SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of earliest event reported: November 7, 2002
TOUCH AMERICA HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware | 1-31237 (Commission | 81-0540231 | ||
130 North Main, Butte, Montana (Address of principal executive offices) | 59701-9332 | |||
Registrant's telephone number, including area code(406) 497-5100
Exhibit Index is found on page 10
ITEM 5. OTHER EVENTS.
PRELIMINARY FINANCIAL RESULTS
FOR THE QUARTERS ENDED SEPTEMBER 30, 2002 AND 2001
In accordance with Statement of Financial Accounting Standards (SFAS) No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," we periodically review our long-lived assets for potential impairment. The current business environment in the telecommunications industry and our results of operations for the nine months ended September 30, 2002 may have a material adverse effect on our future results of operations and financial condition. We will continue to monitor these factors and their potential impact on the impairment analysis of our network assets.
Touch America Holdings, Inc. reported a consolidated basic net loss of $0.21 per share in the third quarter 2002 as compared with the third quarter 2001 consolidated basic net loss of $0.26 per share.
The loss from continuing operations increased $7,000,000, from a loss of $13,900,000 in the third quarter 2001, or $0.14 per share, to a loss of $20,900,000, or $0.21 per share, for the same period in 2002.
Revenues
Revenues decreased $68,900,000, or 47 percent, from $145,500,000 in the third quarter 2001 to $76,600,000 for the same period in 2002. For comparative purposes, the following table shows the breakdown of revenues.
Quarters Ended | ||
September 30, | ||
2002 | 2001 | |
(Thousands of Dollars) | ||
REVENUES: | ||
Voice | $ 24,200 | $ 71,400 |
Private line | 19,900 | 34,300 |
Access and other | 11,900 | 19,900 |
Internet services | 16,800 | 13,600 |
ATM/Frame relay | 3,800 | 6,300 |
$ 76,600 | $ 145,500 | |
Voice revenues for the third quarter 2002 decreased $47,200,000, or 66 percent, primarily due to Qwest Communication's (Qwest) removal of approximately $21,500,000 of its traffic from our network. We have reduced lower-margin wholesale voice business and have lost business to other carriers, both which have contributed to the decline in voice revenues. Private line revenues, which include dedicated point-to-point capacity on our network, decreased by $14,400,000, or 42 percent, partially due to a loss of customers, including those who switched to other carriers, and $4,500,000 of revenue from a short-term contract in the third quarter 2001, which expired in late 2001. Access and other revenues decreased by $8,000,000, or 40 percent, partially due to Qwest's withdrawal of approximately $7,600,000 in circuit access revenue. Equipment sales also declined by $1,400,000 as we exited this business in late 2001.
Internet services revenues increased by $3,200,000, or 24 percent, primarily due to an increase in these services that we provide to Qwest's customers. ATM/Frame relay revenues, which include network services for data, video, and voice transmission, decreased by $2,500,000, or 40 percent, also primarily due to a loss of customers.
Operating Expenses
Operating expenses, excluding depreciation and amortization, for the third quarter 2002 compared to the same period in 2001 decreased approximately $43,300,000, or 31 percent. Cost of services decreased approximately $38,600,000 primarily due to a reduction in network costs associated with the decrease in revenues discussed above and the disconnection of unused circuits.
Selling, general, and administrative (SG&A) expense decreased approximately $4,300,000 with expenses declining in most categories. Salaries and commissions decreased by $3,100,000 due to a reduced workforce. Outside contract services also decreased by $4,300,000 because we now perform billing, credit and collection services internally. Bad debt expense decreased $2,100,000 because of declining revenues. Partially offsetting these decreases was an increase of $6,800,000 for outside professional services, primarily relating to our disputes with Qwest.
Depreciation expense increased by approximately $3,900,000 due to segments of our fiber optic network being placed into service during the period.
Interest Expense and Other Deductions - Net
Interest expense decreased by $200,000 as we had a current portion of long-term debt outstanding in the third quarter 2001 and none in the same period in 2002.
Other deductions - net improved approximately $17,200,000 primarily due to the write-downs in the third quarter 2001 of our investment and note receivable of $10,800,000 associated with Minnesota PCS, L.P. (MPCS) and a write-down of our unconsolidated investment in iBEAM Broadcasting Corporation (iBEAM) of $4,000,000. The loss from unconsolidated investments decreased due to our exit from MPCS and initiating the exit process from TW Wireless, L.L.C. (TWW), a joint venture with Qwest, both in the third quarter 2002.
The utility operations and the coal operations were accounted for as discontinued operations for the quarter ended September 30, 2001 and are separately reported. In the third quarter 2001, we reported income from discontinued operations, net of income taxes, of $1,700,000. We also recorded an after-tax adjustment of $14,400,000, which decreased the gain on the sale of the discontinued oil and natural gas operations. This decrease related to the increased sharing of sales proceeds with the utility's natural gas customers. The net effect of the income from discontinued operations and the adjustment of the gain on the sale of the discontinued oil and natural gas operations was a loss from discontinued operations in the third quarter 2001 of $0.12 per share.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
We reported a consolidated basic net loss of $0.64 per share for the nine months ended September 30, 2002 as compared with consolidated basic net earnings of $0.20 per share for the same period in 2001.
The loss from continuing operations increased $61,100,000, from a loss of $7,200,000, or $0.10 per share, for the nine months ended September 30, 2001 to a loss of $68,300,000, or $0.70 per share, for the same period in 2002.
Revenues
Revenues decreased $183,100,000, or 42 percent, from $431,900,000 for the nine months ended September 30, 2001 to $248,800,000 for the same period in 2002. For comparative purposes, the following table shows the breakdown of revenues.
Nine Months Ended | ||
September 30, | ||
2002 | 2001 | |
(Thousands of Dollars) | ||
REVENUES: | ||
Voice | $ 97,700 | $ 231,300 |
Private line | 67,000 | 112,500 |
Access and other | 31,700 | 45,700 |
Internet services | 40,400 | 24,600 |
ATM/Frame relay | 12,000 | 17,800 |
$ 248,800 | $ 431,900 | |
Voice revenues for the nine months ended September 30, 2002 decreased $133,600,000, or 58 percent, primarily due to Qwest's removal of approximately $50,500,000 of its traffic from our network and the reasons mentioned in the quarterly analysis. For the nine months ended September 30, 2002, private line revenues, which include dedicated point-to-point capacity on our network, decreased by $45,500,000, or 40 percent, partially due to a loss of customers, including those who switched to other carriers, and $17,300,000 of revenue from a short-term contract, which expired in late 2001. Access and other revenues declined by $14,000,000, or 31 percent, partially due to Qwest's withdrawal of approximately $8,000,000 in circuit access revenue. Equipment sales also declined by $3,500,000 due to our exit from this business in late 2001.
Internet services revenues increased by $15,800,000, or 64 percent, for the same reason mentioned in the quarterly analysis. ATM/Frame relay revenues, which include network services for data, video, and voice transmission, decreased by $5,800,000, or 33 percent.
Operating Expenses
Operating expenses, excluding depreciation and amortization, for the nine months ended September 30, 2002 decreased approximately $79,000,000, or 20 percent, compared to the same period in 2001. Cost of services decreased approximately $82,100,000, primarily due to a reduction in network costs associated with the decrease in revenues discussed above.
SG&A expense increased approximately $4,000,000, primarily due to an increase of $15,300,000 in outside professional services associated with the Qwest dispute. This was offset by a reduction in bad debt expense of $2,100,000 related to the decline in revenues and a reduction in outside contract services of $10,000,000 because we now perform billing, credit and collection services internally.
Taxes other than income taxes decreased by approximately $800,000 due to reduced property taxes associated with our network. Depreciation expense increased by approximately $11,600,000 due to segments of our fiber optic network being placed into service during the period.
Interest Expense and Other Deductions - Net
Interest expense decreased by $1,400,000 as we had a current portion of long-term debt outstanding in the nine months ended September 30, 2001 and none in the same period in 2002.
Other deductions - net improved approximately $16,100,000 primarily due to the write-downs in the third quarter 2001 of our investment and note receivable of $10,800,000 associated with MPCS and a write-down of our unconsolidated investment in iBEAM of $4,000,000. The loss from unconsolidated investments also decreased primarily as the result of an adjustment of $2,700,000 to previously accrued expenses of TWW. We exited MPCS and initiated the exit process from TWW in the third quarter 2002.
The utility operations, Continental Energy, and the coal operations have been accounted for as discontinued operations for the nine months ended September 30, 2002 and 2001 and are separately reported. Earnings from discontinued operations decreased approximately $24,800,000. For the nine months ended September 30, 2002, earnings from discontinued utility operations were $5,900,000, or $0.06 per share, due to only one month of operations in 2002. Earnings from discontinued operations were $30,800,000, or $0.30 per share, for the nine months ended September 30, 2001. This resulted from gains from the sales of the coal operations and Continental Energy of $31,400,000 and $31,100,000, respectively. These gains were offset by a loss of $27,600,000 from the utility operations due to a one-time payment to terminate an industrial power supply contract and an after-tax adjustment of $14,400,000, which decreased the gain on the sale of the discontinued oil and natural gas operations. The gain adjustment rela ted to the increased sharing of sales proceeds with the utility's natural gas customers.
Dividends on Preferred Stock for the nine months ended September 30, 2002 include $1,800,000 of premium costs associated with the redemption of our outstanding Preferred Stock, $6.00 Series, and Preferred Stock, $4.20 Series, which occurred in the first quarter 2002.
THIRD QUARTER 2002 COMPARED WITH SECOND QUARTER 2002
We reported a consolidated basic net loss of $0.21 per share for the quarter ended September 30, 2002 as compared with a consolidated basic net loss of $0.32 per share for the quarter ended June 30, 2002.
The loss from continuing operations decreased $11,400,000, from a loss in the second quarter 2002 of $32,300,000 to a loss of $20,900,000 in the third quarter 2002.
Revenues
Revenues increased approximately $3,000,000, or 4 percent, from $73,600,000 in the second quarter 2002 to approximately $76,600,000 in the third quarter 2002. For comparative purposes, the following table shows the breakdown of revenues.
Quarters Ended | ||
September 30, | June 30, | |
2002 | 2002 | |
(Thousands of Dollars) | ||
REVENUES: | ||
Voice | $ 24,200 | $ 31,100 |
Private line | 19,900 | 20,100 |
Access and other | 11,900 | 9,200 |
Internet services | 16,800 | 11,000 |
ATM/Frame relay | 3,800 | 2,200 |
$ 76,600 | $ 73,600 | |
Voice revenues for the third quarter 2002 decreased $6,900,000, or 22 percent, compared to the second quarter 2002 as a result of our continuing efforts to reduce our low-margin wholesale voice business. Private line revenues, which include dedicated point-to-point capacity on our network, remained flat. We also experienced increases in access and other revenues of $2,700,000, or 29%. Approximately $1,600,000 was due to billing of pass-through costs attributable to January through September 2002. Internet services revenues increased by $5,800,000, or 53%, as a result of an increase in these services that we provide to Qwest's customers, and ATM/Frame relay revenues increased by $1,600,000 or 73%.
Operating Expenses
Operating expenses, excluding depreciation and amortization, for the third quarter 2002 decreased approximately $15,800,000, or 14 percent, compared to the second quarter 2002. Cost of services decreased $9,900,000 primarily due to network costs associated with the decline in voice revenues. Other factors contributing to the decrease were a reversal in the third quarter 2002 of $1,600,000 in network costs for which we had been incorrectly billed and approximately $800,000 attributable to disconnection of unused circuits. We also experienced a reduction of $2,600,000 in network construction costs that we do not expect to recover. These costs were recorded in the second quarter 2002 and were associated with the construction of towers for TWW.
SG&A expense decreased approximately $5,800,000, with expenses decreasing in most categories. The efforts to reduce and control costs resulted in decreases in labor and outside services of $1,600,000 and $2,200,000, respectively. Bad debt expense decreased $1,500,000. Depreciation and amortization increased by $1,400,000 primarily due to new routes being placed into service.
Other Deductions - Net
Other deductions - net improved approximately $1,100,000 primarily due to the absence of write-downs in the third quarter 2002 as compared with the equity losses and write-downs of $3,500,000 of a note receivable from MPCS in the second quarter 2002. We also recorded a loss of $700,000 in the third quarter 2002 from the sale of our subsidiary, Tetragenics.
Interest income decreased $1,400,000 as cash available for investing decreased.
NOTIFICATION OF NONCOMPLIANCE
In early October 2002, we received notification from the New York Stock Exchange (NYSE) that we are not in compliance with NYSE listing standards.
Among other requirements, the NYSE requires that Touch America Holdings have a share price of not less than $1 over any 30 consecutive trading-day period. We have acknowledged receipt of the non-compliance notice and expect to take reasonable steps to timely cure the deficiency noted in the NYSE notice. We are not currently meeting this requirement.
ADDITIONAL INFORMATION
This Form 8-K may contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Forward-looking statements should be read with the cautionary statements and important factors included in Touch America Holdings' Annual Report on Form 10-K for the year ended December 31, 2001. Forward-looking statements are statements other than statements of historical fact, including, without limitation, those that are identified by the use of the words "expects," "believes," "anticipates," and similar expressions.
For comparative purposes, the following table shows the breakdown of consolidated basic net earnings (loss) per share for the periods indicated:
Quarters Ended | Nine Months Ended | |||
September 30, | September 30, | |||
2002 | 2001 | 2002 | 2001 | |
Continuing Operations | $ (0.21) | $ (0.14) | $ (0.69) | $ (0.10) |
Cumulative effect of change in |
|
|
|
|
Discontinued Operations | - | (0.12) | 0.06 | 0.30 |
Consolidated | $ (0.21) | $ (0.26) | $ (0.64) | $ 0.20 |
Quarters Ended | ||
September 30, | June 30, | |
2002 | 2002 | |
Continuing Operations | $ (0.21) | $ (0.32) |
Consolidated | $ (0.21) | $ (0.32) |
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
Exhibit |
|
99a | Preliminary Consolidated Statement of Operations for the Quarters Ended September 30, 2002 and 2001 and for the Nine Months Ended September 30, 2002 and 2001. |
99b | Preliminary Discontinued Operations Listing of Income for the |
99c | Preliminary Consolidated Statement of Operations for the Quarters Ended September 30, 2002 and June 30, 2002. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
TOUCH AMERICA HOLDINGS, INC. | ||
(Registrant) | ||
By | /s/ J.P. Pederson | |
J.P. Pederson | ||
Vice Chairman and Chief | ||
Financial Officer | ||
Dated: November 7, 2002
EXHIBIT INDEX
Exhibit |
| Page |
99a | Preliminary Consolidated Statement of Operations for the Quarters Ended September 30, 2002 and 2001 and for the Nine Months Ended September 30, 2002 and 2001. |
|
99b | Preliminary Discontinued Operations Listing of Income for |
|
99c | Preliminary Consolidated Statement of Operations for the Quarters Ended September 30, 2002 and June 30, 2002. |
|
Exhibit 99a | |||||
TOUCH AMERICA HOLDINGS, INC. AND SUBSIDIARIES | |||||
PRELIMINARY CONSOLIDATED STATEMENT OF OPERATIONS | |||||
Quarters Ended | Nine Months Ended | ||||
September 30, | September 30, | ||||
2002 | 2001 | 2002 | 2001 | ||
(Thousands of Dollars) | |||||
(except per-share amounts) | |||||
REVENUES | $ 76,614 | $ 145,478 | $ 248,807 | $ 431,854 | |
EXPENSES: | |||||
Cost of services | 67,547 | 106,126 | 216,766 | 298,892 | |
Selling, general, and administrative | 24,060 | 28,402 | 81,644 | 77,670 | |
Taxes other than income taxes | 3,533 | 3,937 | 11,004 | 11,819 | |
Depreciation and amortization | 15,491 | 11,584 | 43,609 | 31,982 | |
110,631 | 150,049 | 353,023 | 420,363 | ||
OPERATING INCOME (LOSS) | (34,017) | (4,571) | (104,216) | 11,491 | |
INTEREST EXPENSE AND OTHERDEDUCTIONS: | |||||
Interest | 10 | 222 | 357 | 1,747 | |
Other deductions - net | 138 | 17,358 | 4,574 | 20,676 | |
148 | 17,580 | 4,931 | 22,423 | ||
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME |
|
|
|
| |
INCOME TAXES (BENEFIT) | (13,226) | (8,252) | (42,181) | (3,752) | |
LOSSFROM CONTINUING OPERATIONS | (20,939) | (13,899) | (66,966) | (7,180) | |
DISCONTINUED OPERATIONS: | |||||
Income (loss) from discontinued operations, |
| 1,722 |
| (17,301) | |
Gain/gain adjustment on sales of discontinued |
|
|
|
| |
INCOME (LOSS) FROM DISCONTINUED OPERATIONS | - | (12,674) | 6,001 | 30,800 | |
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING |
|
|
|
| |
NET INCOME (LOSS) | (20,939) | (26,573) | (62,336) | 23,620 | |
DIVIDENDS ON PREFERRED STOCK | 621 | 922 | 3,757 | 2,847 | |
NET INCOME (LOSS)AVAILABLE FOR COMMON STOCK | $ (21,560) | $ (27,495) | $ (66,093) | $ 20,773 | |
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - |
| 103,775 |
| 103,766 | |
BASIC EARNINGS (LOSS)PER SHARE OF COMMON STOCK | $ (0.21) | $ (0.26) | $ (0.64) | $ 0.20 | |
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - |
|
|
|
| |
DILUTED EARNINGS (LOSS)PER SHARE OF COMMON |
|
|
|
| |
Exhibit 99b | ||||
TOUCH AMERICA HOLDINGS, INC. AND SUBSIDIARIES | ||||
PRELIMINARY DISCONTINUED OPERATIONS LISTING OF INCOME | ||||
Quarters Ended | Nine Months Ended | |||
September 30, | September 30, | |||
2002 | 2001 | 2002 | 2001 | |
(Thousands ofDollars) | ||||
DISCONTINUED OPERATIONS: | ||||
Income (loss) from discontinued utility |
|
|
|
|
Income from discontinued former coal |
|
|
|
|
Income from Continental Energy, net of income |
|
|
|
|
Gain on sale of discontinued former coal operations, net of income taxes |
|
|
|
|
Gain on sale of Continental Energy, net of |
|
|
|
|
Gain adjustment on sale of discontinued oil |
|
|
|
|
Gain on sale of discontinued utility |
|
|
|
|
NET INCOME (LOSS) FROM DISCONTINUED OPERATIONS |
|
|
|
|
| Exhibit 99c | |
TOUCH AMERICA HOLDINGS, INC. AND SUBSIDIARIES | ||
PRELIMINARY CONSOLIDATED STATEMENT OF OPERATIONS | ||
Quarters Ended | ||
September 30, | June 30, | |
2002 | 2002 | |
(Thousands of Dollars) | ||
(except per-share amounts) | ||
REVENUES | $ 76,614 | $ 73,640 |
EXPENSES: | ||
Cost of services | 67,547 | 77,484 |
Selling, general, and administrative | 24,060 | 29,901 |
Taxes other than income taxes | 3,533 | 3,563 |
Depreciation and amortization | 15,491 | 14,105 |
110,631 | 125,053 | |
OPERATING LOSS | (34,017) | (51,413) |
INTEREST EXPENSE AND OTHER DEDUCTIONS: | ||
Interest | 10 | 5 |
Other deductions - net | 138 | 1,260 |
148 | 1,265 | |
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | (34,165) | (52,678) |
INCOME TAXES (BENEFIT) | (13,226) | (20,368) |
LOSS FROM CONTINUING OPERATIONS | (20,939) | (32,310) |
DIVIDENDS ON PREFERRED STOCK | 621 | 620 |
NET LOSS AVAILABLE FOR COMMON STOCK | $ (21,560) | $ (32,930) |
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - |
|
|
BASIC LOSS PER SHARE OF COMMON STOCK | $ (0.21) | $ (0.32) |
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - |
|
|
DILUTED LOSS PER SHARE OF COMMON STOCK | $ (0.21) | $ (0.32) |
