SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q/A

x   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended June 30, 2004

OR

o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.

Commission File No. 0-29092

PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED

(Exact name of registrant as specified in its charter)

 

(703) 902-2800

(Registrant’s telephone number, including area code)

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 o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).  Yes x     No o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED

EXPLANATORY NOTE

Primus Telecommunications Group, Incorporated and subsidiaries (the “Company”) is filing this Amendment to Form 10-Q to:

1.     Amend the information contained in Note 10 to the consolidated condensed financial statements included in Part I, Item 1 of the Company’s Form 10-Q for the quarterly period ended June 30, 2004 as originally filed with the Securities and Exchange Commission on August 9, 2004 (the “Quarterly Report”). Note 10 is hereby restated to reflect the capital contribution of certain of the Company’s intercompany receivables and payables balances to the Company’s wholly owned subsidiary, Primus Telecommunications Holding, Inc. (“PTHI”), which occurred in connection with PTHI’s issuance of 8% senior notes, which are guaranteed by the Company, in January 2004. This amendment is solely due to intercompany arrangements required for disclosure in Note 10.

Concurrently, the Company is filing its amended quarterly report on Form 10-Q/A for the quarter ended March 31, 2004 to reflect the amended capital contribution.

2.     Amend basic weighted average common shares outstanding and basic and diluted income per common share accordingly, disclosed in the consolidated condensed financial statements included in Part I, Item 1 of the Quarterly Report. The three- and six-month periods ended June 30, 2003, as presented on the statement of operations and in the notes to the consolidated condensed financial statements, is hereby restated to reflect the removal of the Series C convertible preferred stock from the basic weighted average common shares outstanding as it does not meet the definition of  a participating security. Because the Series C Preferred was deemed to be non-participating, the shares are assumed to be converted into common shares and the accreted and deemed dividend on convertible preferred stock is removed from the calculation of diluted income per common share. Basic and diluted income per common share was restated accordingly. There is no impact on previously reported net income for the three- and six-month periods ended June 30, 2003 nor on the statement of operations for the three- and six-month periods ended June 30, 2004.

Concurrently, the Company is filing its amended quarterly report on Form 10-Q/A for the quarters ended September 30, 2003 and March 31, 2004 and its amended annual report Form 10-K/A for the year ended December 31, 2003 to reflect the amended basic weighted average common shares outstanding and the calculation of basic and diluted income per common share for the periods during which the Series C convertible preferred stock was outstanding.

This Amendment reflects only the changes discussed above. No other information included in the Quarterly Report has been modified or updated. This Amendment continues to speak as of the date of the original filing of the Quarterly Report, and the Company has not updated the disclosures to reflect any events that occurred at a later date.

PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
INDEX TO FORM 10-Q/A

		Page No.
Part I.   FINANCIAL INFORMATION
Item 1.   FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Condensed Statements of Operations  (As Restated)			1
Consolidated Condensed Balance Sheets			2
Consolidated Condensed Statements of Cash Flows			3
Consolidated Condensed Statements of Comprehensive Income (Loss)			4
Notes to Consolidated Condensed Financial Statements			5
Item 4.   CONTROLS AND PROCEDURES			28
Part II. OTHER INFORMATION
Item 6.   EXHIBITS AND REPORTS ON FORM 8-K			28
SIGNATURES			29

 

PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)

		Three Months Ended June 30,						Six Months Ended June 30,
		2004			2003*			2004			2003*
NET REVENUE		$	331,615		$	320,240		$	679,638		$	620,683
OPERATING EXPENSES
Cost of revenue (exclusive of depreciation included below)		199,035			196,363			408,692			386,386
Selling, general and administrative		95,407			89,241			189,724			166,866
Depreciation and amortization		23,140			21,218			46,647			41,553
Loss on sale of fixed assets		1,873			804			1,873			804
Asset impairment write-down		—			—			—			537
Total operating expenses		319,455			307,626			646,936			596,146
INCOME FROM OPERATIONS		12,160			12,614			32,702			24,537
INTEREST EXPENSE		(11,579		)	(14,622		)	(26,658		)	(29,999		)
GAIN (LOSS) ON EARLY EXTINGUISHMENT OF DEBT		297			7,981			(13,896		)	14,634
INTEREST INCOME AND OTHER INCOME (EXPENSE)		552			(82		)	1,288			200
FOREIGN CURRENCY TRANSACTION GAIN (LOSS)		(14,665		)	14,765			(15,797		)	24,818
INCOME (LOSS) BEFORE INCOME TAXES		(13,235		)	20,656			(22,361		)	34,190
INCOME TAX EXPENSE		(1,651		)	(620		)	(2,580		)	(2,953		)
NET INCOME (LOSS)		(14,886		)	20,036			(24,941		)	31,237
ACCRETED AND DEEMED DIVIDEND ON CONVERTIBLE PREFERRED STOCK		—			(1,356		)	—			(1,678		)
INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS		$	(14,886	)	$	18,680		$	(24,941	)	$	29,559
INCOME (LOSS) PER COMMON SHARE:
Basic		$	(0.17	)	$	0.29	*	$	(0.28	)	$	0.45	*
Diluted		$	(0.17	)	$	0.22	*	$	(0.28	)	$	0.36	*
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic		89,611			65,157		*	89,190			65,120		*
Diluted		89,611			90,744			89,190			87,572

*       As restated, see Note 9.

See notes to consolidated condensed financial statements.

1

PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except share amounts)
(unaudited)

		June 30, 2004			December 31, 2003
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	66,349			$	64,066
Accounts receivable (net of allowance for doubtful accounts receivable of $17,671 and $20,975)		176,897				200,817
Prepaid expenses and other current assets		44,450				36,930
Total current assets		287,696				301,813
RESTRICTED CASH		12,012				12,463
PROPERTY AND EQUIPMENT—Net		314,688				341,167
GOODWILL		77,160				59,895
OTHER INTANGIBLE ASSETS—Net		28,973				22,711
OTHER ASSETS		17,793				13,115
TOTAL ASSETS		$	738,322			$	751,164
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES:
Accounts payable		$	96,303			$	108,615
Accrued interconnection costs		76,203				89,993
Accrued expenses and other current liabilities		70,198				69,456
Accrued income taxes		21,733				22,387
Accrued interest		14,376				12,852
Current portion of long-term obligations		21,347				24,385
Total current liabilities		300,160				327,688
LONG-TERM OBLIGATIONS		560,366				518,066
OTHER LIABILITIES		1,420				1,776
Total liabilities		861,946				847,530
COMMITMENTS AND CONTINGENCIES		—				—
STOCKHOLDERS’ DEFICIT:
Preferred stock, Series A and B, $0.01 par value—1,895,050 shares authorized; none issued and outstanding; Series C, $0.01 par value—559,950 shares authorized; none issued and outstanding		—				—
Common stock, $0.01 par value—150,000,000 shares authorized; 89,776,219 and 88,472,546 shares issued and outstanding		898				885
Additional paid-in capital		658,248				651,159
Accumulated deficit		(710,018		)		(685,077		)
Accumulated other comprehensive loss		(72,752		)		(63,333		)
Total stockholders’ deficit		(123,624		)		(96,366		)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT		$	738,322			$	751,164

 

See notes to consolidated condensed financial statements.

2

PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

		Six Months Ended June 30,
		2004			2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)		$	(24,941	)	$	31,237
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision for doubtful accounts receivable		7,483			12,210
Stock issuance—401(k) Plan and Restricted Stock Plan		—			258
Non-cash compensation expense		—			245
Depreciation, amortization and accretion		46,647			41,586
Loss on sale of fixed assets		1,873			804
Asset impairment write-down		—			537
Equity investment loss		34			649
(Gain) loss on early extinguishment of debt		13,896			(14,634		)
Minority interest share of loss		(234		)	(210		)
Unrealized foreign currency transaction (gain) loss on intercompany and foreign debt		14,470			(26,488		)
Changes in assets and liabilities, net of acquisitions:
(Increase) decrease in accounts receivable		10,178			(18,280		)
(Increase) decrease in prepaid expenses and other current assets		(6,912		)	7,429
(Increase) decrease in restricted cash		(199		)	891
(Increase) decrease in other assets		(929		)	534
Increase (decrease) in accounts payable		(10,705		)	2,094
Increase (decrease) in accrued expenses, accrued income taxes, other current liabilities and other liabilities		(18,384		)	2,688
Increase (decrease) in accrued interest		1,549			(2,396		)
Net cash provided by operating activities		33,826			39,154
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(17,455		)	(9,677		)
Cash used for business acquisitions, net of cash acquired		(26,450		)	(1,129		)
Net cash used in investing activities		(43,905		)	(10,806		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term obligations, net		235,240			9,125
Purchase of the Company’s debt securities		(197,312		)	(42,549		)
Principal payments on capital leases, vendor financing and other long-term obligations		(19,611		)	(31,503		)
Proceeds from sale of convertible preferred stock, net		—			8,895
Proceeds from sale of common stock		1,029			231
Net cash provided by (used in) financing activities		19,346			(55,801		)
EFFECTS OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		(6,984		)	737
NET CHANGE IN CASH AND CASH EQUIVALENTS		2,283			(26,716		)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		64,066			92,492
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	66,349		$	65,776
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest		$	24,089		$	31,367
Cash paid for taxes		$	907		$	—
Non-cash investing and financing activities:
Leased fiber capacity additions		$	3,879		$	2,938
Common stock issued for business acquisitions		$	6,072		$	—
Acquisition of customer list, financed by long-term obligations		$	—		$	8,102

 

 

See notes to consolidated condensed financial statements.

3

PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(unaudited)

		Three Months Ended June 30,						Six Months Ended June 30,
		2004			2003			2004			2003
NET INCOME (LOSS)		$	(14,886	)	$	20,036		$	(24,941	)	$	31,237
OTHER COMPREHENSIVE INCOME (LOSS):
Foreign currency translation adjustment		(10,101		)	691			(9,419		)	(422		)
COMPREHENSIVE INCOME (LOSS)		$	(24,987	)	$	20,727		$	(34,360	)	$	30,815

 

 

See notes to consolidated condensed financial statements.

4

PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

1.   BASIS OF PRESENTATION

The accompanying unaudited consolidated condensed financial statements of Primus Telecommunications Group, Incorporated and subsidiaries (“the Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial reporting and Securities and Exchange Commission (“SEC”) regulations. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the financial statements reflect all adjustments (all of which are of a normal and recurring nature), which are necessary to present fairly the financial position, results of operations, cash flows and comprehensive income (loss) for the interim periods. The results for the six months ended June 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004.

The financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in the Company’s most recently filed Form 10-K/A.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation—The consolidated condensed financial statements include the Company’s accounts, its wholly-owned subsidiaries and all other subsidiaries over which the Company exerts control. The Company owns 51% of the common stock of Matrix Internet, S.A. (“Matrix”) and 51% of CS Communications Systems GmbH and CS Network GmbH (“Citrus”), in all of which the Company has a controlling interest. Additionally, the Company has a controlling interest in Direct Internet Limited (“DIL”), pursuant to a convertible loan which can be converted at any time into equity of DIL in an amount as agreed upon between the Company and DIL and permitted under local law. The Company uses the equity method of accounting for its investment in Bekkoame Internet, Inc. (“Bekko”). All intercompany profits, transactions and balances have been eliminated in consolidation. All other investments in affiliates are carried at cost, as the Company does not have significant influence.

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Stock-Based Compensation—At June 30, 2004, the Company had three stock-based employee compensation plans. The Company uses the intrinsic value method to account for those plans under the recognition and measurement principles of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations. The following table illustrates the effect on income (loss) attributable to common stockholders and income (loss) per common share if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation (in thousands, except per share amounts, and unaudited):

		For the three months ended June 30,						For the six months ended June 30,
		2004			2003			2004			2003
Income (loss) attributable to common stockholders, as reported		$	(14,886	)	$	18,680		$	(24,941	)	$	29,559
Deduct: Total stock-based compensation expense determined under fair value based method for all awards, net of income taxes		(490		)	(753		)	(892		)	(1,471		)
Pro forma income (loss) attributable to common stockholders		$	(15,376	)	$	17,927		$	(25,833	)	$	28,088
Basic income (loss) per common share:
As reported		$	(0.17	)	$	0.29		$	(0.28	)	$	0.45
Pro forma		$	(0.17	)	$	0.28		$	(0.29	)	$	0.43
Diluted income (loss) per common share:
As reported		$	(0.17	)	$	0.22		$	(0.28	)	$	0.36
Pro forma		$	(0.17	)	$	0.21		$	(0.29	)	$	0.34
Weighted average common shares outstanding:
Basic		89,611			65,157			89,190			65,120
Diluted		89,611			90,744			89,190			87,572

 

Reclassification—Certain prior year amounts have been reclassified to conform to current year presentations.

Recent Accounting Pronouncements

In March 2004, the Financial Accounting Standards Board (“FASB”) approved Emerging Issues Task Force (“EITF”) Issue 03-6, “Participating Securities and the Two-Class Method under SFAS 128.” EITF Issue 03-6 supersedes the guidance in Topic No. D-95, “Effect of Participating Convertible Securities on the Computation of Basic Earnings per Share,” and requires the use of the two-class method of participating securities. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared or accumulated and participation rights in undistributed earnings. EITF Issue 03-6 is effective for reporting periods beginning after March 31, 2004 and should be applied by restating previously reported earnings per share. As discussed in Note 9—“Basic and Diluted Income (Loss) Per Common Share,” the adoption of EITF Issue 03-6 did not have an effect on the Company’s consolidated financial position or results of operations.

In January 2003, the FASB issued FASB Interpretation (“FIN”) No. 46(R), “Consolidation of Variable Interest Entities.” FIN No. 46(R) clarifies the application of Accounting Research Bulletin (“ARB”) No. 51, “Consolidated Financial Statements,” to certain entities in which the equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the

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entity to finance its activities without additional subordinated financial support from other parties. FIN No. 46(R) applies immediately to variable interest entities created after January 31, 2003, or in which the Company obtains an interest after that date. With respect to variable interest entities created prior to February 1, 2003, FIN No. 46(R) was effective March 31, 2004. The adoption of FIN No. 46(R) did not have a material effect on the Company’s consolidated financial position or results of operations.

3.   ACQUISITIONS

In June 2004, the Company’s wholly-owned subsidiary, 3082833 Nova Scotia Company (“Primus Canada”) acquired Onramp Network Services Inc. (“Onramp”), a provider of Internet services and solutions for businesses. Primus Canada acquired 100% of the issued stock of Onramp for a total consideration of $3.9 million (5.3 million Canadian dollars (CAD)), paid in cash.

In April 2004, Primus Canada acquired Magma Communications Ltd. (“Magma”), a provider of Internet solutions to corporate, government and residential customers in Toronto, Ottawa and Montreal. Primus Canada acquired 100% of the issued stock of Magma for a total consideration of $11.2 million (15.1 million CAD), half of which was paid in cash and the balance in 734,018 shares of the Company’s common stock valued at $6.1 million.

In February 2004, the Company’s wholly-owned subsidiary in Australia, Primus Telecommunications Pty Ltd (“Primus Telecom”) acquired the Internet service and interactive media businesses of AOL/7 Pty Ltd (“AOL/7”). AOL/7 was a joint venture between America Online Inc. (“AOL”), a wholly-owned subsidiary of Time Warner Inc., AAPT Limited, a unit of the Telecom New Zealand Group, and Seven Network Limited. Primus Telecom acquired 100% of the issued stock of AOL/7 which provides the Company with the customer base, content, content development and online advertising businesses, as well as a license for the AOL brand in Australia, for a total consideration of approximately $19 million (25.3 million Australian dollars (AUD)), paid in cash.

The Company has accounted for these acquisitions using the purchase method of accounting, and accordingly, the net assets and results of operations of the acquired companies have been included in the Company’s consolidated financial statements since the acquisition date. The initial purchase price, including direct costs, of the Company’s acquisition was allocated to the net assets acquired, including intangible assets, and liabilities assumed, based on their fair values at the acquisition date. As of June 30, 2004, the allocations have not been finalized in accordance with SFAS No. 141 “Business Combinations,” due to the timing of the acquisitions. Had these companies been acquired on January 1, 2004, the results of their operations would not have materially impacted the consolidated financial statements of the Company, and therefore, pro forma financial information has not been presented.

4.   GOODWILL AND OTHER INTANGIBLE ASSETS

Acquired intangible assets subject to amortization consisted of the following (in thousands and unaudited):

		June 30, 2004													December 31, 2003
		Gross Carrying Amount			Accumulated  Amortization					Net Book Value					Gross Carrying Amount			Accumulated  Amortization					Net Book Value
Customer lists		$	176,422			$	(151,271	)			$	25,151			$	166,446			$	(145,099	)			$	21,347
Other		5,715				(1,893		)			3,822				2,622				(1,258		)			1,364
Total		$	182,137			$	(153,164	)			$	28,973			$	169,068			$	(146,357	)			$	22,711

 

Amortization expense for customer lists and other intangible assets for the three months ended June 30, 2004 and 2003 was $5.3 million and $5.1 million, respectively. Amortization expense for customer

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lists and other intangible assets for the six months ended June 30, 2004 and 2003 was $9.8 million and $10.2 million, respectively. The Company expects amortization expense for customer lists and other intangible assets for the fiscal years ending December 31, 2004, 2005, 2006, 2007 and 2008 to be approximately $19.7 million, $12.3 million, $4.5 million, $1.5 million and $0.8 million, respectively.

Acquired intangible assets not subject to amortization consisted of the following (in thousands and unaudited):

		June 30, 2004 Carrying Amount					December 31, 2003 Carrying Amount
Goodwill			$	77,160				$	59,895

 

The changes in the carrying amount of goodwill for the six months ended June 30, 2004 are as follows (in thousands and unaudited):

		North America			Europe			Asia-Pacific					Total
Balance as of January 1, 2004		$	50,025		$	1,927			$	7,943			$	59,895
Goodwill acquired during period		10,568			—				8,827				19,395
Effect of change in foreign currency exchange rates		(641		)	(72		)		(1,417		)		(2,130		)
Balance as of June 30, 2004		$	59,952		$	1,855			$	15,353			$	77,160

 

5.   LONG-TERM OBLIGATIONS

Long-term obligations consisted of the following (in thousands and unaudited):

		June 30, 2004			December 31, 2003
Obligations under capital leases		$	2,256			$	4,040
Leased fiber capacity		37,415				40,509
Financing facility and other		13,168				22,626
Senior notes		325,755				272,157
Convertible senior notes		132,000				132,000
Convertible subordinated debentures		71,119				71,119
Subtotal		581,713				542,451
Less: Current portion of long-term obligations		(21,347		)		(24,385		)
Total long-term obligations		$	560,366			$	518,066

 

The indentures governing the senior notes, convertible senior notes and convertible subordinated debentures, as well as other credit arrangements, contain certain financial and other covenants that, among other things, will restrict the Company’s ability to incur further indebtedness and make certain payments, including the payment of dividends and repurchase of subordinated debt held by the Company’s subsidiaries.

Senior Notes, Convertible Senior Notes and Convertible Subordinated Debentures

In January 2004, Primus Telecommunications Holding, Inc. (PTHI), a direct, wholly-owned subsidiary of the Company, completed the sale of $240 million in aggregate principal amount of 8% senior notes due 2014 (“2004 Senior Notes”) with semi-annual interest payments due on January 15^th and July 15^th, with the first payment due on July 15, 2004, with early redemption at a premium to par at PTHI’s option at any time after January 15, 2009. The Company recorded $7.0 million in costs associated with the issuance of the

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2004 Senior Notes, which have been recorded as deferred financing costs in other assets. The effective interest rate at June 30, 2004 was 8.4%. During specified periods, PTHI may redeem up to 35% of the original aggregate principal amount with the net cash proceeds of certain equity offerings of the Company. During the three months ended June 30, 2004, the Company retired $5.0 million principal amount of the notes for $4.6 million in cash through open market purchases. See the table below for detail on debt repurchases since December 31, 2002.

In September 2003, the Company completed the sale of $132 million in aggregate principal amount of 33¤4% convertible senior notes due 2010 (“2003 Convertible Senior Notes”) with semi-annual interest payments due on March 15^th and September 15^th, with the first payment due on March 15, 2004. The Company recorded $5.2 million in costs associated with the issuance of the 2003 Convertible Senior Notes, which have been recorded as deferred costs in other assets. The effective interest rate at June 30, 2004 was 4.4%. Holders of these notes may convert their notes into the Company’s common stock at any time prior to maturity at an initial conversion price of $9.3234 per share, which is equivalent to an initial conversion rate of 107.257 shares per $1,000 principal amount of the notes, subject to adjustment in certain circumstances. The notes are convertible in the aggregate into 14,157,925 shares of the Company’s common stock.

In February 2000, the Company completed the sale of $250 million in aggregate principal amount of 53¤4% convertible subordinated debentures due 2007 (“2000 Convertible Subordinated Debentures”) with semi-annual interest payments due on February 15th and August 15th. On March 13, 2000, the Company announced that the initial purchasers of the 2000 Convertible Subordinated Debentures had exercised their $50 million over-allotment option granted pursuant to a purchase agreement dated February 17, 2000. The debentures were convertible into approximately 6,025,170 shares of the Company’s common stock based on a conversion price of $49.7913 per share. During the years ended December 31, 2001 and 2000, the Company reduced the principal balance of the debentures through $36.4 million of open market purchases and $192.5 million of conversions to its common stock. The principal that was converted to common stock was retired upon conversion and in February 2002, the Company retired all of the 2000 Convertible Subordinated Debentures that it had previously purchased in December 2000 and January 2001. The retired principal had been held by the Company as treasury bonds and had been recorded as a reduction of long-term obligations. See Note 11—“Subsequent Events.”

In October 1999, the Company completed the sale of $250 million in aggregate principal amount of 123¤4% senior notes due 2009 (“October 1999 Senior Notes”). The October 1999 Senior Notes are due October 15, 2009, with semi-annual interest payments due on October 15th and April 15^th with early redemption at a premium to par at the Company’s option at any time after October 15, 2004. During the years ended December 31, 2002, 2001 and 2000, the Company reduced the principal balance of these senior notes through open market purchases. In June and September 2002, the Company retired all of the October 1999 Senior Notes that it had previously purchased in the principal amount of $134.3 million in aggregate. The retired principal had been held by the Company as treasury bonds and had been recorded as a reduction of long-term obligations. In February and March 2004, the Company retired $24.4 million principal amount of its October 1999 Senior Notes for $27.3 million in cash. In May 2004, the Company retired $0.5 million principal amount of its October 1999 Senior Notes for $0.6 million in cash. See the table below for detail on debt repurchases since December 31, 2002. See Note 11—“Subsequent Events.”

In January 1999, the Company completed the sale of $200 million in aggregate principal amount of 111¤4% senior notes due 2009 (“January 1999 Senior Notes”) with semi-annual interest payments due on January 15th and July 15th. The January 1999 Senior Notes are due January 15, 2009 with early redemption at a premium to par at the Company’s option at any time after January 15, 2004. In June 1999, in connection with the Telegroup acquisition, the Company issued $45.5 million in aggregate principal amount of its 111¤4% senior notes due 2009 pursuant to the January 1999 Senior Notes indenture. During the six months ended June 30, 2003 and the years ended December 31, 2002 and 2001, the Company

9

---

reduced the principal balance of these senior notes through open market purchases. In June, November and December 2002 and April 2003, the Company retired all of the January 1999 Senior Notes that it had previously purchased in the principal amount of $135.6 million in aggregate. The retired principal had been held by the Company as treasury bonds and had been recorded as a reduction of long-term obligations. In February 2004, the Company satisfied and discharged the entire remaining principal balance of $109.9 million of its January 1999 Senior Notes. The January 1999 Senior Notes were redeemed at 105.625% of par together with accrued interest to the date of redemption. See the table below for detail on debt repurchases since December 31, 2002.

On May 19, 1998, the Company completed the sale of $150 million in aggregate principal amount of 97¤8% senior notes due 2008 (“1998 Senior Notes”) with semi-annual interest payments due on May 15th and November 15th. The 1998 Senior Notes are due May 15, 2008 with early redemption at a premium to par at the Company’s option any time after May 15, 2003. During the six months ended June 30, 2003 and the years ended December 31, 2002 and 2001, the Company reduced the principal balance of these senior notes through open market purchases. In June, October and December 2002 and April 2003, the Company retired all of the 1998 Senior Notes that it had previously purchased in the principal amount of $103.4 million in aggregate. The retired principal had been held by the Company as treasury bonds and had been recorded as a reduction of long-term obligations. In February 2004, the Company satisfied and discharged the entire remaining principal balance of $46.6 million of its 1998 Senior Notes. The 1998 Senior Notes were redeemed at 104.938% of par together with accrued interest to the date of redemption. See the table below for detail on debt repurchases since December 31, 2002.

10

The following table shows the changes in the balances of the Company’s senior notes, convertible senior notes and convertible subordinated debentures for the six months ended June 30, 2004 and the year ended December 31, 2003 (unaudited):

For the six months ended June 30, 2004

		Balance at December 31, 2003			Debt Issuance			Principal Purchases			Warrant Amortization and Write-off					Balance at June 30, 2004			Cash Paid for Purchase of Principal
2004 8% Senior Notes due 2014		$	—		$	240,000,000		$	(5,000,000	)		$	—			$	235,000,000		$	4,500,000
2003 33¤4% Convertible Senior Notes due 2010		132,000,000			—			—				—				132,000,000			—
2000 53¤4% Convertible Debentures due 2007		71,119,000			—			—				—				71,119,000			—
October 1999 123¤4% Senior Notes due 2009		115,680,000			—			(24,925,000		)		—				90,755,000			27,852,850
January 1999 111¤4% Senior Notes due 2009		109,897,000			—			(109,897,000		)		—				—			116,078,706
1998 97¤8% Senior Notes due 2008		46,580,000			—			(46,580,000		)		—				—			48,880,120
Total		$	475,276,000		$	240,000,000		$	(186,402,000	)		$	—			$	528,874,000		$	197,311,676

 

For the year ended December 31, 2003

		Balance at December 31, 2002			Debt Issuance			Principal Purchases			Warrant Amortization and Write-off					Balance at December 31, 2003			Cash Paid for Purchase of Principal
2003 33¤4% Convertible Senior Notes due 2010		$	—		$	132,000,000		$	—			$	—			$	132,000,000		$	—
2000 53¤4% Convertible Debentures due 2007		71,119,000			—			—				—				71,119,000			—
October 1999 123¤4% Senior Notes due 2009		115,680,000			—			—				—				115,680,000			—
January 1999 111¤4% Senior Notes due 2009		116,420,000			—			(6,523,000		)		—				109,897,000			4,052,414
1998 97¤8% Senior Notes due 2008		50,220,000			—			(3,640,000		)		—				46,580,000			2,261,350
1997 113¤4% Senior Notes due 2004		86,997,727			—			(87,220,000		)		222,273				—			79,805,500
Total		$	440,436,727		$	132,000,000		$	(97,383,000	)		$	222,273			$	475,276,000		$	86,119,264

 

Capital Leases, Leased Fiber Capacity, Equipment Financing and Other Long-Term Obligations

During the three months ended September 30, 2001, the Company accepted delivery of fiber optic capacity on an indefeasible rights of use (“IRU”) basis from Southern Cross Cables Limited (“SCCL”). The Company and SCCL entered into an arrangement financing the capacity purchase. During the three months ended December 31, 2001, the Company renegotiated the payment terms with SCCL. Under the new terms, the payments for each capacity segment will be made over a five-year term ending in April 2008, which added two years to the original three-year term, and continues to bear interest at 6.0% above LIBOR (7.37% at June 30, 2004). The Company further agreed to purchase $12.2 million of additional fiber optic capacity from SCCL under the IRU agreement. The Company has fulfilled the total purchase obligation. At June 30, 2004 and December 31, 2003, the Company had a liability recorded under this agreement in the amount of $19.5 million and $18.6 million, respectively.

In December 2000, the Company entered into a financing arrangement to purchase fiber optic capacity on an IRU basis in Australia for $35.2 million (51.1 million AUD) from Optus Networks Pty. Limited. As of December 31, 2001, the Company had fulfilled the total purchase obligation. The Company signed a promissory note payable over a four-year term ending in April 2005 bearing interest at a rate of 14.31%. During the three months ended June 30, 2003, the Company renegotiated the payment terms extending the payment schedule through March 2007, and lowering the interest rate to 10.2%. At June 30, 2004 and December 31, 2003, the Company had a liability recorded in the amount of $17.9 million (26.0 million AUD) and $21.9 million (29.2 million AUD), respectively.

Other Long-Term Obligations

In May 2004, the Company’s Australian subsidiary terminated a financing agreement, the (“Textron Agreement”), dated March 28, 2002, with Textron Financial Inc. (“Textron”), under which Textron agreed to finance eligible receivables from such subsidiary through March 31, 2005. Under the Textron Agreement, the subsidiary agreed to pay program fees based upon the Bloomberg BBSWIB rate plus 5.75% per annum (10.6% at June 30, 2004), plus an annual commitment fee of $150,000. The finance commitment amount for the Textron Agreement was $20.0 million. The Company had no accounts receivable balances pledged with no liability recorded at June 30, 2004, and $11.3 million pledged as collateral with a liability of $0.3 million, as of December 31, 2003, which is included in current portion of long-term obligations as the financing was payable on demand.

In April 2004, Primus Canada entered into a loan agreement with The Manufacturers Life Insurance Company (“Manulife”). The agreement provides for a $31.2 million (42 million CAD) two-year non-revolving term loan credit facility, bearing an interest rate of 7.75%. The agreement allows the proceeds to be used for general corporate purposes and is secured by the assets of Primus Canada’s operations. As of June 30, 2004, the Company has no outstanding liability under this loan agreement.

In September 2002, the Company signed an agreement to acquire the United States-based retail switched voice services customer base of Cable & Wireless (“C&W”). The Company started acquiring the customer base during the three months ended December 31, 2002, which resulted in a customer list balance acquired of $15.4 million, of which a liability of $6.1 million and $7.6 million remained payable at June 30, 2004 and December 31, 2003, respectively. The purchase price has been financed through a deferred payment arrangement over a two-year period, ending in December 2004, and bears no interest.

6.   OPERATING SEGMENT AND RELATED INFORMATION

The Company has three reportable operating segments based on management’s organization of the enterprise into geographic areas—North America, Europe and Asia-Pacific. The Company evaluates the performance of its segments and allocates resources to them based upon net revenue and income (loss) from operations. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Net revenue by reportable segment is reported on the basis of where services are provided. The Company has no single customer representing greater than 10% of its revenues. Operations and assets of the North America segment include shared corporate functions and assets.

Summary information with respect to the Company’s segments is as follows (in thousands and unaudited):

		Three months ended June 30,						Six months ended June 30,
		2004			2003			2004			2003
Net Revenue
North America
United States		$	58,709		$	68,210		$	130,801		$	140,812
Canada		57,981			50,946			119,711			95,164
Other		833			911			1,858			1,788
Total North America		117,523			120,067			252,370			237,764
Europe
United Kingdom		60,025			31,462			110,510			66,900
Germany		11,811			15,248			24,715			28,285
Netherlands		19,213			46,395			40,831			84,556
Other		21,829			20,551			42,870			39,444
Total Europe		112,878			113,656			218,926			219,185
Asia-Pacific
Australia		95,313			81,830			196,374			154,333
Other		5,901			4,687			11,968			9,401
Total Asia-Pacific		101,214			86,517			208,342			163,734
Total		$	331,615		$	320,240		$	679,638		$	620,683
Income (Loss) from Operations
North America		$	(2,456	)	$	1,244		$	(190	)	$	3,890
Europe		4,986			941			10,151			2,759
Asia-Pacific		9,630			10,429			22,741			17,888
Total		$	12,160		$	12,614		$	32,702		$	24,537

 

		June 30, 2004			December 31, 2003
Assets
North America
United States		$	177,229			$	190,527
Canada		128,245				124,789
Other		6,999				7,671
Total North America		312,473				322,987
Europe
United Kingdom		75,164				80,243
Germany		21,227				20,434
Netherlands		11,960				15,387
Other		58,024				57,138
Total Europe		166,375				173,202
Asia-Pacific
Australia		233,329				229,765
Other		26,145				25,210
Total Asia-Pacific		259,474				254,975
Total		$	738,322			$	751,164

 

The Company offers three main products—Voice, data/Internet, and voice-over-Internet protocol (VOIP) in all three segments. Summary net revenue information with respect to the Company’s products is as follows (in thousands and unaudited):

		Three months ended June 30,						Six months ended June 30,
		2004			2003			2004			2003
Voice		$	270,254		$	269,407		$	558,682		$	525,096
Data/Internet		43,799			32,225			84,321			60,461
VOIP		17,562			18,608			36,635			35,126
Total		$	331,615		$	320,240		$	679,638		$	620,683

 

7.   COMMITMENTS AND CONTINGENCIES

Future minimum lease payments under capital leases and leased fiber capacity financing (“vendor financing”), purchase obligations and non-cancelable operating leases as of June 30, 2004 are as follows (in thousands):

Year Ending December 31,				Vendor  Financing			Purchase Obligations					Operating  Leases
2004 (as of June 30, 2004)				$	8,616			$	7,925				$	6,952
2005				15,518				24,675					10,086
2006				13,999				8,100					7,123
2007				4,994				—					5,671
2008				1,755				—					3,468
Thereafter				237				—					2,286
Total Minimum Principal & Interest Payments				45,119				40,700					35,586
Less: Amount Representing Interest				(5,448		)		—					—
				$	39,671			$	40,700				$	35,586

 

The Company has contractual obligations to utilize network facilities from certain carriers with terms greater than one year. The Company does not purchase or commit to purchase quantities in excess of normal usage or amounts that cannot be used within the contract term or at rates below or above market value.

Rent expense under operating leases was $5.3 million and $4.5 million for the three months ended June 30, 2004 and 2003, respectively. Rent expense under operating leases was $10.1 million and $8.4 million for the six months ended June 30, 2004 and June 30, 2003, respectively.

The purchase price for Telesonic Communications, Inc. (“TCI”), a Canadian prepaid card company, may increase based on additional consideration to be paid, as provided by the terms of the acquisition agreement, if the acquired company’s adjusted revenues exceed certain targeted levels by May 2005.

The Company and certain of its executive officers were named as defendants in two separate securities lawsuits brought by stockholders (“Plaintiffs”) of Tutornet.com, Inc. (“Tutornet”) in the United States District Courts in Virginia and New Jersey. Plaintiffs sued Tutornet and several of its officers (collectively, the “Non-Primus Defendants”) for an undisclosed amount alleging fraud in the sale of Tutornet securities. Plaintiffs also named the Company and several of the Company’s executive officers (the “Primus Defendants”) as co-defendants. No officer of Primus has ever served as an officer or director of Tutornet or acquired any securities of Tutornet. Neither the Company nor any of the Company’s subsidiaries or affiliates own, or have ever owned, any securities of Tutornet.

In the Virginia case, the Primus Defendants were dismissed before the case went to the jury. The case continued against the Non-Primus Defendants, and the jury rendered a verdict of $176 million in favor of Plaintiffs against the Non-Primus Defendants only. The Non-Primus Defendants filed post-trial motions seeking to reverse or reduce the jury’s award, and Plaintiffs sought a new trial involving the Primus Defendants. On April 2, 2003, the judge denied Plaintiffs’ motion for a new trial and/or to alter and amend the judgment, as well as their motion for directed verdicts involving the Primus Defendants. In May 2003, Plaintiffs filed an appeal in the 4th Circuit of the United States Court of Appeals (4^th Circuit) regarding the Primus Defendants’ dismissal. Plaintiffs and the Primus Defendants briefed the 4th Circuit in 2003 and participated in oral arguments in May 2004. On July 16, 2004, the three-judge panel of the 4^th Circuit affirmed the district court’s decision. Plaintiffs did not file a petition for rehearing before the three-judge panel or rehearing before all the judges on the 4^th Circuit within the required 14-day period, which period expired on July 30, 2004.

The New Jersey case was filed on September 24, 2002 and included claims against the Primus Defendants. The Primus Defendants moved to dismiss, and the case was stayed pending further decision by the court in the Virginia case. After the April 2, 2003 decision in the Virginia case, the parties in the New Jersey case agreed to a dismissal without prejudice of the claims against the Primus Defendants, pending a decision in the appeal by the plaintiffs in the Virginia case. Plaintiffs have been notified of the 4^th Circuit’s decision to affirm the district court decision in the Virginia case.

In December 2003, Primus Telecommunication Inc. (“PTI”), the Company’s principal United States operating subsidiary, was served with notice that the Federal Communications Commission (FCC) was conducting an inquiry regarding 96 alleged telephone calls made on behalf of PTI to residential telephone lines that were either (1) included on the Do-Not-Call Registry or (2) to consumers who directly requested not to receive telemarketing calls from PTI. PTI does not conduct outbound telemarketing to residential customers, but does use third-party telemarketers. PTI has reviewed the circumstances surrounding the subject matter of the inquiry and responded to the original inquiry. PTI also has supplemented its initial response with additional information requested by the FCC. The Do-Not-Call regulations are relatively new and little formal interpretive guidance exists regarding whether the matters identified in the inquiry represent violations of these regulations that are not covered by the “safe harbor” provisions. The FCC’s forfeiture guidelines do not establish a forfeiture amount for violating the Do-Not-Call Registry rules. However, based on the few publicly available cases that form the FCC’s enforcement history regarding Do-Not-Call violations, PTI believes that the maximum penalty would be in the range of $10,000 per violation. The Company has recorded an accrual for the amounts that the Company estimates to be the probable loss. The Company believes that this inquiry will not have a material adverse effect on the Company’s consolidated financial position, results of operations and cash flows.

On December 9, 1999, Empresa Hondurena de Telecomunicaciones, S.A. (“Plaintiff”), based in Honduras, filed suit in Florida State Court in Broward County against TresCom and one of TresCom’s wholly-owned subsidiaries, St. Thomas and San Juan Telephone Company, alleging that such entities failed to pay amounts due to Plaintiff pursuant to contracts for the exchange of telecommunications traffic during the period from December 1996 through September 1998. The Company acquired TresCom in June 1998, and TresCom is currently the Company’s subsidiary. Plaintiff is seeking approximately $14 million in damages, plus legal fees and costs. The Company filed an answer on January 25, 2000, and discovery has commenced. A trial date has not yet been set. The Company has recorded an accrual for the amounts that management estimates to be the probable loss. The Company’s legal and financial liability with respect to such legal proceeding would not be covered by insurance, and the Company’s ultimate liability, if any, cannot be estimated with certainty at this time. Accordingly, an adverse result for the full amount sought or some significant percentage thereof could have a material adverse effect on the Company’s financial results. The Company intends to defend the case vigorously. The Company believes that this suit will not have a material adverse effect on the Company’s consolidated financial position, results of operations and cash flows.

The Company is subject to certain other claims and legal proceedings that arise in the ordinary course of its business activities. Each of these matters is subject to various uncertainties, and it is possible that some of these matters may be decided unfavorably to the Company. The Company believes that any aggregate liability that may ultimately result from the resolution of these other matters will not have a material adverse effect on the Company’s consolidated financial position, results of operations and cash flows.

8.   LOSS ON SALE OF FIXED ASSETS

The Company recorded a loss on sale of fixed assets of $1.9 million and $0.8 million for the three and six months ended June 30, 2004 and 2003, respectively. The loss in 2004 was the result of a sale of network equipment which was decommissioned when it was replaced by newer technology during the three months ended June 30, 2004. The loss in 2003 was also the result of a sale of network equipment.

9.   BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE (AS RESTATED)

Basic income (loss) per common share is calculated by dividing income attributable to common stockholders by the weighted average common shares outstanding during the period.

Prior to the conversion of the Series C convertible preferred stock (“Series C Preferred”) into common shares in November 2003, the Company included the number of common shares issuable upon conversion of the Series C Preferred in the basic weighted average common shares outstanding as the Series C Preferred was deemed to participate in the earnings of the Company with common shares. Subsequent to the issuance of the Company’s Form 10-Q for the quarter ended June 30, 2004, the Company determined that the Series C Preferred did not meet the definition of a participating security. As a result, the basic income per common share for the three-month and six-month periods ended June 30, 2003 has been restated to exclude the potentially dilutive common shares issuable upon conversion of the Series C Preferred for the period prior to its conversion. Also, because the Series C Preferred was deemed to be non-participating, the shares are assumed to be converted into common shares and the accreted and deemed dividend on convertible preferred stock is removed from the calculation of diluted income per common share.

A summary of the effects of the adjustments to the previously issued consolidated condensed financial information follows (in thousands, except per share amounts, and unaudited):

		For the Three  Months Ended								For the Six  Months Ended
		June 30, 2003								June 30, 2003
		Previously  Reported					As Restated			Previously  Reported					As Restated
Income per common share:
Basic			$	0.21			$	0.29			$	0.35			$	0.45
Diluted			$	0.21			$	0.22			$	0.34			$	0.36
Basic weighted average common shares outstanding			87,774				65,157				85,332				65,120

 

Diluted income per common share adjusts basic income per common share for the effects of potentially dilutive common stock equivalents. Potentially dilutive common shares primarily include the dilutive effects of common shares issuable under the Company’s stock option compensation plans computed using the treasury stock method and the dilutive effects of shares issuable upon the conversion of its Series C Preferred, September 2003 Convertible Senior Notes, 2000 Convertible Subordinated Debentures and the warrants to purchase shares associated with the 1997 Senior Notes computed using the “if-converted” method. The warrants expire on August 1, 2004.

For the three-month and six-month periods ended June 30, 2004, the following could potentially dilute income per common share in the future but were excluded from the calculation of income per common share due to their antidilutive effects:

·  8.3 million shares issuable under the Company’s stock option compensation plans,

·  14.2 million shares issuable from the September 2003 Convertible Senior Notes,

·  1.4 million shares issuable from the 2000 Convertible Subordinated Debentures, and

·  0.3 million shares from the warrants associated with the 1997 Senior Notes.

For the three-month and six-month periods ended June 30, 2003, the following could potentially dilute income per common share in the future but were excluded from the calculation of income per common share due to their antidilutive effects:

·  0.3 million shares, issuable under the Company’s stock option compensation plans,

·  1.4 million shares issuable from the 2000 Convertible Subordinated Debentures, and

·  0.4 million shares from the warrants associated with the 1997 Senior Notes.

A reconciliation of basic income per common share to diluted income per common share is below (in thousands, except per share amounts, and unaudited):

 

		Three months ended June 30,						Six months ended June 30,
		2004			2003			2004			2003
Net income (loss)		$	(14,886	)	$	20,036		$	(24,941	)	$	31,237
Accreted and deemed dividend on convertible preferred stock		—			(1,356		)	—			(1,678		)
Income (loss) attributable to common stockholders		$	(14,886	)	$	18,680		$	(24,941	)	$	29,559
Weighted average common shares outstanding—basic		89,611			65,157			89,190			65,120
Series C Preferred		—			22,617			—			20,212
In-the-money options exercisable under stock option compensation plans		—			2,970			—			2,240
Weighted average common shares outstanding—diluted		89,611			90,744			89,190			87,572
Income (loss) per common share:
Basic		$	(0.17	)	$	0.29		$	(0.28	)	$	0.45
Diluted		$	(0.17	)	$	0.22		$	(0.28	)	$	0.36

 

10.   GUARANTOR/NON-GUARANTOR CONSOLIDATING CONDENSED FINANCIAL INFORMATION

Subsequent to the issuance of the Company’s Form 10-Q for the quarter ended June 30, 2004 the Company’s management determined that the previously issued guarantor/non-guarantor consolidating condensed financial information disclosure did not reflect the capital contribution of certain intercompany receivable and payable balances to the Company’s wholly owned subsidiary, PTHI, which occurred in connection with PTHI’s issuance of 8% senior notes, which are guaranteed by the Company, in January 2004. As a result, Note 10 is hereby restated to reflect such capital contribution.

A summary of the effects of the adjustments on the previously issued condensed consolidating financial information as of, and for the three-month and six-month periods ended June 30, 2004 follows (in thousands):

		For the Three Months Ended June 30, 2004
		Previously Reported											As Restated
		PTGI			PTHI			Elimination					PTGI			PTHI			Elimination
Statement of Operations Data:
Interest expense		$	(5,382	)	$	(6,197	)		$	—			$	(5,379	)	$	(6,200	)	$	—
Foreign currency transaction gain (loss)		$	(7,089	)	$	(7,576	)		$	—			$	104		$	(14,769	)	$	—
Intercompany interest		$	1,983		$	(1,983	)		$	—			$	345		$	(345	)	$	—
Equity in net income of subsidiaries		$	2,966		$	—			$	2,966			$	(8,818	)	$	—		$	(8,818	)
Income tax expense		$	(294	)	$	(1,357	)		$	—			$	—		$	(1,651	)	$	—
Net income		$	(24,941	)	$	9,143			$	(9,143	)		$	(24,941	)	$	4,385		$	(4,385	)

 

		For the Six Months Ended June 30, 2004
		Previously Reported											As Restated
		PTGI			PTHI			Elimination					PTGI			PTHI			Elimination
Statement of Operations Data:
Interest expense		$	(13,660	)	$	(12,998	)		$	—			$	(13,646	)	$	(13,012	)	$	—
Foreign currency transaction gain (loss)		$	(7,480	)	$	(8,317	)		$	—			$	97		$	(15,894	)	$	—
Intercompany interest		$	3,775		$	(3,775	)		$	—			$	334		$	(334	)	$	—
Equity in net income of subsidiaries		$	9,143		$	—			$	(9,143	)		$	4,385		$	—		$	(4,385	)
Income tax expense		$	(608	)	$	(1,972	)		$	—			$	—		$	(2,580	)	$	—

 

		June 30, 2004
		Previously Reported											As Restated
		PTGI			PTHI			Elimination					PTGI			PTHI			Elimination
Balance Sheet Data:
Intercompany receivables		$	703,615		$	—			$	(703,615	)		$	—		$	148,641		$	(148,641	)
Investment in subsidiaries		$	(462,004	)	$	—			$	462,004			$	389,323		$	—		$	(389,323	)
Accrued income taxes		$	1,507		$	20,226			$	—			$	578		$	21,155		$	—
Intercompany payables		$	—		$	703,615			$	(703,615	)		$	148,641		$	—		$	(148,641	)
Additional paid-in capital		$	658,248		$	305,852			$	(305,852	)		$	658,248		$	1,161,937		$	(1,161,937	)
Accumulated deficit		$	(710,018	)	$	(767,856	)		$	767,856			$	(710,018	)	$	(772,614	)	$	772,614

 

		For the Six Months Ended June 30, 2004
		Previously Reported											As Restated
		PTGI			PTHI			Elimination					PTGI			PTHI			Elimination
Statement of Cash Flows Data:
Net income		$	(24,941	)	$	9,143			$	(9,143	)		$	(24,941	)	$	4,385		$	(4,385	)
Equity in net income of subsidiary		$	(9,143	)	$	—			$	9,143			$	(4,385	)	$	—		$	4,385
Unrealized foreign currency transaction loss on intercompany and foreign debt		$	7,256		$	7,214			$	—			$	—		$	14,470		$	—
(Increase) decrease in intercompany balance		$	211,400		$	(211,400	)		$	—			$	214,828		$	(214,828	)	$	—
Decrease in accrued expenses, other current liabilities,		$	—		$	—			$	—			$	—		$	—		$	—
accrued income taxes and other liabilities		$	(415	)	$	(17,969	)		$	—			$	(1,344	)	$	(17,040	)	$	—

 

PTHI’s 2004 Senior Notes are fully and unconditionally guaranteed by Primus Telecommunications Group, Incorporated (“PTGI”) on a senior basis as of June 30, 2004. Accordingly, the following condensed consolidating financial information as of June 30, 2004 and December 31, 2003 and for the three-month and six-month periods ended June 30, 2004 and June 30, 2003 are included for (a) PTGI on a stand-alone basis; (b) PTHI and its subsidiaries; and (c) PTGI on a consolidated basis. PTHI was established on October 29, 2003 and was inactive until 2004. For comparative purposes for the 2003 periods presented, the PTHI column represents the consolidated subsidiaries that were contributed to PTHI during the capital restructuring in 2004.

Investments in subsidiaries are accounted for using the equity method for purposes of the consolidating presentation. The principal elimination entries eliminate investments in subsidiaries, intercompany balances and intercompany transactions.

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