | $ | (157,597 | ) | $ | 59,759 |
Parent Guarantor | Issuer | Combined Subsidiary Guarantors | Eliminations | Consolidated | |||||||||||||||
(amounts in thousands) | |||||||||||||||||||
Cash flows from operating activities: | |||||||||||||||||||
Net income | $ | 36,458 | $ | 36,458 | $ | 68,509 | $ | (104,967 | ) | $ | 36,458 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||||
Depreciation, amortization and accretion | — | 27,989 | 280,779 | — | 308,768 | ||||||||||||||
Deferred income taxes | — | 30,738 | — | — | 30,738 | ||||||||||||||
Stock-based compensation | — | — | 38,832 | — | 38,832 | ||||||||||||||
Extinguishment costs, amortization of discount on debt and deferred debt issue costs and other | 6,244 | 43,797 | — | — | 50,041 | ||||||||||||||
Intercompany and equity investment changes | 875,802 | (972,870 | ) | (7,899 | ) | 104,967 | — | ||||||||||||
Changes in operating assets and liabilities | (2,219 | ) | 21,108 | (45,265 | ) | — | (26,376 | ) | |||||||||||
Net cash provided by (used in) operating activities | 916,285 | (812,780 | ) | 334,956 | — | 438,461 | |||||||||||||
Cash flows from investing activities: | |||||||||||||||||||
Capital expenditures | — | (54,376 | ) | (318,492 | ) | — | (372,868 | ) | |||||||||||
Purchases of investments | — | (312,526 | ) | — | — | (312,526 | ) | ||||||||||||
Proceeds from sale of investments | — | 283,845 | — | — | 283,845 | ||||||||||||||
Equipment purchases in advance of installation and other, net | — | 398 | (14,968 | ) | — | (14,570 | ) | ||||||||||||
Net cash used in investing activities | — | (82,659 | ) | (333,460 | ) | — | (416,119 | ) | |||||||||||
Cash flows from financing activities: | |||||||||||||||||||
Net proceeds (tax withholdings) from issuance of common stock upon exercise of stock options and vesting of restricted stock awards and units | 43,495 | — | — | — | 43,495 | ||||||||||||||
Purchases of treasury stock | (406,514 | ) | — | — | — | (406,514 | ) | ||||||||||||
Excess tax benefits from stock-based compensation | — | 692 | — | — | 692 | ||||||||||||||
Proceeds from modification of debt, net of financing costs | — | 49,684 | — | — | 49,684 | ||||||||||||||
Proceeds from issuance of debt, net of financing costs | — | 765,800 | — | — | 765,800 | ||||||||||||||
Retirement of debt obligations | (553,264 | ) | (438,714 | ) | — | — | (991,978 | ) | |||||||||||
Payment of debt and capital lease obligations | — | (4,334 | ) | (1,496 | ) | — | (5,830 | ) | |||||||||||
Net cash provided by (used in) financing activities | (916,283 | ) | 373,128 | (1,496 | ) | — | (544,651 | ) | |||||||||||
Increase (decrease) in cash and cash equivalents | 2 | (522,311 | ) | — | — | (522,309 | ) | ||||||||||||
Cash and cash equivalents at beginning of period | 24,544 | 782,184 | — | — | 806,728 | ||||||||||||||
Cash and cash equivalents at end of period | $ | 24,546 | $ | 259,873 | $ | — | $ | — | $ | 284,419 |
Parent Guarantor | Issuer | Combined Subsidiary Guarantors | Eliminations | Consolidated | |||||||||||||||
(amounts in thousands) | |||||||||||||||||||
Cash flows from operating activities: | |||||||||||||||||||
Net income | $ | 76,888 | $ | 76,888 | $ | 132,198 | $ | (209,086 | ) | $ | 76,888 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||||
Depreciation, amortization and accretion | — | 24,268 | 260,024 | — | 284,292 | ||||||||||||||
Deferred income taxes | — | 48,559 | — | — | 48,559 | ||||||||||||||
Stock-based compensation | — | — | 29,300 | — | 29,300 | ||||||||||||||
Amortization of discount on debt and deferred debt issue costs and other | 22,512 | 3,034 | — | — | 25,546 | ||||||||||||||
Intercompany and equity investment changes | (99,451 | ) | (14,613 | ) | (95,022 | ) | 209,086 | — | |||||||||||
Changes in operating assets and liabilities | — | 5,280 | (6,189 | ) | — | (909 | ) | ||||||||||||
Net cash (used in) provided by operating activities | (51 | ) | 143,416 | 320,311 | — | 463,676 | |||||||||||||
Cash flows from investing activities: | |||||||||||||||||||
Capital expenditures | — | (17,490 | ) | (320,628 | ) | — | (338,118 | ) | |||||||||||
Purchases of investments | — | (243,048 | ) | — | — | (243,048 | ) | ||||||||||||
Proceeds from sale of investments | — | 204,629 | — | — | 204,629 | ||||||||||||||
Proceeds from sale of assets and other investing activities, net | — | 1,258 | 1,308 | — | 2,566 | ||||||||||||||
Net cash used in investing activities | — | (54,651 | ) | (319,320 | ) | — | (373,971 | ) | |||||||||||
Cash flows from financing activities: | |||||||||||||||||||
Net proceeds (tax withholdings) from issuance of common stock upon exercise of stock options and vesting of restricted stock awards and units | 13,462 | — | — | — | 13,462 | ||||||||||||||
Purchases of treasury stock | (13,409 | ) | — | — | — | (13,409 | ) | ||||||||||||
Excess tax benefits from stock-based compensation | — | 1,213 | — | — | 1,213 | ||||||||||||||
Retirement of debt obligations | — | (101,518 | ) | — | — | (101,518 | ) | ||||||||||||
Net proceeds from issuance of debt | — | 470,796 | — | — | 470,796 | ||||||||||||||
Payment of debt and capital lease obligations | (1 | ) | (5,923 | ) | (991 | ) | — | (6,915 | ) | ||||||||||
Net cash provided by (used) in financing activities | 52 | 364,568 | (991 | ) | — | 363,629 | |||||||||||||
Increase in cash and cash equivalents | 1 | 453,333 | — | — | 453,334 | ||||||||||||||
Cash and cash equivalents at beginning of period | 24,543 | 328,851 | — | — | 353,394 | ||||||||||||||
Cash and cash equivalents at end of period | $ | 24,544 | $ | 782,184 | $ | — | $ | — | $ | 806,728 |
Parent Guarantor | Issuer | Combined Subsidiary Guarantors | Eliminations | Consolidated | |||||||||||||||
(amounts in thousands) | |||||||||||||||||||
Cash flows from operating activities: | |||||||||||||||||||
Net income | $ | 57,911 | $ | 57,911 | $ | 97,838 | $ | (155,749 | ) | $ | 57,911 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||||
Depreciation, amortization and accretion | — | 22,170 | 261,159 | — | 283,329 | ||||||||||||||
Deferred income taxes | — | 35,736 | 20 | — | 35,756 | ||||||||||||||
Stock-based compensation | — | — | 27,817 | — | 27,817 | ||||||||||||||
Amortization of discount on debt and debt issue costs and other | 20,773 | 2,615 | — | — | 23,388 | ||||||||||||||
Intercompany and equity investment changes | (30,087 | ) | (73,468 | ) | (52,194 | ) | 155,749 | — | |||||||||||
Changes in operating assets and liabilities | — | 6,254 | (30,867 | ) | — | (24,613 | ) | ||||||||||||
Net cash provided by operating activities | 48,597 | 51,218 | 303,773 | — | 403,588 | ||||||||||||||
Cash flows from investing activities: | |||||||||||||||||||
Capital expenditures | — | (39,701 | ) | (301,030 | ) | — | (340,731 | ) | |||||||||||
Purchases of investments | — | (223,638 | ) | — | — | (223,638 | ) | ||||||||||||
Proceeds from sale of investments | — | 208,340 | — | — | 208,340 | ||||||||||||||
Proceeds from sales of assets and other investing activities, net | — | 5,183 | (1,953 | ) | — | 3,230 | |||||||||||||
Net cash used in investing activities | — | (49,816 | ) | (302,983 | ) | — | (352,799 | ) | |||||||||||
Cash flows from financing activities: | |||||||||||||||||||
Net proceeds (tax withholdings) from issuance of common stock upon exercise of stock options and vesting of restricted stock awards and units | 9,966 | — | — | — | 9,966 | ||||||||||||||
Purchases of treasury stock | (58,562 | ) | — | — | — | (58,562 | ) | ||||||||||||
Excess tax benefits from stock-based compensation | — | 1,385 | — | — | 1,385 | ||||||||||||||
Payment of debt and capital lease obligations | — | (6,316 | ) | (790 | ) | — | (7,106 | ) | |||||||||||
Net cash used in financing activities | (48,596 | ) | (4,931 | ) | (790 | ) | — | (54,317 | ) | ||||||||||
Increase (decrease) in cash and cash equivalents | 1 | (3,529 | ) | — | — | (3,528 | ) | ||||||||||||
Cash and cash equivalents at beginning of period | 24,542 | 332,380 | — | — | 356,922 | ||||||||||||||
Cash and cash equivalents at end of period | $ | 24,543 | $ | 328,851 | $ | — | $ | — | $ | 353,394 |
March 31, 2014 | December 31, 2013 | |||||||
(unaudited) | ||||||||
(amounts in thousands, except per share amounts) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 178,839 | $ | 284,419 | ||||
Investments | 176,394 | 194,576 | ||||||
Receivables, less allowances of $6,290 and $6,748, respectively | 98,811 | 107,258 | ||||||
Prepaid expenses and other current assets | 23,734 | 22,545 | ||||||
Deferred income taxes | 54,026 | 54,026 | ||||||
Total current assets | 531,804 | 662,824 | ||||||
Property, plant and equipment | 4,775,473 | 4,675,335 | ||||||
Less accumulated depreciation | (3,049,210 | ) | (2,980,379 | ) | ||||
1,726,263 | 1,694,956 | |||||||
Deferred income taxes | 88,332 | 96,087 | ||||||
Goodwill | 412,694 | 412,694 | ||||||
Intangible assets, net of accumulated amortization | 10,322 | 11,555 | ||||||
Other assets, net | 43,129 | 44,344 | ||||||
Total assets | $ | 2,812,544 | $ | 2,922,460 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 71,711 | $ | 38,454 | ||||
Deferred revenue | 48,561 | 48,371 | ||||||
Accrued taxes, franchise and other fees | 52,969 | 55,043 | ||||||
Accrued interest | 28,740 | 21,606 | ||||||
Accrued payroll and benefits | 42,820 | 52,604 | ||||||
Accrued carrier costs | 10,997 | 25,507 | ||||||
Current portion debt and capital lease obligations, net | 8,878 | 32,470 | ||||||
Other current liabilities | 37,772 | 35,241 | ||||||
Total current liabilities | 302,448 | 309,296 | ||||||
Long-term debt and capital lease obligations, net | 1,915,081 | 1,916,775 | ||||||
Long-term deferred revenue | 19,871 | 20,046 | ||||||
Other long-term liabilities | 42,590 | 40,274 | ||||||
Commitments and contingencies (Note 7) | ||||||||
Stockholders’ equity: | ||||||||
Preferred stock, $0.01 par value, 20,000 shares authorized, no shares issued and outstanding | — | — | ||||||
Common stock, $0.01 par value, 439,800 shares authorized, 153,760 shares issued | 1,538 | 1,538 | ||||||
Additional paid-in capital | 1,692,107 | 1,701,356 | ||||||
Treasury stock, 15,851 and 12,593 shares, at cost, respectively | (459,243 | ) | (357,974 | ) | ||||
Accumulated deficit | (701,966 | ) | (708,979 | ) | ||||
Accumulated other comprehensive income | 118 | 128 | ||||||
Total stockholders’ equity | 532,554 | 636,069 | ||||||
Total liabilities and stockholders’ equity | $ | 2,812,544 | $ | 2,922,460 |
Three Months Ended March 31, | ||||||||
2014 | 2013 | |||||||
(amounts in thousands, except per share amounts) | ||||||||
Revenue: | ||||||||
Data and Internet services | $ | 243,671 | $ | 211,721 | ||||
Voice services | 77,361 | 76,030 | ||||||
Network services | 58,367 | 64,955 | ||||||
Service revenue | 379,399 | 352,706 | ||||||
Taxes and fees | 22,752 | 20,594 | ||||||
Intercarrier compensation | 6,142 | 7,909 | ||||||
Total revenue | 408,293 | 381,209 | ||||||
Costs and expenses (a): | ||||||||
Operating (exclusive of depreciation, amortization and accretion shown separately below) | 174,039 | 161,082 | ||||||
Selling, general and administrative | 106,832 | 93,562 | ||||||
Depreciation, amortization and accretion | 82,456 | 74,395 | ||||||
Total costs and expenses | 363,327 | 329,039 | ||||||
Operating income | 44,966 | 52,170 | ||||||
Interest expense | (25,648 | ) | (28,340 | ) | ||||
Debt extinguishment costs | (1,282 | ) | — | |||||
Interest income | 148 | 277 | ||||||
Income before income taxes | 18,184 | 24,107 | ||||||
Income tax expense | 8,393 | 10,963 | ||||||
Net income | $ | 9,791 | $ | 13,144 | ||||
Earnings per share: | ||||||||
Basic | $ | 0.07 | $ | 0.09 | ||||
Diluted | $ | 0.07 | $ | 0.09 | ||||
Weighted average shares outstanding: | ||||||||
Basic | 138,088 | 149,129 | ||||||
Diluted | 140,097 | 152,452 |
Operating | $ | 539 | $ | 583 | ||||
Selling, general and administrative | $ | 8,847 | $ | 8,879 |
Three Months Ended March 31, | ||||||||
2014 | 2013 | |||||||
(amounts in thousands) | ||||||||
Net income | $ | 9,791 | $ | 13,144 | ||||
Other comprehensive income (loss), net of tax: | ||||||||
Unrealized gain (loss) on available-for-sale securities | (10 | ) | 8 | |||||
Other comprehensive income (loss), net of tax | (10 | ) | 8 | |||||
Comprehensive income | $ | 9,781 | $ | 13,152 |
Three Months Ended March 31, | ||||||||
2014 | 2013 | |||||||
(amounts in thousands) | ||||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 9,791 | $ | 13,144 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation, amortization and accretion | 82,456 | 74,395 | ||||||
Deferred income taxes | 8,017 | 10,617 | ||||||
Stock-based compensation expense | 9,386 | 9,462 | ||||||
Loss on debt extinguishment | 1,282 | — | ||||||
Amortization of discount on debt and deferred debt issue costs | 1,613 | 6,795 | ||||||
Changes in operating assets and liabilities: | ||||||||
Receivables, prepaid expenses and other assets | 7,844 | (6,952 | ) | |||||
Accounts payable, deferred revenue and other liabilities | (5,164 | ) | (25,861 | ) | ||||
Net cash provided by operating activities | 115,225 | 81,600 | ||||||
Cash flows from investing activities: | ||||||||
Capital expenditures | (101,633 | ) | (87,800 | ) | ||||
Purchases of investments | (51,703 | ) | (50,932 | ) | ||||
Proceeds from sale of investments | 69,509 | 33,990 | ||||||
Other investing activities, net | 4,338 | (2,240 | ) | |||||
Net cash used in investing activities | (79,489 | ) | (106,982 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from issuance of common stock upon exercise of stock options | 8,517 | 24,449 | ||||||
Taxes paid related to net share settlement of equity awards | (18,897 | ) | (18,291 | ) | ||||
Purchases of treasury stock | (104,170 | ) | (54,627 | ) | ||||
Excess tax benefits from stock-based compensation | 412 | 601 | ||||||
Retirement of debt obligations | (24,418 | ) | (59 | ) | ||||
Payment of debt and capital lease obligations | (2,760 | ) | (1,709 | ) | ||||
Net cash used in financing activities | (141,316 | ) | (49,636 | ) | ||||
Decrease in cash and cash equivalents | (105,580 | ) | (75,018 | ) | ||||
Cash and cash equivalents at beginning of period | 284,419 | 806,728 | ||||||
Cash and cash equivalents at end of period | $ | 178,839 | $ | 731,710 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid for interest | $ | 17,083 | $ | 21,631 | ||||
Cash paid for income taxes, net of refunds | $ | (76 | ) | $ | (60 | ) | ||
Cash paid for debt extinguishment costs | $ | 939 | $ | — | ||||
Non-cash investing & financing activities: | ||||||||
Addition of capital lease obligations | $ | 537 | $ | 3,053 |
Common Stock | Treasury Stock | Additional paid-in capital | Accumulated deficit | Accumulated other comprehensive income | Total stockholders’ equity | |||||||||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||
(amounts in thousands) | ||||||||||||||||||||||||||||||
Balance at December 31, 2013 | 153,760 | $ | 1,538 | (12,593 | ) | $ | (357,974 | ) | $ | 1,701,356 | $ | (708,979 | ) | $ | 128 | $ | 636,069 | |||||||||||||
Net income | — | — | — | — | — | 9,791 | — | 9,791 | ||||||||||||||||||||||
Other comprehensive loss, net of tax | — | — | — | — | — | — | (10 | ) | (10 | ) | ||||||||||||||||||||
Excess tax benefits from stock-based compensation, net | — | — | — | — | 262 | — | — | 262 | ||||||||||||||||||||||
Purchases of treasury stock | — | — | (3,674 | ) | (112,564 | ) | — | — | — | (112,564 | ) | |||||||||||||||||||
Exercise of stock options net of (withholdings) to satisfy employee tax obligations upon vesting of stock awards | — | — | 512 | 14,635 | (23,664 | ) | (1,351 | ) | — | (10,380 | ) | |||||||||||||||||||
Stock-based compensation | — | — | (96 | ) | (3,340 | ) | 14,153 | (1,427 | ) | — | 9,386 | |||||||||||||||||||
Balance at March 31, 2014 | 153,760 | $ | 1,538 | (15,851 | ) | $ | (459,243 | ) | $ | 1,692,107 | $ | (701,966 | ) | $ | 118 | $ | 532,554 |
Three months ended March 31, 2013 | ||||||||
As Currently Reported | As Previously Reported | |||||||
(amounts in thousands) | ||||||||
Revenue: | ||||||||
Data and Internet services | $ | 211,721 | $ | 202,082 | ||||
Voice services | 76,030 | 92,355 | ||||||
Network services | 64,955 | 78,863 | ||||||
Service revenue | 352,706 | 373,300 | ||||||
Taxes and fees | 20,594 | — | ||||||
Intercarrier compensation | 7,909 | 7,909 | ||||||
Total revenue | $ | 381,209 | $ | 381,209 |
• | Data and Internet services include services that enable customers to connect their internal computer networks between locations and to access external networks, including Internet access and data transport at high speeds using Ethernet protocol, local and wide-area business Ethernet and IP VPN solutions, including service enhancements that provide customers with more visibility and control over their Ethernet services, which we refer to as the "Intelligent Network". Data and Internet services also include a portfolio of managed services including the data and Internet components of converged services, which fully integrates a combination of certain communication applications including IP VPN, Internet, enterprise Session Initiation Protocol ("SIP") trunking (a VoIP solution), security and managed router service into a single managed IP solution; and the data and Internet components of integrated services, which enable customers to purchase a full array of access options that include Internet services. |
• | Voice services are traditional voice capabilities, whether provided over Time Division Multiplexing ("TDM") or VoIP, including those provided as standalone and bundled services, long distance and toll free services. Voice services also include the voice components of managed and integrated services. |
• | Network services are point-to-point services that transmit voice, data and images using state-of-the-art fiber optics, and collocation services that provide secure space with controlled climate and power where customers can locate their equipment to connect to the Company’s network in facilities equipped for enterprise information technology environmental requirements. |
Three Months Ended March 31, | ||||||||
2014 | 2013 | |||||||
(amounts in thousands, except per share amounts) | ||||||||
Numerator | ||||||||
Net income | $ | 9,791 | $ | 13,144 | ||||
Allocation of net income to unvested restricted stock | (179 | ) | (255 | ) | ||||
Net income allocated to common stockholders, basic | $ | 9,612 | $ | 12,889 | ||||
Net income allocated to common stockholders, diluted | $ | 9,612 | $ | 12,889 | ||||
Denominator | ||||||||
Basic weighted average shares outstanding | 138,088 | 149,129 | ||||||
Dilutive potential common shares: | ||||||||
Stock options | 384 | 1,432 | ||||||
Unvested restricted stock | 1,625 | 1,891 | ||||||
Diluted weighted average shares outstanding | 140,097 | 152,452 | ||||||
Basic earnings per share | $ | 0.07 | $ | 0.09 | ||||
Diluted earnings per share | $ | 0.07 | $ | 0.09 |
March 31, 2014 | December 31, 2013 | |||||||
(amounts in thousands) | ||||||||
Cash equivalents: | ||||||||
U.S. Treasury money market mutual funds | $ | 28,371 | $ | 28,845 | ||||
Commercial paper | 19,895 | 1,335 | ||||||
Total cash equivalents | $ | 48,266 | $ | 30,180 | ||||
Investments: | ||||||||
Debt securities issued by the U.S. Treasury | $ | 75,019 | $ | 69,628 | ||||
Commercial paper | 54,978 | 75,460 | ||||||
Debt securities issued by U.S. Government agencies | 46,397 | 49,488 | ||||||
Total investments | $ | 176,394 | $ | 194,576 | ||||
Total cash equivalents and investments | $ | 224,660 | $ | 224,756 |
Date of | Outstanding Balance as of | |||||||||||||||||||
Issuance / Amendment | Maturity | Interest Payments | Interest Rate | Original Principal | March 31, 2014 | December 31, 2013 | ||||||||||||||
(amounts in thousands) | ||||||||||||||||||||
Term Loan B | Apr 2013 | Apr 2020 | At least quarterly | Eurodollar rate + 2.50% | $ | 520,000 | $ | 516,100 | $ | 517,400 | ||||||||||
8% Senior Notes | Mar 2010 | Mar 2018 | Mar/Sept | 8% | 430,000 | — | 23,479 | |||||||||||||
53/8% Senior Notes | Oct 2012 | Oct 2022 | Apr/Oct | 5 3/8% | 480,000 | 480,000 | 480,000 | |||||||||||||
53/8% Senior Notes | Aug 2013 | Oct 2022 | Apr/Oct | 5 3/8% | 450,000 | 450,000 | 450,000 | |||||||||||||
63/8% Senior Notes | Aug 2013 | Sept 2023 | Mar/Sept | 6 3/8% | 350,000 | 350,000 | 350,000 | |||||||||||||
Capital lease obligations | 145,894 | 147,046 | ||||||||||||||||||
Total obligations | 1,941,994 | 1,967,925 | ||||||||||||||||||
Unamortized discounts | (18,035 | ) | (18,680 | ) | ||||||||||||||||
Current portion | (8,878 | ) | (32,470 | ) | ||||||||||||||||
Total long-term debt and capital lease obligations | $ | 1,915,081 | $ | 1,916,775 |
• | Level 1—Quoted prices in active markets for identical assets or liabilities. Level 1 assets that are measured at fair value on a recurring basis consist of the Company’s investments in U.S. Treasury money market mutual funds that are traded in an active market with sufficient volume and frequency of transactions, and are included as a component of cash and cash equivalents in the condensed consolidated balance sheets. |
• | Level 2—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets that are measured at fair value on a recurring basis consist of the Company’s investments in commercial paper and debt securities issued by the U.S. Treasury and other U.S. government agencies using observable inputs in less active markets and are included as a component of cash and cash equivalents and investments in the condensed consolidated balance sheets. Level 2 liabilities that are measured, but not carried, at fair value on a recurring basis include the Company’s long-term debt. The Company’s long-term debt has not been listed on any securities exchange or quoted on an inter-dealer automated quotation system. The Company has estimated the fair value of its long-term debt based on indicative pricing published by certain investment banks or trading levels in its long-term debt. |
• | Level 3—Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities. The Company did not have any Level 3 assets or liabilities that were measured at fair value at March 31, 2014 and December 31, 2013. |
Fair Value Measurements At March 31, 2014 | Assets at Fair Value | |||||||||||||||
Level 1 | Level 2 | Level 3 | ||||||||||||||
(amounts in thousands) | ||||||||||||||||
Assets | ||||||||||||||||
U.S. Treasury money market mutual funds | $ | 28,371 | $ | — | $ | — | $ | 28,371 | ||||||||
Commercial paper | — | 19,895 | — | 19,895 | ||||||||||||
Investments included in cash and cash equivalents | $ | 28,371 | $ | 19,895 | $ | — | $ | 48,266 | ||||||||
Debt securities issued by the U.S. Treasury | — | 75,019 | — | 75,019 | ||||||||||||
Commercial paper | — | 54,978 | — | 54,978 | ||||||||||||
Debt securities issued by U.S. Government agencies | — | 46,397 | — | 46,397 | ||||||||||||
Short-term investments | $ | — | $ | 176,394 | $ | — | $ | 176,394 | ||||||||
Total assets | $ | 28,371 | $ | 196,289 | $ | — | $ | 224,660 |
Fair Value Measurements At December 31, 2013 | Assets at Fair Value | |||||||||||||||
Level 1 | Level 2 | Level 3 | ||||||||||||||
(amounts in thousands) | ||||||||||||||||
Assets | ||||||||||||||||
U.S. Treasury money market mutual funds | $ | 28,845 | $ | — | $ | — | $ | 28,845 | ||||||||
Commercial paper | — | 1,335 | — | 1,335 | ||||||||||||
Investments included in cash and cash equivalents | $ | 28,845 | $ | 1,335 | $ | — | $ | 30,180 | ||||||||
Commercial paper | — | 75,460 | — | 75,460 | ||||||||||||
Debt securities issued by the U.S. Treasury | — | 69,628 | — | 69,628 | ||||||||||||
Debt securities issued by U.S. Government agencies | — | 49,488 | — | 49,488 | ||||||||||||
Short-term investments | $ | — | $ | 194,576 | $ | — | $ | 194,576 | ||||||||
Total assets | $ | 28,845 | $ | 195,911 | $ | — | $ | 224,756 |
March 31, 2014 | December 31, 2013 | |||||||||||||||
Carrying Value | Fair Value Level 2 | Carrying Value | Fair Value Level 2 | |||||||||||||
(amounts in thousands) | ||||||||||||||||
Term Loan B, net of discount | $ | 513,856 | $ | 516,100 | $ | 515,063 | $ | 519,987 | ||||||||
8% Senior Notes, net of discount | — | — | 23,392 | 24,594 | ||||||||||||
53/8% Senior Notes, issued October 2012 | 480,000 | 489,600 | 480,000 | 474,000 | ||||||||||||
53/8% Senior Notes, net of discount, issued August 2013 | 434,209 | 459,000 | 433,744 | 444,375 | ||||||||||||
63/8% Senior Notes | 350,000 | 372,750 | 350,000 | 364,000 | ||||||||||||
Total debt | $ | 1,778,065 | $ | 1,837,450 | $ | 1,802,199 | $ | 1,826,956 |
Parent Guarantor | Issuer | Combined Subsidiary Guarantors | Eliminations | Consolidated | ||||||||||||||||
(amounts in thousands) | ||||||||||||||||||||
ASSETS | ||||||||||||||||||||
Current assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 24,546 | $ | 154,293 | $ | — | $ | — | $ | 178,839 | ||||||||||
Investments | — | 176,394 | — | — | 176,394 | |||||||||||||||
Receivables, net | — | — | 98,811 | — | 98,811 | |||||||||||||||
Prepaid expenses and other current assets | — | 14,179 | 9,555 | — | 23,734 | |||||||||||||||
Deferred income taxes | — | 54,006 | 20 | — | 54,026 | |||||||||||||||
Intercompany receivable | 795,857 | 1,578,083 | — | (2,373,940 | ) | — | ||||||||||||||
Total current assets | 820,403 | 1,976,955 | 108,386 | (2,373,940 | ) | 531,804 | ||||||||||||||
Property, plant and equipment, net | — | 80,410 | 1,645,853 | — | 1,726,263 | |||||||||||||||
Deferred income taxes | — | 87,848 | 484 | — | 88,332 | |||||||||||||||
Goodwill | — | — | 412,694 | — | 412,694 | |||||||||||||||
Intangible and other assets, net | — | 34,976 | 18,475 | — | 53,451 | |||||||||||||||
Total assets | $ | 820,403 | $ | 2,180,189 | $ | 2,185,892 | $ | (2,373,940 | ) | $ | 2,812,544 | |||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||
Accounts payable | $ | — | $ | 10,541 | $ | 61,170 | $ | — | $ | 71,711 | ||||||||||
Current portion debt and capital lease obligations | — | 5,480 | 3,398 | — | 8,878 | |||||||||||||||
Other current liabilities | — | 82,682 | 139,177 | — | 221,859 | |||||||||||||||
Intercompany payable | — | — | 2,373,940 | (2,373,940 | ) | — | ||||||||||||||
Total current liabilities | — | 98,703 | 2,577,685 | (2,373,940 | ) | 302,448 | ||||||||||||||
Losses in subsidiary in excess of investment | 288,142 | 849,208 | — | (1,137,350 | ) | — | ||||||||||||||
Long-term debt and capital lease obligations, net | — | 1,772,865 | 142,216 | — | 1,915,081 | |||||||||||||||
Long-term deferred revenue | — | — | 19,871 | — | 19,871 | |||||||||||||||
Other long-term liabilities | — | 11,708 | 30,882 | — | 42,590 | |||||||||||||||
Stockholders’ equity (deficit) | 532,261 | (552,295 | ) | (584,762 | ) | 1,137,350 | 532,554 | |||||||||||||
Total liabilities and stockholders’ equity (deficit) | $ | 820,403 | $ | 2,180,189 | $ | 2,185,892 | $ | (2,373,940 | ) | $ | 2,812,544 |
Parent Guarantor | Issuer | Combined Subsidiary Guarantors | Eliminations | Consolidated | ||||||||||||||||
(amounts in thousands) | ||||||||||||||||||||
ASSETS | ||||||||||||||||||||
Current assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 24,546 | $ | 259,873 | $ | — | $ | — | $ | 284,419 | ||||||||||
Investments | — | 194,576 | — | — | 194,576 | |||||||||||||||
Receivables, net | — | — | 107,258 | — | 107,258 | |||||||||||||||
Prepaid expenses and other current assets | — | 14,434 | 8,111 | — | 22,545 | |||||||||||||||
Deferred income taxes | — | 54,006 | 20 | — | 54,026 | |||||||||||||||
Intercompany receivable | 917,932 | 1,475,298 | — | (2,393,230 | ) | — | ||||||||||||||
Total current assets | 942,478 | 1,998,187 | 115,389 | (2,393,230 | ) | 662,824 | ||||||||||||||
Property, plant and equipment, net | — | 75,142 | 1,619,814 | — | 1,694,956 | |||||||||||||||
Deferred income taxes | — | 95,603 | 484 | — | 96,087 | |||||||||||||||
Goodwill | — | — | 412,694 | — | 412,694 | |||||||||||||||
Intangible and other assets, net | — | 36,001 | 19,898 | — | 55,899 | |||||||||||||||
Total assets | $ | 942,478 | $ | 2,204,933 | $ | 2,168,279 | $ | (2,393,230 | ) | $ | 2,922,460 | |||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||
Accounts payable | $ | — | $ | 8,298 | $ | 30,156 | $ | — | $ | 38,454 | ||||||||||
Current portion debt and capital lease obligations, net | — | 29,008 | 3,462 | — | 32,470 | |||||||||||||||
Other current liabilities | — | 87,333 | 151,039 | — | 238,372 | |||||||||||||||
Intercompany payable | — | — | 2,393,230 | (2,393,230 | ) | — | ||||||||||||||
Total current liabilities | — | 124,639 | 2,577,887 | (2,393,230 | ) | 309,296 | ||||||||||||||
Losses in subsidiary in excess of investment | 306,440 | 858,499 | — | (1,164,939 | ) | — | ||||||||||||||
Long-term debt and capital lease obligations, net | — | 1,773,607 | 143,168 | — | 1,916,775 | |||||||||||||||
Long-term deferred revenue | — | — | 20,046 | — | 20,046 | |||||||||||||||
Other long-term liabilities | — | 10,526 | 29,748 | — | 40,274 | |||||||||||||||
Stockholders’ equity (deficit) | 636,038 | (562,338 | ) | (602,570 | ) | 1,164,939 | 636,069 | |||||||||||||
Total liabilities and stockholders’ equity (deficit) | $ | 942,478 | $ | 2,204,933 | $ | 2,168,279 | $ | (2,393,230 | ) | $ | 2,922,460 |
Parent Guarantor | Issuer | Combined Subsidiary Guarantors | Eliminations | Consolidated | ||||||||||||||||
(amounts in thousands) | ||||||||||||||||||||
Total revenue | $ | — | $ | — | $ | 408,293 | $ | — | $ | 408,293 | ||||||||||
Costs and expenses: | ||||||||||||||||||||
Operating, selling, general and administrative | — | 71,941 | 208,930 | — | 280,871 | |||||||||||||||
Depreciation, amortization and accretion | — | 8,591 | 73,865 | — | 82,456 | |||||||||||||||
Corporate expense allocation | — | (80,532 | ) | 80,532 | — | — | ||||||||||||||
Total costs and expenses | — | — | 363,327 | — | 363,327 | |||||||||||||||
Operating income | — | — | 44,966 | — | 44,966 | |||||||||||||||
Interest expense, net | — | (20,488 | ) | (5,012 | ) | — | (25,500 | ) | ||||||||||||
Debt extinguishment costs | — | (1,282 | ) | — | — | (1,282 | ) | |||||||||||||
Interest expense allocation | — | 21,770 | (21,770 | ) | — | — | ||||||||||||||
Income before income taxes and equity in undistributed earnings of subsidiaries | — | — | 18,184 | — | 18,184 | |||||||||||||||
Income tax expense | — | 8,017 | 376 | — | 8,393 | |||||||||||||||
Net income (loss) before equity in undistributed earnings of subsidiaries | — | (8,017 | ) | 17,808 | — | 9,791 | ||||||||||||||
Equity in undistributed earnings of subsidiaries | 9,791 | 17,808 | — | (27,599 | ) | — | ||||||||||||||
Net income | $ | 9,791 | $ | 9,791 | $ | 17,808 | $ | (27,599 | ) | $ | 9,791 |
Parent Guarantor | Issuer | Combined Subsidiary Guarantors | Eliminations | Consolidated | ||||||||||||||||
(amounts in thousands) | ||||||||||||||||||||
Total revenue | $ | — | $ | — | $ | 381,209 | $ | — | $ | 381,209 | ||||||||||
Costs and expenses: | ||||||||||||||||||||
Operating, selling, general and administrative | — | 64,807 | 189,837 | — | 254,644 | |||||||||||||||
Depreciation, amortization and accretion | — | 6,579 | 67,816 | — | 74,395 | |||||||||||||||
Corporate expense allocation | — | (71,386 | ) | 71,386 | — | — | ||||||||||||||
Total costs and expenses | — | — | 329,039 | — | 329,039 | |||||||||||||||
Operating income | — | — | 52,170 | — | 52,170 | |||||||||||||||
Interest expense, net | (8,136 | ) | (17,878 | ) | (2,049 | ) | — | (28,063 | ) | |||||||||||
Interest expense allocation | 8,136 | 17,878 | (26,014 | ) | — | — | ||||||||||||||
Income before income taxes and equity in undistributed earnings of subsidiaries | — | — | 24,107 | — | 24,107 | |||||||||||||||
Income tax expense | — | 10,617 | 346 | — | 10,963 | |||||||||||||||
Net income (loss) before equity in undistributed earnings of subsidiaries | — | (10,617 | ) | 23,761 | — | 13,144 | ||||||||||||||
Equity in undistributed earnings of subsidiaries | 13,144 | 23,761 | — | (36,905 | ) | — | ||||||||||||||
Net income | $ | 13,144 | $ | 13,144 | $ | 23,761 | $ | (36,905 | ) | $ | 13,144 |
Parent Guarantor | Issuer | Combined Subsidiary Guarantors | Eliminations | Consolidated | ||||||||||||||||
(amounts in thousands) | ||||||||||||||||||||
Net income | $ | 9,791 | $ | 9,791 | $ | 17,808 | $ | (27,599 | ) | $ | 9,791 | |||||||||
Other comprehensive income (loss), net of tax: | ||||||||||||||||||||
Unrealized loss on available-for-sale securities | (10 | ) | (10 | ) | — | 10 | (10 | ) | ||||||||||||
Other comprehensive income (loss), net of tax | (10 | ) | (10 | ) | — | 10 | (10 | ) | ||||||||||||
Comprehensive income | $ | 9,781 | $ | 9,781 | $ | 17,808 | $ | (27,589 | ) | $ | 9,781 |
Parent Guarantor | Issuer | Combined Subsidiary Guarantors | Eliminations | Consolidated | ||||||||||||||||
(amounts in thousands) | ||||||||||||||||||||
Net income | $ | 13,144 | $ | 13,144 | $ | 23,761 | $ | (36,905 | ) | $ | 13,144 | |||||||||
Other comprehensive income, net of tax: | ||||||||||||||||||||
Unrealized gain on available-for-sale securities | 8 | 8 | — | (8 | ) | 8 | ||||||||||||||
Other comprehensive income, net of tax | 8 | 8 | — | (8 | ) | 8 | ||||||||||||||
Comprehensive income | $ | 13,152 | $ | 13,152 | $ | 23,761 | $ | (36,913 | ) | $ | 13,152 |
Parent Guarantor | Issuer | Combined Subsidiary Guarantors | Eliminations | Consolidated | ||||||||||||||||
(amounts in thousands) | ||||||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||
Net income | $ | 9,791 | $ | 9,791 | $ | 17,808 | $ | (27,599 | ) | $ | 9,791 | |||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||||||
Depreciation, amortization and accretion | — | 8,591 | 73,865 | — | 82,456 | |||||||||||||||
Deferred income taxes | — | 8,017 | — | — | 8,017 | |||||||||||||||
Stock-based compensation expense | — | — | 9,386 | — | 9,386 | |||||||||||||||
Extinguishment costs, amortization of discount on debt and deferred debt issue costs | — | 2,895 | — | — | 2,895 | |||||||||||||||
Intercompany and equity investment changes | 104,759 | (112,076 | ) | (20,282 | ) | 27,599 | — | |||||||||||||
Changes in operating assets and liabilities | — | (1,304 | ) | 3,984 | — | 2,680 | ||||||||||||||
Net cash provided by (used in) operating activities | 114,550 | (84,086 | ) | 84,761 | — | 115,225 | ||||||||||||||
Cash flows from investing activities: | ||||||||||||||||||||
Capital expenditures | — | (13,880 | ) | (87,753 | ) | — | (101,633 | ) | ||||||||||||
Purchases of investments | — | (51,703 | ) | — | — | (51,703 | ) | |||||||||||||
Proceeds from sale of investments | — | 69,509 | — | — | 69,509 | |||||||||||||||
Other investing activities, net | — | 22 | 4,316 | — | 4,338 | |||||||||||||||
Net cash provided by (used in) investing activities | — | 3,948 | (83,437 | ) | — | (79,489 | ) | |||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||
Net proceeds (tax withholdings) from issuance of common stock upon exercise of stock options and vesting of restricted stock awards and units | (10,380 | ) | — | — | — | (10,380 | ) | |||||||||||||
Purchases of treasury stock | (104,170 | ) | — | — | — | (104,170 | ) | |||||||||||||
Excess tax benefits from stock-based compensation | — | 412 | — | — | 412 | |||||||||||||||
Retirement of debt obligations | — | (24,418 | ) | — | — | (24,418 | ) | |||||||||||||
Payment of debt and capital lease obligations | — | (1,436 | ) | (1,324 | ) | — | (2,760 | ) | ||||||||||||
Net cash used in financing activities | (114,550 | ) | (25,442 | ) | (1,324 | ) | — | (141,316 | ) | |||||||||||
Decrease in cash and cash equivalents | — | (105,580 | ) | — | — | (105,580 | ) | |||||||||||||
Cash and cash equivalents at beginning of period | 24,546 | 259,873 | — | — | 284,419 | |||||||||||||||
Cash and cash equivalents at end of period | $ | 24,546 | $ | 154,293 | $ | — | $ | — | $ | 178,839 |
Parent Guarantor | Issuer | Combined Subsidiary Guarantors | Eliminations | Consolidated | ||||||||||||||||
(amounts in thousands) | ||||||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||
Net income | $ | 13,144 | $ | 13,144 | $ | 23,761 | $ | (36,905 | ) | $ | 13,144 | |||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||||||
Depreciation, amortization and accretion | — | 6,579 | 67,816 | — | 74,395 | |||||||||||||||
Deferred income taxes | — | 10,617 | — | — | 10,617 | |||||||||||||||
Stock-based compensation expense | — | — | 9,462 | — | 9,462 | |||||||||||||||
Amortization of discount on debt and deferred debt issue costs | 5,918 | 877 | — | — | 6,795 | |||||||||||||||
Intercompany and equity investment changes | 27,247 | (88,651 | ) | 24,499 | 36,905 | — | ||||||||||||||
Changes in operating assets and liabilities | 2,219 | 11,015 | (46,047 | ) | — | (32,813 | ) | |||||||||||||
Net cash provided by (used in) operating activities | 48,528 | (46,419 | ) | 79,491 | — | 81,600 | ||||||||||||||
Cash flows from investing activities: | ||||||||||||||||||||
Capital expenditures | — | (10,903 | ) | (76,897 | ) | — | (87,800 | ) | ||||||||||||
Purchases of investments | — | (50,932 | ) | — | — | (50,932 | ) | |||||||||||||
Proceeds from sale of investments | — | 33,990 | — | — | 33,990 | |||||||||||||||
Other investing activities, net | — | (5 | ) | (2,235 | ) | — | (2,240 | ) | ||||||||||||
Net cash used in investing activities | — | (27,850 | ) | (79,132 | ) | — | (106,982 | ) | ||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||
Net proceeds (tax withholdings) from issuance of common stock upon exercise of stock options and vesting of restricted stock awards and units | 6,158 | — | — | — | 6,158 | |||||||||||||||
Purchases of treasury stock | (54,627 | ) | — | — | — | (54,627 | ) | |||||||||||||
Excess tax benefits from stock-based compensation | — | 601 | — | — | 601 | |||||||||||||||
Retirement of convertible debt obligations | (59 | ) | — | — | — | (59 | ) | |||||||||||||
Payment of debt and capital lease obligations | — | (1,350 | ) | (359 | ) | — | (1,709 | ) | ||||||||||||
Net cash used in financing activities | (48,528 | ) | (749 | ) | (359 | ) | — | (49,636 | ) | |||||||||||
Decrease in cash and cash equivalents | — | (75,018 | ) | — | — | (75,018 | ) | |||||||||||||
Cash and cash equivalents at beginning of period | 24,544 | 782,184 | — | — | 806,728 | |||||||||||||||
Cash and cash equivalents at end of period | $ | 24,544 | $ | 707,166 | $ | — | $ | — | $ | 731,710 |
Number of tw telecom common shares eligible for merger consideration* | 139 | ||
Multiplied by exchange ratio per merger agreement | 0.7 | ||
Number of Level 3 shares to be issued* | 97.3 | ||
Multiplied by price of Level 3 common stock* | $44.09 | ||
Estimated equity consideration | $4,290 | ||
Estimated cash consideration ($10 cash for each share of tw telecom's common stock) | $1,390 | ||
Assumption of debt | $1,924 | ||
Estimated aggregate consideration* | $7,604 |
(dollars in millions) | Historical Level 3 | Historical tw telecom | Pro Forma Adjustments | Pro Forma Financing Adjustments | Pro Forma Combined | ||||||||||||
Assets | |||||||||||||||||
Current Assets: | |||||||||||||||||
Cash and cash equivalents | $ | 607 | $ | 179 | $ | (1,680 | ) | (a) | $ | 1,126 | (a) | $ | 232 | ||||
Investments | — | 176 | — | — | 176 | ||||||||||||
Restricted cash and securities | 7 | 1 | — | — | 8 | ||||||||||||
Receivables, net | 699 | 99 | — | — | 798 | ||||||||||||
Other | 159 | 77 | (54 | ) | (e) | 5 | (a) | 187 | |||||||||
Total Current Assets | 1,472 | 532 | (1,734 | ) | 1,131 | 1,401 | |||||||||||
Property, Plant and Equipment, net | 8,260 | 1,726 | 10 | (c) | — | 9,996 | |||||||||||
Restricted Cash and Securities | 22 | — | — | — | 22 | ||||||||||||
Goodwill | 2,575 | 413 | 4,492 | (c)(e) | — | 7,480 | |||||||||||
Other Intangibles, net | 186 | 10 | 1,134 | (c) | — | 1,330 | |||||||||||
Other Assets, net | 374 | 131 | (128 | ) | (b)(c)(e) | 34 | (a) | 411 | |||||||||
Total Assets | $ | 12,889 | $ | 2,812 | $ | 3,774 | $ | 1,165 | $ | 20,640 | |||||||
Liabilities and Stockholders' Equity | |||||||||||||||||
Current Liabilities: | |||||||||||||||||
Accounts payable | $ | 561 | $ | 83 | $ | — | $ | — | $ | 644 | |||||||
Current portion of long-term debt | 503 | 9 | — | (5 | ) | (b) | 507 | ||||||||||
Accrued payroll and employee benefits | 114 | 43 | — | — | 157 | ||||||||||||
Accrued interest | 174 | 29 | — | (27 | ) | (b) | 176 | ||||||||||
Current portion of deferred revenue | 262 | 48 | (1 | ) | (d) | — | 309 | ||||||||||
Other | 142 | 90 | — | — | 232 | ||||||||||||
Total Current Liabilities | 1,756 | 302 | (1 | ) | (32 | ) | 2,025 | ||||||||||
Long-Term Debt, less current portion | 7,856 | 1,915 | — | 1,197 | (b) | 10,968 | |||||||||||
Deferred Revenue, less current portion | 901 | 20 | (8 | ) | (d) | — | 913 | ||||||||||
Other Liabilities | 778 | 42 | (2 | ) | (e)(i) | — | 818 | ||||||||||
Total Liabilities | 11,291 | 2,279 | (11 | ) | 1,165 | 14,724 | |||||||||||
Stockholders' Equity: | |||||||||||||||||
Preferred stock | — | — | — | — | — | ||||||||||||
Common stock | 2 | 2 | (1 | ) | (g) | — | 3 | ||||||||||
Additional paid-in capital | 14,408 | 1,692 | 2,597 | (g) | — | 18,697 | |||||||||||
Treasury stock | — | (459 | ) | 459 | (h) | — | — | ||||||||||
Accumulated other comprehensive income | 42 | — | — | — | 42 | ||||||||||||
Accumulated deficit | (12,854 | ) | (702 | ) | 730 | (i) | — | (12,826 | ) | ||||||||
Total Stockholders' Equity | 1,598 | 533 | 3,785 | — | 5,916 | ||||||||||||
Total Liabilities and Stockholders' Equity | $ | 12,889 | $ | 2,812 | $ | 3,774 | $ | 1,165 | $ | 20,640 |
(dollars in millions, except per share data) | Historical Level 3 | Historical tw telecom | Pro Forma Adjustments | Pro Forma Combined | |||||||||
Revenue | $ | 6,313 | $ | 1,564 | $ | (27 | ) | (k) | $ | 7,850 | |||
Costs and Expenses (exclusive of depreciation and amortization shown separately below) | |||||||||||||
Cost of Revenue | 2,471 | 432 | (24 | ) | (k) | 2,879 | |||||||
Depreciation and Amortization | 800 | 306 | 121 | (c) | 1,227 | ||||||||
Selling, General and Administrative | 2,376 | 621 | — | 2,997 | |||||||||
Total Costs and Expenses | 5,647 | 1,359 | 97 | 7,103 | |||||||||
Operating Income | 666 | 205 | (124 | ) | 747 | ||||||||
Other Income (Expense): | |||||||||||||
Interest expense | (649 | ) | (96 | ) | (39 | ) | (b) | (784 | ) | ||||
Loss on modification and extinguishment of debt, net | (84 | ) | (39 | ) | — | (123 | ) | ||||||
Other, net | (4 | ) | — | — | (4 | ) | |||||||
Total Other Expense | (737 | ) | (135 | ) | (39 | ) | (911 | ) | |||||
(Loss) Income Before Income Taxes | (71 | ) | 70 | (163 | ) | (164 | ) | ||||||
Income Tax Expense | (38 | ) | (34 | ) | 23 | (j) | (49 | ) | |||||
Net (Loss) Income | $ | (109 | ) | $ | 36 | $ | (140 | ) | $ | (213 | ) | ||
Basic Earnings per Common Share | |||||||||||||
Net (Loss) Income Per Share | $ | (0.49 | ) | $ | 0.25 | $ | (0.67 | ) | |||||
Shares Used to Compute Basic Net (Loss) Income per Share (in thousands) | 222,368 | 144,920 | 97,300 | 319,668 | |||||||||
Diluted Earnings per Common Share | |||||||||||||
Net (Loss) Income Per Share | $ | (0.49 | ) | $ | 0.24 | $ | (0.67 | ) | |||||
Shares Used to Compute Diluted Net (Loss) Income per Share (in thousands) | 222,368 | 146,480 | 97,300 | 319,668 |
(dollars in millions, except per share data) | Historical Level 3 | Historical tw telecom | Pro Forma Adjustments | Pro Forma Combined | |||||||||
Revenue | $ | 1,609 | $ | 408 | (7 | ) | (k) | $ | 2,010 | ||||
Costs and Expenses (exclusive of depreciation and amortization shown separately below) | |||||||||||||
Cost of Revenue | 614 | 115 | (6 | ) | (k) | 723 | |||||||
Depreciation and Amortization | 184 | 82 | 25 | (c) | 291 | ||||||||
Selling, General and Administrative | 547 | 166 | — | 713 | |||||||||
Total Costs and Expenses | 1,345 | 363 | 19 | 1,727 | |||||||||
Operating Income | 264 | 45 | (26 | ) | 283 | ||||||||
Other Income (Expense): | |||||||||||||
Interest expense | (151 | ) | (26 | ) | (9 | ) | (b) | (186 | ) | ||||
Loss on modification and extinguishment of debt, net | — | (1 | ) | — | (1 | ) | |||||||
Other, net | 6 | — | — | 6 | |||||||||
Total Other Expense | (145 | ) | (27 | ) | (9 | ) | (181 | ) | |||||
Income Before Income Taxes | 119 | 18 | (35 | ) | 102 | ||||||||
Income Tax Expense | (7 | ) | (8 | ) | 5 | (j) | (10 | ) | |||||
Net Income | $ | 112 | $ | 10 | $ | (30 | ) | $ | 92 | ||||
Basic Earnings per Common Share | |||||||||||||
Net Income Per Share | $ | 0.48 | $ | 0.07 | $ | 0.28 | |||||||
Shares Used to Compute Basic Net Income per Share (in thousands) | 235,635 | 138,088 | 97,300 | 332,935 | |||||||||
Diluted Earnings per Common Share | |||||||||||||
Net Income Per Share | $ | 0.47 | $ | 0.07 | $ | 0.27 | |||||||
Shares Used to Compute Diluted Net Income per Share (in thousands) | 239,294 | 140,097 | 97,300 | 336,594 |
(1) | Basis of Presentation |
(2) | Basis of Preliminary Purchase Price Allocation |
(dollars in millions) | March 31, 2014 | ||
Assets: | |||
Cash and cash equivalents | $ | 179 | |
Investments | 176 | ||
Restricted cash and securities | 1 | ||
Receivables | 99 | ||
Other current assets | 77 | ||
Property, plant and equipment | 1,736 | ||
Goodwill | 4,905 | ||
Other intangibles | 1,144 | ||
Other assets | 91 | ||
Total Assets | 8,408 | ||
Liabilities: | |||
Accounts payable | (83 | ) | |
Current portion of long-term debt | (9 | ) | |
Accrued payroll and employee benefits | (43 | ) | |
Accrued interest | (29 | ) | |
Current portion of deferred revenue | (47 | ) | |
Other current liabilities | (90 | ) | |
Long-term Debt, less current portion | (1,915 | ) | |
Deferred revenue, less current portion | (12 | ) | |
Other noncurrent liabilities | (500 | ) | |
Total Liabilities | (2,728 | ) | |
Total Estimated Consideration | $ | 5,680 |
(3) | Accounting Policies |
(4) | Pro Forma Adjustments |
(a) | Adjustment to record the cash received from merger-related financing as of March 31, 2014 discussed further below, net of $1,796 million to retire tw telecom’s short term and long term debt excluding capital lease obligations and debt discount and issuance costs and $27 million of accrued interest on retirement of tw telecom's debt. |
Dollars in millions | Financing Adjustments | ||
Proceeds from Level 3 merger-related financing | $ | 3,000 | |
Discount on merger-related financing | (12 | ) | |
Debt issuance costs of Level 3 merger-related financing (Note 4b), short term | (5 | ) | |
Debt issuance costs of Level 3 merger-related financing (Note 4b), long term | (34 | ) | |
Repayment of certain of tw telecom’s debt | (1,796 | ) | |
Payment of accrued interest on retirement of tw telecom’s debt | (27 | ) | |
Net proceeds from financing activities | $ | 1,126 |
(b) | For the purpose of the Unaudited Pro Forma Condensed Combined Balance Sheet, Level 3 has assumed it would borrow through the capital markets transactions an aggregate of $3.0 billion, comprised of $2.4 billion aggregate principal amount in a senior secured term loan and $600 million aggregate principal amount of unsecured senior notes, to fund the cash portion of the merger consideration, the refinancing of tw telecom’s short term and long term debt, transaction costs related to the mergers and the refinancings and for general corporate purposes. Level 3 expects to seek this financing ahead of the closing of the mergers. The allocation of the debt financing between the senior secured term loan and unsecured senior notes may vary from the amounts assumed for purposes of the Unaudited Pro Forma Condensed Combined Financial Information. |
As of March 31, 2014 | ||||||
Dollars in millions | Current Portion of Long Term Debt | Long Term Debt, less Current Portion | ||||
Level 3's historical debt balance | $ | 503 | $ | 7,856 | ||
tw telecom’s historical debt balance | 9 | 1,915 | ||||
New debt issued by Level 3, net of discount of $12 million | — | 2,988 | ||||
Repayment of certain of tw telecom’s debt | (5 | ) | (1,791 | ) | ||
Total Debt Balance | $ | 507 | $ | 10,968 |
Dollars in millions | Twelve months ended December 31, 2013 | Three months ended March 31, 2014 | ||||
tw telecom’s historical interest expense | $ | (95 | ) | $ | (24 | ) |
Interest expense resulting from debt Level 3 will issue in connection with the Merger | 134 | 33 | ||||
Increase in interest expense | $ | 39 | $ | 9 |
(c) | Adjustments to reflect the components of the preliminary estimates of the fair value of assets to be acquired by Level 3 at the completion of the mergers. |
Dollars in millions | March 31, 2014 | Estimated Fair Value | Increase | Estimated Remaining Useful Lives (Years) | ||||||
Property, Plant and Equipment | $ | 1,726 | $ | 1,736 | $ | 10 | 1-33 years | |||
Customer Relationships | 10 | 1,040 | 1,030 | 9-10 years | ||||||
Trademark and trade names | — | 104 | 104 | 5 years | ||||||
Goodwill | 413 | 4,447 | 4,034 | Indefinite |
Dollars in millions | Twelve months ended December 31, 2013 | Three months ended March 31, 2014 | ||||
tw telecom’s historical depreciation and amortization | $ | (306 | ) | $ | (82 | ) |
Depreciation and amortization after fair value adjustments and changes in the estimated useful lives associated with acquired assets | 427 | 107 | ||||
Increase in depreciation and amortization expense | $ | 121 | $ | 25 |
(d) | Adjustment to record the differences between the estimated fair values and the historical carrying amounts of tw telecom's deferred revenues including the elimination of deferred revenue balances where no future performance obligation exists and deferred revenue attributable to tw telecom contracts with Level 3 existing prior to the mergers. tw telecom had certain deferred revenues on its balance sheet associated with sales of capacity leases, prepaid services and installation activities. These deferred balances arise from tw telecom receiving up-front payments while recognizing the related revenue over the estimated life of the associated contract. The estimated fair value of deferred revenue represents amounts equivalent to the estimated costs to complete plus an appropriate profit margin to fulfill the obligations assumed in the transaction. The |
Dollars in millions | March 31, 2014 | Estimated Fair Value | Decrease | ||||||
Current portion of deferred revenue | $ | 48 | $ | 47 | $ | 1 | |||
Deferred Revenue, less current portion | 20 | 12 | 8 |
(e) | As of the completion date of the mergers, tw telecom will be consolidated with Level 3 for U.S. federal income tax purposes. Therefore, Level 3 has presented the unaudited pro forma financial statements accordingly to reflect the effect of the consolidation. |
(f) | On the date of completion of the mergers, all outstanding employee stock option awards, restricted stock and restricted stock units of tw telecom will be canceled and exchanged for Level 3 shares and cash in accordance with the terms of the merger agreement. All other tw telecom employee stock plans will be terminated. The employees of tw telecom will participate in Level 3's stock-based compensation programs after completion of the mergers. |
Dollars in millions | Adjustments as of March 31, 2014 | ||
Issue 97.3 million shares of Level 3 common stock @ $0.01 par value | $ | 1 | |
Eliminate tw telecom common stock | (2 | ) | |
Adjustment to common stock | $ | (1 | ) |
Dollars in millions | Adjustments as of March 31, 2014 | ||
Total estimated equity consideration | $ | 4,290 | |
Elimination of tw telecom additional paid-in capital | (1,692 | ) | |
Common stock | (1 | ) | |
Adjustment to additional paid-in capital | $ | 2,597 |
(h) | Adjustment to eliminate tw telecom’s treasury stock, which will be canceled upon completion of the mergers. |
(i) | Adjustment to eliminate tw telecom’s accumulated deficit, and to record estimated non-recurring financing and merger-related costs of Level 3, as follows: |
Dollars in millions | Adjustment as of March 31, 2014 | ||
Eliminate tw telecom’s accumulated deficit | $ | 702 | |
Estimated financing and merger-related expenses | (290 | ) | |
Net adjustments to deferred taxes | 318 | ||
Adjustment to accumulated deficit | $ | 730 |
(k) | Adjustment to eliminate the historical intercompany transactions between Level 3 and tw telecom. |