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 June 30, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission File Number 0-30218
TIME WARNER TELECOM INC.
------------------------
(Exact name of Registrant as specified in its charter)
State of Delaware 84-1500624
- -------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
10475 Park Meadows Drive
Littleton, Colorado 80124
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 566-1000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
The number of shares outstanding of Time Warner Telecom Inc.'s common stock as
of July 31, 2001 was:
Time Warner Telecom Inc. Class A common stock -- 48,395,858 shares
Time Warner Telecom Inc. Class B common stock -- 65,936,658 shares
TIME WARNER TELECOM INC.
INDEX TO FORM 10-Q
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Page
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Part I. Financial Information
---------------------
Item 1. Financial Statements:
---------------------
Consolidated and Condensed Balance Sheets at June 30,
2001 and December 31, 2000 1
Consolidated Statements of Operations for the three
and six months ended June 30, 2001 and 2000 2
Consolidated Statements of Cash Flows for the six months
ended June 30, 2001 and 2000 3
Consolidated Statement of Changes in Stockholders' Equity
for the six months ended June 30, 2001 4
Notes to Consolidated and Condensed Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Part II. Other Information
-----------------
Item 1. Legal Proceedings 24
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 6. Exhibits and Reports on Form 8-K 25
TIME WARNER TELECOM INC.
CONSOLIDATED AND CONDENSED BALANCE SHEETS
June 30, December 31,
2001 2000
-------------------------------------------
(unaudited)
(amounts in thousands, except share amounts)
ASSETS
Current assets:
Cash and cash equivalents................................................................ $ 450,458 71,739
Cash held in escrow...................................................................... - 179,000
Marketable debt securities............................................................... 30,153 3,496
Receivables, less allowances of $29,487 and $17,610, respectively ....................... 88,484 83,027
Prepaid expenses......................................................................... 3,742 2,505
Deferred income taxes.................................................................... 32,955 34,418
----------- -----------
Total current assets................................................................ 605,792 374,185
----------- -----------
Property, plant and equipment................................................................. 2,122,770 1,195,744
Less accumulated depreciation............................................................ (367,962) (283,572)
----------- -----------
1,754,808 912,172
----------- -----------
Intangible and other assets, net of accumulated amortization (notes 1 and 2).................. 84,250 101,397
----------- -----------
Total assets........................................................................ $ 2,444,850 1,387,754
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................................................... $ 80,958 72,041
Deferred revenue......................................................................... 35,752 53,286
Other current liabilities................................................................ 239,943 159,390
----------- -----------
Total current liabilities.......................................................... 356,653 284,717
----------- -----------
Long-term debt and capital lease obligations (note 3)......................................... 1,066,716 585,107
Deferred income taxes......................................................................... 10,854 46,163
Stockholders' equity (note 1):
Preferred stock, $0.01 par value, 20,000,000 shares authorized, no shares issued and
outstanding............................................................................ - -
Class A common stock, $0.01 par value, 277,300,000 shares authorized, 48,359,612 and
33,702,461 shares issued and outstanding in 2001 and 2000, respectively................ 483 337
Class B common stock, $0.01 par value, 162,500,000 shares authorized, 65,936,658 and
72,226,500 shares issued and outstanding in 2001 and 2000, respectively................ 659 722
Additional paid-in capital............................................................... 1,164,800 601,081
Accumulated other comprehensive income, net of taxes..................................... 5,872 6,492
Accumulated deficit...................................................................... (161,187) (136,865)
----------- -----------
Total stockholders' equity.......................................................... 1,010,627 471,767
----------- -----------
Total liabilities and stockholders' equity.......................................... $ 2,444,850 1,387,754
=========== ===========
See accompanying notes.
1
TIME WARNER TELECOM INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- --------------------------
2001 2000 2001 2000
--------- -------- -------- --------
(amounts in thousands, except per share amounts)
Revenue (a):
Dedicated transport services................. $ 107,187 60,692 213,773 112,630
Switched services............................ 110,710 71,081 177,251 119,281
--------- --------- -------- --------
Total revenue........................... 217,897 131,773 391,024 231,911
--------- --------- -------- --------
Costs and expenses (a):
Operating.................................... 81,662 43,558 160,367 82,547
Selling, general and administrative.......... 61,362 40,497 121,932 78,188
Depreciation and amortization................ 46,222 22,935 98,897 44,799
--------- --------- -------- --------
Total costs and expenses................ 189,246 106,990 381,196 205,534
--------- --------- -------- --------
Operating income .................................. 28,651 24,783 9,828 26,377
Interest expense .................................. (26,334) (10,887) (61,070) (20,614)
Interest income.................................... 5,915 3,276 12,575 6,796
--------- --------- -------- --------
Net income (loss) before income taxes.............. 8,232 17,172 (38,667) 12,559
Income tax expense (benefit)....................... 3,847 7,405 (14,345) 5,652
--------- --------- -------- --------
Net income (loss).................................. $ 4,385 9,767 (24,322) 6,907
========= ========= ======== ========
Earnings (loss) per share:
Basic......................................... $ 0.04 0.09 (0.22) 0.07
========= ========= ======== ========
Diluted....................................... $ 0.04 0.09 (0.22) 0.06
========= ========= ======== ========
Weighted average shares outstanding:
Basic......................................... 114,216 105,277 113,021 105,126
========= ========= ======== ========
Diluted....................................... 115,926 108,334 113,021 108,363
========= ========= ======== ========
(a) Includes revenue and expenses resulting from transactions with affilitates (note 4):
Revenue............................... $ 5,691 4,028 10,731 5,067
========= ========= ======== ========
Operating............................. $ 680 727 1,359 1,363
========= ========= ======== ========
Selling, general, and administrative.. $ 387 398 771 701
========= ========= ======== ========
Depreciation and amortization......... $ 3,628 2,772 6,653 5,544
========= ========= ======== ========
See accompanying notes.
2
TIME WARNER TELECOM INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
---------------------------------
2001 2000
-------------- --------------
(amounts in thousands)
Cash flows from operating activities:
Net income (loss)....................................................................... $ (24,322) 6,907
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization........................................................ 98,897 44,799
Impairment of deferred debt issue costs.............................................. 5,814 -
Amortization of deferred debt issue costs............................................ 2,151 625
Deferred income tax expense (benefit)................................................ (14,720) 5,652
Changes in operating assets and liabilities, net of the effect of an acquisition:
Receivables and prepaid expenses.................................................. 8,187 (14,403)
Accounts payable, deferred revenue and other current liabilities.................. 40,926 11,061
-------------- --------------
Net cash provided by operating activities...................................... 116,933 54,641
-------------- --------------
Cash flows from investing activities:
Capital expenditures.................................................................... (242,735) (143,561)
Cash paid for an acquisition............................................................ (651,689) -
Purchases of marketable securities...................................................... (57,981) (83,998)
Proceeds from maturities of marketable securities....................................... 31,324 189,516
Other investing activities.............................................................. (626) (6,063)
-------------- --------------
Net cash used in investing activities........................................... (921,707) (44,106)
-------------- --------------
Cash flows from financing activities:
Net proceeds from issuance of common stock.............................................. 532,178 -
Net proceeds from issuance of debt...................................................... 1,159,586 -
Repayments of debt...................................................................... (700,000) -
Net proceeds from issuance of common stock upon exercise of stock options............... 11,913 7,227
Net proceeds from issuance of common stock in connection with the employee
stock purchase plan.................................................................. 1,003 2,087
Payment of capital lease obligations.................................................... (1,265) (208)
Deferred debt issue costs, net.......................................................... 1,078 (5,070)
-------------- --------------
Net cash provided by financing activities....................................... 1,004,493 4,036
-------------- --------------
Increase in cash, cash equivalents, and cash held in escrow..................... 199,719 14,571
Cash, cash equivalents, and cash held in escrow at beginning of period.......... 250,739 90,586
-------------- --------------
Cash, cash equivalents, and cash held in escrow at end of period................ $ 450,458 105,157
============== ==============
Supplemental disclosures of cash flow information:
Cash paid for interest $ 34,632 19,988
============== ==============
Tax benefit related to exercise of non-qualified stock options................... $ 18,708 4,914
============== ==============
Cash paid for income taxes....................................................... $ 656 207
============== ==============
See accompanying notes.
3
TIME WARNER TELECOM INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Six Months Ended June 30, 2001
(Unaudited)
Common Stock
--------------------------------------------
Class A Class B Additional
--------------------- --------------------- paid-in
Shares Amount Shares Amount capital
---------- ---------- ---------- ---------- -----------
(amounts in thousands)
Balance at January 1, 2001................... 33,702 $ 337 72,227 $ 722 601,081
Issuance of common stock, net of
offering expenses of $24,243
(note 1)................................... 7,475 75 - - 532,103
Shares issued for cash in connection
with the exercise of stock options......... 856 8 - - 30,613
Shares issued for cash in connection
with the employee stock purchase
plan....................................... 36 - - - 1,003
Conversion of shares by related party...... 6,290 63 (6,290) (63) -
Change in unrealized holding gain for
available-for-sale security, net
of taxes................................... - - - - -
Net loss................................... - - - - -
--------- -------- -------- -------- -----------
Balance at June 30, 2001..................... 48,359 $ 483 65,937 $ 659 1,164,800
========= ======== ======== ======== ===========
Accumulated
other
comprehensive Total
income, Accumulated stockholders'
net of taxes deficit equity
-------------- ------------ --------------
Balance at January 1, 2001........................ 6,492 (136,865) 471,767
Issuance of common stock, net of
offering expenses of $24,243
(note 1)........................................ - - 532,178
Shares issued for cash in connection
with the exercise of stock options.............. - - 30,621
Shares issued for cash in connection
with the employee stock purchase
plan............................................ - - 1,003
Conversion of shares by related party........... - - -
Change in unrealized holding gain for
available-for-sale security, net
of taxes........................................ (620) - (620)
Net loss........................................ - (24,322) (24,322)
---------- ---------- ----------
Balance at June 30, 2001.......................... 5,872 (161,187) 1,010,627
========== ========== ==========
See accompanying notes.
4
TIME WARNER TELECOM INC.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
June 30, 2001
(unaudited)
1. Organization and Summary of Significant Accounting Policies
Description of Business and Capital Structure
Time Warner Telecom Inc. (the "Company"), a Delaware
corporation, is a leading fiber facilities-based provider of integrated
communications services and solutions to medium and large-sized
business customers in selected metropolitan markets across the United
States. The Company offers local businesses "last-mile" broadband
connections for data, high-speed Internet access, local voice, and long
distance services.
The Company has two classes of common stock outstanding, Class
A common stock and Class B common stock. Holders of Class A common
stock have one vote per share and holders of Class B common stock have
ten votes per share. Each share of Class B common stock is convertible,
at the option of the holder, into one share of Class A common stock.
The Class B common stock is collectively owned by Time Warner Inc., a
wholly owned subsidiary of AOL Time Warner Inc. ("Time Warner"),
Advance Telecom Holdings Corporation, and Newhouse Telecom Holdings
Corporation. Holders of Class A common stock and Class B common stock
generally vote together as a single class. However, some matters
require the approval of 100% of the holders of the Class B common stock
voting separately as a class, and some matters require the approval of
a majority of the holders of the Class A common stock, voting
separately as a class. During the three months ended June 30, 2001,
AT&T Corp. converted their Class B common stock into Class A common
stock. As of June 30, 2001, the Class B Stockholders had approximately
93.2% of the combined voting power of the outstanding common stock.
On January 25, 2001, the Company completed a public offering
of 7,475,000 shares of Class A common stock at a price of $74 7/16 per
share (the "Offering"). The Offering generated $532.2 million in
proceeds for the Company, net of underwriting discounts and expenses.
Also on January 25, 2001, the Company completed a private placement of
$400 million principal amount of 10 1/8% Senior Notes due February 2011
(the "Old Notes"). Pursuant to an exchange offer in March 2001, all of
the holders of the Old Notes exchanged their Old Notes for new 10 1/8%
Senior Notes due February 2011 (the "10 1/8% Senior Notes") with the
same financial terms that were registered under the Securities Act of
1933. The Company used all of the net proceeds from the Offering and a
portion of the net proceeds from the offering of the Old Notes to repay
the $700 million senior unsecured bridge facility, that initially
financed the acquisition of substantially all of the assets of GST
Telecommunications, Inc. ("GST") (see note 2). The remaining net
proceeds from the offering of the Old Notes will be used for capital
expenditures, working capital, and general corporate purposes.
Basis of Presentation
The accompanying interim consolidated and condensed financial
statements are unaudited, but in the opinion of management, reflect all
adjustments (consisting of normal recurring accruals) necessary for a
fair presentation of the results for such periods. The results of
operations for any interim period are not necessarily indicative of
results for the full year. The accompanying financial statements should
be read in conjunction with the audited consolidated financial
statements and notes thereto for the year ended December 31, 2000.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
5
TIME WARNER TELECOM INC.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS - continued
Basis of Consolidation
The consolidated financial statements include the accounts of
the Company and all entities in which the Company has a controlling
voting interest ("subsidiaries"). Significant intercompany accounts and
transactions have been eliminated. Significant accounts and
transactions with Time Warner are disclosed as related party
transactions.
Investments
Marketable equity securities held by the Company are
classified as available-for-sale. Accordingly, these securities are
included in other assets at fair value. Unrealized holding gains and
losses on securities classified as available-for-sale are carried net
of taxes as a component of accumulated other comprehensive income in
stockholders' equity. Other equity investments which are not considered
marketable securities and in which ownership interest is less than 20%
are generally carried at the lower of cost or net realizable value.
Realized gains and losses are determined on a specific identification
basis.
At June 30, 2001, the fair value of the Company's
available-for-sale security was $12.8 million. The unrealized holding
gain on this marketable equity security is reported as accumulated
other comprehensive income, net of taxes, in the accompanying
consolidated financial statements. As of June 30, 2001, the unrealized
holding gain on this security was $5.9 million, net of taxes. There
were no sales of marketable securities for the six months ended June
30, 2001 and 2000, respectively.
Revenue
The Company's revenue has been derived primarily from business
telephony services, including dedicated transport, local switched, long
distance, data and high-speed Internet access services. The Company's
customers are principally telecommunications-intensive business
end-users, long distance carriers, Internet service providers ("ISPs"),
wireless communications companies, and governmental entities.
Revenue for dedicated transport services and dedicated
Internet access is generally billed in advance on a fixed rate basis
and recognized over the period the services are provided. Revenue for
switched services, data and Internet services, and long distance are
generally billed on a transactional basis determined by customer usage
with some fixed rate elements. The transactional elements of switched
services are billed in arrears and estimates are used to recognize
revenue in the period earned. The fixed rate elements are billed in
advance and recognized over the period the services are provided.
Reciprocal compensation revenue is an element of switched
services revenue, which represents compensation from local exchange
carriers ("LECs") for local exchange traffic terminated on the
Company's facilities originated by other LECs. Reciprocal compensation
represented 7% and 6% of revenue for the six months ended June 30, 2001
and 2000, respectively, excluding the effects of the recognition of
$37.0 million and $27.3 million of non-recurring reciprocal
compensation, primarily reflecting resolution of disputes, during the
six months ended June 30, 2001 and 2000, respectively. Reciprocal
compensation is based on contracts between the Company and LECs. The
Company recognizes reciprocal compensation revenue as it is earned,
except in those cases where the revenue is under dispute or at risk.
The payment of reciprocal compensation under certain of the Company's
interconnection agreements is, by the terms of those agreements,
subject to adjustment or repayment depending on prospective federal or
state generic rulings with respect to reciprocal compensation for ISP
traffic. The Company pays reciprocal compensation expense to the other
LECs for local exchange traffic it terminates on the LEC's facilities.
These costs are recognized as incurred.
6
TIME WARNER TELECOM INC.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS - continued
As of June 30, 2001, the Company had deferred recognition of
$17.3 million in reciprocal compensation revenue for payments received
associated with pending disputes and agreements that are subject to
future reciprocal compensation adjustments.
Switched access is the connection between a long distance
carrier's point of presence and an end-user's premises provided through
the switching facilities of a LEC. Historically, the FCC has regulated
the access rates imposed by the incumbent local exchange carriers
("ILECs"), while the competitive local exchange carriers' ("CLECs")
access rates have been less regulated. However, on April 27, 2001, the
FCC released an order in its ongoing Access Reform proceeding that
subjects CLECs' interstate switched access charges to regulation.
Effective with that order, the Company's rates will be reduced over a
three-year period to parity with the ILEC rates competing in each area.
In addition, when a CLEC enters a new market its access charges may be
no higher than the incumbent LEC's. This order does not affect rates
subject to contracts that the Company has entered into with certain
long distance carriers. The Company and several other CLECs have filed
petitions with the FCC for reconsideration of the provisions of the
order relating to new markets and expects that there will be other
legal challenges to the order filed in federal court. There is no
assurance that any legal challenge will be successful or that a
successful challenge will change the trend toward lower access charges.
Switched access revenue represented 8% and 11% of total revenue for the
six months ended June 30, 2001 and 2000, respectively, excluding the
effects of the recognition of $37.0 million and $27.3 million of non-
recurring reciprocal compensation during the six months ended June 30,
2001 and 2000, respectively. The Company expects that switched access
revenue will decline as a percentage of the Company's total revenue.
There is no assurance that the Company will be able to compensate for
reductions in switched access revenue resulting from the FCC order with
revenue from other sources.
Segment Reporting
As of June 30, 2001, the Company operated in 39 service areas
and the Company's management has made decisions on resource allocation
and assesses performance based on total revenue, EBITDA, and capital
spending of these operating locations. Each of the service areas offers
similar products and services, has similar customers and networks, is
regulated by the same type of authorities, and is managed directly by
the Company's executives, allowing the 39 service areas to be
aggregated, resulting in one reportable line of business.
Earnings (Loss) Per Common Share and Potential Common Share
Basic earnings (loss) per share for all periods presented
herein was computed by dividing the net income (loss) by the weighted
average shares outstanding for the period.
The diluted earnings per share for the three and six months
ended June 30, 2000, and the three months ended June 30, 2001 was
computed by dividing the net income by the weighted average number of
common shares and dilutive potential common shares outstanding during
the period.
The diluted loss per common share for the six months ended
June 30, 2001 was computed by dividing the net loss attributable to
common shares by the weighted average outstanding common shares for the
period. Potential common shares were not included in the computation of
weighted average shares outstanding because their inclusion would be
anti-dilutive.
7
TIME WARNER TELECOM INC.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS - continued
Set forth below is a reconciliation of the basic and diluted earnings
(loss) per share for each period:
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------- -----------------------------
2001 2000 2001 2000
-------------- ----------------- ----------- -------------
(amounts in thousands, except per share amounts)
Net income (loss) for basic and
diluted earnings (loss) per share $ 4,385 9,767 (24,322) 6,907
============== ================= =========== ==============
Weighted-average number of
shares-basic 114,216 105,277 113,021 105,126
Dilutive effect of stock options 1,710 3,057 - 3,237
-------------- ----------------- ----------- -------------
Weighted-average number of
shares-diluted 115,926 108,334 113,021 108,363
============== ================= =========== ==============
Earnings (loss) per share:
Basic 0.04 0.09 (0.22) 0.07
============== ================= =========== ==============
Diluted 0.04 0.09 (0.22) 0.06
============== ================= =========== ==============
Reclassifications
Certain prior period amounts have been reclassified for comparability with
the 2001 presentation.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"),
as amended by SFAS 138, which was adopted by the Company on January 1, 2001.
SFAS 133 requires that all derivatives be recorded on the balance sheet at fair
value. Changes in derivatives that are not hedges are adjusted to fair value
through income. Changes in derivatives that meet SFAS 133's hedge criteria are
either offset through income or recognized in other comprehensive income until
the hedged item is recognized in earnings. The adoption of SFAS 133 on January
1, 2001 did not have a material effect on the Company's financial condition,
results of operations, or cash flows because the Company does not own any
derivative instruments.
In July 2001, the Financial Accounting Standards Board issued Statement No.
141, Business Combinations ("SFAS 141") and Statement No. 142, Goodwill and
Other Intangible Assets ("SFAS 142"). SFAS 141 requires companies to reflect
intangible assets apart from goodwill and supercedes previous guidance related
to business combinations. SFAS 142 eliminates amortization of goodwill and
amortization of indefinite lived intangible assets. However, SFAS 142 also
requires the Company to perform impairment tests at least annually on all
goodwill and other intangible assets. These statements are required to be
adopted by the Company on January 1, 2002 and for any acquisitions entered into
after July 1, 2001. The Company is evaluating the impact of the statements on
its financial position, results of operations, and cash flows.
8
TIME WARNER TELECOM INC.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS - continued
2. Acquisition
On January 10, 2001, the Company completed the acquisition of
substantially all of the assets of GST out of bankruptcy (the "GST
Acquisition") for cash consideration of approximately $627 million,
including a $10 million deposit paid in 2000, plus the payment of
certain liabilities and fees of approximately $42 million, and the
assumption of an approximate $21 million obligation to complete certain
fiber networks, for a total purchase price of $690 million. As a result
of this acquisition, the Company added 15 markets, approximately 4,210
route miles, and approximately 227,674 fiber miles in the western
United States. This transaction has been accounted for under the
purchase method of accounting.
The acquisition is summarized as follows (amounts in
thousands):
2001
----
Recorded value of fixed assets acquired $697,331
Receivables, prepaids, and other assets 15,244
Deposit paid in 2000 (10,000)
Assumed liabilities (50,886)
--------
Cash paid for acquisition in 2001 $651,689
========
The allocation of the purchase price is preliminary, but was
based in part on appraised values. However, the allocation is subject
to final evaluation of the assets purchased and liabilities assumed,
which will be completed by the end of the year. Since this acquisition
is accounted for as a purchase, the results of operations are
consolidated with the Company's results of operations from the
acquisition date. Had this acquisition occurred on January 1, 2000,
total revenue, net loss, and basic and diluted loss per common share
for the six months ended June 30, 2000 would have been approximately
$289.2 million, $88.2 million, and $(0.84), respectively.
3. Long-Term Debt
Long-term debt is summarized as follows:
June 30, December 31,
2001 2000
-------- ------------
(amounts in thousands)
9 3/4% Senior Notes $ 400,000 400,000
10 1/8% Senior Notes 400,000 --
Credit Facility 250,000 179,000
----------- ---------
$ 1,050,000 579,000
=========== =========
The $400 million principal amount 9 3/4% Senior Notes due July
2008 (the "9 3/4% Senior Notes") are unsecured, unsubordinated
obligations of the Company. Interest on the 9 3/4% Senior Notes is
payable semi-annually on January 15 and July 15, and began on January
15, 1999. Interest expense, including amortization of debt discount,
relating to the 9 3/4% Senior Notes totaled approximately $20.1 million
for both the six months ended June 30, 2001 and 2000. At June 30, 2001,
the fair market value of the $400 million of 9 3/4% Senior Notes was
$356 million, based on market prices.
The $400 million principal amount 10 1/8% Senior Notes are
unsecured, subordinated obligations of the Company. Interest on the 10
1/8% Senior Notes is payable semiannually on February 1 and August 1,
beginning on August 1, 2001. Interest expense, including amortization
of
9
TIME WARNER TELECOM INC.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS - continued
debt discount, relating to the 10 1/8% Senior Notes totaled
approximately $18.1 million for the six months ended June 30, 2001. At
June 30, 2001, the fair market value of the $400 million of 10 1/8%
Senior Notes was $360 million, based on market prices.
The 9 3/4% Senior Notes and the 10 1/8% Senior Notes are
governed by Indentures that contain certain restrictive covenants.
These restrictions affect, and in many respects significantly limit or
prohibit, among other things, the ability of the Company to incur
indebtedness, make prepayments of certain indebtedness, pay dividends,
make investments, engage in transactions with shareholders and
affiliates, issue capital stock of subsidiaries, create liens, sell
assets, and engage in mergers and consolidations.
On April 10, 2000, the Company executed a $475 million Senior
Secured Revolving Credit Facility (the "Revolver"). The Revolver had a
final maturity of December 31, 2007, with annual reductions in the
principal amount available under the Revolver commencing on December
31, 2004.
In connection with the GST Acquisition and the Company's
capital expenditure plans, the Company obtained commitments for $1.225
billion of additional financing to increase its total commitments to
$1.7 billion. The Company replaced its Revolver with an amended and
restated senior secured credit facility (the "Credit Facility")
providing for an aggregate of $1 billion in borrowings, comprised of
$525 million of senior secured term loan facilities and a $475 million
senior secured revolving credit facility. The Credit Facility has a
final maturity of December 31, 2007, with annual reductions in the
principal amount available under the $475 million senior secured
revolving credit facility commencing on December 31, 2004. The Company
also obtained $700 million in senior unsecured bridge financing that it
used to initially finance the GST Acquisition. The borrowings under the
senior unsecured bridge loan facility were made and repaid in full in
January 2001, with the net proceeds from the Offering and a portion of
the net proceeds from the sale of the Old Notes. In connection with the
repayment of the senior unsecured bridge loan facility, the Company
recorded $5.8 million of deferred financing costs as a non-recurring
expense, as well as $3.5 million in interest expense for the six months
ended June 30, 2001. In December 2000, the Company was required to draw
and hold in escrow, $179 million of the Credit Facility until the
closing of the GST Acquisition, at which time the draw increased to
$250 million. Interest expense on the $250 million drawn under the
Credit Facility is computed utilizing a specific Eurodollar Rate plus
4.0%, which totaled 8.7% as of June 30, 2001. Interest is payable at
least quarterly. Interest expense, including amortization of debt
discount, relating to the $250 million draw was $12.0 million for the
six months ended June 30, 2001.
At June 30, 2001, the undrawn available commitment under the
Credit Facility was $750 million. The Company is required to pay
commitment fees on a quarterly basis ranging from 0.500% to 1.000% per
annum on the undrawn available commitment of the Credit Facility.
Commitment fee expense was $3.7 million for the six months ended June
30, 2001 and has been classified as a component of interest expense in
the accompanying consolidated statements of operations.
Borrowings under the Credit Facility are secured by
substantially all of the assets of the Company, including the assets
acquired from GST, except for certain assets with respect to which the
grant of a security interest is prohibited by governing agreements. The
Credit Facility requires the Company to prepay outstanding loans when
its cash flow exceeds certain levels and with the proceeds received
from a number of specified events or transactions, including certain
asset sales and insurance recoveries for assets not replaced. In
addition, obligations under the Credit Facility are subject to various
covenants that limit the Company's ability to:
. borrow and incur liens on its property;
. pay dividends or make other distributions; and
10
TIME WARNER TELECOM INC.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS - continued
. make capital expenditures.
The Credit Facility also contains financial covenants,
including a consolidated leverage ratio, a consolidated interest
coverage ratio, and a consolidated debt service coverage ratio, as well
as cross default provisions. Under the cross default provisions, the
Company is deemed to be in default under the Credit Facility if the
Company has defaulted under any of the other material outstanding
obligations, such as the 9 3/4% Senior Notes or the 10 1/8% Senior
Notes.
4. Related Party Transactions
In the normal course of business, the Company engages in
various transactions with Time Warner, generally on negotiated terms
among the affected units that, in management's opinion, result in
reasonable allocations.
The Company benefits from its strategic relationship with Time
Warner both through access to local right-of-way and construction cost-
sharing. The Company's networks have been constructed primarily through
the use of fiber capacity licensed from Time Warner. Under this
licensing arrangement, the Company paid Time Warner $1.1 million and
$484,000 for the six months ended June 30, 2001 and 2000, respectively.
These costs have been capitalized by the Company. The amortization
expense of these costs and fiber previously capitalized in the amount
of $6.7 million and $5.5 million for the six months ended June 30, 2001
and 2000, respectively, has been classified as a component of
depreciation and amortization expense in the accompanying consolidated
statements of operations. In addition, under this licensing
arrangement, the Company reimburses Time Warner for facility
maintenance and pole rental costs, which aggregated $1.4 million for
both the six months ended June 30, 2001 and 2000.
The Company's operations, which in certain cases are
co-located with Time Warner's divisions, are allocated a charge for
various overhead expenses for services provided by these divisions. The
Company is also allocated rent based on the square footage of space
occupied by the Company at Time Warner's facilities. These costs are
based on contracts with Time Warner. These charges aggregated $771,000
and $701,000 for the six months ended June 30, 2001 and 2000,
respectively.
Time Warner also purchases dedicated transport and switched
services from the Company. Revenue aggregated $10.7 million and $5.1
million for the six months ended June 30, 2001 and 2000, respectively.
5. Commitments and Contingencies
Pending legal proceedings are substantially limited to
litigation incidental to the business of the Company. In the opinion of
management, the ultimate resolution of these matters will not have a
material adverse effect on the Company's financial statements.
11
TIME WARNER TELECOM INC.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Cautions Concerning Forward Looking Statements
The following discussion and analysis provides information concerning
the results of operations and financial condition of Time Warner Telecom Inc.
(the "Company") and should be read in conjunction with the accompanying
financial statements and notes thereto. Additionally, the following discussion
and analysis should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations and the consolidated
financial statements included in Part II of Time Warner Telecom Inc.'s Annual
Report on Form 10-K for the year ended December 31, 2000.
This document contains certain "forward-looking statements," within the
meaning of the Private Securities Litigation Reform Act of 1995, including
statements regarding, among other items, the expected financial position,
expansion plans, product plans, business, financing plans, and the impacts of
regulatory developments. These forward-looking statements are based on
management's current expectations and are naturally subject to risks,
uncertainties, and changes in circumstances, many of which are beyond the
Company's control. Actual results may differ materially from those expressed or
implied by such forward-looking statements.
The words "believe," "expect," "plans," "intends," and "anticipate,"
and similar expressions identify forward-looking statements. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that those expectations will
prove to have been correct. Important factors that could cause actual results to
differ materially from the expectations described in this report are set forth
in the Company's previous filings with the Securities and Exchange Commission,
especially those set forth under "Risk Factors" in Item 1 of the Company's
Annual Report on Form 10-K for the year ended December 31, 2000 and elsewhere in
that report and this report. Other factors could also cause actual results to
differ from those contained in the forward-looking statements, including
increased customer financial difficulties or bankruptcies, adverse regulatory
decisions or unfavorable legislation, further economic slowdown, increased
interest rates, failure to meet cash flow expectations, and changes to the
Company's plans or strategies. Readers are cautioned not to place undue reliance
on these forward-looking statements, which speak only as of their dates. The
Company undertakes no obligations to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events, or otherwise.
Overview
The Company is a leading fiber facilities-based integrated
communications provider offering local businesses "last-mile" broadband
connections for data, high-speed Internet access, local voice, and long distance
services. On January 10, 2001, the Company expanded its geographic coverage by
acquiring substantially all of the assets of GST Telecommunications, Inc.
("GST") out of bankruptcy. See "Acquisition" below. The Company now serves
customers in 42 metropolitan markets in the United States and plans to activate
networks in Atlanta, Georgia and Denver, Colorado prior to the end of 2001.
The Company has two classes of common stock outstanding, Class A common
stock and Class B common stock. Holders of Class A common stock have one vote
per share and holders of Class B common stock have ten votes per share. Each
share of Class B common stock is convertible, at the option of the holder, into
one share of Class A common stock. The Class B common stock is collectively
owned by Time Warner Inc., a wholly owned subsidiary of the AOL Time Warner Inc.
("Time Warner"), Advance Telecom Holdings Corporation, and Newhouse Telecom
Holdings Corporation. Holders of Class A common stock and Class B common stock
generally vote together as a single class. However, some matters require the
approval of 100% of the holders of the Class B common stock voting separately as
a class, and some matters require the approval of a majority of the holders of
the Class A common stock, voting separately as a class. During the three months
ended June 30, 2001, AT&T Corp. converted their Class B common stock into Class
A
12
TIME WARNER TELECOM INC.
common stock. As of June 30, 2001, the Class B Stockholders had approximately
93.2% of the combined voting power of the outstanding common stock.
On January 25, 2001, the Company completed a public offering of
7,475,000 shares of Class A common stock at a price of $74 7/16 per share (the
"Offering"). The Offering generated $532.2 million in proceeds for the Company,
net of underwriting discounts and expenses. Also on January 25, 2001, the
Company completed a private placement of $400 million principal amount of
10 1/8% Senior Notes due February 2011 (the "Old Notes"). Pursuant to an
exchange offer in March 2001, all of the holders of the Old Notes exchanged
their Old Notes for new 10 1/8% Senior Notes due February 2011 (the "10 1/8%
Senior Notes") with the same financial terms that were registered under the
Securities Act of 1933. The Company used all of the net proceeds from the
Offering and a portion of the net proceeds from the offering of the Old Notes to
repay the $700 million senior unsecured bridge facility that initially financed
the acquisition of the GST assets. The remaining net proceeds from the offering
of the Old Notes will be used for capital expenditures, working capital, and
general corporate purposes.
Acquisition
On January 10, 2001, the Company completed the acquisition of
substantially all of the assets of GST for cash consideration of approximately
$627 million, plus the payment of certain liabilities and fees of approximately
$42 million, and the assumption of an approximate $21 million obligation to
complete certain fiber networks, for a total purchase price of $690 million. The
acquisition added to the Company's network approximately 4,210 route miles and
approximately 227,674 fiber miles in the western United States.
The Company has completed the initial integration of former GST
personnel into the Company's organization and has implemented its corporate-wide
financial reporting system and front-end ordering system for the acquired
operations. The Company has activated a 4,600-mile regional fiber network that
was under construction at the time of the acquisition and has begun expanding
the metropolitan networks in several of the acquired markets. The Company
expects that the integration of systems and network operations will occur in
phases over approximately two to three years. As required under the Asset
Purchase Agreement with GST, the Company entered into a services agreement with
GST to provide certain support services with respect to GST assets that the
Company did not purchase for a period of up to six months for most services and
up to a year for certain limited services.
The Company's acquisition of the GST assets increases its geographic
presence, expands its products and services, and enlarges the capacity of its
networks. This transaction is considerably larger than the transactions the
Company has completed in the past and therefore presents risks related to the
successful integration of the acquired assets into the Company's business
including costs related to integration and diversion of resources away from the
Company's existing operations. In addition, the Company purchased substantially
all of the assets of GST with the expectation that the asset purchase would
result in certain benefits, including expansion of the markets the Company
already serves and increasing its operational efficiencies. Achieving the
benefits of the asset purchase will depend upon the successful integration of
the acquired businesses into the Company's existing operations. There is no
assurance that the Company will be successful in integrating the acquired GST
assets into its current businesses. In addition, there is a risk that the costs
of integration could have a material adverse effect on the Company's operating
results.
13
TIME WARNER TELECOM INC.
Results of Operations
The following table sets forth certain consolidated statements of
operations data of the Company, in thousands of dollars and expressed as a
percentage of total revenue, for each of the periods presented. This table
should be read together with the Company's financial statements, including the
notes thereto, appearing elsewhere in this report:
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- -----------------------------------
2001 2000 2001 2000
--------------- ------------- ---------------- -------------
(amounts in thousands, except per share amounts)
Statements of Operations Data:
Revenue(1):
Dedicated transport services $ 107,187 49% 60,692 46% 213,773 55% 112,630 49%
Switched services(2) 110,710 51 71,081 54 177,251 45 119,281 51
--------- --- ------- --- ---------- --- ------- ---
217,897 100 131,773 100 391,024 100 231,911 100
--------- --- ------- --- ---------- --- ------- ---
Costs and expenses(1):
Operating 81,662 38 43,558 33 160,367 41 82,547 36
Selling, general and administrative 61,362 28 40,497 31 121,932 31 78,188 34
Depreciation and amortization 46,222 21 22,935 17 98,897 25 44,799 19
--------- --- ------- --- ---------- --- ------- ---
Total costs and expenses 189,246 87 106,990 81 381,196 97 205,534 89
--------- --- ------- --- ---------- --- ------- ---
Operating income 28,651 13 24,783 19 9,828 3 26,377 11
Interest expense (26,334) (12) (10,887) (8) (61,070) (16) (20,614) (9)
Interest income 5,915 3 3,276 2 12,575 3 6,796 3
--------- --- ------- --- ---------- --- ------- ---
Net income (loss) before income taxes 8,232 4 17,172 13 (38,667) (10) 12,559 5
Income tax expense (benefit) 3,847 2 7,405 6 (14,345) (4) 5,652 2
--------- --- ------- --- ---------- --- ------- ---
Net income (loss) $ 4,385 2% 9,767 7% (24,322) (6)% 6,907 3%
========= === ======= === ========== === ======= ===
Earnings (loss) per share(4):
Basic $ 0.04 0.09 (0.22) 0.07
Diluted $ 0.04 0.09 (0.22) 0.06
Weighted average shares outstanding(4):
Basic 114,216 105,277 113,021 105,126
Diluted 115,926 108,334 113,021 108,363
EBITDA(1)(3) $ 74,873 34% 47,718 36% 108,725 28% 71,176 31%
Net cash provided by operating activities 76,923 37,802 116,933 54,641
Net cash used in investing activities (142,218) (13,237) (921,707) (44,106)
Net cash provided by (used in) financing activities 2,704 (1,422) 1,004,493 4,036
(1) Includes revenue and expenses resulting from transactions with affiliates of
$5.7 million, $4.7 million, $4.0 million, and $3.9 million for the three
months ended June 30, 2001 and 2000, respectively, and $10.7 million, $8.8
million, $5.1 million, and $7.6 million for the six months ended June 30,
2001 and 2000, respectively.
(2) Includes the recognition of $37.0 million and $23.4 million of non-recurring
reciprocal compensation for the three months ended June 30, 2001 and 2000,
respectively, and $37.0 million and $27.3 million for the six months ended
June 30, 2001 and 2000, respectively.
(3) "EBITDA" is defined as operating income (loss) before depreciation and
amortization expense. It does not include charges for interest expense or
provision for income taxes. Accordingly, EBITDA is not intended to replace
operating income (loss), net income (loss), cash flow, and other measures of
financial performance and liquidity reported in accordance with generally
accepted accounting principles. Rather, EBITDA is a measure of operating
performance and liquidity that investors may
14
TIME WARNER TELECOM INC.
consider in addition to these measures. Management believes that EBITDA
is a standard measure of operating performance and liquidity that is
commonly reported and widely used by analysts, investors, and other
interested parties in the telecommunications industry because it
eliminates many differences in financial, capitalization, and tax
structures, as well as non-operating one-time charges to earnings.
EBITDA is used internally by the Company's management to assess ongoing
operations and is a component of a covenant of the 9 3/4% Senior Notes
and the 10 1/8% Senior Notes that limits the Company's ability to incur
certain additional future indebtedness. However, EBITDA as used in this
report may not be comparable to similarly titled measures reported by
other companies due to differences in accounting policies.
(4) Basic earnings (loss) per share for all periods presented herein was
computed by dividing the net income (loss) by the weighted average
shares outstanding for the period. The diluted earnings per share for
the three and six months ended June 30, 2000, and the three months
ended June 30, 2001 was computed by dividing the net income by the
weighted average number of common shares and dilutive potential common
shares outstanding during the period. The diluted loss per common share
for the six months ended June 30, 2001 was computed by dividing the net
loss attributable to common shares by the weighted average outstanding
common shares for the period. Potential common shares were not included
in the computation of weighted average shares outstanding for the six
months ended June 30, 2001, because their inclusion would be anti-
dilutive.
General
The Company operates in metropolitan areas that have high
concentrations of medium- and large-sized businesses. Historically, the Company
has focused its sales and marketing efforts on such businesses, as they are
potentially high volume users of the Company's services. To drive revenue growth
in these markets, the Company has expanded its direct sales force to focus on
these business customers while it develops managed service offerings to meet
their voice, data, and Internet needs. The Company's revenue has been derived
primarily from business telephony services, including dedicated transport, local
switched, long distance, data and high-speed Internet access services. The
Company believes that data services will become increasingly more important to
the Company's target customer base. In particular, the Company believes that the
demand for high-speed, high quality local area network and wide area network
connectivity will continue to grow over time.
The Company continues to expand its footprint within its existing
markets by expanding its network into new buildings. Through the acquisition of
the GST assets in the first quarter of 2001, the Company added 15 additional
western metropolitan markets. The Company activated three additional markets in
July 2001 and plans to activate two additional markets in 2001. The Company is
also interconnecting existing service areas within regional clusters with owned
or leased fiber optic facilities. The goal is to rapidly deploy new services and
technologies when technically proven and when customer demand is evident. As new
technologies that enable the switching of voice calls over an Internet Protocol
and local area network infrastructure are becoming commercially available, the
Company is integrating this soft switch technology into its infrastructure.
There is no assurance that the Company will bring any or all of these products
to market successfully or profitably.
The Company plans to continue expanding its revenue base by utilizing
available network capacity in its existing markets, by adding networks in new
markets, and by continuing to develop and selectively tailor new services in
competitively-priced packages to meet the needs of its medium- and large-sized
business customers. The Company intends to expand its product offerings on a
continuous basis to achieve a diverse revenue base. As part of that process, the
Company is targeting the expansion of data and Internet products that can be
offered on the Company's existing network.
Due to the impacts of a slowing economy, which has resulted in
customers going out of business, filing bankruptcies, or looking for
opportunities to cut costs, the Company has experienced an acceleration of
customers disconnecting services, including network grooming, that has resulted
in downward pressure on revenue performance. Management believes that this
downward pressure may continue impacting revenue performance
15
TIME WARNER TELECOM INC.
through the end of the year. However, the dislocation in the telecommunications
and Internet service provider sectors may benefit the Company in the following
respects:
. as some emerging providers go out of business, their customers
may seek to purchase services from the Company;
. the failure of some emerging telecommunications providers may
reduce some of the artificially low pricing of services that
exists in the market for certain telecommunications services; and
. the availability of experienced telecommunications personnel may
improve.
There is no assurance that the Company will realize any benefits from the
downturn in these sectors or that the Company will not be adversely affected by
conditions in its market sectors or the economy in general.
Since the GST assets were purchased out of bankruptcy and require
considerable integration work before they perform to the standards of the
Company's other markets, the Company does not expect significant revenue growth
from the GST assets during 2001.
Reciprocal compensation revenue is an element of switched services
revenue, which represents compensation from local exchange carriers ("LECs") for
local exchange traffic terminated on the Company's facilities originated by
other LECs. Reciprocal compensation represented 7% and 6% of revenue for the six
months ended June 30, 2001 and 2000, respectively, excluding the effects of the
recognition of $37.0 million and $27.3 million of non-recurring reciprocal
compensation, primarily reflecting resolution of disputes, during the six months
ended June 30, 2001 and 2000, respectively. Reciprocal compensation is based on
contracts between the Company and LECs. The Company recognizes reciprocal
compensation revenue as it is earned, except in those cases where the revenue is
under dispute or at risk. The payment of reciprocal compensation under certain
of the Company's interconnection agreements is, by the terms of those
agreements, subject to adjustment or repayment depending on prospective federal
or state generic rulings with respect to reciprocal compensation for ISP
traffic. The Company pays reciprocal compensation expense to the other LECs for
local exchange traffic it terminates on the LEC's facilities. These costs are
recognized as incurred.
On April 27, 2001, the Federal Communications Commission ("FCC")
released an order addressing a prior ruling of the U.S. Court of Appeals for the
District of Columbia Circuit in which the FCC reaffirmed its jurisdiction over
dial-up Internet-bound traffic, and adopted an interim carrier-to-carrier cost
recovery scheme for such traffic. The new scheme will reduce the maximum
compensation rate for dial-up Internet-bound traffic in phases over a three-year
period. Simultaneously the FCC initiated a rulemaking to consider whether it
should replace all existing intercarrier compensation schemes with some form of
"bill and keep." Additionally, the ruling, once effective, will require "bill
and keep" payment arrangements for Internet-bound traffic as carriers enter new
markets. "Bill and keep" means that the carrier would neither pay reciprocal
compensation to other carriers nor receive reciprocal compensation from other
carriers for Internet-bound traffic in those markets. The ruling was effective
June 14, 2001. Historically, the Company has not relied on generation of
reciprocal compensation revenue to achieve payback when entering new markets and
therefore does not expect the ruling to impact its ability to achieve its
financial objective for its new markets. Effective with the new rules, state
commissions will no longer have authority over matters pertaining to the
compensation of Internet-bound traffic. However, state commission decisions
regarding this traffic for prior periods are not affected by the order. The
Company and several other CLECs have filed legal challenges to the FCC's order
in federal court. There is no assurance, however, that any legal challenge will
be successful or that a successful challenge will change the trend toward
reduced reciprocal compensation.
The Company expects that the ruling, if it stands, will result in
reciprocal compensation revenue decreasing as a percentage of total revenue over
time. However, total revenue from reciprocal compensation is not expected to
significantly decline in the short-term since the Company's policy has
historically been to defer a portion of reciprocal compensation revenue that was
subject to future adjustment. However, the Company cannot predict whether the
LECs will dispute reciprocal compensation charges for ISP traffic even if the
charges comply with the FCC's order. Because the ruling is only interim in
nature, is subject to further interpretation or could be replaced with a
different regulatory scheme, there is no assurance that the Company's reciprocal
compensation revenue will not be further decreased or eliminated completely.
16
TIME WARNER TELECOM INC.
As of June 30, 2001, the Company had deferred recognition of $17.3
million in reciprocal compensation revenue for payments received associated with
pending disputes and agreements that are subject to future reciprocal
compensation adjustments.
Switched access is the connection between a long distance carrier's
point of presence and an end-user's premises provided through the switching
facilities of a LEC. Historically, the FCC has regulated the access rates
imposed by the incumbent local exchange carriers ("ILECs"), while the
competitive local exchange carriers' ("CLEC") access rates have been less
regulated. However, on April 27, 2001, the FCC released an order in its ongoing
Access Reform proceeding that subjects CLECs' interstate switched access charges
to regulation. Effective with that order, the Company's rates will be reduced
over a three-year period to parity with the ILEC rates competing in each area.
In addition, when a CLEC enters a new market its access charges may be no higher
than the ILEC's. This order does not affect rates subject to contracts that the
Company has entered into with certain long distance carriers. The Company and
several other CLECs have filed petitions with the FCC for reconsideration of the
provisions of the order relating to new markets and expects that there will be
other legal challenges to the order filed in federal court. There is no
assurance that any legal challenge will be successful or that a successful
challenge will change the trend toward lower access charges. Switched access
revenue represented 8% and 11% of total revenue for the six months ended June
30, 2001 and 2000, respectively, excluding the effects of the recognition of
$37.0 million and $27.3 million of non-recurring reciprocal compensation during
the six months ended June 30, 2001 and 2000, respectively. The Company expects,
as it previously anticipated, that switched access revenue will decline as a
percentage of the Company's total revenue. There is no assurance that the
Company will be able to compensate for reductions in switched access revenue
resulting from the FCC order with revenue from other sources.
The Company benefits from its strategic relationship with Time Warner
both through access to local right-of-way and construction cost-sharing. Except
for networks acquired from GST, the Company's networks have been constructed
primarily through the use of fiber capacity licensed from Time Warner. As of
June 30, 2001, the Company operated networks in 39 metropolitan areas that
spanned 15,249 route miles, contained 674,284 fiber miles, and offered service
to 9,852 on-net and off-net buildings.
Operating expenses consist of costs directly related to the operation
and maintenance of the networks and the provision of the Company's services.
This includes the salaries and related expenses of operations and engineering
personnel, as well as costs incurred from the ILECs, other competitors, and long
distance providers for facility leases and interconnection. These costs have
increased over time as the Company has increased its operations and revenue. The
Company expects these costs to continue to increase as the Company's revenue
growth continues. The fact that a significant portion of the Company's traffic
rides on its own fiber infrastructure enhances the Company's ability to control
its costs.
Selling, general, and administrative expenses consist of salaries and
related costs for employees other than those involved in operations and
engineering. These expenses include costs related to sales and marketing,
including bad debt expense, information technology, billing, regulatory, and
legal costs. These costs have increased over time as the Company has increased
its operations and revenue. The Company expects these costs to continue to
increase as the Company's revenue growth continues.
In the normal course of business, the Company engages in various
transactions with Time Warner, generally on negotiated terms among the affected
units that, in management's view, result in reasonable allocations. The Company
entered into several contracts with Time Warner with respect to certain of these
transactions. The Company's dedicated transport and switched services revenue
includes services provided to Time Warner. The Company's selling, general, and
administrative expenses include charges allocated from Time Warner for office
rent and overhead charges for various administrative functions they perform for
the Company. These charges are required to reflect all costs of doing business
and are based on various methods, which management believes result in reasonable
allocations of those costs that are necessary to present the Company's
operations as if they are operated on a stand alone basis. In addition, the
Company licenses the right to use a significant portion of its local fiber
capacity from Time Warner through prepaid right-to-use agreements and reimburses
Time Warner for facility maintenance and pole rental costs. The maintenance and
pole rental costs are included in the Company's operating expenses.
17
TIME WARNER TELECOM INC.
Three Months Ended June 30, 2001 Compared to Three Months Ended June 30, 2000
Revenue. Total revenue increased $86.1 million, or 65%, to $217.9
million for the three months ended June 30, 2001, from $131.8 million for the
comparable period in 2000. Revenue from the provision of dedicated transport
services increased $46.5 million, or 77%, to $107.2 million for the three months
ended June 30, 2001, from $60.7 million for the comparable period in 2000.
Switched service revenue increased $39.6 million, or 56%, to $110.7 million for
the three months ended June 30, 2001, from $71.1 million for the comparable
period in 2000. Included in total revenue for the three months ended June 30,
2001 is $1.8 million in services provided to the GST bankruptcy estate and to
transitional customers, which is not expected to continue. Also included in
total revenue for the three months ended June 30, 2001 and 2000, is $37.0
million and $23.4 million, respectively, of non-recurring reciprocal
compensation. Reciprocal compensation represented 8% and 5% of total revenue for
the three months ended June 30, 2001 and 2000, respectively, excluding the
effects of the recognition of non-recurring reciprocal compensation. At June 30,
2001, the Company offered dedicated transport services in 39 metropolitan areas,
all of which also offered switched services. At June 30, 2000, the Company
offered dedicated transport services in 22 consolidated metropolitan areas, 21
of which also offered switched services.
Exclusive of the effects of the GST asset acquisition during the three
months ended June 30, 2001 and the effects of the recognition of $37.0 million
and $23.4 million of non-recurring reciprocal compensation during the three
months ended June 30, 2001 and 2000, respectively, total revenue increased $46.7
million, or 43% to $155.0 million, from $108.4 million for the comparable period
in 2000. Exclusive of the effects of the GST asset acquisition during the three
months ended June 30, 2001 and the effects of the recognition of $37.0 million
and $23.4 million of non-recurring reciprocal compensation during the three
months ended June 30, 2001 and 2000, respectively, dedicated transport service
and switched service revenue increased 55% and 27%, respectively. The increase
in revenue from dedicated transport services primarily reflects a 20% increase
in average dedicated transport customers and a broader array of products and
services offered in existing markets. The increase in switched service revenue
reflects a 52% increase in average switched service customers, increased revenue
from switched access services and reciprocal compensation, and a broader array
of products and services offered in existing markets. Although revenue from
switched access services and reciprocal compensation increased, the average
rates have decreased and are expected to continue declining in the foreseeable
future.
Operating Expenses. Operating expenses increased $38.1 million, or 87%,
to $81.7 million for the three months ended June 30, 2001, from $43.6 million
for the comparable period in 2000. Exclusive of the effects of the GST asset
acquisition, these expenses increased 36%. The increase in operating expenses
was primarily attributable to the Company's expansion of its business, the
ongoing development of existing markets resulting in higher LEC charges for
circuit leases and interconnection, and higher headcount for technical
personnel. As a percentage of total revenue, operating expenses increased to 38%
for the three months ended June 30, 2001 from 33% for the comparable period in
2000, primarily as a result of the acquired assets and development of new
markets.
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses increased $20.9 million, or 52%, to $61.4 million for
the three months ended June 30, 2001, from $40.5 million for the comparable
period in 2000. Exclusive of the effects of the GST asset acquisition, these
expenses increased 26%. The increase in selling, general, and administrative
expenses was primarily attributable to an increase in employee headcount and
higher direct sales costs associated with the increase in revenue, higher
property tax expense, and an increase in the provision for doubtful accounts
related to the increase in revenue. As a percentage of total revenue, selling,
general, and administrative expenses decreased to 28% for the three months ended
June 30, 2001 from 31% for the comparable period in 2000.
Depreciation and Amortization Expense. Depreciation and amortization
expense increased $23.3 million, or 102%, to $46.2 million for the three months
ended June 30, 2001, from $22.9 million for the comparable period in 2000.
Exclusive of the effects of the GST asset acquisition, this expense increased
39%. The increase in net depreciation and amortization expense was primarily
attributable to increased capital expenditures.
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TIME WARNER TELECOM INC.
EBITDA. EBITDA for the three months ended June 30, 2001 increased
$27.2 million to $74.9 million, from $47.7 million in 2000. The increase was
$24.3 million, exclusive of the effects of the GST asset acquisition. This
improvement was primarily the result of a $13.6 million increase in the
recognition of non-recurring reciprocal compensation from $23.4 million in 2000
to $37.0 million in 2001, economies of scale as more revenue was generated in
existing markets, increased utilization of networks and facilities, and a more
skilled and productive workforce.
Interest Expense. On July 21, 1998, the Company issued $400 million in
9 3/4% Senior Notes in a public offering. During the first quarter of 2001, the
Company issued $400 million in 10 1/8% Senior Notes and drew $250 million on its
Credit Facility. Interest expense relating to the 9 3/4% Senior Notes, the 10
1/8% Senior Notes, and the Credit Facility was $28.1 million for the three
months ended June 30, 2001. Interest expense relating to the 9 3/4% Senior Notes
was $10.1 million for the three months ended June 30, 2000.
Net Income. Net income decreased $5.4 million to $4.4 million for the
three months ended June 30, 2001, from $9.8 million for the comparable period in
2000. The net income change is primarily due to an increase in depreciation
expense and net interest expense related to the GST asset acquisition, partially
offset by a decrease in income tax expense and an increase in EBITDA.
Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000
Revenue. Total revenue increased $159.1 million, or 69% to $391.0
million for the six months ended June 30, 2001, from $231.9 million for the
comparable period in 2000. Revenue from the provision of dedicated transport
services increased $101.1 million, or 90%, to $213.8 million for the six months
ended June 30, 2001, from $112.6 million for the comparable period in 2000.
Switched service revenue increased $58.0 million, or 49%, to $177.3 million for
the six months ended June 30, 2001, from $119.3 million for the comparable
period in 2000. Included in total revenue for the six months ended June 30, 2001
is $6.4 million in services provided to the GST bankruptcy estate and to
transitional customers, which is not expected to continue. Reciprocal
compensation represented 7% and 6% of total revenue for the six months ended
June 30, 2001 and 2000, respectively, excluding the effects of the recognition
of $37.0 million and $27.3 million of non-recurring reciprocal compensation
during the six months ended June 30, 2001 and 2000, respectively. At June 30,
2001, the Company offered dedicated transport services in 39 metropolitan areas,
all of which also offered switched services. At June 30, 2000, the Company
offered dedicated transport services in 22 consolidated metropolitan areas, 21
of which also offered switched services.
Exclusive of the effects of the GST asset acquisition during the six
months ended June 30, 2001 and the effects of the recognition of $37.0 million
and $27.3 million of non-recurring reciprocal compensation during the six months
ended June 30, 2001 and 2000, respectively, total revenue increased $97.6
million, or 48% to $302.2 million, from $204.6 million for the comparable period
in 2000. Exclusive of the effects of the GST asset acquisition during the six
months ended June 30, 2001 and the effects of the recognition of $37.0 million
and $27.3 million of non-recurring reciprocal compensation during the six months
ended June 30, 2001 and 2000, respectively, dedicated transport service and
switched service revenue increased 65% and 26% respectively. The increase in
revenue from dedicated transport services primarily reflects a 21% increase in
average dedicated transport customers and a broader array of products and
services offered in existing markets. The increase in switched service revenue
reflects a 55% increase in average switched service customers, increased revenue
from switched access services and reciprocal compensation, and a broader array
of products and services offered in existing markets. Although revenue from
switched access services and reciprocal compensation increased, the average
rates have decreased and are expected to continue declining in the foreseeable
future.
Operating Expenses. Operating expenses increased $77.8 million, or 94%,
to $160.4 million for the six months ended June 30, 2001, from $82.5 million for
the comparable period in 2000. Exclusive of the effects of the GST asset
acquisition, these expenses increased 43%. The increase in operating expenses
was primarily attributable to the Company's expansion of its business, the
ongoing development of existing markets resulting in higher LEC charges for
circuit leases and interconnection, and higher headcount for technical
personnel. As a percentage of total revenue, operating expenses increased to 41%
for the six months
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TIME WARNER TELECOM INC.
ended June 30, 2001 from 36% for the comparable period in 2000, primarily as a
result of the acquired assets and development of new markets.
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses increased $43.7 million, or 56%, to $121.9 million for
the six months ended June 30, 2001, from $78.2 million for the comparable period
in 2000. Exclusive of the effects of the GST asset acquisition, these expenses
increased 30%. The increase in selling, general, and administrative expenses was
primarily attributable to an increase in employee headcount and higher direct
sales costs associated with the increase in revenue, higher property tax
expense, and an increase in the provision for doubtful accounts related to the
increase in revenue. As a percentage of total revenue, selling, general, and
administrative expenses decreased to 31% for the six months ended June 30, 2001
from 34% for the comparable period in 2000.
Depreciation and Amortization Expense. Depreciation and amortization
expense increased $54.1 million, or 121%, to $98.9 million for the six months
ended June 30, 2001, from $44.8 million for the comparable period in 2000.
Exclusive of the effects of the GST asset acquisition, this expense increased
57%. The increase in net depreciation and amortization expense was primarily
attributable to an impairment of certain non-revenue generating assets and
increased capital expenditures.
EBITDA. EBITDA for the six months ended June 30, 2001 increased $37.5
million to $108.7 million, from $71.2 million in 2000. The increase was $38.7
million, exclusive of the effects of the GST asset acquisition. This improvement
was primarily the result of a $9.7 million increase in the recognition of
non-recurring reciprocal compensation from $27.3 million in 2000 to $37.0
million in 2001, economies of scale as more revenue was generated in existing
markets, increased utilization of networks and facilities, and a more skilled
and productive workforce.
Interest Expense. On July 21, 1998, the Company issued $400 million in
9 3/4% Senior Notes in a public offering. During the first quarter of 2001, the
Company issued $400 million in 10 1/8% Senior Notes and drew $250 million on its
Credit Facility. Interest expense relating to the 9 3/4% Senior Notes, the
10 1/8% Senior Notes, and the Credit Facility was $54.0 million for the six
months ended June 30, 2001. Additionally, in connection with the repayment of
the senior unsecured bridge loan facility, the Company recorded $5.8 million of
deferred financing costs as a non-recurring expense as well as $3.5 million in
interest expense. Interest expense relating to the 9 3/4% Senior Notes was $25.2
million for the six months ended June 30, 2000.
Net Loss. Net loss changed $31.2 million to a loss of $24.3 million for
the six months ended June 30, 2001, from earnings of $6.9 million for the
comparable period in 2000. The earnings change is primarily due to an increase
in depreciation expense and net interest expense related to the GST asset
acquisition, partially offset by an increase in the deferred tax benefit and an
increase in EBITDA.
Liquidity and Capital Resources
Operations. The Company's cash provided by operating activities was
$116.9 million for the six months ended June 30, 2001, as compared to $54.6
million for the comparable period in 2000. This increase in cash provided by
operating activities of $62.3 million principally resulted from an increase in
EBITDA and a change in certain working capital items.
As the Company continues its expansion plan to enter into new markets,
the expenditures incurred, together with initial operating expenses, will
generally result in negative EBITDA and operating losses from the new market
until an adequate customer base and revenue stream for the new market has been
established. Accordingly, the Company expects that the network constructed in
each new market will generally produce negative EBITDA from the new market for
at least two years after operations commence in that market. Additionally, the
Company currently expects the operations related to the assets purchased from
GST to generate negative EBITDA until an adequate customer base and revenue
stream for the network have been established. Although overall the Company
expects to continue to have positive EBITDA for the near future as it develops
and expands its business, as well as integrates the GST acquisition, there can
be no assurance that the Company will sustain sufficient positive EBITDA to meet
its working capital requirements and to service its indebtedness.
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TIME WARNER TELECOM INC.
Investing. Cash used in investing activities was $921.7 million for the
six months ended June 30, 2001, as compared to $44.1 million for the comparable
period in 2000. During the six months ended June 30, 2001, the Company used its
proceeds from the issuance of common stock and a portion of the proceeds from
the issuance of debt to fund the GST acquisition, capital expenditures, and net
purchases of marketable securities. During the six months ended June 30, 2000,
proceeds from the maturities of marketable securities and cash flow from
operating activities were primarily used to fund capital expenditures.
During the six months ended June 30, 2001, capital expenditures were
$242.7 million, an increase of $99.2 million from the comparable period in
2000. The largest commitment of capital was related to the installation of
transport and switch related electronics to support the increase in sales
activity and the addition of 1,240 route miles of fiber since December 31, 2000,
which is exclusive of 4,210 route miles of fiber acquired in connection with the
GST asset acquisition. Based on historic capital requirements for network
construction in relation to sales volumes and network expansion plans, the
Company anticipates it will commit approximately $550 million in 2001 to fund
its capital expenditures. This target spending includes requirements for current
operating markets, the Company's expansion plans including markets acquired from
GST, and integrating the GST acquisition. However, if revenue growth slows, the
Company may further reduce its capital spending as a large portion of the
Company's capital spending is success-based.
The facilities-based telecommunications service business is a
capital-intensive business. The Company's operations have required and will
continue to require substantial capital investment for:
. the purchase and installation of switches, electronics, fiber,
and other technologies in existing networks and in additional
networks to be constructed in new service areas; and
. the evolution of the network to support new products, services,
and technologies.
The Company's expected capital expenditures for general corporate and
working capital purposes include expenditures with respect to the Company's
management information system and corporate service support infrastructure.
The Company plans to make substantial capital investments in connection
with plans to construct and develop new networks, as well as for technology
upgrades. Expansion of the Company's networks will include the geographic
expansion of the Company's existing operations, and the Company will consider
the development of new markets. In addition, the Company may acquire existing
networks in the future. The development and expansion of the Company's existing
and future networks and services will require significant capital expenditures.
The Company regularly evaluates potential acquisitions and joint
ventures that would extend its geographic markets, expand its products and
services, or enlarge the capacity of its networks. If the Company enters into a
definitive agreement with respect to any acquisition or joint venture, it may
require additional financing. If the Company enters into a definitive agreement
with respect to any material transaction, it could result in the Company
increasing its leverage or issuing additional common stock or both. There can be
no assurance, however, that the Company will enter into any transaction or, if
it does, on what terms.
While the Company intends to continue to leverage its relationship with
Time Warner in pursuing expansion opportunities, to the extent the Company seeks
to expand into service areas where Time Warner does not conduct cable
operations, the Company may incur additional costs in excess of those
historically incurred when expanding into existing Time Warner service areas. In
addition, Time Warner is not obligated to construct or provide additional fiber
optic capacity in excess of what is already licensed to the Company under
certain operating agreements. Accordingly, if the Company is unable to lease
additional capacity at the same rates as are currently provided for under
certain operating agreements, the Company may be required to obtain additional
capacity on more expensive terms.
21
TIME WARNER TELECOM INC.
In order to fund the GST asset acquisition, the development of those
assets, and its other capital expenditure needs, in December 2000 the Company
replaced its $475 million senior secured revolving credit facility with a $1
billion amended and restated senior secured credit facility which provides for
$525 million of senior secured term loan facilities and a $475 million senior
secured revolving credit facility. The Credit Facility has a final maturity of
December 31, 2007, with annual reductions in the principal amount available
under the $475 million senior secured credit facility commencing on December 31,
2004. In December 2000, the Company was required to draw and hold in escrow $179
million of the revolving credit facility until the closing of the GST asset
acquisition, at which time the draw increased to $250 million. See "Financing"
below.
In January 2001, the Company issued $400 million principal amount of
10 1/8% Senior Notes due 2011 and 7,475,000 shares of Class A common stock in a
public offering at an offering price of $74 7/16 per share, in part to repay a
senior unsecured bridge loan facility under which the Company borrowed $700
million to finance the purchase of the GST assets and pay related fees and
expenses. In connection with the repayment of the senior unsecured bridge loan
facility, the Company recorded $5.8 million of deferred financing costs as a
non-recurring expense as well as $3.5 million in interest expense for the six
months ended June 30, 2001. In connection with the issuance of Class A common
stock, approximately $24.2 million of unamortized deferred financing costs was
reclassified to additional paid-in capital in the first quarter of 2001.
The Company expects that the $480.6 million in cash, cash equivalents,
and marketable debt securities at June 30, 2001, borrowings under the $1 billion
credit facility, along with internally generated funds, will provide sufficient
funds for the Company to meet its expected capital and liquidity needs to expand
its business and pay interest on the 9 3/4% Senior Notes, the 10 1/8% Senior
Notes, and on current and future borrowings under the secured revolving credit
facility. In the event that the Company's plans or assumptions change or prove
to be inaccurate, or the foregoing sources of funds prove to be insufficient to
fund the Company's growth and operations, or if the Company consummates
acquisitions or joint ventures, the Company may be required to seek additional
capital. The Company's revenue and costs are partially dependent upon factors
that are not within the Company's control, such as regulatory changes, changes
in technology, and increased competition. Due to the uncertainty of these and
other factors, actual revenue and costs may vary from expected amounts, possibly
to a material degree, and these variations are likely to affect the level of the
Company's future capital expenditures and expansion plans. Sources of any future
financing may include public or private debt, equity financing by the Company or
its subsidiaries, or other financing arrangements.
Financing. Net cash provided by financing activities for the six months
ended June 30, 2001 was $1.0 billion and was primarily due to the net proceeds
from both the issuance of common stock and debt.
The $400 million principal amount in 9 3/4% Senior Notes that the
Company issued in July 1998 are unsecured, unsubordinated obligations of the
Company. Interest on the 9 3/4% Senior Notes is payable semiannually on January
15 and July 15, beginning on January 15, 1999. Aggregate annual interest
payments on the 9 3/4% Senior Notes through 2008 are expected to be
approximately $39 million. The 9 3/4% Senior Notes are required to be repaid on
July 15, 2008.
The $400 million in principal amount of 10 1/8% Senior Notes that the
Company issued in the first quarter of 2001 are unsecured, unsubordinated
obligations of the Company. Interest on the 10 1/8% Senior Notes is payable
semiannually on February 1 and August 1, beginning on August 1, 2001. Aggregate
annual interest payments on the 10 1/8% Senior Notes through 2011 are expected
to be approximately $41 million.
The 9 3/4% Senior Notes and the 10 1/8% Senior Notes are governed by
indentures that contain certain restrictive covenants. These restrictions
affect, and in many respects significantly limit or prohibit, among other
things, the ability of the Company to incur indebtedness, make prepayments of
certain indebtedness, pay dividends, make investments, engage in transactions
with shareholders and affiliates, issue capital stock of subsidiaries, create
liens, sell assets, and engage in mergers and consolidations.
Interest on the $250 million drawn under the revolving credit facility
is computed utilizing a specified Eurodollar Rate plus 4.0%, which totaled 8.7%
on June 30, 2001. Interest is payable at least
22
TIME WARNER TELECOM INC.
quarterly at the end of each quarter, beginning in March 2001. Based on the rate
in effect on June 30, 2001, aggregate annual interest payments are expected to
be approximately $21.7 million through 2008. These anticipated payments will
fluctuate with changes in amounts borrowed and changes in the interest rate.
The obligations under the amended and restated senior secured credit
facility are secured by substantially all of the assets of the Company,
including the assets acquired from GST, except for certain assets with respect
to which the grant of a security interest is prohibited by governing agreements.
The senior secured credit facility requires the Company to prepay outstanding
loans when its cash flow exceeds certain levels and with the proceeds received
from a number of specified events or transactions, including certain asset sales
and insurance recoveries for assets not replaced. In addition, obligations under
the senior secured credit facility are subject to various covenants that limit
the Company's ability to:
. borrow and incur liens on its property;
. pay dividends or make other distributions; and
. make capital expenditures.
The senior secured credit facility also contains financial covenants, including
a consolidated leverage ratio, and a consolidated interest coverage ratio, as
well as cross default provisions. Under the cross default provisions, the
Company is deemed to be in default under the amended and restated facility if it
has defaulted under any of the other material outstanding obligations, such as
the 9 3/4% Senior Notes or the 10 1/8% Senior Notes.
23
TIME WARNER TELECOM INC.
Part II
Other Information
Item 1. Legal Proceedings
The Company has no material legal proceedings pending.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders of Time Warner Telecom
Inc. was held on June 7, 2001 (the "2001 Annual Meeting").
(b)(c) The following matters were voted upon at the 2001 Annual
Meeting:
(i) The following persons were elected directors of Time
Warner Telecom Inc. for terms expiring in 2002:
Votes For Votes Withheld
----------- --------------
Larissa Herda 758,333,721 526,714
Glenn A. Britt 753,292,179 5,568,256
Bruce Claflin 758,416,098 444,337
Richard J. Davies 753,323,449 5,536,986
Spencer B. Hays 753,015,937 5,844,498
Lisa Hook 758,333,261 527,174
Robert J. Miron 758,334,078 526,357
William T. Schleyer 758,415,997 444,458
Theodore H. Schell 758,415,960 444,475
(ii) Approval of the Time Warner Telecom Inc. 2000
Employee Stock Plan:
Votes For: 736,582,059
Votes Against: 16,833,549
Abstentions: 28,342
Broker Non-Votes: 5,416,485
(iii) Ratification of the appointment of Ernst & Young
LLP as independent auditors of Time Warner Telecom
Inc. for 2001:
Votes For: 757,895,023
Votes Against: 953,489
Abstentions: 11,923
Broker Non-Votes: 0
24
TIME WARNER TELECOM INC.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
The exhibits listed on the accompanying Exhibit Index are filed or
incorporated by reference as part of this report and the Exhibit Index
is incorporated herein by reference.
(b) Reports on Form 8-K
(i) 8-K dated May 7, 2001 reporting the issuance of a press
release announcing the Company's first quarter 2001
financial results.
25
TIME WARNER TELECOM INC.
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ------ ----------------------
2.1 -- Reorganization Agreement among Time Warner Companies, Inc.,
MediaOne Group, Inc., Advance/Newhouse Partnership, Time Warner
Entertainment Company, L.P., and Time Warner Entertainment-
Advance/Newhouse Partnership (filed as Exhibit 2.1 to Time Warner
Telecom ("TWT") LLC's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998. *
2.2 -- Merger Agreement among the Company, TWT LLC, and TWT Inc. (filed
as Exhibit 2.2 to the Company's Registration Statement on Form S-
1 (Registration No. 333-49439)). *
2.3 -- Asset Purchase Agreement dated as of September 11, 2000 among
Time Warner Telecom Inc., GST Telecommunications, Inc., GST USA,
Inc. and the other parties identified on Exhibit A thereto (filed
as Exhibit 2.1 to the Company's Report on Form 8-K dated
September 18, 2000 and dated September 11, 2000). *
3.1 -- Restated Certificate of Incorporation of the Company (filed as
Exhibit 2.2 to Company's Registration Statement on Form S-1
(Registration No. 333-49439)). *
3.2 -- Restated By-Laws of the Company (filed as Exhibit 3.2 to
Company's Registration Statement on Form S-1 (Registration No.
333-49439)). *
4.1 -- Stockholders' Agreement, among the Company, Time Warner
Companies, Inc., American Television and Communications
Corporation, Warner Communications Inc., TW/TAE Inc., FibrCOM
Holdings, L.P., Paragon Communications, MediaOne Group, Inc.,
Multimedia Communications, Inc. and Advance/Newhouse Partnership
(filed as Exhibit 4.1 to Company's Registration Statement on Form
S-1 (Registration No. 333-49439)). *
4.2 -- Indenture, between TWT LLC, TWT Inc. and The Chase Manhattan
Bank, as Trustee (filed as Exhibit 4.1 to TWT LLC's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998). *
4.3 -- Indenture between Time Warner Telecom Inc. and The Chase
Manhattan Bank, as Trustee (filed as Exhibit 4 to Amendment No. 1
to the Company's Registration Statement on Form S-3.
(Registration No. 333-49818)). *
10.19 -- Employment Agreement between the Company and Mark Hernandez.
* Incorporated by reference.
26
Signature
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.
TIME WARNER TELECOM INC.
Date: August 14, 2001 By: /s/ Jill R. Stuart
-----------------------------
Jill R. Stuart
Vice President, Accounting and Finance and
Chief Accounting Officer