UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________
FORM 10-Q
[X] Quarterly report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 2001
[ ] Transition report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number 333-50049
DTI HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Missouri 43-1828147
(State of Incorporation) (I.R.S. Employer
Identification No.)
8112 Maryland Ave, 4th Floor
St. Louis, Missouri 63105
(Address of principal executive offices)
(314) 880-1000
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
No non-affiliates of the registrant own common stock of the
registrant.
DTI HOLDINGS, INC.
FORM 10-Q
March 31, 2001
TABLE OF CONTENTS
Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
December 31, 2000 and March 31, 2001 (Unaudited) 3
Condensed Consolidated Statements of Operations
for the Three Months Ended March 31, 2000 and
2001 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 2000 and
2001 (Unaudited) 5
Notes to Condensed Consolidated Financial
Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 14
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
Signatures
Exhibit Index
PART II - OTHER INFORMATION
DTI HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, March 31,
2000 2001
Assets (Unaudited)
Current assets:
Cash and cash equivalents $ 10,639,366 $ 1,875,666
Trade accounts receivable, net 626,091 417,905
Prepaid and other current assets 1,550,789 1,513,346
------------ ------------
Total current assets 12,816,246 3,806,917
Property and equipment, net 361,314,245 372,682,928
Deferred financing costs, net 6,020,632 2,717,735
Prepaid fiber usage rights 349,628 331,544
Other assets 626,637 666,115
------------ ------------
Total $381,127,388 $380,205,239
============ ============
Liabilities and stockholders' equity
(deficit)
Current liabilities:
Accounts payable $ 23,566,886 $ 10,179,702
Revolving credit facility from parent - 21,500,000
Demand loan from parent - 94,000,000
IRU payable 7,093,000 7,093,000
Vendor financing 5,836,766 4,032,411
Taxes payable 2,311,584 2,808,229
Interest payable to parent - 1,694,667
Senior discount notes, net of
unamortized underwriter's 191,376,908 -
discount of $2,634,050 and $0,
respectively
Other accrued liabilities 3,919,650 4,782,743
------------ ------------
Total current liabilities 234,104,794 146,090,752
Senior discount notes, net of 188,414,535 194,352,078
unamortized underwriter's
discount of $2,593,278 and
$2,347,356, respectively
Deferred revenues 41,148,937 42,053,122
Vendor financing 2,100,030 -
------------ ------------
Total liabilities 465,768,296 382,495,952
------------ ------------
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, $.01 par value,
20,000 shares authorized, no shares - -
issued and outstanding
Convertible series A preferred stock,
$.01 par value, (aggregate
liquidation preference of $45,000,000)
30,000 shares authorized, issued and
outstanding 300 300
Common stock, $.01 par value,
100,000,000 shares Authorized,
30,000,000 shares issued and outstanding 300,000 300,000
Additional paid-in capital 44,213,063 44,213,063
Common stock warrants 10,421,336 10,421,336
Unearned compensation (18,190) (9,100)
Loan to stockholder (1,593,122) -
Accumulated deficit (137,964,295) (57,216,312)
------------ ------------
Total stockholders' equity
(deficit) (84,640,908) (2,290,713)
------------ ------------
Total $ 381,127,388 $ 380,205,239
============ ============
See notes to condensed consolidated financial statements.
- 3 -
DTI HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months
Ended
March 31,
2000 2001
---- ----
REVENUES:
Telecommunications services:
Carrier's carrier services $ 2,309,464 $3,610,430
End-user services 61,029 134,874
----------- ----------
Total revenues 2,370,493 3,745,304
----------- ----------
OPERATING EXPENSES:
Telecommunications services 3,006,769 4,315,673
Selling, general and administrative 1,390,713 1,408,738
Depreciation and amortization 3,494,223 4,620,869
----------- ----------
Total operating expenses 7,891,705 10,345,280
----------- ----------
LOSS FROM OPERATIONS (5,521,212) (6,599,976)
----------- ----------
OTHER INCOME (EXPENSE):
Interest income 884,199 83,511
Interest expense (9,127,811) (8,305,415)
----------- ----------
Total other income (expense) (8,243,612) (8,221,904)
----------- ----------
NET LOSS BEFORE INCOME TAX BENEFIT (13,764,824) (14,821,880)
INCOME TAX BENEFIT - 38,315,098
----------- ----------
NET INCOME/(LOSS) BEFORE EXTRAORDINARY ITEM (13,764,824) 23,493,218
EXTRAORDINARY ITEM - GAIN ON EARLY
EXTINGUISHMENT OF DEBT- NET OF TAX - 57,254,765
----------- ----------
NET INCOME/(LOSS) $(13,764,824) $80,747,983
============ ==========
See notes to condensed consolidated financial statements.
- 4 -
DTI HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
2000 2001
Cash flows provided by operating activities:
Net (loss) income $(13,764,824) $80,747,983
Adjustments to reconcile net (loss)
income to cash provided
by operating activities:
Depreciation and amortization 3,494,223 4,620,869
Accretion of senior discount notes 8,491,312 6,163,349
Amortization of deferred financing 465,795 252,244
costs
Amortization of unearned 9,090 9,090
compensation
Gain on early extinguishment of debt - (57,254,765)
Deferred income taxes - (38,315,098)
Other noncash items 184,720 363,939
Changes in assets and liabilities:
Trade accounts receivable (41,753) 208,186
Other assets (6,472,385) 16,049
Accounts payable 6,046,731 (13,387,184)
Other liabilities 357,935 2,181,328
Taxes payable 441,531 496,645
Deferred revenues 799,044 904,185
------------ -----------
Net cash flows provided by (used in)
operating activities 11,419 (12,993,180)
------------ -----------
Cash flows from investing activities:
Increase in network and equipment
(23,561,629) (14,138,050)
------------ -----------
Net cash used in investing activities (23,561,629) (14,138,050)
------------ -----------
Cash flows from financing activities:
Proceeds from demand loan from parent - 94,000,000
Proceeds from credit facility from parent - 21,500,000
Repurchase of senior discount notes - (94,833,700)
Repayment of vendor financing (2,117,025) (3,904,385)
Proceeds from repayment of loan to
stockholder - 1,605,615
------------ -----------
Cash flows (used in) provided by financing
activities (2,117,025) 18,367,530
------------ -----------
Net decrease in cash and cash equivalents (25,667,235) (8,763,700)
Cash and cash equivalents, beginning of
period 73,190,771 10,639,366
------------ -----------
Cash and cash equivalents, end of period $ 47,523,536 $ 1,875,666
============ ===========
Noncash investing and financing activities:
Interest capitalized to fixed assets $ 2,066,750 $ 1,851,502
============ ===========
Fixed assets acquired through vendor
financing 4,093,290 -
============ ===========
See notes to condensed consolidated financial statements.
- 5 -
DTI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10-01 of
Regulation S-X. Accordingly, they do not include all of the
information and notes required by accounting principles generally
accepted in the United States of America for complete financial
statements.
In the opinion of the management of DTI Holdings, Inc. and
subsidiaries (the "Company" or "DTI") the accompanying unaudited
condensed consolidated financial statements contain all
adjustments (consisting of normal recurring adjustments)
considered necessary to present fairly the Company's financial
information for the interim periods presented and have been
prepared in accordance with accounting principles generally
accepted in the United States of America. The interim results of
operations are not necessarily indicative of results that may be
expected for any other interim period or for the full year.
The financial statements should be read in conjunction with the
audited consolidated financial statements and notes thereto for
the period ended December 31, 2000 included in the Company's Form
10-K for the same period filed with the Securities and Exchange
Commission. Accordingly, note disclosures which would
substantially duplicate the disclosures in the audited financial
statements have been omitted. Additionally, certain prior year
balances have been reclassified to conform with period ended
December 31, 2000 presentation.
2. TENDER OF SENIOR DISCOUNT NOTES AND OWNERSHIP EXCEEDING 80 PERCENT
On February 1, 2001, the Company purchased 50.4 percent of
its Senior Discount Notes for a purchase price of $94.8
million pursuant to a tender offer. KLT Telecom Inc. (KLTT), the
telecommunications subsidiary of Kansas City Power & Light Company
("KCP&L"), provided a demand loan ("Demand Loan") to the Company
of $94 million at an annual interest rate of 10% in order to
complete this transaction. The Demand Loan received from KLTT is
in the form of a demand note in which all principal and interest
is due upon demand and is secured by a pledge of all the
outstanding stock of Digital Teleport, Inc. and Digital Teleport
of Virginia, Inc. As a result of the purchase made pursuant to
the completion of the tender offer the Company reduced the
principal amount outstanding of its Senior Discount Notes, net of
unamortized underwriter's discount, by approximately $193.5
million and Deferred Financing Costs by approximately $2.9
million. These reductions resulted in a net benefit to the
Company of $95.6 million consisting of a net gain on early
extinguishment of debt to the Company of $57.3 million and a tax
benefit of $38.3 million as a result of an adjustment in the
Company's deferred tax valuation allowance as of February 1, 2001.
The purchase of the Senior Discount Notes also reduces the amount
of cash interest that will be due with respect to the Senior
Discount Notes by approximately $32 million annually starting in
September 2003, when these payments begin, and replaced this
interest with approximately $9.4 million in annual interest which
will be payable in accordance with the Demand Loan or its eventual
replacement financing. The consent solicitation made in connection
with the tender offer authorized certain changes in the indenture
associated with the Senior Discount Notes, including expanding the
Company's allowable secured borrowings by an additional $194
million to a total of $294 million. These changes also permit the
Demand Loan to be secured by the stock of the Company's
subsidiaries and other financings to be secured by the assets of
the Company and its subsidiaries.
- 6 -
On February 8, 2001, KLTT acquired an additional 30.7 percent of
the fully diluted shares of the Company from Richard D. Weinstein,
the former Chairman, President and CEO of the Company for $33.6
million in cash. An additional 5 percent of the fully diluted
shares were purchased by KLTT through a tender offer for DTI's
outstanding warrants issued in connection with the Senior Discount
Notes and the purchase by KLTT of a separate warrant for 1 percent
of the Company's common stock, that results in KLTT now owning
82.1 percent of DTI's fully diluted shares, excluding shares
underlying stock options granted under the Company's 2001 Stock
Option Plan. Shares underlying options granted under that plan
are excluded from this calculation because each optionee, upon
exercise of the options, is entitled only to receive cash in lieu
of shares in an amount equal to the spread between the fair market
of the shares and the exercise price in the event that such
exercise would either (i) cause the Company to cease being a
member of the affiliated group with KLTT for federal income tax
purposes, or (ii) cause a change of control as defined in the
Indenture, as amended, for the Senior Discount Notes.
Under the purchase agreement, Mr. Weinstein has resigned as
Chairman, President and CEO and will retain just over 15 percent
of the fully diluted ownership and a seat on the DTI board. Paul
Pierron was appointed the new President and CEO of the Company in
April 2001. KLTT also acquired Mr. Weinstein's interest in the
Company's St. Louis point-of-presence and switch facility, which
now results in the Company making payments to KLTT for use of this
facility. Additionally, as a part of the purchase agreement in
February 2001, Mr. Weinstein repaid an outstanding loan to the
Company in the amount of $1.6 million including interest, which
had resulted from the settlement of certain litigation against the
Company and Mr. Weinstein.
KLTT has also committed to provide or arrange (through guaranty or
otherwise) a revolving credit facility to the Company, to be made
in 2001 in the amount of $75 million, the proceeds of which would
be used for operations and capital expenditures as set forth in a
reasonable capital budget to be established by the Company's Board
of Directors. Under that commitment KLTT has currently extended a
demand revolving credit facility loan ("Revolving Credit
Facility") of $35 million at 9.5% interest to the Company, and is
working with the Company to arrange third-party financing in the
form of a $100 million senior credit facility ("Senior Credit
Facility") for the Company. As of March 31, 2001 the Company had
drawn down $21.5 million against the Revolving Credit Facility.
DTI will use these combined sources of financing to complete the
construction of the planned DTI network and meet other operating
requirements.
3. NETWORK AND EQUIPMENT
Network and equipment consists of the following as of:
December 31, 2000 March 31, 2001
----------------- --------------
Land $ 1,946,343 $ 2,211,821
Fiber optic cable plant 190,704,018 202,732,370
Fiber usage rights 137,436,763 138,671,405
Fiber optic terminal 46,766,492 47,846,307
equipment
Network buildings 11,040,794 12,231,359
Furniture, office equipment 3,101,193 3,255,444
and other
Leasehold improvements 601,406 637,856
------------- --------------
391,597,009 407,586,562
Less - accumulated
depreciation 30,282,764 34,903,634
------------- --------------
Network and equipment, net $ 361,314,245 $ 372,682,928
============= ==============
- 7 -
At December 31, 2000 and March 31, 2001, fiber optic cable plant,
fiber usage rights, fiber optic terminal equipment and network
buildings include $67 million and $68 million of construction in
progress, respectively, that was not in service and, accordingly,
has not been depreciated.
4. COMMITMENTS AND CONTINGENCIES
From time to time the Company is named as a defendant in routine
lawsuits incidental to its business. The Company believes that
none of such current proceedings, individually or in the
aggregate, will have a material adverse effect on the Company's
financial position, results of operations or cash flows. During
fiscal 2001, the Company has made and may continue to make
material commitments related to the expansion of its network.
- 8 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenue
Total revenue for the three months ended March 31, 2001 increased
$1.4 million (58%) from the comparable prior year period. This
growth is primarily attributable to increased revenues from
carrier's carrier services. Revenues from carrier's carrier
services for the same periods were up 56%. The increase was due
principally to additional sales of transport business on our in-
service routes.
Operating Expenses
Total operating expenses increased $2.5 million for the quarter
ended March 31,2001 compared to the same period in the prior year.
Telecommunication services expenses increased $1.3 million for the
quarter ended March 31, 2001 compared to the same periods in the
prior year. This increase primarily reflects the increase of
personnel costs related to the growth of the operational
infrastructure, costs related to accepted dark fiber segments and
property taxes.
Depreciation and amortization grew $1.1 million for the three
month period ended March 31, 2001 in comparison to the same period
in the prior year due to increasing amounts of our fiber optic
network being placed into service. Depreciation and amortization
will continue to grow as additional network routes are placed into
service and as we move forward with our investment in capital
assets in order to increase network capacity.
Other Income (Expense)
Net other income (expense) for the quarter remained constant at a
net expense of $8.2 million in 2000 and 2001. Net other income
(expense) is constant between the quarters primarily due to the
Company's repurchase of 50.4% of its Senior Discount Notes on
February 1, 2001. As a result of the repurchase the Company has
reduced the amount of accretion related to the Senior Discount Notes.
This reduction in accretion related to the Senior Discount Notes is
offset in part by a reduction in the interest income earned on the
portion of the proceeds from the Senior Discount Notes invested in
short-term investment-grade securities as the cash related to the
Senior Discount Notes has been fully utilized, in connection with
the implementation of our business strategy.
Income Taxes
The Company recognized an income tax benefit of $38.3 million as a
result of the net gain on the early extinguishment of debt which
allowed us to adjust our deferred tax valuation allowance for the
quarter ended March 31, 2001. No income tax benefit or provision
was recorded for the three-month period ended March 31, 2000. A
valuation allowance is being provided to reserve for significant
deferred tax assets generated from net operating loss
carryforwards and the nondeductible interest expense related to
our Senior Discount Notes, issued in February 1998, that may not
be realizable due to uncertainties surrounding income tax law
changes and future operating income levels.
- 9 -
Gain on Early Extinguishment of Debt
The Company recognized a net gain on early extinguishment of debt,
net of tax, of $57.3 million as a result of the repurchase of 50.4%
of the Senior Discount Notes for the quarter ended March 31, 2001.
Liquidity and Capital Resources
We have funded our capital expenditures, working capital and debt
requirements and operating losses through a combination of advance
payments for future telecommunications services received from
certain major customers, debt and equity financing and external
borrowings.
At March 31, 2001, we had a working capital deficiency of $142.3
million, which represents an increase in working capital of $79.0
million compared to the working capital deficit of $221.3 million
at December 31, 2000. This increase is primarily attributable to
the Company's repurchase of 50.4% of its outstanding Senior
Discount Notes.
The net cash provided by (used in) operating activities for the
three-month period ended March 31, 2000 and 2001 totaled $0
million and $(13.0) million, respectively. During 2001, net cash
used in operating activities resulted primarily from payment of
Accounts Payable of $13.4 million as we have completed various
construction projects related to the build-out of our network.
Our investing activities used cash of $14.1 million for the three-
month period ended March 31, 2001 and $23.6 million for the three-
month period ended March 31, 2000. During both periods, 100% of
the investing activities were related to network and equipment.
Cash used in financing activities was $2.1 million for the period
ended March 31, 2000 consisting primarily of amounts paid under
our vendor financing agreement. During the period ended March 31,
2001 cash flows generated from financing activities was $18.4
million and represented proceeds from our new revolving credit
facility from parent, KLTT, and repayment of our loan to
stockholder offset by payments made on our vendor financing
agreement. We also repurchased 50.4% of the outstanding Senior
Discount Notes using the proceeds of a $94 million demand loan
from parent and $.8 million of cash on hand.
On February 1, 2001, the Company purchased 50.4 percent of
its Senior Discount Notes for a purchase price of $94.8 million
pursuant to a tender offer. KLTT provided a demand loan ("Demand Loan")
to the Company of $94 million at an annual interest rate of 10% in
order to complete this transaction. The Demand Loan received from
KLTT is in the form of a demand note in which all principal and
interest is due upon demand and is secured by a pledge of all the
outstanding stock of Digital Teleport, Inc. and Digital Teleport
of Virginia, Inc. As a result of the purchase made pursuant to the
completion of the tender offer the Company reduced the principal amount
outstanding of its Senior Discount Notes, net of unamortized
underwriter's discount, by approximately $193.5 million and Deferred
Financing Costs by approximately $2.9 million. These reductions resulted
in a net benefit to the Company of $95.6 million consisting of a net gain
on early extinguishment of debt to the Company of $57.3 million and a
tax benefit of $38.3 million as a result of an adjustment in the
Company's deferred tax valuation allowance as of February 1, 2001. The
purchase of the Senior Discount Notes also reduces the amount of
cash interest that will be due with respect to the Senior Discount
Notes by approximately $32 million annually starting in September
2003, when these payments begin, and replaced this interest with
approximately $9.4 million in annual interest which will be payable
in accordance with the Demand Loan or its eventual replacement
financing. The consent solicitation made in connection with the
- 10 -
tender offer authorized certain changes in the indenture
associated with the Senior Discount Notes, including expanding the
Company's allowable secured borrowings by an additional $194
million to a total of $294 million. These changes also permit the
Demand Loan to be secured by the stock of the Company's
subsidiaries and other financings to be secured by the assets of
the Company and its subsidiaries.
On February 8, 2001, KLTT acquired an additional 30.7 percent of
the fully diluted shares of the Company from Richard D. Weinstein,
the former Chairman, President and CEO of the Company for $33.6
million in cash. An additional 5 percent of the fully diluted
shares were purchased by KLTT through a tender offer for DTI's
outstanding warrants issued in connection with the Senior Discount
Notes and the purchase by KLTT of a separate warrant for 1 percent
of the Company's common stock, that results in KLTT now owning
82.1 percent of DTI's fully diluted shares, excluding shares
underlying stock options granted under the Company's 2001 Stock
Option Plan. Shares underlying options granted under that plan
are excluded from this calculation because each optionee, upon
exercise of the options, is entitled only to receive cash in lieu
of shares in an amount equal to the spread between the fair market
of the shares and the exercise price in the event that such
exercise would either (i) cause the Company to cease being a
member of the affiliated group with KLTT for federal income tax
purposes, or (ii) cause a change of control as defined in the
Indenture, as amended, for the Senior Discount Notes.
Under the purchase agreement, Mr. Weinstein has resigned as
Chairman, President and CEO and will retain just over 15 percent
of the fully diluted ownership and a seat on the DTI board. Paul
Pierron was appointed the new President and CEO of the Company in
April 2001. KLTT also acquired Mr. Weinstein's interest in the
Company's St. Louis point-of-presence and switch facility, which
now results in the Company making payments to KLTT for use of this
facility. Additionally, as a part of the purchase agreement in
February 2001, Mr. Weinstein repaid an outstanding loan to the
Company in the amount of $1.6 million including interest, which
had resulted from the settlement of certain litigation against the
Company and Mr. Weinstein.
KLTT has also committed to provide or arrange (through guaranty or
otherwise) a revolving credit facility to the Company, to be made
in 2001 in the amount of $75 million, the proceeds of which would
be used for operations and capital expenditures as set forth in a
reasonable capital budget to be established by the Company's Board
of Directors. Under that commitment KLTT has currently extended a
demand revolving credit facility loan ("Revolving Credit
Facility") of $35 million at 9.5% interest to the Company, and is
working with the Company to arrange third-party financing in the
form of a $100 million senior credit facility ("Senior Credit
Facility") for the Company. As of March 31, 2001 the Company had
drawn down $21.5 million against the Revolving Credit Facility.
DTI will use these combined sources of financing to complete the
construction of the planned DTI network and meet other operating
requirements.
To achieve our business plan, we will need significant financing
to fund our capital expenditure, working capital, debt service
requirements and our anticipated future operating losses. Our
estimated capital requirements primarily include the estimated
cost of (i) constructing the remaining portions of the planned DTI
network routes, (ii) purchasing, for cash, fiber optic facilities
pursuant to long-term IRUs for planned routes that we will neither
construct nor acquire through swaps with other telecommunication
carriers, and (iii) additional network expansion activities,
including the construction of additional local loops in secondary
and tertiary cities as network traffic volume increases. We
estimate that total capital expenditures necessary to complete our
network will approximate $550 million, of which we had expended
$403 million as of March 31, 2001. During the balance of calendar
2001, we anticipate our capital expenditure priorities will be
- 11 -
focused principally on completing our nationwide backbone,
accessing target markets and lighting our network in areas in
which we believe there is strong carrier interest. Our existing
capital commitments consist principally of construction
commitments of $13 million for network segments under construction
and payments required under existing IRU and short-term lease
agreements, totaling $8 million, which are payable within the next
twelve months as related contract completion criteria are met. We
also may require additional capital in the future to fund
operating deficits and net losses and for potential strategic
alliances, joint ventures and acquisitions. These activities could
require significant additional capital not included in the
foregoing estimated capital requirements.
In November 1999, we entered into an IRU agreement with Adelphia
Business Solutions ("ABS") for over 4000 route miles on our
network initially valued at between $27 to $42 million to DTI
depending on the number of options for additional routes of fiber
strands exercised by the parties. ABS paid $10 million in advance
cash payments under the terms of the Agreement. In August 2000,
ABS cancelled five routes or portions thereof, which will result
in approximately $4.2 million in reduced future cash collections
under the Agreement, plus the repayment to ABS of approximately
$1.6 million previously paid to DTI by ABS, which was repaid in
September 2000. In addition to providing for certain rights to
cancel delivery of route segments not delivered to them by agreed
upon dates, the Agreement also provides for monthly financial
penalties for late deliveries. Subsequent to December 31 the
Company reached an agreement with ABS to amend the Agreement
between the parties. Under the terms of the Amendment, all
penalties accruing to ABS as a result of the Company's failure to
deliver routes by the contractual due dates ceased as of December
31, 2000. In addition, the Amendment allows ABS to terminate four
additional routes or portions thereof. However, the Amendment
does not allow further route terminations if DTI delivers all
remaining routes by September 30, 2001. The route cancellations
will not require the repayment to ABS of any prepayments received
by the Company for those cancelled routes. Those prepayments will
be credited against amounts owed to the Company when the remaining
routes are accepted by ABS. ABS will be allowed to defer all
remaining route acceptances until January 2002, along with the
payment of the remaining net approximately $9.6 million due to
DTI. The amounts payable to DTI upon route delivery will accrue
interest at 11% from the actual dates of delivery of the routes
until their acceptance in January 2002, or their earlier
acceptance at the option of ABS.
We have a swap agreement with a counter party under which both DTI
and the counter party did not deliver their respective routes by
the contracted due date. The counter party to the agreement has
delivered both of its routes and we have delivered one of our two
routes. As the counter party delivers their routes and we accept
them we are required to make annual cash payments to them totaling
approximately $1.4 million, plus quarterly building and
maintenance fees, in advance of their making payments to us for
our routes. Additionally, we may be required to accrue penalties
for late delivery of $100,000 per route per month. We have
received notice from the counter party that they intend to
exercise their rights to cancel delivery of our routes due to late
delivery which would result in our not receiving approximately
$1.3 million annually in lease payments over the twenty year term
of the agreements plus quarterly maintenance, building space and
other quarterly and annual payments due under the terms of the
agreements. The Company believes that the counter party's notice
of intent to terminate is subject to challenge and is in the
process of reviewing its potential remedies under the contract.
DTI has a swap agreement with a counter party under which both DTI
and the counter party did not deliver their respective routes by
the contracted due date. DTI and the counter party are in the
process of amending the agreement to provide for mid to late
summer concurrent deliveries.
- 12 -
In another swap agreement, if DTI does not settle an obligation by
providing the counter party with additional DTI fiber by December
31, 2001, DTI will be required to pay an additional $7 million in
cash to the counter party.
An agreement dating back to October 1994, between AmerenUE and
ourselves requires us to construct a fiber optic network linking
AmerenUE's 86 sites throughout the states of Missouri and Illinois
in return for cash payments to DTI and the use of various rights-
of-way including downtown St. Louis. As of March 31, 2001, we had
completed approximately 77% of the sites required for AmerenUE and
expect to complete all such construction by the end of calendar
2001. AmerenUE has set off against amounts payable to us up to
$90,000 per month as damages and penalties under our contract with
them due to our failure to meet certain construction deadlines,
and AmerenUE has reserved its rights to seek other remedies under
the contract which could potentially include reclamation of the
rights-of-way granted to DTI. We are behind schedule with respect
to such contract. Upon completion and turn-up of services,
AmerenUE is contractually required to pay us a remaining lump sum
expected to be approximately $1.7 million for their
telecommunications services over our network.
On February 23, 1998, we completed the issuance and sale of the
Senior Discount Notes, from which we received proceeds, net of
underwriting discounts and expenses, totaling approximately $265
million. As a result of the completion of the Company's tender
offer for its Senior Discount Notes on February 1, 2001, the
amount of Senior Discount Notes has been reduced by 50.4 percent
and certain changes have been made to the indenture including
expanding the Company's allowable secured borrowings by an
additional $194 million to a total of $294 million, permitting the
tender offer indebtedness, and permitting the acquisition of any
or all of the Senior Discount Notes at any time. These changes
would also permit the tender offer financing and credit facility
to be secured by the assets and stock of the Company and its
subsidiaries. We have used the net proceeds (i) to fund
additional capital expenditures required for the completion of the
our network, (ii) to expand our management, operations and sales
and marketing infrastructure and (iii) for additional working
capital and other general corporate purposes. We may incur
significant and possibly increasing operating losses and expect to
generate negative net cash flows after capital expenditures during
at least the next year as we continue to invest substantial funds
to complete our network and develop and expand our
telecommunications services and customer base. Accordingly, if we
cannot achieve operating profitability or positive cash flows from
operating activities, we may not be able to service the Senior
Discount Notes or to meet our other debt service or working
capital requirements, which would have a material adverse effect
on us.
Subject to the Indenture provisions that limit restrictions on the
ability of any of our Restricted Subsidiaries to pay dividends and
make other payments to us, future debt instruments of Digital
Teleport may impose significant restrictions that may affect,
among other things, the ability of Digital Teleport to pay
dividends or make loans, advances or other distributions to us.
The ability of Digital Teleport to pay dividends and make other
distributions also will be subject to, among other things,
applicable state laws and regulations. Although the Senior
Discount Notes do not require cash interest payments until
September 1, 2003, at such time the Senior Discount Notes will
require annual cash interest payments of approximately $31
million, after giving effect to the repurchase of the Senior
Discount Notes as described in Item 1 - "Business - Recent
Events". In addition, the Senior Discount Notes mature on March 1,
2008. We currently expect that the earnings and cash flow, if any,
of Digital Teleport will be retained and used by such subsidiary
in its operations, including servicing its own debt obligations.
We do not anticipate that we will receive any material
distributions from Digital Teleport prior to September 1, 2003.
Even if we determine to pay a dividend on or make a distribution
in respect of the capital stock of Digital Teleport, there can be
no assurance that Digital Teleport will generate
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sufficient cash flow to pay such a dividend or distribute such funds
to us or that applicable state law and contractual restrictions, including
negative covenants contained in any future debt instruments of
Digital Teleport, will permit such dividends or distributions. The
failure of Digital Teleport to pay or to generate sufficient
earnings or cash flow to distribute any cash dividends or make any
loans, advances or other payments of funds to us would have a
material adverse effect on our ability to meet our obligations on
the Senior Discount Notes. Further, there can be no assurance that
we will have available, or will be able to acquire from
alternative sources of financing, funds sufficient to repurchase
the Senior Discount Notes in the event of a Change of Control as
defined in the Indenture.
Forward Looking Statements
Certain statements throughout Management's Discussion and Analysis
of Financial Condition and Results of Operations and elsewhere in
this quarterly report are "forward looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995
and involve known and unknown risks, uncertainties and other
factors that may cause actual events or results to differ
materially from those expressed or implied by the forward looking
statements. These statements describe our attempt to predict
future events. We use the words "believe," "anticipate," "expect,"
"well" and "estimated completion" similar expressions to identify
forward-looking statements. You should be aware that these forward-
looking statements are subject to a number of risks, assumptions,
and uncertainties, such as:
- - Risks associated with our capital requirements and existing
debt;
- - Risks associated with increasing competition in the
telecommunications industry, including industry over-capacity and
declining prices;
- - Changes in laws and regulations that govern the
telecommunications industry;
- - Risks related to obtaining significant revenue increases;
- - Risks related to continuing our network expansion without
delays, including the need to obtain permits and rights-of-way and
performance penalties for failure to meet delivery deadlines; and
- - Other risks discussed in the Company's Form 10K under "Risk
Factors" filed with the Securities and Exchange Commission for the
period ended December 31, 2000 .
This list is only an example of some of the risks that may affect
our forward-looking statements. If any of these risks or
uncertainties materialize (or if they fail to materialize), or if
the underlying assumptions are incorrect, then our results may
differ materially from those we have projected in the forward-
looking statements. The Company does not intend to update these
statements to reflect future events or circumstances, except to
the extent, if any, required by law.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
As of March 31, 2001, the Company had $194.4 million of 12 1/2%
Senior Discount Notes, due 2008, $21.5 million in revolving credit
facility from parent and $94 million demand loan from the parent.
The Company's short-term and long-term obligations are principally
fixed interest rate, and as a result, the Company is less
sensitive to market rate fluctuations. The Company currently
does not use derivative financial instruments to manage its
interest rate risk and has no cash flow exposure due to general
interest rate changes for its fixed interest rate long-tem debt.
All of the Company's revenue is derived from domestic operations,
so risk related to foreign currency exchange rates is considered
minimal.
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Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
3.1 Restated Articles of Incorporation of the Registrant
(incorporated herein by reference to Exhibit 3.1
to the Registrant's Registration Statement on Form S-4 (File
No. 333-50049)).
3.2 Restated bylaws of the Registrant (incorporated herein by
reference to Exhibit 3.2 to the Registrant's Annual Report
on Form 10K filed as of May 15, 2001).
4.10 First Supplement and Amendment to Trust Indenture between The
Bank of New York, as Trustee, and DTI Holdings, Inc. dated
February 1, 2001. (incorporated herein by reference to
Exhibit 4.1 to the Registrant's Current Report on Form 8-K
filed on February 14, 2001).
10.30 Amendment 1 to Credit Agreement between Digital Teleport,
Inc. and KLT Telecom Inc. dated April 30, 2001.
10.31 Shareholders Agreement among DTI Holdings, Inc.,
Richard D. Weinstein and KLT Telecom Inc. dated February 6,
2001.
10.32 DTI Holdings, Inc., 2001 Stock Option Plan dated March 30, 2001.
10.33 Employment Agreement between Digital Teleport, Inc. and
Paul Pierron dated April 2, 2001.
10.34 First Amendment to IRU and Telecommunications Services
Agreement between Digital Teleport, Inc. and Adelphia
Business Solutions, Inc.
(b) Reports on Form 8-K
(1) Form 8-K Filed February 14, 2001 was filed pursuant to Item 1
(Changes in Control of Registrant) and Item 7.
(2) Form 8-K Filed April 9, 2001 was filed pursuant to Item 5
(Other Events).
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
DTI HOLDINGS, INC.
Date: May 11, 2001 /S/Gary W. Douglass
Gary W. Douglass, Senior Vice
President Finance and
Administration and
Chief Financial Officer (Principal
Financial and Accounting Officer)
Exhibits Index:
3.1 Restated Articles of Incorporation of the Registrant
(incorporated herein by reference to Exhibit 3.1
to the Registrant's Registration Statement on Form S-4 (File
No. 333-50049)).
3.2 Restated bylaws of the Registrant (incorporated herein by
reference to Exhibit 3.2 to the Registrant's Annual Report
on Form 10K filed as of May 15, 2001).
4.10 First Supplement and Amendment to Trust Indenture between The
Bank of New York, as Trustee, and DTI Holdings, Inc. dated
February 1, 2001. (incorporated herein by reference to
Exhibit 4.1 to the Registrant's Current Report on Form 8-K
filed on February 14, 2001).
10.30 Amendment 1 to Credit Agreement between Digital Teleport,
Inc. and KLT Telecom Inc. dated April 30, 2001.
10.31 Shareholders Agreement among DTI Holdings, Inc.,
Richard D. Weinstein and KLT Telecom Inc. dated February 6,
2001.
10.32 DTI Holdings, Inc., 2001 Stock Option Plan dated March 30, 2001.
10.33 Employment Agreement between Digital Teleport, Inc. and
Paul Pierron dated April 2, 2001.
10.34 First Amendment to IRU and Telecommunications Services
Agreement between Digital Teleport, Inc. and Adelphia
Business Solutions, Inc.