UNITED STATES SECURITIES AND EXCHANGE COMMISSION

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

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

For the quarterly period ended September 30, 2011

OR

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

For the quarterly period ended June 30, 2011

o 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: 0-23253

ITC^DELTACOM, INC.

(Exact name of registrant as specified in its charter)

Delaware		58-2301135
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
1375 Peachtree St., Atlanta, Georgia		30309
(Address of principal executive offices)		(Zip Code)

1375 Peachtree St., Atlanta, Georgia		30309
(Address of principal executive offices)		(Zip Code)

(404) 815-0770

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report date)

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer o

Non-accelerated filer x		Smaller reporting company o

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

As of ~~July~~October 2931, 2011, 250 shares of common stock, $0.01 par value per share, were outstanding. (all shares are issued to EarthLink, Inc.)

ITC^DELTACOM, INC. MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS (H)(1)(A) AND (B) OF FORM 10-Q AND IS THEREFORE FILING THIS REPORT WITH THE REDUCED DISCLOSURE FORMAT.

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ITC^DELTACOM, INC.

Quarterly Report on Form 10-Q

For the Quarterly Period Ended ~~June~~September 30, 2011

TABLE OF CONTENTS

Part I
Item 1. Financial Statements	1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	1113
Item 4. Controls and Procedures	2223
Part II
Item 1. Legal Proceedings	2324
Item 1A. Risk Factors	2324
Item 5. Other Information	2324
Item 6. Exhibits	2324
Signatures	2425

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ITC^DELTACOM, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

	December 31,			~~June~~September 30,
	2010			2011
				(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	43,585		$	4350,~~715~~216
Restricted cash	2,270			1,~~068~~781
Accounts receivable, net of allowance of $276 and $1,699 as of December 31, 2010 and June 30, 2011, respectively	40,242			42,867
Accounts receivable, net of allowance of $276 and $2,382 as of December 31, 2010 and September 30, 2011, respectively	40,242			43,179
Prepaid expenses	8,494			96,~~364~~113
Other current assets	5,522			43,~~566~~559
Total current assets	100,113			~~101~~104,~~580~~848
Property and equipment, net	206,988			~~208~~210,~~082~~578
Purchased intangible assets, net	129,650			~~134~~127,~~672~~893
Goodwill	170,126			~~191~~195,~~448~~229
Other long-term assets	170			~~178~~84
Total assets	$	607,047		$	~~635~~638,~~960~~632
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	11,734		$	57,~~630~~918
Accrued payroll and related expenses	4,053			89,~~643~~863
Accrued interest	8,622			817,~~635~~160
Other accrued liabilities	37,845			3828,~~556~~608
Deferred revenue	19,844			2425,~~376~~045
Current portion of long term debt and capital lease obligations	—			~~599~~607
Total current liabilities	82,098			8689,~~439~~201
Long-term debt and capital lease obligations	351,251			~~349~~348,~~796~~586
Other long-term liabilities	7,874			76,~~459~~872
Total liabilities	441,223			~~443~~444,~~694~~659
Stockholders’ equity:
Common stock, $0.01 par value, 1,000 shares authorized, 150 and 250 shares issued and outstanding as of December 31, 2010 and June 30, 2011, respectively	—			—
Common stock, $0.01 par value, 1,000 shares authorized, 150 and 250 shares issued and outstanding as of December 31, 2010 and September 30, 2011, respectively	—			—
Additional paid-in capital	176,194			~~214~~217,~~473~~474
Accumulated deficit	(10,370		)	(2223,~~207~~501		)
Total stockholders’ equity	165,824			~~192~~193,~~266~~973
Total liabilities and stockholders’ equity	$	607,047		$	~~635~~638,~~960~~632

The accompanying notes are an integral part of these financial statements.

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ITC^DELTACOM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands)

(unaudited)

	Three Months Ended						~~Six~~Nine Months Ended
	Predecessor			Successor			Predecessor			Successor
	Entity			Entity			Entity			Entity
	June 30, 2010			June 30, 2011			June 30, 2010			June 30, 2011
	September 30,			September 30,			September 30,			September 30,
	2010			2011			2010			2011
Revenues:
Integrated communications services	$	91,287		$	92,230		$	184,405		$	180,589
Retail services	$	90,466		$	92,260		$	275,627		$	273,497
Wholesale services	1516,~~281~~330			17,~~580~~952			2945,~~570~~900			3553,~~148~~100
Equipment sales and related services	4,332			3,969			8,065			7,858
Other services	4,124			3,151			11,433			10,361
Total revenues	110,~~900~~920			113,~~779~~363			~~222~~332,~~040~~960			~~223~~336,~~595~~958
Operating costs and expenses:
Cost of revenues (exclusive of depreciation and amortization shown separately below)	5054,~~920~~736			5554,~~546~~020			~~103~~158,~~269~~006			~~109~~163,~~924~~944
Selling, general and administrative (exclusive of depreciation and amortization shown separately below)	3635,~~688~~325			3732,~~302~~739			73108,~~583~~908			73105,~~006~~745
Depreciation and amortization	13,~~648~~810			18,~~230~~286			2842,~~470~~280			3453,~~896~~182
Acquisition-related costs	—2,064			1,~~057~~664			—2,064			13,~~882~~546
Total operating costs and expenses	~~101~~105,~~256~~935			~~112~~106,~~135~~709			~~205~~311,~~322~~258			~~219~~326,~~708~~417
Income from operations	94,~~644~~985			16,~~644~~654			1621,~~718~~702			310,~~887~~541
Interest expense and other, net	(169,~~160~~683		)	(87,~~137~~687		)	(2030,~~845~~527		)	(1523,~~691~~378		)
Loss before income taxes	(64,~~516~~698		)	(61,~~493~~033		)	(48,~~127~~825		)	(1112,~~804~~837		)
Income tax benefit (provision)	—			254			—			(33		)
Income tax provision	—			(261		)	—			(294		)
Net loss	$	(64,~~516~~698	)	$	(61,~~239~~294	)	$	(48,~~127~~825	)	$	(1113,~~837~~131	)

The accompanying notes are an integral part of these financial statements.

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ITC^DELTACOM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Predecessor Entity			Successor Entity
	Six Months			Six Months
	Nine Months			Nine Months
	Ended			Ended
	June 30, 2010			June 30, 2011
	September 30, 2010			September 30, 2011
Cash flows from operating activities:
Net loss	$	(48,~~127~~825	)	$	(1113,~~837~~131	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	2842,~~470~~280			3453,~~896~~182
Stock-based compensation	12,~~117~~014			23,~~146~~122
Amortization of debt discount, premium and issuance costs	1,308			(2,062		)
Provision for doubtful accounts	2,670			2,198
(Gain) loss on sale of fixed assets	(340		)	559
Amortization of debt discount, premium and issuance costs	2,015			(3,109		)
(Gain) loss on sale of fixed assets	(187		)	710
Write-off of unamortized debt discount and issuance cost	7,948			—
Other operating activities	—			(~~415~~623		)
Decrease (increase) in accounts receivable, net	1,831			(786		)
Increase in accounts receivable	(2,003		)	(4,061		)
Increase in prepaid expenses and other assets	(1,~~778~~522		)	(513,~~613~~398		)
Increase (decrease) in accounts payable and accrued and other liabilities	4,563			(3,651		)
Increase in accounts payable and accrued and other liabilities	14,764			7,582
(Decrease) increase in deferred revenue	(~~533~~522		)	4,~~187~~857
Net cash provided by operating activities	3858,~~459~~632			1737,~~424~~329
Cash flows from investing activities:
Purchase of business, net of cash acquired	—			(22,~~759~~859		)
Purchases of property and equipment	(2944,~~806~~574		)	(2235,~~457~~062		)
Proceeds received from sale of fixed assets	~~622~~650			12—
Proceeds from sale of investments	1,706			—
Change in restricted cash	—(1		)	~~1,202~~489
Other investing activities	(~~570~~434		)	67248
Net cash used in investing activities	(2842,~~048~~653		)	(4357,~~935~~184		)
Cash flows from financing activities:
Proceeds from issuance of stock	—			30,000
Proceeds from issuance of debt, net of issuance cost	308,~~535~~220			—
Repayment of long-term debt and capital lease obligations	(308,075		)	(3,~~381~~564		)
Taxes paid on vested restricted shares	(2,112		)	—
Other financing activities	—			2250
Net cash (used in) provided by financing activities	(1,~~652~~967		)	26,~~641~~486
Net increase in cash and cash equivalents	814,~~759~~012			~~130~~6,631
Cash and cash equivalents, beginning of period	67,786			43,585
Cash and cash equivalents, end of period	$	7681,~~545~~798		$	4350,~~715~~216

The accompanying notes are an integral part of these financial statements.

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ITC^DELTACOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

1. Organization

ITC^DeltaCom, Inc. (“ITC^DeltaCom” or the “Company”), together with its wholly-owned subsidiaries, provides integrated communications services in the southeastern United States. The Company delivers a comprehensive suite of high-quality data and voice communications services, including high-speed or broadband data communications, local exchange, long-distance and conference calling, mobile data and voice services and customer premises equipment to businesses and enterprise organizations. The Company offers these services primarily over its 14-state fiber optic network. The Company’s fiber optic network provides the Company with transmission capacity that it also sells to other communications providers on a wholesale basis.

On December 8, 2010, ITC^DeltaCom was acquired by EarthLink, Inc. (“EarthLink”) with ITC^DeltaCom, Inc. becoming a wholly-owned subsidiary of EarthLink, Inc. (the “Acquisition”). The accounting for the Acquisition has been “pushed-down” in the accompanying condensed consolidated financial statements. See Note 3, “Acquisitions,” for more detail.

2. Summary of Significant Accounting Policies

Basis of Presentation

The condensed consolidated financial statements of ITC^DeltaCom, ~~which include the accounts of its wholly-owned subsidiaries,~~ for the three and ~~six~~nine months ended ~~June~~September 30, 2011 and the related footnote information are unaudited and have been prepared on a basis consistent with the Company’s audited consolidated financial statements as of December 31, 2010 contained in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission (the “Annual Report”). ~~All significant intercompany transactions have been eliminated.~~

These financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto contained in the Company’s Annual Report. In the opinion of management, the accompanying unaudited financial statements contain all adjustments (consisting of normal recurring adjustments), which management considers necessary to present fairly the Company’s financial position, results of operations and cash flows for the interim periods presented. The results of operations for the three and ~~six~~nine months ended ~~June~~September 30, 2011 are not necessarily indicative of the results anticipated for the entire year ending December 31, 2011.

Basis of Consolidation

The accompanying condensed consolidated financial statements of the Company include the accounts of its wholly-owned subsidiaries. All significant intercompany transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results may differ from those estimates.

Segment Disclosure

The Company operates in one segment.

Predecessor and Successor Accounting

As a result of the Acquisition, certain of ITC^DeltaCom’s predecessor accounting policies were changed to conform to EarthLink’s current accounting policies. These changes did not have a significant impact on ITC^DeltaCom’s consolidated financial statements. The accounting for the Acquisition has been pushed-down to reflect the assets acquired and liabilities assumed at Acquisition date fair value. Accordingly, the Company’s financial position and results of operations may not be comparable between the accompanying Successor and Predecessor periods.

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ITC^DELTACOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED - (Continued)

Predecessor and Successor Accounting

Reclassifications

Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation.

Recently Issued Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance related to fair value measurements. This guidance was issued to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. This guidance also changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company does not expect this guidance to have a material impact on its consolidated financial statements.

In June 2011, the FASB issued authoritative guidance related to comprehensive income. This guidance was issued to increase the prominence of items reported in other comprehensive income and requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In addition, reclassification adjustments for items that are reclassified from other comprehensive income to net income must be presented on the face of the financial statements where the components of net income and the components of other comprehensive income are presented. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company does not expect this guidance to have a material impact on its consolidated financial statements.

In September 2011, the FASB issued authoritative guidance related to goodwill testing. This guidance allows an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under these amendments, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. This guidance is effective for fiscal years beginning after December 15, 2011, with early adoption permitted. The Company does not expect this guidance to have a material impact on its consolidated financial statements.

3. Acquisitions

Acquisition by EarthLink

On December 8, 2010, the Company was acquired by EarthLink, Inc. for $3.00 per share. Under the terms of the merger agreement, EarthLink acquired 100% of ITC^DeltaCom in a merger transaction with ITC^DeltaCom surviving as a wholly-owned subsidiary of EarthLink.

The total consideration transferred was $253.8 million, which consisted of $251.4 million in cash paid to acquire the outstanding common stock of ITC^DeltaCom and $2.3 million for the fair value of restricted stock units assumed and converted. In allocating the consideration transferred based on estimated fair values, ITC^DeltaCom recorded approximately $~~170~~173.07 million of goodwill, $131.2 million of identifiable intangible assets, $200.5 million of property and equipment, $351.2 million of long-term debt, $18.0 million of other net assets and an $85.3 million reduction of additional paid-in capital. The reduction in additional paid-in capital resulted from a valuation allowance being reported for an increase in deferred tax assets in ITC^DeltaCom’s financial statements, but not in the consolidated financial statements of EarthLink. The accounting for the Acquisition was pushed-down to reflect the Acquisition at fair value of the assets acquired and liabilities assumed. The Company allocated the consideration transferred to the tangible assets, liabilities and intangible assets acquired based on their estimated fair values. The excess of the consideration transferred over those fair values was recorded as goodwill.

During the six months ended June 30, 2011, the Company finalized certain provisional amounts recognized at the acquisition date related to deferred taxes and other tax positions. The Company retrospectively adjusted the provisional amounts recorded at the acquisition date to reflect the new information obtained. As a result, the carrying amount of additional paid-in capital was reduced by $18.8 million as of December 31, 2010, with a corresponding decrease to goodwill. The reduction in additional paid-in capital resulted from a valuation allowance being reported for an increase in deferred tax assets in ITC^DeltaCom’s financial statements, but not in the consolidated financial statements of EarthLink. The primary areas of the purchase price allocation that are not yet finalized relate to income and non-income based taxes and residual goodwill.

In connection with the acquisition, ITC^DeltaCom’s outstanding $325.0 million aggregate principal amount of 10.5% senior secured notes due 2016 (the “Notes”) were recorded at acquisition date fair value, which was based on publicly-quoted market prices. The resulting debt premium of $26.3 million is being amortized over the remaining life of the Notes. The Notes were not repaid or guaranteed by EarthLink and remain obligations of ITC^DeltaCom. Under the indenture for the Notes, following the consummation of the Acquisition, ITC^DeltaCom was required to offer to repurchase any or all of the Notes at 101% of their principal amount. The tender window was open from December 20, 1010 through January 18, 2011. As a result, approximately $0.2 million outstanding principal amount of the Notes was repurchased in January 2011. The remaining Notes remain outstanding as obligations of ITC^DeltaCom and its subsidiaries following the Acquisition.

Saturn Telecommunication Services, Inc.

In March 2011, the Company acquired Saturn Telecommunication Services Inc. and affiliates (“STS Telecom”), a privately-held provider of IP communication and information technology services to small and medium-sized businesses primarily in Florida. STS Telecom currently operates a sophisticated voice-over-Internet-protocol (“VoIP”) platform. The primary reason for the acquisition was for the Company to leverage STS Telecom’s expertise in managed hosted VoIP on a nationwide basis as part of its VoIP offerings.

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ITC^DELTACOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED - (Continued)

assets, $199.3 million of property and equipment, $351.2 million of long-term debt, $15.5 million of other net assets and an $85.3 million reduction of additional paid-in capital. The reduction in additional paid-in capital resulted from a valuation allowance being reported for an increase in deferred tax assets in ITC^DeltaCom’s financial statements, but not in the consolidated financial statements of EarthLink. The accounting for the Acquisition was pushed-down to reflect the Acquisition at fair value of the assets acquired and liabilities assumed. The Company allocated the consideration transferred to the tangible assets, liabilities and intangible assets acquired based on their estimated fair values. The excess of the consideration transferred over those fair values was recorded as goodwill.

During the nine months ended September 30, 2011, the Company finalized certain provisional amounts recognized at the acquisition date related to deferred taxes and other tax positions. The Company retrospectively adjusted the provisional amounts recorded at the acquisition date to reflect finalization of provisional accounting. As a result, the carrying amount of additional paid-in capital was reduced by $18.8 million as of December 31, 2010, with a corresponding decrease to goodwill. The reduction in additional paid-in capital resulted from a valuation allowance being reported for an increase in deferred tax assets in ITC^DeltaCom’s financial statements, but not in the consolidated financial statements of EarthLink. During the nine months ended September 30, 2011, the Company recorded $3.5 million of goodwill adjustments from adjustments in the fair value of assets and liabilities assumed that were not deemed material to retrospectively adjust provisional amounts recorded at the acquisition date. The primary areas of the purchase price allocation that are not yet finalized relate to income taxes and residual goodwill.

In connection with the acquisition, ITC^DeltaCom’s outstanding $325.0 million aggregate principal amount of 10.5% senior secured notes due 2016 (the “Notes”) were recorded at acquisition date fair value, which was based on publicly-quoted market prices. The resulting debt premium of $26.3 million is being amortized over the remaining life of the Notes. The Notes were not repaid or guaranteed by EarthLink and remain obligations of ITC^DeltaCom. Under the indenture for the Notes, following the consummation of the Acquisition, ITC^DeltaCom was required to offer to repurchase any or all of the Notes at 101% of their principal amount. The tender window was open from December 20, 2010 through January 18, 2011. As a result, approximately $0.2 million outstanding principal amount of the Notes was repurchased in January 2011. The remaining Notes remain outstanding as obligations of ITC^DeltaCom and its subsidiaries following the Acquisition.

Saturn Telecommunication Services, Inc.

The total consideration transferred was $22.9 million, which consisted of cash paid to acquire the outstanding equity interests of STS Telecom. In allocating the consideration transferred based on estimated fair values, the Company recorded approximately $21.5 million of goodwill, $17.9 million of identifiable intangible assets, $2.8 million of tangible assets and $19.3 million of net liabilities assumed. The preliminary allocation of the consideration transferred was based upon a preliminary valuation and the Company’s estimates and assumptions are subject to change. The primary areas of the purchase price allocation that are not yet finalized relate to income and non-income based taxes and residual goodwill. The Company has included the financial results of STS Telecom in its consolidated financial statements from the date of acquisition. Pro forma financial information for STS Telecom has not been presented, as the effects were not material to the Company’s consolidated financial statements.

Acquisition-Related Costs

	Three Months		Six Months
	Ended		Ended
	June 30,		June 30,
	2011		2011
	(in thousands)
Severance and retention costs	$	569	$	1,218
Transaction related costs	—		176
Integration related costs	488		488
Total acquisition-related costs	$	1,057	$	1,882

4. Purchased Intangible Assets and Goodwill

Goodwill

The changes in the carrying amount of goodwill during the six months ended June 30, 2011 were as follows (in thousands):

Balance as of December 31, 2010
Goodwill	$	170,126
Accumulated impairment loss	—
	170,126
Goodwill acquired during year	21,479
Goodwill adjustments	(157		)
Balance as of June 30, 2011
Goodwill	191,448
Accumulated impairment loss	—
	$	191,448

Goodwill acquired during the period resulted from the Company’s acquisition of STS Telecom, which is more fully described in Note 3, “Acquisitions.”

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ITC^DELTACOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED - (Continued)

~~Purchased~~Acquisition-Related ~~Intangible Assets~~Costs

~~The~~Acquisition-related ~~following~~costs ~~table~~consist ~~presents~~of ~~the~~costs ~~components~~directly ofrelated ~~the~~to ~~Company’s~~acquisitions, ~~acquired~~such ~~identifiable~~as ~~intangible~~employee ~~assets~~severance ~~included~~and inretention ~~the~~costs; ~~accompanying~~transaction ~~Condensed~~related ~~Consolidated~~costs, ~~Balance~~which ~~Sheets~~include external costs directly related to acquisitions such as ofadvisory, ~~December 31~~legal, ~~2010~~accounting, valuation and ~~June~~other professional fees; and other integration related costs. Acquisition-related costs consisted of the following during the three and nine months ended September 30, ~~2011~~2010 ~~(in~~and ~~thousands)~~2011:

	As of December 31, 2010								As of June 30, 2011
	Three Months Ended						Nine Months Ended
	Gross					Net			Gross						Net
	Predecessor			Successor			Predecessor				Successor
	Carrying		Accumulated			Carrying			Carrying			Accumulated			Carrying
	Entity			Entity			Entity				Entity
	Value		Amortization			Value			Value			Amortization			Value
	September 30,			September 30,			September 30,				September 30,
Customer relationships	$	117,600	$	(1,358	)	$	116,242		$	133,300		$	(12,411	)	$	120,889
	2010			2011			2010				2011
Developed technology	9,900		(110		)	9,790			11,600			(1,208		)	10,392
Severance and retention costs	$	—		$	1,530		$	—			$	2,748
Trade name	3,700		(82		)	3,618			3,700			(699		)	3,001
Transaction related costs	2,064			—			2,064				176
Other	—		—			—			450			(60		)	390
Integration related costs	—			134			—				622
	$	131,200	$	(1,550	)	$	129,650		$	149,050		$	(14,378	)	$	134,672
Total acquisition-related costs	$	2,064		$	1,664		$	2,064			$	3,546

~~The gross carrying value of identifiable intangible assets as of June 30, 2011 includes $15~~4.7 Goodwill ~~million of customer relationships, $1.7 million of developed technology~~ and $0.5 million of other intangible assets resulting from the STS Telecom acquisition. Customer relationships represent the fair values of the underlying relationships and agreements with the Company’s customers. Developed technology represents the fair values of the Company’s processes, patents and trade secrets related to the design and development of the Company’s internally used software and technology. Trade name represents the fair values of brand and name recognition. Other ~~represents~~Intangible the fair value of non-compete agreements. As of June 30, 2011, the weighted average amortization periods were 5.8 years for customer relationships, 5.6 years for developed technology, 3.0 years for the trade name and 2.5 years for other identifiable intangible assets. The customer relationships are being amortized using the straight-line method because this matches the estimated cash flow generated by such asset, and the developed technology and trade name are being amortized using the straight-line method because a pattern to which the expected benefits will be consumed or otherwise used up could not be reliably determined.Assets

Amortization expense for definite-lived intangible assets was $0.7 million and $6.7 million during the three months ended June 30, 2010 and 2011, respectively, and $1.3 million and $12.8 million during the six months ended June 30, 2010 and 2011, respectively. Amortization of definite-lived intangible assets is included in depreciation and amortization in the Condensed Consolidated Statements of Operations. Based on the current amount of definite-lived intangible assets, the Company expects to record amortization expense of approximately $13.3 million in the remaining six months in the year ending December 31, 2011 and $26.6 million, $26.5 million, $24.7 million, $24.3 million, $18.9 million and $0.4 million during the years ending December 31, 2012, 2013, 2014, 2015 and 2016 and thereafter, respectively. Actual amortization expense to be reported in future periods could differ materially from these estimates as a result of asset acquisitions, changes in estimated useful lives and other relevant factors.Goodwill

The changes in the carrying amount of goodwill during the nine months ended September 30, 2011 were as follows (in thousands):

Balance as of December 31, 2010
Goodwill	$	170,126
Accumulated impairment loss	—
	170,126

Goodwill acquired during year	21,551
Goodwill adjustments	3,552

Balance as of September 30, 2011
Goodwill	195,229
Accumulated impairment loss	—
	$	195,229

Goodwill acquired during the period resulted from the Company’s acquisition of STS Telecom, which is more fully described in Note 3, “Acquisitions.” Goodwill adjustments during the period resulted from adjustments in the fair value of assets and liabilities assumed in acquisitions that were not deemed material to retrospectively adjust provisional amounts recorded at the acquisition date.

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ITC^DELTACOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED - (Continued)

~~5. Long-Term~~Other ~~Debt~~Intangible Assets

The following table presents the components of the Company’s ~~long-term~~acquired ~~debt~~identifiable ~~consisted~~intangible ofassets included in the ~~following~~accompanying Condensed Consolidated Balance Sheets as of December 31, 2010 and ~~June~~September 30, 2011 (in thousands):

	As of		As of
	As of December 31, 2010							As of September 30, 2011
	December 31,		June 30,
	Gross					Net		Gross					Net
	2010		2011
	Carrying		Accumulated			Carrying		Carrying		Accumulated			Carrying
	(in thousands)
	Value		Amortization			Value		Value		Amortization			Value
Senior secured notes due April 1, 2016	$	325,000	$	324,800
Customer relationships	$	117,600	$	(1,358	)	$	116,242	$	133,300	$	(18,157	)	$	115,143
Unamortized premium on senior secured notes due April 1, 2016	26,251		24,189
Developed technology	9,900		(110		)	9,790		11,600		(1,888		)	9,712
Capital lease obligations	—		1,406
Trade name	3,700		(82		)	3,618		3,700		(1,007		)	2,693
Carrying value of debt and capital lease obligations	351,251		350,395
Other	—		—			—		450		(105		)	345
Less current portion of long-term debt and capital lease obligations	—		(599		)
	$	131,200	$	(1,550	)	$	129,650	$	149,050	$	(21,157	)	$	127,893
Long-term debt and capital lease obligations	$	351,251	$	349,796

The gross carrying value of identifiable intangible assets as of September 30, 2011 includes $15.7 million of customer relationships, $1.7 million of developed technology and $0.5 million of other intangible assets resulting from the STS Telecom acquisition. Customer relationships represent the fair values of the underlying relationships and agreements with the Company’s customers. Developed technology represents the fair values of the Company’s processes, patents and trade secrets related to the design and development of the Company’s internally used software and technology. Trade name represents the fair values of brand and name recognition. Other represents the fair value of non-compete agreements.

As of September 30, 2011, the weighted average amortization periods were 5.8 years for customer relationships, 5.6 years for developed technology, 3.0 years for the trade name and 2.5 years for other identifiable intangible assets. The customer relationships are being amortized using the straight-line method because this matches the estimated cash flow generated by such assets, and the developed technology and trade name are being amortized using the straight-line method because a pattern to which the expected benefits will be consumed or otherwise used up could not be reliably determined.

Amortization of intangible assets, which is included in depreciation and amortization in the Condensed Consolidated Statements of Operations, for the three and nine months ended September 30, 2010 and 2011 was as follows:

Three Months Ended

Nine Months Ended

Predecessor

Successor

Predecessor

Successor

Entity

September 30,

2010

2011

2010

2011

Amortization expense

635

6,809

1,905

19,638

Based on the current amount of definite-lived intangible assets, the Company expects to record amortization expense of approximately $6.8 million in the remaining three months in the year ending December 31, 2011 and $26.9 million, $25.9 million, $24.6 million, $24.3 million, $18.9 million and $0.4 million during the years ending December 31, 2012, 2013, 2014, 2015 and 2016 and thereafter, respectively. Actual amortization expense to be reported in future periods could differ materially from these estimates as a result of asset acquisitions, changes in estimated useful lives and other relevant factors.

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ITC^DELTACOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED - (Continued)

5. Long-Term Debt and Capital Lease Obligations

The Company’s long-term debt and capital lease obligations consisted of the following as of December 31, 2010 and September 30, 2011:

	As of		As of
	December 31,		September 30,
	2010		2011
	(in thousands)
Senior secured notes due April 1, 2016	$	325,000	$	324,800
Unamortized premium on senior secured notes due April 1, 2016	26,251		23,143
Capital lease obligations	—		1,250
Carrying value of debt and capital lease obligations	351,251		349,193
Less current portion of long-term debt and capital lease obligations	—		(607		)
Long-term debt and capital lease obligations	$	351,251	$	348,586

Senior Secured Notes due April 1, 2016

General. In April 2010, ITC^DeltaCom issued $325.0 million aggregate principal amount of 10.5% senior secured notes due on April 1, 2016 at an offering price of 97.857% and received net proceeds of $308.5 million after transaction fees of $9.5 million. In July 2010, the Company completed an exchange offer and exchanged the Notes for an identical series of Notes registered with the Securities and Exchange Commission. The Company applied the net proceeds to repay $305.5 million aggregate amount of indebtedness, including all principal plus accrued and unpaid interest, outstanding under its first lien and second lien senior secured credit facilities and its former revolving credit facility, which were terminated. The Notes accrue interest at a rate of 10.5% per year. Interest on the Notes is payable semi-annually in cash in arrears on April 1 and October 1 of each year. The Notes will mature on April 1, 2016. As a result of purchase accounting, the Notes were recorded at acquisition date fair value. The fair value was based on publicly-quoted market prices. The resulting debt premium is being amortized over the remaining life of the Notes.

Under the indenture for the Notes, following the consummation of the Acquisition, ITC^DeltaCom was required to offer to repurchase any or all of the Notes at 101% of their principal amount. The tender window was open from December 20, 2010 through January 18, 2011. As a result, approximately $0.2 million outstanding principal amount of the Notes was repurchased in January 2011.

~~ITC^DeltaCom~~The ~~may redeem some or all of the~~ Notes, ataccrue ~~any~~interest ~~time before April 1, 2013,~~ at a ~~redemption~~rate ~~price~~of ~~equal to 100~~10.5% per ~~of their principal amount plus a “make-whole” premium~~year. ~~ITC^DeltaCom~~Interest ~~may~~on ~~redeem~~the ~~some~~Notes oris ~~all~~payable ofsemi-annually ~~the~~in ~~Notes~~cash atin ~~any~~arrears ~~time~~ on ~~or after~~ April 1, ~~2013,~~and ~~at specified redemption prices declining from 105.250% to 100% of their principal amount. In addition, before April~~October 1, ~~2013, ITC^DeltaCom may redeem up to 35%~~ of ~~the~~each ~~aggregate~~year. ~~principal~~The ~~amount of the~~ Notes atwill amature ~~redemption~~on ~~price equal to 110.5% of their principal amount with the net proceeds of certain equity offerings. During any 12-month period before~~ April 1, ~~2013,~~2016. As ~~ITC^DeltaCom~~a ~~may~~result ~~redeem up to 10%~~ of ~~the~~purchase ~~aggregate~~accounting, ~~principal amount of~~ the Notes atwere arecorded ~~redemption~~at ~~price~~acquisition ~~equal~~date tofair ~~103% of their principal amount~~value. IfThe ~~(1) ITC^DeltaCom~~fair ~~sells~~value ~~certain~~was ofbased ~~its assets and does not either (a) apply the net sale proceeds to repay indebtedness under the senior secured revolving credit facility, the Notes, or other indebtedness secured~~ on ~~a first~~publicly-~~priority~~quoted ~~basis~~market or (b) reinvest the net sale proceeds in its business, or (2) ITC^DeltaCom experiences a change of control, it may be required to offer to purchase Notes from holders at 100% of their principal amount, in the case of a sale of assets, or 101% of their principal amount, in the case of a change of controlprices. ~~ITC^DeltaCom~~The ~~would~~resulting bedebt ~~required~~premium tois ~~pay~~being ~~accrued~~amortized ~~and~~over ~~unpaid interest, if any, on~~ the ~~Notes~~remaining ~~redeemed~~life ~~or purchased in each~~ of the ~~foregoing events of redemption or purchase~~Notes.

~~The~~Redemption. ITC^DeltaCom may redeem some or all of the Notes, ~~are~~at any time before April 1, 2013, at a redemption price equal to 100% of their principal amount plus a “make-whole” premium. ITC^DeltaCom’s ~~general~~may ~~senior~~redeem ~~obligations~~some ~~and~~or ~~rank~~all ~~equally~~of inthe ~~right~~Notes at any time on or after April 1, 2013, at specified redemption prices declining from 105.250% to 100% of ~~payment~~their principal amount. In addition, before April 1, 2013, ITC^DeltaCom may redeem up to 35% of the aggregate principal amount of the Notes at a redemption price equal to 110.5% of their principal amount with the net proceeds of certain equity offerings. During any ~~future~~12-month ~~senior~~period ~~indebtedness~~before April 1, 2013, ITC^DeltaCom may redeem up to 10% of the aggregate principal amount of the Notes at a redemption price equal to 103% of their principal amount. ~~The~~If (1) ITC^DeltaCom sells certain of its assets and does not either (a) apply the net sale proceeds to repay indebtedness under the senior secured revolving credit facility, the Notes, ~~are~~or other indebtedness secured on a first-priority basis, ~~along~~or ~~with~~(b) reinvest ~~any~~the ~~future~~net ~~pari~~sale ~~passu~~proceeds ~~secured~~in ~~obligations~~its business, ~~subject~~or to(2) ITC^DeltaCom ~~specified~~experiences ~~exceptions~~a ~~and~~change ~~permitted~~of ~~liens~~control, byit ~~substantially~~may ~~all~~be required to offer to purchase Notes from holders at 100% of their principal amount, in the case of a sale of assets, or 101% of their principal amount, in the case of a change of control. ITC^DeltaCom would be required to pay accrued and ~~its~~unpaid ~~subsidiaries~~interest, ~~that~~if ~~are~~any, ~~deemed~~on tothe beNotes ~~restricted~~redeemed ~~subsidiaries~~or ~~under~~purchased in each of the ~~indenture~~foregoing ~~governing~~events of redemption or purchase.

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ITC^DELTACOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED - (Continued)

Ranking and guaranty. The Notes are ITC^DeltaCom’s general senior obligations and rank equally in right of payment with any future senior indebtedness. The Notes are secured on a first-priority basis, along with any future pari passu secured obligations, subject to specified exceptions and permitted liens, by substantially all of the assets of ITC^DeltaCom and its subsidiaries that are deemed to be restricted subsidiaries under the indenture governing the Notes. Currently all of ITC^DeltaCom subsidiaries are deemed to be restricted subsidiaries under the indenture. The Notes are guaranteed on a senior secured basis by each of ITC^DeltaCom’s restricted subsidiaries on the initial issue date of the Notes and will be guaranteed on a senior secured basis by each future domestic restricted subsidiary, other than certain excluded subsidiaries, and by any foreign restricted subsidiary that guarantees any indebtedness of ITC^DeltaCom or any domestic restricted subsidiary. The guarantees are the subsidiary guarantors’ general senior obligations and rank equally in right of payment with all of the subsidiary guarantors’ existing and future senior indebtedness.

The ~~indenture~~subsidiary ~~governing~~guarantors ~~the~~are ~~Notes~~wholly ~~contains covenants that~~owned, ~~among~~directly ~~other~~or ~~things~~indirectly, ~~limit~~by ITC^DeltaCom~~’s ability~~, Inc. and ~~the~~have, ~~ability~~jointly ofand ~~ITC^DeltaCom’s~~severally, ~~restricted~~fully ~~subsidiaries~~and unconditionally guaranteed, to ~~incur~~each ~~additional~~holder ~~indebtedness,~~of ~~create~~the ~~liens~~Notes, ~~pay~~the ~~dividends~~full ~~on,~~and ~~redeem~~prompt orperformance ~~repurchase~~of ITC^DeltaCom’s ~~capital~~obligations ~~stock~~under the Notes and the indenture governing the Notes, ~~make~~including ~~investments~~the orpayment ~~repay~~of ~~subordinated~~principal ~~indebtedness~~(or premium, ~~engage~~if inany) ~~sale-leaseback~~and ~~transactions~~interest on the Notes, ~~enter~~on ~~into~~an ~~transactions~~equal ~~with~~and ~~affiliates~~ratable basis. Further, ITC^DeltaCom ~~sell~~has no independent assets or operations, ~~create~~and there are no significant restrictions on ~~dividends~~the ~~and~~ability ~~other~~of ~~payments~~its consolidated subsidiaries to transfer funds to ITC^DeltaCom ~~from~~in ~~its~~the ~~subsidiaries~~form of cash dividends, ~~issue~~loans or ~~sell~~advances. ~~stock~~ITC^DeltaCom’s assets consist solely of ~~subsidiaries,~~cash ~~and~~representing ~~engage~~less inthan ~~mergers~~1% of consolidated assets and ~~consolidations.~~investments ~~All~~it ofhas ~~the~~made ~~covenants~~in ~~are~~its ~~subject~~consolidated tosubsidiaries, aand ~~number~~its operations consist solely of ~~important~~changes ~~qualifications~~in its investment in subsidiaries and ~~exceptions~~interest ~~under~~associated with the ~~indenture~~senior indebtedness. AsBased ofon ~~December 31~~these facts, ~~2010~~and in accordance with Securities and ~~June~~Exchange Commission Regulation S-X Rule 303-10, ~~2011,~~“Financial ~~the~~statements ~~Company~~of ~~was~~guarantors inand ~~compliance~~issuers ~~with~~of ~~all~~guaranteed ofsecurities ~~its~~registered or being registered,” ITC^DeltaCom is not required to provide condensed consolidating financial ~~covenants~~information for the subsidiary guarantors.

AsCovenants. ofThe ~~December 31~~indenture governing the Notes contains covenants that, ~~2010~~among ~~and~~other ~~June 30~~things, ~~2011~~limit ITC^DeltaCom’s ability, and the ~~fair~~ability ~~value~~ of ~~the~~ITC^DeltaCom’s restricted subsidiaries, to incur additional indebtedness, create liens, pay dividends on, redeem or repurchase ITC^DeltaCom’s ~~Notes~~capital ~~was~~stock, ~~approximately~~make ~~$352~~investments or repay subordinated indebtedness, engage in sale-leaseback transactions, enter into transactions with affiliates, sell assets, create restrictions on dividends and other payments to ITC^DeltaCom from its subsidiaries, issue or sell stock of subsidiaries, and engage in mergers and consolidations.6 ~~million~~All of the covenants are subject to a number of important qualifications and ~~$346~~exceptions under the indenture.1 ~~million~~As of December 31, ~~respectively~~2010 and September 30, ~~based~~2011, onthe ~~quoted~~Company ~~market~~was ~~prices~~in compliance with all of its financial covenants.

~~The~~Fair ~~subsidiary guarantors are wholly owned, directly or indirectly, by ITC^DeltaCom, Inc~~value. As ~~and~~of ~~have~~December 31, ~~jointly~~2010 and ~~severally~~September 30, ~~fully and unconditionally guaranteed~~2011, ~~to each holder of~~ the ~~notes,~~fair ~~the~~value ~~full and prompt performance~~ of ~~ITC^DeltaCom’s obligations under~~ the ~~notes and the indenture governing the notes, including the payment of principal (or premium, if any) and interest on the notes, on an equal and ratable basis. Further,~~ ITC^DeltaCom ~~has~~Notes nowas ~~independent~~approximately ~~assets or operations, and there are no significant restrictions on the ability of its consolidated subsidiaries to transfer funds to ITC^DeltaCom in the form of cash dividends, loans or advances~~$352.6 ~~ITC^DeltaCom’s~~million ~~assets consist solely of cash representing less than 1% of consolidated assets~~ and ~~investments it has made in its consolidated subsidiaries, and its operations consist solely of changes in its investment in subsidiaries and interest associated with the senior indebtedness~~$328.0 ~~Based on these facts~~million, ~~and in accordance with Securities and Exchange Commission Regulation S-X Rule 3-10~~respectively, ~~“Financial~~based ~~statements~~on ofquoted ~~guarantors~~market ~~and issuers of guaranteed securities registered or being registered,” ITC^DeltaCom is not required to provide condensed consolidating financial information for the subsidiary guarantors~~prices.

Capital Leases

The Company leases certain equipment that is accounted for as capital leases. All of these capital leases were assumed by the Company through its acquisition of STS Telecom. Depreciation expense related to assets under capital leases is included in depreciation and amortization expense.

6. Equity

In March 2011, ITC^DeltaCom issued 100 shares of Common Stock, par value $0.01 per share, to EarthLink for $30.0 million in cash pursuant to a stock subscription agreement.

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ITC^DELTACOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED - (Continued)

7. Income Taxes

The income tax provision for the ~~six~~nine months ended ~~June~~September 30, 2011 represents an effective rate of -2.0829%. The income tax provision consisted of state income ~~tax~~ amounts payable due to the net operating loss carryforward limitations associated with provisions of the Internal Revenue Code which limit an entity’s ability to utilize net operating loss carryforwards in the case of certain events, including significant changes in ownership interests.

The Company’s income tax provision is prepared on a stand-alone basis, including the determination of the need for a valuation allowance. For federal income tax purposes, the Company will be filing a consolidated income tax return with EarthLink, its parent company. For state income tax purposes, the Company will be filing on a combined or consolidated basis where required or allowable by law. The Company’s tax attributes are presented as if the Company files a separate return for federal and state tax purposes. The Company’s attributes used by EarthLink are presented as if they were unused on a separate company basis.

EarthLink has determined that it is not necessary to report a valuation allowance for deferred tax assets on a consolidated basis. However, it is necessary to report a valuation allowance in the separate financial statements of ITC^DeltaCom. The difference in valuation allowance in ITC^DeltaCom’s financial statements has been recorded to stockholders’ equity.

The Company will reduce the valuation allowance when, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets can be realized on a stand-alone basis. Provisions of the Internal Revenue Code limit an entity’s ability to utilize net operating loss carryforwards in the case of certain events, including significant changes in ownership interests.

As part of the acquisition of ITC^DeltaCom by EarthLink, $17.6 million of unrecognized tax benefits, including $0.1 million of accrued interest and penalties, were identified. Of this amount, $15.9 million would reduce prior net operating losses if assessed. Of the $1.7 million reflected on the opening balance sheet, $1.3 million would result in tax payments, $0.3 million would be offset by net operating losses and $0.1 million relates to interest and penalties as disclosed below.

The Company’s policy is to classify interest and penalties related to unrecognized tax benefits in income tax expense. As of September 30, 2011, the Company had $0.2 million of interest and penalties recorded.

8. Related Party Transactions

ITC^DeltaCom has a services agreement with EarthLink pursuant to which EarthLink provides ITC^DeltaCom certain support services in exchange for management fees. The management fees were determined based on EarthLink’s costs to provide the services. During the three and nine months ended September 30, 2011, ITC^DeltaCom recognized $0.3 million and $1.1 million, respectively, of operating expenses for services received from EarthLink.

As of December 31, 2010, the Company had accounts receivable from EarthLink of approximately $1.2 million. As of September 30, 2011, the Company had accounts receivable from EarthLink and its subsidiaries of approximately $0.4 million.

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ITC^DELTACOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED - (Continued)

~~basis~~9. Commitments ~~Provisions~~and ~~of the Internal Revenue Code limit an entity’s ability to utilize net operating loss carryforwards in the case of certain events, including significant changes in ownership interests.~~Contingencies

AsLegal part of the acquisition of ITC^DeltaCom by EarthLink, $17.6 million of unrecognized tax benefits, including $0.1 million of accrued interest and penalties, were identified. Of this amount, $15.9 million would reduce prior net operating losses if assessed. Of the $1.7 million reflected on the balance sheet, $1.3 million would result in tax payments, $0.3 million would be offset by net operating losses and $0.1 million relates to interest and penalties as disclosed below.proceedings

The Company’s ~~policy~~ is party to ~~classify~~various ~~interest~~legal ~~and~~proceedings ~~penalties~~arising ~~related~~from tonormal ~~unrecognized~~business ~~tax~~activities. ~~benefits~~The inresult ~~income~~of ~~tax~~any ~~expense~~current or future disputes, litigation or other legal proceedings is inherently unpredictable. AsThe ofCompany’s ~~June 30~~management, ~~2011~~however, believes that there are no disputes, litigation or other legal proceedings asserted or pending against the Company ~~had~~that ~~$0.1~~could ~~million~~have, individually or in the aggregate, a material adverse effect on its financial position, results of ~~interest~~operations or cash flows, and ~~penalties~~believes ~~recorded~~that adequate provision for any probable and estimable losses has been made in the Company’s condensed consolidated financial statements.

~~8. Related Party Transactions~~Regulation

~~ITC^DeltaCom~~The ~~has~~Company’s a services ~~agreement~~are ~~with~~subject ~~EarthLink~~to ~~pursuant~~varying todegrees ~~which~~of ~~EarthLink~~federal, ~~provides~~state ~~ITC^DeltaCom~~and ~~certain~~local ~~support~~regulation. ~~services~~These inregulations ~~exchange~~are ~~for~~subject ~~management~~to ~~fees.~~ongoing ~~The~~proceedings ~~management~~at ~~fees~~federal ~~were~~and ~~determined~~state ~~based~~administrative onagencies ~~EarthLink’s~~or ~~costs~~within tostate ~~provide~~and ~~the~~federal ~~services,~~judicial ~~and~~systems. ~~management~~Results ~~believed~~of ~~such~~these ~~fees~~proceedings ~~were~~could ~~reasonable. During~~change, ~~the~~in ~~three~~varying ~~and~~degrees, ~~six~~the ~~months~~manner ~~ended~~in ~~June 30,~~which ~~2011, ITC^DeltaCom~~the ~~recognized~~Company $0operates.8 ~~million~~The ~~and~~Company ~~$1.3~~cannot ~~million,~~predict ~~respectively,~~the outcome of ~~operating~~these ~~expenses~~proceedings ~~for~~or ~~services~~their ~~received~~effect ~~from~~on ~~EarthLink~~the Company’s industry generally or upon the Company specifically.

As of December 31, 2010, the Company had accounts receivable from EarthLink of approximately $1.2 million. As of June 30, 2011, the Company had accounts receivable from EarthLink and its subsidiaries of approximately $0.4 million.Other

10The Company is periodically involved in disputes related to its billings to other carriers for access to its network. The Company does not recognize revenue related to such matters until the period that it is reliably assured of the collection of these claims. In the event that a claim is made related to revenues previously recognized, the Company assesses the validity of the claim and adjusts the amount of revenue being recognized to the extent that the claim adjustment is considered probable and estimable.

The Company periodically disputes network access charges that it is assessed by other companies with which the Company interconnects. The Company maintains adequate reserves for anticipated exposure associated with these billing disputes. The reserves are reviewed on a monthly basis, but are subject to changes in estimates and management judgment as new information becomes available. In view of the length of time historically required to resolve these disputes, they may be resolved or require adjustment in future periods and relate to costs invoiced, accrued or paid in prior periods.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Certain statements in this Quarterly Report on Form 10-Q are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. The words “estimate,” “plan,” “intend,” “expect,” “anticipate,” “believe” and similar expressions are intended to identify forward-looking statements. These forward-looking statements are found at various places throughout this report. ITC^DeltaCom disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Although ITC^DeltaCom believes that its expectations are based on reasonable assumptions, it can give no assurance that its goals will be achieved. Important factors that could cause actual results to differ from estimates or projections contained in the forward-looking statements are described under “Safe Harbor Statement” in this Item 2.

The following discussion should be read in conjunction with the accompanying unaudited Condensed Consolidated Financial Statements and related Notes thereto and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the audited Consolidated Financial Statements and the Notes thereto contained in the Annual Report on Form 10-K for the year ended December 31, 2010.

Overview

ITC^DeltaCom, Inc., together with its wholly-owned subsidiaries, provides integrated communications services in the southeastern United States. We deliver a comprehensive suite of high-quality data and voice communications services, including high-speed or broadband data communications, local exchange, long-distance and conference calling, and mobile data and voice services to businesses and enterprise organizations. We also sell customer premises equipment to our business customers. We offer these services primarily over our 14-state fiber optic network. Our fiber optic network provides us with transmission capacity that we also sell to other communications providers on a wholesale basis.

In December 2010, we were acquired by EarthLink, Inc. (“EarthLink”) for $3.00 per share, with ITC^DeltaCom, Inc. surviving as a wholly-owned subsidiary of EarthLink. Subsequent to the acquisition, our integrated communication services were rebranded as EarthLink Business and our wholesale services were rebranded as EarthLink Carrier.

Revenue Sources

We derive revenues from providing ~~integrated~~retail ~~communications~~ services, wholesale services and equipment sales and related services.

~~Integrated~~Retail ~~Communications~~ Services. We deliver integrated voice and data communications services to end-users on a retail basis, including high-speed or broadband data communications ~~(which consist of Ethernet and Internet access connectivity)~~, local exchange, long-distance and conference calling, voice-over-Internet Protocol (“VoIP”) and mobile data and voice services. Revenues primarily consist of monthly recurring fees. Revenues from our ~~integrated~~retail ~~communications~~ services were approximately 82% and 81% of our total revenues during the three months ended ~~June~~September 30, 2010 and 2011, respectively.

Wholesale Services. We deliver wholesale communications services to other communications businesses. Revenues from these services are generated from sales to a limited number of other communications companies, including incumbent local exchange carriers, competitive local exchange carriers, wireless service providers, cable companies, Internet service providers and other carriers. Our wholesale services include regional communications transmission capacity over our fiber optic network, which we refer to as our “broadband transport” services, local interconnection services to Internet service providers and local dial tone communications services to other competitive exchange carriers, operator and directory assistance services, and dedicated Internet access services through our IP network and our direct connectivity to the IP networks of other Internet service providers. Our broadband transport services include private line services, Ethernet private line services and wavelength services, which allow other communications providers to transport the traffic of their end-user or wholesale customers across our local and intercity network. Revenues consist of fees charged for

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~~end-user or wholesale customers across our local and intercity~~ network. ~~Revenues consist of fees charged for network~~ services, termination fees, fees for equipment and usage fees. Revenues from our wholesale services were approximately 1415% and 1516% of our total revenues during the three months ended ~~June~~September 30, 2010 and 2011, respectively.

~~Equipment~~Other ~~Sales and Related~~ Services. We derive ~~non-recurring~~other revenues from selling, installing and providing maintenance services for customer premises equipment. Revenues from these services, which are primarily generated from sales to our integrated communications services customers, were approximately 4% and 3% of our total revenues during the three months ended ~~June~~September 30, 2010 and 2011, respectively.

Trends in our Business

We operate in the communications industry. The communications industry is highly competitive, and we expect this competition to intensify. These markets are rapidly changing due to industry consolidation, an evolving regulatory environment and the emergence of new technologies. We sell our services to end user business customers and to wholesale customers. Our wholesale customers consist primarily of telecommunications carriers and network resellers. ~~Our business has become more focused on end users as a result of consolidation in the telecommunications industry.~~ In addition, merger and acquisition transactions have created more significant competitors for us and have reduced the number of vendors from which we may purchase network elements we leverage to operate our business.

Our business customers are particularly exposed to a weak economy. We believe that the financial and economic pressures faced by our business customers in this environment of diminished consumer spending, corporate downsizing and tightened credit have had, and may continue to have, an adverse effect on ~~billable~~results ~~minutes~~ of ~~use and on customer attrition rates~~operations, ~~and~~including ~~have resulted in and may continue to result in~~ increased customer demands for price reductions in connection with contract renewals. We have experienced pressure on revenue and operating expenses for our services as a result of current economic conditions, including increased subscriber acquisition and retention costs necessary to attract and retain subscribers.

Acquisition

In March 2011, we acquired Saturn Telecommunication Services Inc. and affiliates (“STS Telecom”), a privately-held provider of IP communication and information technology services to small and medium-sized businesses primarily in Florida. STS Telecom operates a sophisticated ~~voice-over-IP (“~~VoIP”) platform. The primary reason for the acquisition is to leverage STS Telecom’s expertise in managed hosted VoIP on a nationwide basis as part of our VoIP offerings.

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Results of Operations

On December 8, 2010, we were acquired by EarthLink. The accounting for the acquisition has been “pushed-down” in our consolidated financial statements. Due to EarthLink’s acquisition of us, the financial results have been presented separately for the “Predecessor Entity” period, January 1, 2010 through ~~June~~September 30, 2010, and for the “Successor Entity” period, January 1, 2011 through ~~June~~September 30, 2011.

The following table sets forth statement of operations data for the three months ended ~~June~~September 30, 2010 and 2011 (in thousands):

	Predecessor Entity			Sucessor Entity
	Three Months			Three Months			Change Between
	Ended			Ended			2010 and 2011
	June 30, 2010			June 30, 2011			Amount			%
	September 30, 2010			September 30, 2011			Amount			%
Revenues:
Integrated communications services	$	91,287		$	92,230		$	943		1	%
Retail services	$	90,466		$	92,260		$	1,794		2	%
Wholesale services	1516,~~281~~330			17,~~580~~952			21,~~299~~622			1510	%
Equipment sales and related services	4,332			3,969			(363		)	-8	%
Other services	4,124			3,151			(973		)	-24	%
Total revenues	110,~~900~~920			113,~~779~~363			2,~~879~~443			32	%
Operating costs and expenses:
Cost of revenues (exclusive of depreciation and amortization shownseparately below)	5054,~~920~~736			5554,~~546~~020			~~4,626~~(716		)	9-1	%
Selling, general and administrative (exclusive of depreciation and amortization shown separately below)	3635,~~688~~325			3732,~~302~~739			~~614~~(2,586		)	2-7	%
Depreciation and amortization	13,~~648~~810			18,~~230~~286			4,~~582~~476			3432	%
Acquisition-related costs	—2,064			1,~~057~~664			~~1,057~~(400		)	*-19	%
Total operating costs and expenses	~~101~~105,~~256~~935			~~112~~106,~~135~~709			~~10,879~~774			111	%
Income from operations	94,~~644~~985			16,~~644~~654			(81,~~000~~669		)	~~-83~~33	%
Interest expense and other, net	(169,~~160~~683		)	(87,~~137~~687		)	81,~~023~~996			-5021	%
Loss before income taxes	(64,~~516~~698		)	(61,~~493~~033		)	233,665			0-78	%
Income tax benefit	—			254			254			*
Income tax provision	—			(261		)	(261		)	*
Net loss	$	(64,~~516~~698	)	$	(61,~~239~~294	)	$	~~277~~3,404		-472	%

* Denotes percentage is not meaningful.

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The following table sets forth statement of operations data for the ~~six~~nine months ended ~~June~~ September 30, 2010 and 2011 (in thousands):

	Predecessor Entity			Sucessor Entity
	Six Months			Six Months			Change Between
	Nine Months			Nine Months			Change Between
	Ended			Ended			2010 and 2011
	June 30, 2010			June 30, 2011			Amount			%
	September 30, 2010			September 30, 2011			Amount			%
Revenues:
Integrated communications services	$	184,405		$	180,589		$	(3,816	)	-2	%
Retail services	$	275,627		$	273,497		$	(2,130	)	-1	%
Wholesale services	2945,~~570~~900			3553,~~148~~100			57,~~578~~200			1916	%
Equipment sales and related services	8,065			7,858			(207		)	-3	%
Other services	11,433			10,361			(1,072		)	-9	%
Total revenues	~~222~~332,~~040~~960			~~223~~336,~~595~~958			13,~~555~~998			1	%
Operating costs and expenses:
Cost of revenues (exclusive of depreciation and amortization shownseparately below)	~~103~~158,~~269~~006			~~109~~163,~~924~~944			65,~~655~~938			64	%
Selling, general and administrative (exclusive of depreciation and amortization shown separately below)	73108,~~583~~908			73105,~~006~~745			(~~577~~3,163		)	-13	%
Depreciation and amortization	2842,~~470~~280			3453,~~896~~182			610,~~426~~902			2326	%
Acquisition-related costs	—2,064			13,~~882~~546			1,~~882~~482			*72	%
Total operating costs and expenses	~~205~~311,~~322~~258			~~219~~326,~~708~~417			1415,~~386~~159			75	%
Income from operations	1621,~~718~~702			310,~~887~~541			(1211,~~831~~161		)	-7751	%
Interest expense and other, net	(2030,~~845~~527		)	(1523,~~691~~378		)	57,~~154~~149			-2523	%
Loss before income taxes	(48,~~127~~825		)	(1112,~~804~~837		)	(74,~~677~~012		)	~~186~~45	%
Income tax provision	—			(33294		)	(33294		)	*
Net loss	$	(48,~~127~~825	)	$	(1113,~~837~~131	)	$	(74,~~710~~306	)	~~187~~49	%

* Denotes percentage is not meaningful.

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The following table sets forth certain operating data as of ~~June~~ September 30, 2010 and 2011:

	June 30,	June 30,
	September 30,		September 30,
	2010	~~2011~~	2011
Colocations (1)	294	~~296~~	298
Voice and data switches	20	20	20
Employees (2)	1,~~357~~360	~~1,292~~	1,193
Retail business voice lines in service (3)
UNE-T and other UNE lines (4)	~~368~~369,~~739~~998	~~373,768~~	372,443
Resale and UNE-P lines (5)	4644,~~975~~425	~~44,124~~	43,277
Total retail voice lines in service	~~415~~414,~~714~~423	~~417,892~~	415,720
Wholesale lines in service (6)	6,~~900~~923	~~6,417~~	5,612
Total business lines in service (7)	~~422~~421,~~614~~346	~~424,309~~	421,332

(1) Two colocations in the same physical facility are reflected as one location.

(2) Includes full-time and part-time employees.

(3) Lines in service include only voice lines in service. Conversion of data services provided to customers to a voice line equivalent is excluded.

(4) Facilities-based service offering in which we provide local transport through our owned and operated switching facilities.

(5) Resale service offerings in which we provide local and mobile services.

(6) Represents primary rate interface circuits provided as part of our local interconnection services for Internet service providers.

(7) Reported net of lines disconnected or canceled.

Revenues

Total revenues increased $2.94 million, or 32%, from the three months ended ~~June~~ September 30, 2010 to the three months ended ~~June~~ September 30, 2011, and increased $14.60 million, or 1%, from the ~~six~~nine months ended ~~June~~ September 30, 2010 to the ~~six~~nine months ended ~~June~~ September 30, 2011. The increases were primarily due to the inclusion of STS Telecom revenues and an increase in wholesale revenues, offset by declining business demand and competitive pricing pressures for our retail integrated communications services and equipment.

~~Integrated~~Retail ~~communications~~ services. Revenues from our ~~integrated~~retail ~~communications~~ services increased $01.98 million, or 12%, from the three months ended ~~June~~ September 30, 2010 to the three months ended ~~June~~ September 30, 2011. The increase was primarily due to the inclusion of STS Telecom revenues. This was partially offset by a decrease in local service revenues and data revenues. Our local service and data revenues decreased due to pricing pressures related to increased competition and the overall economy. Revenues from our ~~integrated~~retail ~~communications~~ services decreased $32.81 million, or 21%, from the ~~six~~nine months ended ~~June~~ September 30, 2010 to the ~~six~~nine months ended ~~June~~ September 30, 2011. The decrease was primarily due to a decrease in local service revenues and data revenues, offset by the inclusion of STS Telecom revenues and an increase in long distance services revenue.

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We experienced an increase of approximately 52,~~029~~445 facilities-based local lines and a decrease of approximately 21,~~851~~148 resale and UNE-P lines from ~~June~~ September 30, 2010 to ~~June~~ September 30, 2011, for a net increase of 21,~~178~~297 total lines. We continue to pursue a strategy to improve the profitability of our integrated communications services by reducing the proportion of our local lines provided through higher cost resale and UNE-P services.

Wholesale services. Revenues from our wholesale services increased $21.36 million, or 1510%, from the three months ended ~~June~~ September 30, 2010 to the three months ended ~~June~~ September 30, 2011, and increased $57.62 million, or 1916%, from the ~~six~~nine months ended ~~June~~ September 30, 2010 to the ~~six~~nine months ended ~~June~~ September 30, 2011. The increases were primarily attributable to an increase in broadband transport services revenues. The increase in broadband transport service revenues resulted from actions on our part to secure our customer relationships in which we entered into new contracts with utilities to acquire facilities for our use in serving our customers and canceled contracts with the utilities to market their facilities to our customers. As a result, our broadband transport revenues and our cost of revenues increased during the three and ~~six~~nine months ended ~~June~~ September 30, 2011 compared to the prior year periods.

~~Equipment~~Other ~~sales and related~~ services. Revenues from communication equipment sales and related services decreased $01.40 million, or 824%, from the three months ended ~~June~~ September 30, 2010 to the three months ended ~~June~~ September 30, 2011, and decreased $01.21 million, or 39%, from the ~~six~~nine months ended ~~June~~ September 30, 2010 to the ~~six~~nine months ended ~~June~~ September 30, 2011. The decreases resulted from reduced demand for telephone systems.

Cost of revenues

Cost of revenues includes costs directly associated with providing services to our customers. Cost of revenues does not include depreciation and amortization. Cost of revenues primarily consists of the cost of connecting customers to our networks via leased facilities; the costs of leasing components of our network facilities; costs paid to third-party providers for interconnect access and transport services; and the costs of equipment sold to customers for use with our services. We utilize other carriers to provide services where we do not have facilities. We utilize a number of different carriers to terminate our long distance calls outside the southeastern United States. The provision of local services over our network generally reduces the amounts we otherwise would be required to pay to other telephone companies to use their networks and facilities in order to provide local services.

Total cost of revenues ~~increased~~decreased $40.67 million, or 91%, from the three months ended ~~June~~ September 30, 2010 to the three months ended ~~June~~ September 30, 2011 and ~~increased~~decreased as a percent of revenues from 4649% during the three months ended ~~June~~ September 30, 2010 to 4948% during the three months ended ~~June~~ September 30, 2011. ~~Total~~The decrease in cost of revenues ~~increased~~both ~~$6.7~~in ~~million,~~absolute orterms ~~6%, from the six months ended June 30, 2010 to the six months ended June 30, 2011~~ and ~~increased~~ as a ~~percent~~percentage of total revenues ~~from~~was ~~47%~~primarily ~~during~~due ~~the six months ended June 30, 2010~~ to ~~49% during~~ the ~~six~~release ~~months~~of ~~ended~~reserves ~~June~~for ~~30,~~certain ~~2011.~~network ~~The~~access ~~increases~~charges inthat ~~cost~~are ofno ~~revenues~~longer ~~both~~subject into ~~absolute~~dispute. ~~terms~~Partially ~~and~~offsetting asthe adecrease ~~percentage~~was ~~of total revenues were primarily due to~~ the inclusion of STS Telecom cost of revenues and an increase in wholesale services cost of revenues resulting from new contracts, as discussed above.

Total cost of revenues increased $5.9 million, or 4%, from the nine months ended September 30, 2010 to the nine months ended September 30, 2011 and increased as a percent of revenues from 47% during the nine months ended September 30, 2010 to 49% during the nine months ended September 30, 2011. The increase in cost of revenues both in absolute terms and as a percentage of total revenues was primarily due to the inclusion of STS Telecom cost of revenues and an increase in wholesale services cost of revenues resulting from new contracts, as discussed above.

Selling, general and administrative expense

Selling, general and administrative expense consists of expenses of selling and marketing, field personnel engaged in direct network maintenance and monitoring, customer service and corporate administration.

Selling, general and administrative expense ~~increased~~decreased $02.6 million, or 27%, from the three months ended ~~June~~ September 30, 2010 to the three months ended ~~June~~ September 30, 2011. ~~The increase was primarily due to the inclusion of STS Telecom’s selling, general~~ and administrative expenses and an increase in stock-based compensation expense, partially offset by decreases in facilities costs, professional fees, data processing, bad debt expense and other corporate overhead expenses. Selling, general and administrative expense decreased $03.62 million, or 13%, ~~from the six months ended June 30, 2010 to the six months ended June 30, 2011. The decrease was attributable to decreases in facilities costs, professional fees, data processing, bad debt expense~~

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from the nine months ended September 30, 2010 to the nine months ended September 30, 2011. The decrease compared to the prior year periods was primarily attributable to a favorable tax settlement recognized during the three and nine months ended September 30, 2011 and decreases in facilities costs, professional fees, data processing, bad debt expense and other corporate overhead expenses,. ~~partially~~Partially ~~offset~~offsetting bythese decreases was the inclusion of STS Telecom’s selling, general and administrative expenses and an increase in stock-based compensation expense.

Depreciation and amortization

Depreciation and amortization includes depreciation of property and equipment and amortization of definite-lived intangible assets acquired in purchases of businesses. Property and equipment is depreciated using the straight-line method over the estimated useful lives of the various asset classes. Definite-lived intangible assets, which primarily consist of customer relationships, developed technology and trade names, are amortized on a straight-line basis over their estimated useful lives, which range from three to ~~six~~nine years. The customer relationships are being amortized using the straight-line method because this matches the estimated cash flow generated by such assets, and the developed technology and trade names are being amortized using the straight-line method because a pattern to which the expected benefits will be consumed or otherwise used up could not be reliably determined.

Depreciation and amortization expense increased $4.65 million, or 3432%, from the three months ended ~~June~~ September 30, 2010 to the three months ended ~~June~~ September 30, 2011, and increased $610.49 million, or 2326%, from the ~~six~~nine months ended ~~June~~ September 30, 2010 to the ~~six~~nine months ended ~~June~~ September 30, 2011. The ~~increases~~increase ~~were~~compared to the prior year periods was due to ~~increases~~an increase in amortization expense, offset by ~~decreases~~a decrease in depreciation expense. The ~~increases~~increase in amortization expense compared to the prior year ~~periods~~period ~~were~~was due to amortization related to identifiable intangible assets established in connection with EarthLink’s acquisition of us and our acquisition of STS telecom. The ~~decreases~~decrease in depreciation expense compared to the prior year ~~periods~~period ~~were~~was due to a reduction in property equipment recorded at fair value in connection with EarthLink’s acquisition of us and property and equipment becoming fully depreciated over the past year, partially offset by an increase in depreciation expense resulting from property and equipment obtained in the acquisition of STS Telecom.

Acquisition-related costs

Acquisition-related costs consist of costs directly related to acquisitions, such as employee severance and retention costs; transaction related costs, which include external costs directly related to acquisitions such as advisory, legal, accounting, valuation and other professional fees; and other integration related costs. Acquisition-related costs are expensed in the period in which the costs are incurred and the services are received. These expenses are included in acquisition-related costs in the Company’s Condensed Consolidated Statement of Operations. During the three and ~~six~~nine months ended ~~June~~ September 30, 2010 and 2011, acquisition-related costs consisted of the following:

	Three Months		Six Months
	Three Months Ended					Nine Months Ended
	Ended		Ended
	Predecessor			Successor		Predecessor		Successor
	June 30,		June 30,
	Entity			Entity		Entity		Entity
	2011		2011
	September 30,			September 30,		September 30,		September 30,
	(in thousands)
	2010			2011		2010		2011
Severance and retention costs	$	~~569~~—	$	~~1,218~~$	1,530	$	—	$	2,748
Transaction related costs	—2,064		~~176~~	—		2,064		176
Integration related costs	~~488~~—		~~488~~	134		—		622
Total acquisition-related costs	$	12,~~057~~064	$	~~1,882~~$	1,664	$	2,064	$	3,546

Interest expense and other, net

Interest expense and other, net, is primarily comprised of interest expense incurred on our outstanding indebtedness, including our 10.5% senior secured notes due 2016 (the “Notes”); interest income earned on our cash and cash equivalents; and other miscellaneous income and expense items.

Interest expense and other, net, decreased $8.0 million, or 50%, from the three months ended June 30, 2010 to the three months ended June 30, 2011, and decreased $5.2 million, or 25%, from the six months ended 19

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~~June 30, 2010 to the six months ended June 30, 2011.~~ Interest expense and other, net, ~~for~~decreased ~~the three and six months ended June 30, 2010 includes a write-off of~~ $72.90 million, ofor ~~unamortized~~21%, debt discount and issuance costs in connection with the repayment of indebtedness outstanding under our first lien and second lien senior secured credit facilities and our former revolving credit facility from the ~~proceeds~~three ofmonths ~~our~~ended ~~Notes~~September 30, ~~offering in April~~ 2010. ~~The~~to ~~decrease in interest expense and other, net, during~~ the three months ended ~~June~~ September 30, 2011, ~~compared to the prior year period was primarily attributable to the write-off of unamortized debt discount~~ and ~~issuance~~decreased ~~costs~~$7.1 ~~recognized~~million, inor ~~the~~23%, ~~prior~~from ~~year period and~~ the ~~amortization~~nine ofmonths ~~debt~~ended ~~premium~~September 30, ~~resulting~~2010 ~~from~~to the ~~increase~~nine inmonths ~~fair~~ended ~~value~~September 30, ~~of debt recorded through purchase accounting~~2011. ~~The~~Interest ~~decrease in interest~~ expense and other, net, ~~during~~for the ~~six~~nine months ended ~~June~~ September 30, ~~2011~~2010 ~~compared~~includes toa ~~the prior year period was primarily attributable to the~~ write-off of $7.9 million of unamortized debt discount and issuance costs ~~recognized~~ in ~~the~~connection ~~prior~~with ~~year~~the ~~period,~~repayment ~~partially~~of ~~offset~~indebtedness byoutstanding anunder ~~increase~~our infirst ~~the~~lien ~~weighted~~and ~~average~~second ~~interest~~lien ~~rate~~senior onsecured ~~our~~credit ~~outstanding~~facilities ~~borrowings~~ and ~~an increase in~~ our ~~outstanding~~former ~~debt~~revolving ~~balance~~credit ~~due~~facility tofrom the ~~issuance~~proceeds of ~~the~~our Notes offering in April 2010 ~~and the repayment of $305~~.~~5 million aggregate amount of indebtedness with the proceeds of the Notes offering.~~

The decrease in interest expense and other, net, during the three months ended September 30, 2011 compared to the prior year period was primarily attributable to amortization of debt premium resulting from the increase in fair value of debt recorded through purchase accounting. The decrease in interest expense and other, net, during the nine months ended September 30, 2011 compared to the prior year period was primarily attributable to the write-off of unamortized debt discount and issuance costs recognized in the prior year period and the amortization of debt premium resulting from the increase in fair value of debt recorded through purchase accounting, partially offset by an increase in the weighted average interest rate on our outstanding borrowings and an increase in our outstanding debt balance due to the issuance of the Notes in April 2010 and the repayment of $305.5 million aggregate amount of indebtedness with the proceeds of the Notes offering.

Income Tax Provision

We recognized an income tax provision of $~~33,000~~0.3 million during the ~~six~~three and nine months ended ~~June~~ September 30, 2011, which consisted of state income amounts payable due to the net operating loss carryforward limitations associated with provisions of the Internal Revenue Code which limit an entity’s ability to utilize net operating loss carryforwards in the case of certain events, including significant changes in ownership interests.

We continue to maintain a full valuation allowance of $9493.60 million against our unrealized deferred tax assets, which include net operating loss carryforwards. We will reduce the valuation allowance when, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets can be realized on a stand-alone basis.

To the extent we report income in future periods, we intend to use our net operating loss carryforwards to the extent available to offset taxable income and reduce cash outflows for income taxes. Our ability to use our federal and state net operating loss carryforwards and federal and state tax credit carryforwards may be subject to restrictions attributable to equity transactions in the future resulting from changes in ownership as defined under the Internal Revenue Code.

Liquidity and Capital Resources

The following table sets forth summarized cash flow data for the ~~six~~nine months ended ~~June~~ September 30, 2010 and 2011 (in thousands):

	Predecessor Entity			~~Successor Entity~~	Successor Entity
	Six Months			Six Months
	Nine Months				Nine Months
	Ended			~~Ended~~	Ended
	June 30, 2010			June 30, 2011
	September 30, 2010				September 30, 2011			$ Change			% Change
Net loss	$	(4,127	)	$	(11,837	)
Net cash provided by operating activities	$	58,632			$	37,329		$	(21,303	)	-36	%
Non-cash items	38,503			35,124
Net cash used in investing activities	(42,653		)		(57,184		)	(14,531		)	34	%
Changes in working capital	4,083			(5,863		)
Net cash (used in) provided by financing activities	(1,967		)		26,486			28,453			-1447	%
Net cash provided by operating activities	$	38,459		$	17,424
Net increase in cash and cash equivalents	$	14,012			$	6,631		$	(7,381	)	-53	%
Net cash used in investing activities	$	(28,048	)	$	(43,935	)
Net cash (used in) provided by financing activities	$	(1,652	)	$	26,641

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Operating activities

~~Net~~The ~~cash~~decrease ~~provided~~in bynet ~~operating activities was $38.5 million and $17.4 million during six months ended June 30, 2010 and 2011, respectively. Net~~ cash provided by operating activities ~~decreased~~ during the ~~six~~nine months ended ~~June~~ September 30, 2011 compared to the ~~six~~nine months ended ~~June~~ September 30, 2010 was primarily due to an increase in cash used for prepaid assets and cash used for accounts payable, accrued and other liabilities.

Investing activities

~~Cash~~The ~~used~~increase ~~for~~in ~~investing~~cash ~~activities~~flows ~~was~~used ~~$28.0~~in ~~million~~investing activities during the ~~six~~nine months ended ~~June~~ September 30, ~~2010.~~2011 ~~This~~compared ~~primarily~~to ~~consisted~~the ofnine ~~$29.8~~months ~~million~~ended ~~of capital expenditures~~September 30, ~~offset~~2010 bywas ~~$1.7~~primarily ~~million~~due ofto ~~proceeds from the sale of short-term investments and~~ $022.69 million of ~~proceeds~~cash ~~from the sale of fixed assets. Cash~~ used for ~~investing~~acquisitions, ~~activities~~net ~~was~~of ~~$43.9~~cash ~~million during the six months ended June 30~~acquired, ~~2011.~~due ~~This~~to ~~primarily~~the ~~consisted~~acquisition of ~~$22~~STS Telecom.8 ~~million~~Partially ofoffsetting ~~cash~~this ~~paid~~was toa ~~acquire STS Telecom and~~ $229.5 million ofdecrease in capital expenditures.

Financing activities

~~Cash~~The ~~used~~change in ~~financing~~cash ~~activities~~flows ~~was~~from ~~$1.7~~financing ~~million~~activities during the ~~six~~nine months ended ~~June~~ September 30, ~~2010.~~2011 ~~This~~compared ~~consisted~~to ofthe ~~$308.1~~nine ~~million~~months ~~for~~ended ~~repayments of long-term debt and $2.1 million for taxes paid on vested restricted shares~~September 30, ~~offset by $308.5 million from the issuance of debt, net of issuances costs. In April~~ 2010, wewas ~~issued~~primarily ~~$325.0 million aggregate principal amount of 10.5% senior secured notes~~ due on ~~April~~to 1,a ~~2016 at an offering price of 97.857% and received net proceeds of~~ $~~308~~30.50 million ~~after~~investment ~~transaction~~by ~~fees~~EarthLink ofduring ~~$9.5 million. We applied~~ the ~~net~~nine ~~proceeds~~months toended ~~repay indebtedness~~September 30, including all principal plus accrued and unpaid interest, outstanding under our first lien and second lien senior secured credit facilities and our former revolving credit facility, which were terminated2011.

~~Cash~~During ~~provided by financing activities was $26.6 million during~~ the ~~six~~nine months ended ~~June~~ September 30, 2011~~. This consisted of a $30.0 million investment by EarthLink~~, ~~partially~~we ~~offset~~used by $3.46 million for repayments of long-term debt and capital leases. Under the indenture for the Notes, following the consummation of the Acquisition, we were required to offer to repurchase any or all of the Notes at 101% of their principal amount. The tender window was open from December 20, 1010 through January 18, 2011. As a result, approximately $0.2 million outstanding principal amount of the Notes was repurchased in January 2011. Also during the ~~six~~nine months ended ~~June~~ September 30, 2011, we repaid $3.0 million of debt assumed in the STS Telecom acquisition and made payments on capital leases assumed in the STS Telecom acquisition.

Future Uses of Cash

We believe that to remain competitive with much larger telecommunications companies, we will require significant additional capital expenditures to enhance and operate our fiber network. We expect to incur capital expenditures to maintain and upgrade our network and technology infrastructure. The actual amount of capital expenditures may fluctuate due to a number of factors which are difficult to predict and could change significantly over time. Additionally, technological advances may require us to make capital expenditures to develop or acquire new equipment or technology in order to replace aging or technologically obsolete equipment. We expect to use cash related to our outstanding indebtedness, including payments for interest. We also may use cash to redeem the Notes in accordance with the terms of the related indenture or to repurchase the Notes. We also expect to use cash for required payment of wages and salaries to employees, purchase of network capacity and access under contracts, and payment of fees for other goods and services, including maintenance and commission payments. We are obligated under contracts for network facilities and access that require us to pay a penalty, acquire equipment specific to us or purchase contract specific equipment, as defined by each contract, if we terminate the contract without cause prior to its expiration date. Because these payment obligations are contingent on our termination of the contract, no obligation will exist unless such a termination occurs.

Our cash requirements depend on numerous factors, including the costs required to maintain our network infrastructure, the pricing of our services, and the level of resources used for our sales and marketing activities, among others.

19Future Sources of Cash

Our principal sources of liquidity are our cash and cash equivalents, as well as the cash flow we generate from our operations. During the nine months ended September 30, 2010 and 2011, we generated $58.6 million and $37.3 million in cash from operations, respectively. As of September 30, 2011, we had $50.2 million in cash and cash equivalents.

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~~Sources~~plan for at least the next 12 months. Our ability to meet all of ~~Cash~~our cash needs during the next 12 months and thereafter could be adversely affected by various circumstances, including an increase in customer attrition, employee turnover, service disruptions and associated customer credits, acceleration of critical operating payables, lower than expected collections of accounts receivable, and other circumstances outside of our immediate and direct control. We may determine that it is necessary or appropriate to obtain additional funding through new debt financing to address such contingencies or changes to our business plan. We cannot provide any assurance as to whether, or as to the terms on which, we would be able to obtain such debt financing, which would be subject to limitations imposed by covenants contained in our Notes and which would be negatively affected by adverse developments in the credit and capital markets.

Our principal sources of liquidity are our cash and cash equivalents, as well as the cash flow we generate from our operations. During the six months ended June 30, 2010 and 2011, we generated $38.5 million and $17.4 million in cash from operations, respectively. As of June 30, 2011, we had $43.7 million in cash and cash equivalents.

We believe that our cash on hand and the cash flows we expect to generate from operations under our current business plan will provide us with sufficient funds to enable us to fund our planned capital expenditures, satisfy our debt service requirements, and meet our other cash needs under our current business plan for at least the next 12 months. Our ability to meet all of our cash needs during the next 12 months and thereafter could be adversely affected by various circumstances, including an increase in customer attrition, employee turnover, service disruptions and associated customer credits, acceleration of critical operating payables, lower than expected collections of accounts receivable, and other circumstances outside of our immediate and direct control. We may determine that it is necessary or appropriate to obtain additional funding through new debt financing to address such contingencies or changes to our business plan. We cannot provide any assurance as to whether, or as to the terms on which, we would be able to obtain such debt financing, which would be subject to limitations imposed by covenants contained in our Notes and which would be negatively affected by adverse developments in the credit and capital markets.

Indebtedness

Senior Secured Notes. As of ~~June~~ September 30, 2011, we had outstanding $324.8 million aggregate principal amount of 10.5% senior secured notes due April 1, 2016. As a result of EarthLink’s acquisition of us, the Notes were recorded at acquisition date fair value. The fair value was based on publicly-quoted market prices. The resulting $26.3 million debt premium is being amortized over the remaining life of the Notes.

Compliance With Financial Covenants. We were in compliance with all of financial covenants as of ~~June~~ September 30, 2011.

Off-Balance Sheet Arrangements

As of ~~June~~ September 30, 2011, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Safe Harbor Statement

The Management’s Discussion and Analysis and other portions of this Quarterly Report on Form 10-Q include “forward-looking” statements (rather than historical facts) that are subject to risks and uncertainties that could cause actual results to differ materially from those described. Although we believe that the expectations expressed in these forward-looking statements are reasonable, we cannot promise that our expectations will turn out to be correct. Our actual results could be materially different from and worse than our expectations. With respect to such forward-looking statements, we seek the protections afforded by the Private Securities Litigation Reform Act of 1995. These risks and uncertainties (1) that we may not be able to execute our business strategy, which could adversely impact our results of operations and cash flows; (2) that adverse economic conditions could harm our business; (3) that if we do not continue to innovate and provide products and services that are useful to customers, we may not remain competitive, and our revenues and operating results could suffer; (4) that we face significant competition that could reduce our profitability; (5) that we may not be able to compete effectively if we are unable to install additional network equipment or convert our network to more advanced technology; (6) that failure to obtain and maintain necessary permits and rights-of-way could interfere with our network infrastructure and operations; (7) that our business may suffer if third parties used for customer service and technical support and certain billing services are unable to provide these services or terminate their relationships with us; (8) that decisions by the Federal Communications Commission relieving incumbent telephone companies of certain regulatory requirements, and possible further deregulation in the future, may restrict our ability to provide services and may increase the costs we incur to provide these services; (9) that our wholesale services, including our broadband transport services, continue to be adversely affected by pricing pressure, network overcapacity, service cancellations and other factors; (10) that our financial performance will suffer if we are not offered competitive rates for the access services we need to provide our long distance services; (11) that we have experienced and may continue to experience reductions in switched access and reciprocal compensation revenue; (12) that our inability to maintain and upgrade our network infrastructure, portions of which we do not own, could adversely affect our operating results; (13) that if we are unable to interconnect with AT&T and other incumbent carriers on acceptable terms, our ability to offer competitively priced local telephone services will be adversely affected; (14) that government regulations could adversely affect our business or force us to change our business practices; (15) that we may be unable to retain

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services or terminate their relationships with us; (8) that decisions by the Federal Communications Commission relieving incumbent telephone companies of certain regulatory requirements, and possible further deregulation in the future, may restrict our ability to provide services and may increase the costs we incur to provide these services; (9) that our wholesale services, including our broadband transport services, continue to be adversely affected by pricing pressure, network overcapacity, service cancellations and other factors; (10) that our financial performance will suffer if we are not offered competitive rates for the access services we need to provide our long distance services; (11) that we have experienced and may continue to experience reductions in switched access and reciprocal compensation revenue; (12) that our inability to maintain and upgrade our network infrastructure, portions of which we do not own, could adversely affect our operating results; (13) that if we are unable to interconnect with AT&T and other incumbent carriers on acceptable terms, our ability to offer competitively priced local telephone services will be adversely affected; (14) that government regulations could adversely affect our business or force us to change our business practices; (15) that we may be unable to retain sufficient qualified personnel, which could adversely affect us; (16) that interruption or failure of our network and information systems and other technologies could impair our ability to provide our services, which could damage our reputation and harm our operating results; (17) that our business depends on effective business support systems and processes; (18) that we may not be able to protect our intellectual property; (19) we may be accused of infringing upon the intellectual property rights of third parties, which is costly to defend and could limit our ability to use certain technologies in the future; (20) that if we, or other industry participants, are unable to successfully defend against legal actions, we could face substantial liabilities or suffer harm to our financial and operational prospects; (21) that our indebtedness could adversely affect our financial health and limit our ability to react to changes in our industry; (22) that we are a wholly-owned subsidiary of EarthLink and therefore subject to strategic decisions of EarthLink and affected by EarthLink’s performance; (23) that as a wholly-owned subsidiary of EarthLink, any arrangements or agreements between the two entities may have different terms than would have been negotiated by independent, unrelated parties. These risks and uncertainties, as well as other risks and uncertainties that could cause our actual results to differ significantly from management’s expectations, are not intended to represent a complete list of all risks and uncertainties inherent in our business, and should be read in conjunction with the more detailed cautionary statements and risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2010.

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Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we carried out an evaluation, with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that are filed or submitted under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the three months ended ~~June~~ September 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Part II

Item 1. Legal Proceedings.

ITC^DeltaCom is a party to various legal proceedings that are ordinary and incidental to its business. Management does not expect that any currently pending legal proceedings will have a material adverse effect on ITC^DeltaCom’s results of operations or financial position.

Item 1A. Risk Factors.

There were no material updates from the risk factors disclosed in ITC^DeltaCom’s Annual Report on Form 10-K for the year ended December 31, 2010.

Item 5. Other Information.

None.

Item 6. Exhibits.

(a) Exhibits. The following exhibits are filed as part of this report:

31	.1	Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31	.2	Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32	.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	.INS	XBRL Instance Document
101	.SCH	XBRL Taxonomy Extension Schema Document
101	.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101	.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101	.LAB	XBRL Taxonomy Extension Label Linkbase Document
101	.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

31.1 Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

2331.2 Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS XBRL Instance Document *

101.SCH XBRL Taxonomy Extension Schema Document *

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document *

101.DEF XBRL Taxonomy Extension Definition Linkbase Document *

101.LAB XBRL Taxonomy Extension Label Linkbase Document *

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document *

* Pursuant to Rule 406T of Regulation S-T that this interactive data file is deemed not filed or part of a registration statement or prospectus for the purposes of section 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities and Exchanges Act of 1934, as amended, and otherwise is not subject to liability under these sections.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		ITC^DELTACOM, INC.
Date:	~~August~~November 84, 2011	/s/ ROLLA P. HUFF
		Rolla P. Huff, Chairman and Chief Executive Officer (principal executive officer)
Date:	~~August~~November 84, 2011	/s/ BRADLEY A. FERGUSON
		Bradley A. Ferguson, Chief Financial Officer
		(principal financial and accounting officer)

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