Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. ITC DELTACOM INC (1041954) 10-Q published on May 07, 2013 at 3:50 pm
Reporting Period: Mar 30, 2013
Regulatory audits. The Company is subject to regulatory audits in the ordinary course of business with respect to various matters, including audits by the Universal Service Administrative Company on Universal Service Fund assessments and payments. These audits can cover periods for several years prior to the date the audit is undertaken and could result in the imposition of liabilities, interest and penalties if the Company's positions are not accepted by the auditing entity. The Company's financial statements contain reserves for certain of such potential liabilities.
Economic conditions. Many of our existing and target customers are small and medium-sized businesses. We believe these businesses are more likely to be affected by economic downturns than larger, more established businesses. We believe that the financial and economic pressures faced by our customers in this environment of diminished consumer spending, corporate downsizing and tightened credit have had, and may continue to have, an adverse effect on our results of operations, including longer sales cycles and increased customer demands for price reductions in connection with contract renewals. Additionally, our consumer access services are discretionary and dependent upon levels of consumer spending. Unfavorable economic conditions could cause customers to slow spending in the future, which could adversely affect our revenues and churn.
Retail services. The decrease in retail services revenues during the three months ended March 31, 2013 compared to the prior year period was primarily attributable to a decrease in local and long-distance voice service revenues due to competition in the industry. Retail voice revenues and voice lines in service have been decreasing due to competition in the industry and customers migrating to more advanced services. We expect this trend to continue. Also contributing to the decrease was a decrease in carrier access billing revenues due to rules adopted by the FCC in November 2011 regarding intercarrier compensation. The new rules included the elimination of terminating switched access rates and other per-minute terminating charges between service providers by 2018, through annual reductions in the rates.
Wholesale services. The decrease in wholesale services revenues during the three months ended March 31, 2013 compared to the prior year period was primarily attributable to a decrease in wholesale lines in service.
The increase in acquisition and integration-related costs compared to the prior year period was primarily due to an increase in integration-related costs such as severance costs incurred to eliminate duplicate positions and gain synergies, costs to exit duplicate facilities, and costs to integrate operating support systems and networks. During the first quarter of 2013, we restructured our sales organization in order to better meet the needs of the IT services market, which resulted in a reduction in our sales workforce and some office closings. We also decided to exit telecom systems sales early in 2013 to enable focus on our hosted VoIP platform for new voice customers, which resulted in a small number of position eliminations.
Cash used in investing activities increased during the three months ended March 31, 2013 compared to the three months ended March 31, 2012 primarily due to a $5.4 million increase in purchases of property and equipment as we expand our fiber network and upgrade our network and technology infrastructure.