<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 3 TO CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
September 11, 2000 (December 7, 1999)
WORLD ACCESS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0-29782 58-2398004
(State of (Commission File No.) (I.R.S. Employer
incorporation) Identification No.)
945 EAST PACES FERRY ROAD, SUITE 2200
ATLANTA, GEORGIA 30326
(Address of principal executive offices, including zip code)
(404) 231-2025
(Registrant's telephone number, including area code)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
The undersigned registrant hereby amends item 7(b) of its Current
Report on Form 8-K filed on December 22, 1999 (event date: December 7, 1999), as
amended on February 22, 2000 and August 4, 2000, related to the merger with
FaciliCom International, Inc.
This amendment has been prepared and filed to comply with SAB Topic
11:B whereby previous reference to gross profit has been eliminated in the
financial statements of FaciliCom and pro forma financial information.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED:
In accordance with Item 7(a) of Form 8-K, the following
financial statements of FaciliCom prepared in accordance with Regulation S-X are
included in this report:
- Independent Auditors' Report.
- Consolidated Balance Sheets at September 30, 1999 and 1998.
- Consolidated Statements of Operations and Comprehensive Loss
for the three years ended September 30, 1999.
- Consolidated Statements of Capital Accounts for the three
years ended September 30, 1999.
- Consolidated Statements of Cash Flows for the three years
ended September 30, 1999.
- Notes to Consolidated Financial Statements.
(b) PRO FORMA FINANCIAL INFORMATION.
(c) EXHIBITS
2.* Agreement and Plan of Merger dated as of August 17,
1999 among World Access, Inc., FaciliCom
International, Inc., Armstrong International
Telecommunications, Inc., EPIC Interests, Inc. and
BFV Associates, Inc. (incorporated by reference to
Appendix A to our Proxy Statement filed with the
Commission on November 5, 1999).
23.1 Consent of Deloitte & Touche LLP.
99.* Press Release dated December 7, 1999, announcing the
completion of the merger of World Access and
FaciliCom.
------------------
* Previously Filed
-2-
<PAGE> 3
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FACILICOM INTERNATIONAL, INC.
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report................................................................................. F-2
Consolidated Balance Sheets at September 30, 1999 and 1998 F-3
Consolidated Statements of Operations and Comprehensive Loss for the three years ended September 30,
1999......................................................................................................... F-5
Consolidated Statements of Capital Accounts for the three years ended September 30, 1999..................... F-6
Consolidated Statements of Cash Flows for the three years ended September 30, 1999........................... F-7
Notes to Consolidated Financial Statements................................................................... F-8
</TABLE>
F-1
<PAGE> 4
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
FACILICOM INTERNATIONAL, INC.:
We have audited the accompanying consolidated balance sheets of FaciliCom
International, Inc. and subsidiaries (formerly FaciliCom International, LLC)
(the "Company") as of September 30, 1999 and 1998, and the related consolidated
statements of operations and comprehensive loss, capital accounts and cash flows
for each of the three years in the period ended September 30, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of FaciliCom International, Inc. and
subsidiaries as of September 30, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1999 in conformity with generally accepted accounting principles.
As discussed in Note 3, on August 17, 1999, the Company entered into a merger
agreement with World Access, Inc. and FaciliCom shareholders whereby the
FaciliCom shareholders will exchange all the outstanding common stock of the
Company for World Access, Inc. convertible preferred stock and cash or World
Access, Inc. common stock.
/s/ Deloitte & Touche LLP
Pittsburgh, Pennsylvania
December 7, 1999
F-2
<PAGE> 5
FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
September 30,
1999 1998
---- ----
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ............................................. $ 14,706 $ 68,129
Accounts receivable--net of allowance for doubtful accounts of $8,502
and $4,620 at September 30, 1999 and 1998, respectively ............ 104,005 59,915
Marketable securities ($31,849 and $31,394 at September 30, 1999 and
1998, respectively, restricted) .................................... 31,849 70,092
Prepaid expenses and other current assets ............................. 4,524 6,060
--------- ---------
Total current assets............................................ 155,084 204,196
--------- ---------
PROPERTY AND EQUIPMENT:
Transmission and communications equipment ............................. 118,949 97,849
Transmission and communications equipment--leased ..................... 75,392 17,162
Furniture, fixtures and other ......................................... 21,258 11,154
--------- ---------
215,599 126,165
Less accumulated depreciation and amortization ........................ (29,409) (10,417)
--------- ---------
186,190 115,748
--------- ---------
OTHER ASSETS:
Intangible assets, net of accumulated amortization of $3,283 and $1,673
at September 30, 1999 and 1998, respectively ....................... 4,521 5,630
Debt issue costs, net of accumulated amortization of $1,788 and $744 at
September 30, 1999 and 1998, respectively .......................... 8,652 9,696
Note receivable ....................................................... 700 --
Advance to affiliate .................................................. 251 490
Marketable securities-restricted ...................................... 14,768 43,124
--------- ---------
28,892 58,940
--------- ---------
TOTAL ASSETS ................................................................ $ 370,166 $ 378,884
========= =========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 6
FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
September 30,
1999 1998
---- ----
LIABILITIES AND CAPITAL ACCOUNTS
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable .................................................... $ 94,915 $ 63,802
Accounts payable--transmission equipment ........................... 10,944 24,668
Accounts payable--related party ..................................... 776 332
Accrued interest .................................................... 6,897 7,109
Other current obligations ........................................... 18,504 12,610
Line of credit ...................................................... 25,000 --
Capital lease obligations due within one year ....................... 11,364 3,407
Long-term debt due within one year .................................. 175 394
--------- ---------
Total current liabilities ................................... 168,575 112,322
--------- ---------
OTHER LIABILITIES:
Capital lease obligations ........................................... 6,550 4,791
Long-term debt ...................................................... 321,871 300,346
--------- ---------
Total other liabilities ..................................... 328,421 305,137
--------- ---------
COMMITMENTS AND CONTINGENCIES ............................................. -- --
CAPITAL ACCOUNTS:
Common stock, $.01 par value--300,000 shares authorized; 226,956 and
225,741 issued and outstanding at September 30, 1999 and 1998,
respectively ..................................................... 2 2
Additional paid-in capital .......................................... 37,290 36,534
Stock-based compensation ............................................ 9,179 6,305
Accumulated other comprehensive (loss) income:
Holding gain on marketable securities ............................ -- 24
Foreign currency translation adjustments ......................... (2,770) 3,450
Accumulated deficit ................................................. (170,531) (84,890)
--------- ---------
Total capital accounts ...................................... (126,830) (38,575)
--------- ---------
TOTAL LIABILITIES AND CAPITAL ACCOUNTS .................................... $ 370,166 $ 378,884
========= =========
</TABLE>
F-4
<PAGE> 7
FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended September 30,
-------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenues .......................................... $ 403,766 $ 184,246 $ 70,187
Operating expenses:
Cost of revenues (exclusive of depreciation and
amortization shown separately below)............. 368,578 178,952 65,718
Selling, general and administrative ............. 52,375 32,797 13,072
Stock-based compensation expense ................ 3,630 6,017 --
Related party expense ........................... 3,270 1,550 439
Depreciation and amortization ................... 29,758 8,816 2,318
--------- --------- --------
Total operating expenses ...................... 457,611 228,132 81,547
--------- --------- --------
Operating loss .................................... (53,845) (43,886) (11,360)
--------- --------- --------
Other income (expense):
Interest expense-related party .................. -- (195) (462)
Interest expense ................................ (34,407) (22,417) (874)
Interest income ................................. 4,356 8,152 --
Gain on settlement agreement .................... -- 791 --
Foreign exchange loss ........................... (1,590) (391) (1,335)
--------- --------- --------
Total other expense ........................... (31,641) (14,060) (2,671)
--------- --------- --------
Loss before income taxes .......................... (85,486) (57,946) (14,031)
Income tax benefit ................................ 10,995 11,351 --
--------- --------- --------
Net loss .......................................... (74,491) (46,595) (14,031)
Other comprehensive (loss) income:
Holding (loss) gain on marketable securities (24) 24 --
Foreign currency translation adjustment ......... (6,220) 2,766 929
--------- --------- --------
Total comprehensive loss ...................... $ (80,735) $ (43,805) $(13,102)
========= ========= ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 8
FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITAL ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CLASS A CLASS B EXCESS CAPITAL STOCK-
------------ PAID-IN INITIAL INITIAL CONTRIBUTIONS BASED
SHARES AMOUNT CAPITAL CAPITAL CAPITAL CLASS A COMPENSATION
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE
September 30, 1996 -- $-- $-- $ 180 $ 60 $ 10,176 $ --
Net loss -- -- -- -- -- -- --
Converted loans
from Owners -- -- -- -- -- 5,396 --
Guaranteed return -- -- -- -- -- -- --
Contribution to
excess
capital-guaranteed
return -- -- -- -- -- 724 --
Foreign currency
translation
adjustments -- -- -- -- -- -- --
--- --- ------- ----- ---- -------- -------
BALANCE
September 30, 1997 -- -- -- 180 60 16,296 --
Net loss -- -- -- -- -- -- --
Contributions -- -- -- -- -- 13,750 --
Converted loans
from owners -- -- -- -- -- 6,250 --
Reorganization 226 2 36,534 (180) (60) (36,296) --
Utilization of
tax benefit
of the
Company's
operating
loss by AHI -- -- -- -- -- -- --
Stock options
granted -- -- -- -- -- -- 5,706
Phantom unit
exchange -- -- -- -- -- -- 599
Holding gain on
marketable
securities -- -- -- -- -- -- --
Foreign currency
translation
adjustments -- -- -- -- -- -- --
BALANCE
September 30, 1998 226 2 36,534 -- -- -- 6,305
Net loss -- -- -- -- -- -- --
Exercise of
stock options 1 -- 756 -- -- -- (756)
Utilization of
tax benefit
of the
Company's
operating loss
by AHI -- -- -- -- -- -- --
Stock options
granted -- -- -- -- -- -- 3,630
Holding loss on
marketable
securities -- -- -- -- -- -- --
Foreign currency
translation
adjustments -- -- -- -- -- -- --
--- --- ------- ----- ---- -------- -------
BALANCE
September 30, 1999 227 $ 2 $37,290 $ -- $ -- $ -- $ 9,179
=== === ======= ===== ==== ======== =======
<CAPTION>
HOLDING
GAIN FOREIGN
(LOSS) ON CURRENCY TOTAL
MARKETABLE TRANSLATION ACCUMULATED CAPITAL
SECURITIES ADJUSTMENTS DEFICIT ACCOUNTS
<S> <C> <C> <C> <C>
BALANCE
September 30, 1996 $ -- $ (245) $ (11,886) $ (1,715)
Net loss -- -- (14,031) (14,031)
Converted loans
from owners -- -- -- 5,396
Guaranteed return -- -- (724) (724)
Contribution to
excess
capital-guaranteed
return -- -- -- 724
Foreign currency
translation
adjustments -- 929 -- 929
---- ------- --------- ---------
BALANCE
September 30, 1997 -- 684 (26,641) (9,421)
Net loss -- -- (46,595) (46,595)
Contributions -- -- -- 13,750
Converted loans
from owners -- -- -- 6,250
Reorganization -- -- -- --
Utilization of
tax benefit
of the
Company's
operating
loss by AHI -- -- (11,654) (11,654)
Stock options
granted -- -- -- 5,706
Phantom unit
exchange -- -- -- 599
Holding gain on
marketable
securities 24 -- -- 24
Foreign currency
translation
adjustments -- 2,766 -- 2,766
BALANCE
September 30, 1998 24 3,450 (84,890) (38,575)
Net loss -- -- (74,491) (74,491)
Exercise of
stock options -- -- -- --
Utilization of
tax benefit
of the
Company's
operating loss
by AHI -- -- (11,150) (11,150)
Stock options
granted -- -- -- 3,630
Holding loss on
marketable
securities (24) -- -- (24)
Foreign currency
translation
adjustments -- (6,220) -- (6,220)
---- ------- --------- ---------
BALANCE
September 30, 1999 $ -- $(2,770) $(170,531) $(126,830)
==== ======= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 9
FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended September 30,
-------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................................... $(74,491) $ (46,595) $(14,031)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization.......................................... 29,758 8,072 2,448
Non-cash restructuring costs........................................... 634 -- --
Non-cash stock-based compensation...................................... 3,630 6,017 --
Non-cash income tax benefit............................................ (11,150) (11,654) --
Amortization of bond discount.......................................... (2,353) 237 --
Changes in operating assets and liabilities:
Accounts receivable................................................ (44,790) (40,107) (14,260)
Prepaid expenses and other current assets.......................... 2,580 (3,048) (810)
Accounts payable and other current liabilities..................... 39,282 51,510 17,903
Accounts payable--related party.................................... 444 (57) 389
Advance to affiliate............................................... (254) (490) --
-------- --------- --------
Net cash used in operating activities...................................... (56,710) (36,115) (8,361)
-------- --------- --------
Cash flows from investing activities:
Purchase of investments in subsidiaries.................................... -- (4,652) --
Purchase of investments in available-for-sale securities................... (7,407) (77,820) --
Maturities of available-for-sale securities................................ 13,378 30,582 --
Sales of available-for-sale securities..................................... 32,798 7,046 --
Purchase of investments in held-to-maturity securities..................... (1,298) (87,683) --
Maturities of held-to-maturity securities.................................. 31,481 14,446 --
Purchases of property and equipment........................................ (75,991) (66,487) (1,897)
Other...................................................................... (456) (124) 233
-------- --------- --------
Net cash used in investing activities...................................... (7,495) (184,692) (1,664)
-------- --------- --------
Cash flows from financing activities:
Advances from owners....................................................... -- -- 9,726
Excess capital contributions............................................... -- 13,750 --
Proceeds from debt issuance................................................ -- 300,000 --
Proceeds from line of credit............................................... 25,000 -- --
Payments of long-term debt and capital leases.............................. (15,373) (18,156) (1,812)
Payment of debt issuance costs............................................. -- (10,440) --
-------- --------- --------
Net cash provided by financing activities.................................. 9,627 285,154 7,914
-------- --------- --------
Effect of exchange rate changes on cash.......................................... 1,155 2,766 929
-------- --------- --------
(Decrease) increase in cash and cash equivalents................................. (53,423) 67,113 (1,182)
Cash and cash equivalents, beginning of period................................... 68,129 1,016 2,198
-------- --------- --------
Cash and cash equivalents, end of period......................................... $ 14,706 $ 68,129 $ 1,016
======== ========= ========
Supplemental cash flow information:
Interest paid.............................................................. $ 34,619 $ 15,834 $ 747
======== ========= ========
</TABLE>
--------
NONCASH TRANSACTIONS:
(a) For the fiscal year ended September 30, 1998, the majority owner converted
$6,250 of loans into capital and a $162 receivable was forgiven as part of
the purchase of minority interest which reduced prepaid expenses and other
current assets and increased goodwill.
(b) FCI received $480 in FCI-Sweden convertible debentures during the year
ended September 30, 1997 to satisfy an advance to affiliate, which reduced
advance to affiliate and advances from owners.
(c) During the year ended September 30, 1997, the majority owner converted
$5,396 of loans and accrued interest into capital.
(d) FCI received property and equipment under capital leases and financing
agreements, which increased property and equipment and long-term
obligations $24,678, 10,755, and $10,385 in the fiscal years ended
September 30, 1999, 1998 and 1997, respectively. In addition, for the
fiscal year ended September 30, 1998, FCI received equipment which
decreased property and equipment and accounts payable transmission
equipment by $24,668 (of which $13,724 was not yet placed in service as of
September 30, 1998).
(e) FCI recognized a tax benefit of $11,150 and $11,654 for the fiscal years
ended September 30, 1999 and 1998, respectively. In accordance with the tax
sharing agreement with AHI entered into on December 22, 1997, FCI recorded
a dividend to AHI for the amount of the benefit to be realized by AHI (See
Note 5 to the consolidated financial statements).
See notes to consolidated financial statements.
F-7
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
Organization--FaciliCom International, LLC ("FCI, LLC") is a Delaware
limited liability company that was formed on May 5, 1995 to engage in
various international telecommunications businesses. On December 22, 1997,
the owners of FCI, LLC entered into an Investment and Shareholders
Agreement ("Agreement"). Under the Agreement, the owners of FCI, LLC
transferred all of their respective units in FCI, LLC and FCI (GP), LLC, a
Delaware limited liability company, to FaciliCom International, Inc.
("FCI"), a Delaware corporation, and additionally Armstrong International
Telecommunications, Inc. ("AIT") contributed $20,000,000 (in cash and
assignment of indebtedness) to FCI, all in exchange for 225,741 shares of
FCI's common stock. FCI was incorporated on November 20, 1997, and has
300,000 authorized shares of common stock. Since the reorganization was a
combination of entities under common control, it was accounted for by
combining the historical accounts of FCI, LLC, FCI (GP), LLC and FCI in a
manner similar to a pooling of interests. FCI is authorized by the Federal
Communications Commission (the "FCC") to provide global facilities-based
services as well as switched international services through resale of the
services and facilities of other international carriers. In addition, FCI
has worldwide authorization for private line resale of noninterconnected
private line services and authorization to resell interconnected private
lines for switched services to Canada, the United Kingdom, Sweden, and New
Zealand. FCI, LLC was and FCI is a majority-owned subsidiary of AIT, which
is a wholly owned subsidiary of Armstrong Holdings, Inc.
("Armstrong" or "AHI").
On July 21, 1995, FCI acquired 66.5% of the outstanding capital stock of
both Nordiska Tele8 AB ("Tele8" or "FCI-Sweden") and FGC, Inc. ("FGC"),
entities related through common ownership. Subsequently, FCI acquired up
to 99% of FCI-Sweden and sold all of its interest in FGC. The additional
interest in FCI-Sweden was the result of three separate transactions (see
Note 8). On March 14, 1997, $1,600,000 of FCI-Sweden convertible
debentures were converted into 7,400 shares of FCI-Sweden common stock, on
May 15, 1997, FCI paid $3,600,000 for 14,400 shares of FCI-Sweden common
stock and on October 23, 1997, FCI paid $750,000 for substantially all of
the minority interest outstanding and recorded $750,000 of goodwill. Also,
on October 23, 1997, FCI sold all of its interest in FGC for $100 and
recorded a loss of approximately $79,000 on the transaction. FCI-Sweden is
a corporation organized under the laws of Sweden to provide national and
international telecommunications services. These acquisitions were
accounted for as purchase transactions with the purchase price being
allocated to the assets and liabilities acquired based on their fair
values as of the date of acquisition. The excess of the purchase price
over the fair value of the net assets acquired was recorded as goodwill
and is being amortized over five years.
The following summarizes the allocation of the original 1995 purchase
price to the major categories of assets acquired and liabilities assumed
(in thousands):
<TABLE>
<S> <C>
Current assets ........................................ $ 343
Property and equipment ................................ 1,760
Excess of cost over net assets of businesses acquired . 1,715
Other intangibles ..................................... 32
------
3,850
Less liabilities assumed .............................. 3,010
------
Cash paid ............................................. $ 840
======
</TABLE>
F-8
<PAGE> 11
On April 27, 1998, FCI entered into an agreement to purchase 100% of the
issued and outstanding capital stock of Oy Teleykkanen AB ("Tele 1" or
"FCI-Finland"), a corporation formed under the laws of Finland, for $4.0
million in cash. FCI Finland is a Finnish provider of local and long
distance international telecommunication services and has a carrier
agreement to exchange customer traffic with Telecom Finland, the dominant
carrier in Finland. This acquisition was accounted for using the purchase
method of accounting. The excess of the purchase price over the fair value
of the net assets acquired was recorded as goodwill and is being amortized
over five years. The results of operations for Tele 1 were included in
consolidated results of operations since the date of acquisition.
The following summarizes the allocation of the purchase price to the major
categories of assets acquired and liabilities assumed (in thousands):
<TABLE>
<S> <C>
Current assets ........................................ $1,017
Property and equipment ................................ 976
Excess of cost over net assets of businesses acquired . 3,911
Other assets .......................................... 126
------
6,030
Less liabilities assumed .............................. 1,966
------
Cash paid ............................................. $4,064
======
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Basis of Presentation--The accompanying consolidated financial
statements include the accounts of FCI and its majority owned and
wholly owned subsidiaries (together, "FaciliCom" or the "Company").
All intercompany transactions and balances have been eliminated in
consolidation. Because losses applicable to the minority interest
exceeded the minority interest in the equity capital and the
minority stockholder was not obligated to provide additional funding
with respect to the losses incurred, such losses were recorded by
the Company prior to the purchase of the minority interest.
b. Cash and Cash Equivalents--FaciliCom considers its investments with
an original maturity of three months or less to be cash equivalents.
Cash equivalents are stated at cost plus accrued interest and are
highly liquid debt instruments of the U.S. government and commercial
corporations and money market funds.
c. Property and Equipment--Property and equipment is stated at cost.
Depreciation is provided for financial reporting purposes using the
straight-line method. Depreciation expense includes the amortization
of capital leases. The estimated useful lives of property and
equipment are as follows:
Transmission and communications equipment .......... 5 to 25 years
Transmission and communications equipment--leased .. 5 to 25 years
Furniture, fixtures and other ...................... 5 to 7 years
FaciliCom capitalizes the costs of software and software upgrades
purchased for use in its transmission and communications equipment.
The Company expenses the costs of software purchased for internal
use. Maintenance and repairs are expensed as incurred. Replacements
and betterments are capitalized.
F-9
<PAGE> 12
Depreciation expense for the fiscal years ended September 30, 1999,
1998 and 1997 was $28,099,000, $7,383,000, and $2,053,000,
respectively.
FaciliCom periodically evaluates its long-lived assets to confirm
that the carrying values have not been impaired using the provisions
of Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of."
In the 4th quarter of the year ended September 30, 1999, the Company
replaced certain switching equipment with newer equipment. As such,
the Company recorded a write-down of $3.6 million for the remaining
net book value of the replaced equipment.
d. Intangible Assets--Intangible assets, consisting primarily of
goodwill, are amortized using the straight-line method over 5 years.
FaciliCom periodically evaluates its intangible assets to confirm
that the carrying values have not been impaired using the provisions
of SFAS No. 121.
e. Income Taxes--FCI, LLC is a limited liability company and is not
subject to income tax, while FaciliCom International, Inc.,
incorporated on November 20, 1997 as a Delaware corporation is
subject to income taxes.
FaciliCom accounts for income taxes under the liability method in
accordance with the provisions set forth in SFAS No. 109,
"Accounting for Income Taxes," whereby deferred income taxes reflect
the net tax effect of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. In assessing
realization of deferred tax assets, the Company uses judgment in
considering the relative impact of negative and positive evidence.
The weight given to the potential effect of negative and positive
evidence is commensurate with the extent to which it can be
objectively verified. Based on the weight of evidence, both negative
and positive, including the lack of historical earnings, if it is
more likely than not that some portion or all of a deferred tax
asset will not be realized, a valuation allowance is established.
f. Initial and Excess Capital Contributions--Excess capital
contributions were the amounts of capital an owner had contributed
in excess of the owner's initial capital commitment. The owners were
credited with a guaranteed return through September 30, 1997 for the
use of their capital, and profits and losses were allocated, in
accordance with the provisions in the FCI LLC Limited Liability
Company Agreement ("LLC Agreement").
The guaranteed return was calculated as simple interest at a rate
per annum equal to the lowest rate of interest available to AIT or
any of its affiliates from time-to-time under any of their
respective existing credit facilities. Upon liquidation of FCI LLC,
allocations of annual net profits are allocated first to the Class A
and Class B owners to the extent required to adjust capital
accounts, then to the extent of cumulative net losses previously
allocated in accordance with certain capital contribution priorities
set forth in the LLC Agreement and thereafter 75% to Class A and 25%
to Class B owners. Allocations of annual net losses are allocated to
the extent of cumulative net profits previously allocated and then
to the extent of owner's capital contributions and thereafter to the
Class A owner. Net losses allocated to the Class B owner may not
cause such owner's account to result in a deficit. The Company may
make distributions after first paying any
F-10
<PAGE> 13
unpaid guaranteed return and then in accordance with the owner's
respective capital contributions and thereafter 75% to the Class A
owner and 25% to the Class B owner. Upon dissolution, the LLC
Agreement provides for liquidation of FCI LLC's assets and any
distribution to owners will be in accordance with the balance of
their respective capital accounts. Following distribution of assets,
owners having a capital account with a deficit balance shall be
required to restore the account. The LLC Agreement provides that FCI
LLC shall terminate on December 31, 2025. In consideration of all
capital contributions made through September 30, 1997, the Class A
and Class B owners owned 15,390,000 and 3,610,000 membership
interests in FCI LLC, respectively, representing 81% and 19%,
respectively, of such interests.
g. Foreign Currency Translation--For non-U.S. subsidiaries, the
functional currency is the local currency. Assets and liabilities of
those operations are translated into U.S. dollars using year-end
exchange rates; income and expenses are translated using the average
exchange rates for the reporting period. Translation adjustments are
reported as a separate component of comprehensive loss. Exchange
losses and gains resulting from foreign currency transactions are
included in the results of operations based upon the provisions of
SFAS No. 52, "Foreign Currency Translation."
h. Use of Estimates--The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
i. Revenue Recognition--FaciliCom records revenues from the sale of
telecommunications services at the time of customer usage based upon
minutes of traffic processed at contractual fees. The Company has
entered into, and continues to enter into, operating agreements with
telecommunications carriers in several foreign countries under which
international long distance traffic is both delivered and received.
Under these agreements, the foreign carriers are contractually
obligated to adhere to the policy of the FCC, whereby traffic from
the foreign country is routed to U.S. based international carriers,
such as the Company, in the same proportion as traffic carried into
the country. Mutually exchanged traffic between the Company and
foreign carriers is settled through a formal settlement policy at an
agreed upon rate which allows for the offsetting of receivables and
payables with the same carrier (settlement on a net basis). Although
the Company can reasonably estimate the revenue it will receive
under the FCC's proportional share policy, there is no guarantee
that the Company will receive return traffic and the Company is
unable to determine what impact changes in future settlement rates
will have on net payments made and revenue received. Accordingly,
the Company does not record this revenue until the service is
provided.
j. Cost of Revenue--Cost of revenue includes network costs which
consist of access, transport and termination costs. Such costs are
recognized when incurred in connection with the provision of
telecommunication services, including costs incurred under operating
agreements.
k. Stock-Based Compensation--FaciliCom accounts for stock-based
compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for
Stock Issued to Employees" and related interpretations. Accordingly,
compensation cost is measured as the excess, if any, of the market
price of the Company's stock at the date of grant over the amount an
employee must pay to acquire the stock.
F-11
<PAGE> 14
l. Financial Instruments--FaciliCom has financial instruments, which
include cash and cash equivalents, marketable securities and
long-term debt obligations. The carrying values of these instruments
in the balance sheets, except for certain marketable securities and
10-1/2% Senior Notes due 2008 (the "Notes") (see Note 4),
approximated their fair market value. See Note 16 for disclosure of
fair market value for marketable securities. The estimated fair
value of the Company's Notes at September 30, 1999 and 1998 was
$255.0 million and $261.0 million, respectively, and was estimated
using quoted market prices.
The fair values of the other instruments were based upon quoted
market prices of the same or similar instruments or on the rate
available to FaciliCom for instruments of similar maturities.
m. Fiber Optic Cable Arrangements--FaciliCom obtains capacity on
certain fiber optic cables under three types of arrangements. The
Indefeasible Right of Use ("IRU") basis provides the Company the
right to use a fiber optic cable, with most of the rights and duties
of ownership, but without the right to control or manage the
facility and without any right to salvage or duty to dispose of the
cable at the end of its useful life. Because of this lack of control
and an IRU term approximates the estimated economic life of the
asset, FaciliCom accounts for such leases as leased transmission and
communications equipment and as capital leases. The Minimum
Assignable Ownership Units ("MAOU") basis provides the Company an
ownership interest in the fiber optic cable with certain rights to
control and to manage the facility. Because of the ownership
features, the Company records these fiber optic cables as owned
transmission and communications equipment and as long-term debt. The
Carrier Lease Agreement basis involves a shorter term agreement
which provides the Company the right to use capacity on a cable but
without any rights and duties of ownership. The Company accounts for
such leases as operating leases.
n. Impact of Recently Issued Accounting Standards--In June 1997, the
Financial Accounting Standards Board ("FASB") issued SFAS No. 130,
"Reporting Comprehensive Income," which (i) establishes standards
for reporting and display of comprehensive income and its components
(revenues, expenses, gains, and losses) in a full set of
general-purpose financial statements, and (ii) requires an
enterprise to report a total for comprehensive income in condensed
financial statements of interim periods. FaciliCom adopted SFAS No.
130 in fiscal 1999 and has elected to display the components of
Comprehensive Income (Loss) within the Consolidated Statements of
Operations and Comprehensive Loss. Prior period amounts have been
appropriately disclosed.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which establishes
accounting and reporting standards for derivative instruments and
for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of
financial position and measuring those instruments at fair value,
with the potential effect on operations dependent upon certain
conditions being met. The statement (as amended by SFAS No. 137) is
effective for all fiscal quarters of fiscal years beginning after
June 15, 2000. Management has not determined the impact that
implementing SFAS No. 133 will have on FaciliCom's financial
position or results of operations.
o. Reclassifications--Certain amounts in the September 30, 1998 and
1997 consolidated financial statements have been reclassified to
conform with the presentation of the September 30, 1999 consolidated
financial statements.
F-12
<PAGE> 15
3. MERGER AGREEMENT
On August 17, 1999, the Company entered into a merger agreement with World
Access, Inc ("World Access") providing that the Company will merge with
and into World Access. Upon consummation of the merger, the separate
existence of the Company will cease and World Access will continue as the
surviving corporation. Pursuant to the terms of the merger agreement, the
shareholders of FaciliCom will receive approximately $436 million
consideration, in the form of Convertible Preferred Stock, Series C and
approximately $56.0 million of cash or World Access common stock. The
Series C Preferred Stock bears no dividend and is convertible into shares
of World Access common stock at a conversion rate of $20.38 per common
share, subject to potential adjustment under certain circumstances. If the
closing trading price of World Access common stock exceeds $20.38 per
share for 60 consecutive trading days, the Series C Preferred Stock will
automatically convert into World Access common stock.
Adoption of certain proposed amendments to the FaciliCom Indenture (see
Note 4) is required to consummate the merger. Accordingly, under the terms
of the merger agreement, the consummation of the merger was conditioned
upon the adoption of the proposed amendments. In addition, the closing of
the merger was subject to the approval of World Access stockholders and
certain regulatory agencies. Certain stockholders of World Access had
entered into a voting agreement whereby they have committed to vote in
favor of a merger. The merger closed on December 7, 1999.
4. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Revolving Credit Facility - On May 24, 1999, FaciliCom entered into a
$35.0 million revolving credit facility (the "Credit Facility"), which is
scheduled to terminate on May 23, 2000. The Credit Facility contains
interest rate options based upon the London Interbank Offered Rate
("LIBOR") or Prime, plus applicable margin percentages. The Credit
Facility requires the Company to pay a .375% per annum commitment fee on
the unused balance of the line. At September 30, 1999, availability under
the Credit Facility was $10.0 million. The Credit Facility contains
certain restrictive covenants and is guaranteed by Armstrong.
Long-Term Debt - On January 28, 1998, FCI issued $300 million aggregate
principal amount of Notes bearing interest at 10-1/2% due 2008 pursuant to
an Indenture (the "Offering"). The Notes are unsecured obligations of FCI
and interest on the Notes is payable semiannually in arrears on January 15
and July 15 of each year, commencing on July 15, 1998.
The Notes are redeemable at the option of FCI, in whole or in part at any
time on or after January 15, 2003, at specified redemption prices plus
accrued and unpaid interest. In addition, at any time prior to January 15,
2001, FCI, may redeem from time to time up to 35% of the originally issued
aggregate principal amount of the Notes at the specified redemption prices
with the net cash proceeds (as defined in the Indenture) of one or more
public equity offerings. In the event of a change in control of ownership
of FCI, Inc., each holder of the Notes has the right to require FCI, to
purchase all or any of such holder's Notes at a purchase price in cash
equal to 101% of the aggregate principal amount.
FCI used approximately $86.5 million of the proceeds from the Offering to
purchase investments consisting of U.S. Government Obligations, which are
pledged as security and restricted for the first six scheduled interest
payments on the Notes (see Note 16).
F-13
<PAGE> 16
The Notes require maintenance of certain financial and nonfinancial
covenants, including limitations on additional indebtedness, restricted
payments including dividends, transactions with affiliates, liens and
asset sales.
During 1999, the Company entered into Promissory Note ("Note") and
Security Agreements with Nortel Networks, Inc. in order to finance the
purchase of certain telecommunications equipment. The Promissory Note is
collateralized by the related telecommunications equipment. The Promissory
Note was due and payable with interest at approximately 9.2% on November
15, 1999. On November 15, 1999, the Company entered into a Credit
Agreement with Nortel Networks, Inc. ("Equipment Credit Facility") to
refinance the Promissory Note and to provide a $40.0 million revolving
loan facility to finance equipment purchases from Nortel Networks, Inc.
The Equipment Credit Facility is scheduled to terminate on December 29,
2000 and contains interest rate options based on Prime or Eurodollar
rates. Loans under the Equipment Credit Facility are secured by the
related equipment. The Equipment Credit Facility contains certain
restrictive covenants. The amount borrowed under the Promissory Note at
September 30, 1999 has been classified as long-term because of the
refinancing.
During 1997, FCI entered into an Equipment Loan and Security Agreement
with NTFC Capital Corporation ("NTFC") to finance up to $5,000,000 for the
purchase of transmission and communications equipment. Interest was
payable quarterly and was calculated based upon LIBOR plus 4%. Quarterly
principal payments were to commence on June 30, 1999. The loan was
collateralized by the related equipment purchased under such agreement.
The Company used a portion of the proceeds from the offering of Notes to
pay off the indebtedness under the Equipment Loan and Security Agreement
and the agreement was terminated.
During 1995, FCI entered into an equipment financing agreement with
Ericsson I.F.S. to purchase certain equipment. The original agreement was
amended and restated on December 30, 1996, to increase the borrowing limit
to $7,000,000 and certain terms were further revised on June 12, 1997 and
November 21, 1997. Interest was calculated based upon LIBOR plus 4%.
Quarterly principal payments were to commence on June 30, 1998. The loan
was collateralized by the related equipment purchased under the financing
agreement. The Company used a portion of the proceeds from the offering of
Notes to pay off the indebtedness under the equipment financing agreement
and the agreement was terminated.
Long-term debt at September 30, 1999 and 1998 consists of the following
(dollars in thousands):
<TABLE>
<CAPTION>
INTEREST RATE 1999 1998
------------- ---- ----
<S> <C> <C> <C>
Indenture notes, due 2008.............................. 10.5% $ 300,000 $ 300,000
Nortel Networks, due 2001.............................. 9.2% 21,717 --
Revolving line of credit, due 2000..................... LIBOR+1.75% 25,000 --
Cable capacity debt, due 2001.......................... LIBOR+4.5% 329 740
--------- ---------
Sub-total........................................... 347,046 300,740
Less: Current portion of long-term debt................
(175) (394)
Less: Revolving line of credit......................... (25,000) --
--------- ---------
$ 321,871 $ 300,346
========= =========
</TABLE>
The LIBOR rate was 5.4% and 5.8% on September 30, 1999 and 1998,
respectively.
F-14
<PAGE> 17
Capital Leases--The Company leases certain fiber optic cables under
agreements permitting the use of the cables over periods up to 25 years
with payment requirements over periods not exceeding five years. Payments
are made quarterly and interest is calculated at LIBOR plus 4% to 4.5%.
In May 1998, the Company entered into a Memorandum of Understanding
("MOU") with Qwest. The MOU incorporates agreements to provide Qwest with
international direct dial termination service to various destinations and
provides the Company an IRU for domestic and international fiber optic
capacity. The IRU is for 25 years, for which the Company has agreed to pay
$24 million. Delivery of the capacity segments occurred during the year
ended September 30, 1999. In addition, during the three-year period, Qwest
has the right of first refusal pursuant to additional capacity purchases
made by the Company.
Future minimum payments on long-term debt and capital lease obligations at
September 30, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
LONG- CAPITAL
TERM LEASES
DEBT
<S> <C> <C>
2000 ............................................................................................ $ 25,175 $ 13,106
2001 ............................................................................................ 21,871 4,462
2002 ............................................................................................ -- 544
2003 ............................................................................................ -- 365
2004 ............................................................................................ -- 329
Thereafter ...................................................................................... 300,000 1,342
-------- --------
Total future minimum payments ................................................................... $347,046 20,148
========
Less: Amount representing interest (using September 30, 1999 LIBOR rate) ........................ (2,234)
--------
$ 17,914
========
</TABLE>
5. INCOME TAXES
At September 30, 1999 and 1998, FaciliCom has approximately $41.0 million
and $6.0 million of cumulative net operating losses ("NOLs"),
respectively, to offset future U.S. federal taxable income. Similarly, at
September 30, 1999 and 1998, FaciliCom has approximately $73.0 million and
$25.3 million of NOLs, respectively, to offset future foreign taxable
income for those subsidiaries taxed in foreign jurisdictions. The tax
asset recorded for this temporary difference reflects the fact that
certain foreign operations are treated as branches for U.S. tax purposes
and are subject to tax in both the U.S. and the foreign jurisdictions. The
U.S. NOLs expire in up to twenty years, while the foreign NOLs expire at
various times ranging from five to ten years with some jurisdictions
providing for an indefinite carryforward period. A valuation allowance was
also established for the net deferred tax assets related to the NOLs at
September 30, 1999 and 1998.
Deferred tax assets of approximately $3,130,000 at September 30, 1997 were
related to the NOLs of foreign subsidiaries taxed in foreign jurisdictions
totaling approximately $11,100,000. A valuation allowance was established
for the amount of deferred tax assets at September 30, 1997.
On December 22, 1997, FaciliCom adopted a tax sharing agreement with AHI,
whereby the Company is obligated to file a consolidated federal income tax
return with AHI and subsidiaries. Under this agreement, FCI is obligated
to pay, with certain exceptions, its share of the consolidated tax
liability to AHI and FCI will not be paid by AHI for tax benefits realized
in the consolidated tax return. At December 31, 1997, FCI had
approximately $1,018,000 of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and
amounts used for income tax
F-15
<PAGE> 18
purposes that amounted to approximately $393,000 and was recorded as a
deferred tax liability and deferred income tax expense for the change in
tax status for the year ended September 30, 1998.
The components of loss before income taxes for the periods ended September
30, 1999, 1998 and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Domestic .............................. $37,810 $43,432 $ 6,978
Foreign ............................... 47,676 14,514 7,053
------- ------- -------
Total ............................. $85,486 $57,946 $14,031
======= ======= =======
</TABLE>
The components of the income tax provision for the years ended September
30, 1999, 1998 and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Current taxes .................... $10,995 $11,351 $ --
Deferred taxes ................... 19,301 7,916 2,010
Valuation allowance .............. (19,301) (7,916) (2,010)
------- ------- -------
$10,995 $11,351 $ --
======= ======= =======
</TABLE>
A reconciliation of the total tax benefit with the amount computed by
applying the statutory federal income tax rate to the loss before taxes
for the year ended September 30, 1999 and 1998 is as follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Benefit applying statutory rate .. $ 29,920 $ 19,700
State taxes ...................... 1,671 226
Valuation allowance .............. (19,301) (7,916)
Other ............................ (1,295) (659)
-------- --------
Income tax benefit ............... $ 10,995 $ 11,351
======== ========
</TABLE>
There are no pro forma income tax amounts presented giving effect to the
change in tax status for the statements of operations presented as the
Company would have been a stand alone taxpaying entity and a valuation
allowance would have been established for any net deferred tax benefit
related to net operating losses.
The components of deferred tax assets and liabilities at September 30,
1999 and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Net operating loss carryforward (foreign and domestic) $ 24,360 $ 6,076
Property and equipment ............................... (858) 600
Stock-based compensation ............................. 3,530 2,522
Allowance for doubtful accounts ...................... 3,315 1,848
Valuation allowance .................................. (30,347) (11,046)
-------- --------
$ -- $ --
======== ========
</TABLE>
F-16
<PAGE> 19
6. OPERATING LEASES
The Company leases office facilities and certain fiber optic cables and
switching facilities under noncancelable operating leases. Rental expense
for the fiscal years ended September 30, 1999, 1998 and 1997 was $30.9
million, $21.9 million and $4.7 million, respectively, of which $26.2
million, $19.2 million and $3.8 million, respectively, relates to fiber
optic cable leases, which are generally for less than one year.
Future minimum lease payments under noncancelable operating leases as of
September 30, 1999 are as follows (in thousands):
<TABLE>
<S> <C>
2000 ................................... $ 4,057
2001 ................................... 3,515
2002 ................................... 3,185
2003 ................................... 2,915
2004 ................................... 2,501
Thereafter ............................. 8,695
--------
Total .................................. 24,868
Less: Subleases ........................ (788)
--------
$ 24,080
========
</TABLE>
7. BORROWINGS FROM OWNERS
At September 30, 1996, the Company had outstanding interest-bearing working
capital advances from Armstrong totaling $1,549,000. On November 1, 1996,
FCI entered into a Convertible Line of Credit Agreement with Armstrong. The
outstanding advances were converted into borrowings under the line of
credit agreement. Under such agreement, FCI had a $15,000,000 credit
facility of which $5,000,000 was available in cash and $10,000,000 was
available for letter of credit needs. Armstrong had the right, at any time
on or before October 31, 1999, to convert the entire principal amount of
the cash loan into a maximum of 3.1% of additional ownership and convert
the letter of credit balance outstanding into a maximum additional 4.44%
ownership. In 1997, Armstrong converted the outstanding balance of
$5,396,000 under the cash portion of the agreement into an ownership
interest.
At September 30, 1997, FCI had $10,000,000 for letter of credit needs of
which it had outstanding letters of credit of $6,136,000 under the
Convertible Line of Credit Agreement.
In 1997, FCI entered into a Bridge Loan Agreement with Armstrong in which
FCI could borrow up to $10,000,000. Interest was calculated based upon
prime plus 1%. The prime rate was 8.5% at September 30, 1997. The loan was
due on October 1, 1998. The outstanding balance at September 30, 1997 was
$6,250,000. During the year ended September 30, 1998, Armstrong converted
the outstanding balance of $6,250,000 into an ownership interest (see Note
1).
Additionally, as of September 30, 1996, FCI-Sweden had outstanding
convertible debentures in the amount of $480,000 to a minority stockholder
of both FCI-Sweden and FGC (the "Minority Stockholder"). Such convertible
debentures accrued interest at LIBOR plus 4%. Interest was payable annually
on September 30, with the full principal amount due on September 30, 2003.
In December 1996, these convertible debentures were assigned to FCI (see
Note 8).
F-17
<PAGE> 20
FCI's total interest expense under the above borrowings was $195,000 and
$462,000 for the years ended September 30, 1998 and 1997, respectively.
8. OTHER RELATED PARTY TRANSACTIONS
As of September 30, 1996, FCI had an outstanding advance to the Minority
Stockholder of $499,000.
As of September 30, 1996, FCI and the Minority Stockholder held $1,120,000
and $480,000, respectively, of FCI-Sweden debentures totaling $1,600,000
which earned interest at LIBOR plus 4%. The holder of the debentures had
the right to convert the outstanding principal balance into FCI-Sweden
common stock at a predetermined price ranging from $200 to $250 per share.
On December 23, 1996, the Minority Stockholder assigned its right, title
and interest in the FCI-Sweden convertible debentures to FCI to satisfy
the outstanding advance due to FCI from the Minority Stockholder. On March
14, 1997, FCI converted all of its FCI-Sweden convertible debentures into
7,400 shares of FCI-Sweden common stock. On May 15, 1997, FCI-Sweden
issued 14,400 additional shares of common stock to FCI for consideration
of $3,600,000.
In March 1996, Tele8 Kontakt, a subsidiary of FCI at that time, was
awarded a license agreement from the Swedish government for certain rights
relating to communications systems and technology. During October 1996,
FCI distributed its rights under such license agreement to its owners.
FCI has contracted with AHI, since its inception, for the performance of
certain services by AHI for FCI, including but not limited to financial
accounting, professional and billing services. In May 1998, an agreement
was entered into for such services. The agreement expires on September 30,
2002. Expenses related to such contracted services of approximately $3.3
million, $1.6 million and $439,000 are included in the statements of
operations for the years ended September 30, 1999, 1998 and 1997,
respectively.
The terms of the agreements include professional services billed at hourly
rates, check processing at an amount per check and data center services
based on usage and disk storage space. The Company believes that the terms
of the agreements are competitive with similar services offered in the
industry.
As of September 30, 1999 and 1998 an affiliate of AHI had issued letters
of credits on behalf of the Company totaling $6.9 million and $9.4
million, respectively.
9. BENEFIT PLANS
Foreign Operations--Various foreign subsidiaries contribute to their
respective government pension funds, social insurance, medical insurance
and unemployment charters for their employees. The total contribution was
$2.3 million, $1.3 million and $781,000 for the years ended September 30,
1999, 1998 and 1997, respectively.
401(k)--Employees of FCI may participate in a salary reduction 401(k) plan
administered by AHI. All contributions represent employee salary
reductions.
10. CONCENTRATION OF RISK
Financial instruments that potentially subject the Company to
concentration of credit risk are accounts receivable. Four of the
Company's customers accounted for approximately 13.0% of gross accounts
F-18
<PAGE> 21
receivable as of September 30, 1998. The Company performs on-going credit
evaluations of its customers and in certain circumstances requires
collateral to support customer receivables.
However, many of the Company's customers, including these four, are
suppliers to whom the Company has accounts payable that mitigate this
risk.
In addition, the Company is dependent upon certain suppliers for the
provision of telecommunication services to its customers. The Company has
not experienced, and does not expect, any disruption of such services.
Approximately 24% of FaciliCom's revenues for the year ended September 30,
1997 were derived from two customers each with percentages in excess of
10%. No one customer represented 10% or more of the Company's revenues for
the years ended September 30, 1999 and 1998.
11. COMMITMENTS
The Company has entered into an agreement that provides the Company with
an IRU for international fiber optic capacity in the Pacific Rim. Delivery
of the capacity under the agreement is not expected before January 1,
2000. The IRU is for 15 years for which the Company has agreed to pay
approximately $22.5 million, of which approximately $2.5 million has
already been paid as a deposit and an additional $20.0 million is expected
to be paid in the fiscal year ended September 30, 2000.
12. CONTINGENCIES AND LITIGATION
The Company is involved in various claims and possible actions arising in
the normal course of its business. Although the ultimate outcome of these
claims cannot be ascertained at this time, it is the opinion of the
Company's management, based on its knowledge of the facts and advice of
counsel, that the resolution of such claims and actions will not have a
material adverse effect on the Company's financial condition or results of
operations.
In August 1997, FaciliCom entered into a settlement agreement relating to
litigation arising from a certain 1996 FCI-Sweden international telephone
services agreement and related billing, collection and factoring
agreements with third parties. For the fiscal year ended September 30,
1996, selling, general and administrative expenses included approximately
$708,000 of losses relating to the settlement of which $500,000 represents
a reserve on advances, paid at the time of the settlement agreement, on
behalf of the telephone service company. Under the settlement agreement
all of the above amounts were paid to fully satisfy any amounts which may
be owing from the Company and the telephone services company to a company
under a factoring agreement. At the date of settlement, the management of
the Company believed the amounts advanced to the telephone services
company were uncollectible. The settlement agreement also provided for the
factoring company to assign to the Company any and all receivable claims
the factoring company may have against the billing and collection agent
("Agent"). The Company filed a complaint against the Agent for breach of
contract and related claims pursuant to an agreement between the Company
and the Agent. The Agent placed in escrow the sum of $1,431,324. On May 8,
1998, the balance of the escrow account was distributed among various
entities. The Company received $791,000.
F-19
<PAGE> 22
13. STOCK-BASED COMPENSATION
Through December 22, 1997, certain employees and directors were eligible
to participate in a Performance Unit Plan established by the Company,
under which a maximum of 1,254,000 units could have been granted. A unit
is a right to receive a cash payment equal to the excess of the fair
market value of a unit on its maturity date over the initial value of a
unit. Fair market value of a unit was determined by the management
committee of the Company. At September 30, 1997 and 1996, 484,500 and
152,000 units had been granted, respectively. Participants vested in
their units over a period not to exceed two years and were entitled to
receive cash compensation equivalent to the value of the units at the
time a participant retires provided the participant had 10 years of
continuous service or, if earlier, upon the occurrence of certain events,
including a change in control of the Company. The Company accrued to
expense over the participant's service vesting period (10 years) amounts
based on the value of the unit at year end. Amounts charged to expense
for this plan for the year ended September 30, 1997 was $288,000. No
amounts were expensed in prior years.
On December 22, 1997, the Board of Directors adopted the 1997 Phantom
Stock Rights Plan (the "Phantom Stock Plan"). The Phantom Stock Plan
provided for the granting of phantom stock rights ("Phantom Shares") to
certain directors, officers and key employees of the Company and its
subsidiaries. The total number of Phantom Shares eligible for grant
pursuant to the Phantom Stock Plan was 6,175, subject to adjustments for
stock splits and stock dividends.
All of the units granted under the Company's Performance Unit Plan were
exchanged for equivalent phantom rights with equivalent terms under the
new Phantom Stock Plan. Accordingly, 4,845 Phantom Shares had been
granted of which 3,182 had vested. All of the provisions of the Phantom
Stock Plan including vesting, forfeiture and cash settlement mirror the
provisions of the Company's Performance Unit Plan.
On March 31, 1998, the Board of Directors adopted the FaciliCom
International, Inc. 1998 Stock Option Plan (the "1998 Stock Option
Plan"). By resolution of the Board of Directors on March 31, 1998, the
Company's Certificate of Incorporation was amended to create 25,000
shares of a non-voting class of common stock. At September 30, 1998, the
Company has 300,000 authorized shares, of which 275,000 are a voting
class of common stock.
The 1998 Stock Option Plan provides for the grant of options to purchase
shares of the Company's non-voting common stock to certain directors,
officers, key employees and advisors of the Company. The aggregate number
of options that may be granted under the 1998 Stock Option Plan is 22,574
and no option may be granted after March 31, 2008. No option is
exercisable within the first six months of grant and options expire after
ten years.
Also on March 31, 1998, all of the Phantom Shares previously granted to
employees of the Company under the Company's Phantom Stock Plan were
converted to options under the 1998 Stock Option Plan, and the Company
granted additional options to purchase 6,448 shares of non-voting common
stock to employees, directors and advisors under the 1998 Stock Option
Plan. The exchange of employees' Phantom Shares for options resulted in
additional compensation cost for the incremental value of the new option
amortized over the vesting period of the option that is shorter than the
service period of the Phantom Shares. Total unrecognized compensation
cost approximated $1,672,375 at time of conversion.
F-20
<PAGE> 23
A summary of the stock option activity for the years ended September 30,
1999 and 1998 is as follows:
<TABLE>
<CAPTION>
OPTION OPTION OPTION OPTION OPTION OPTION OPTION
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
(EXERCISE (EXERCISE (EXERCISE (EXERCISE (EXERCISE (EXERCISE (EXERCISE
PRICE PRICE PRICE PRICE PRICE PRICE PRICE
$1) $263) $500) $526) $700) $950) $1,000)
<S> <C> <C> <C> <C> <C> <C> <C>
Options granted in the year ended
September 30, 1998 9,918 670 735 -- -- -- 200
--------------------------------------------------------------------------
Options outstanding at September 30, 1998 9,918 670 735 -- -- -- 200
Options granted 2,683 304 50 100 100 868 --
Options exercised (1,182) -- (33) -- -- -- --
Options forfeited/cancelled (1,888) -- (183) -- -- (100) --
--------------------------------------------------------------------------
Options outstanding at September 30, 1999 9,531 974 569 100 100 768 200
==========================================================================
Options exercisable September 30, 1999 9,379 755 173 -- -- -- 67
==========================================================================
Options exercisable September 30, 1998 9,490 380 -- -- -- -- --
==========================================================================
</TABLE>
All of the options outstanding have a 10-year life and an option price
range from $.01 to $1,000 per option share. The options vest over a period
up to 5 years and in the years ended September 30, 1999 and 1998,
respectively, there were 2,379 and 8,826 options granted that vested
immediately. The Company recognized compensation cost of $3,630,000 and
$5,706,000 for the years ended September 30, 1999 and 1998, respectively,
relating to options granted and recognized compensation cost of $311,592
for the year ended September 30, 1998 relating to the Company's Phantom
Stock Plan. For the years ended September 30, 1999 and 1998 compensation
cost includes $3,259,911 and $2,112,640, respectively, for options granted
to certain non-employee directors and advisors related to certain
directors of the Company.
The fair value of options granted during the years ended September 30,
1999 and 1998 was as follows:
<TABLE>
<CAPTION>
OPTION SHARES OPTION FAIR VALUE
EXERCISE PRICE AT DATE OF GRANT
1999 1998
<S> <C> <C>
$ 1........................................................................ $ 1,364 $ 640
$ 263........................................................................ $ 730 $ 423
$ 500........................................................................ $ 539 $ 306
$ 526........................................................................ $ 520 $ --
$ 700........................................................................ $ 400 $ --
$ 950........................................................................ $ 266 $ --
$ 1,000........................................................................ $ -- $ 135
</TABLE>
The fair value of the option grant was estimated on the date of grant
using the Black-Scholes option pricing model. The assumptions used in the
Black-Scholes model are: dividend yield 0%, volatility 30%, risk free
interest rate of 6%, assumed forfeiture rate of 0% and an expected life of
3 to 5 years.
If the Company would have recorded compensation cost for the Company's
stock option plan consistent with the fair value-based method of
accounting prescribed under SFAS No. 123 it would have had an immaterial
effect on the net loss of the Company for the fiscal years ended September
30, 1999 and 1998.
F-21
<PAGE> 24
14. VALUATION AND QUALIFYING ACCOUNTS
Activity in the Company's allowance accounts for the periods ended
September 30, 1999, 1998 and 1997 were as follows (in thousands):
<TABLE>
<CAPTION>
DOUBTFUL ACCOUNTS
ADDITIONS
----------------------------
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND CHARGE TO BALANCE AT
PERIOD EXPENSE OTHER ACCOUNTS DEDUCTIONS END OF PERIOD
<S> <C> <C> <C> <C> <C>
1997 $ -- $ 1,263 $ -- $(1,102) $ 161
1998 $ 161 $ 3,771 $ 745 $ (57) $4,620
1999 $ 4,620 $ 6,500 $ -- $(2,618) $8,502
</TABLE>
<TABLE>
<CAPTION>
DEFERRED TAX ASSET VALUATION
ALLOWANCE
------------------------------
BALANCE AT CHARGE TO
BEGINNING OF COSTS AND BALANCE AT
PERIOD EXPENSE END OF PERIOD
<S> <C> <C> <C>
1997 $ 1,120 $ 2,010 $ 3,130
1998 $ 3,130 $ 7,916 $ 11,046
1999 $ 11,046 $ 19,301 $ 30,347
</TABLE>
15. GEOGRAPHIC DATA
In June 1997 the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which establishes standards for
the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in
interim financial reports issued to shareholders. The Company adopted the
provisions of SFAS No. 131 in fiscal 1999 and all prior year disclosures
have been recast for consistency. Under the provisions of SFAS No. 131,
the Company has defined its operating segments by geographical location.
F-22
<PAGE> 25
FaciliCom operates as a provider of international long-distance
telecommunications services. The Company is a multinational company
operating in many countries including the United States, and several
European Countries. Sales between geographic areas represent the providing
of services through carrying and ultimate termination of customer traffic
originated in the other geographic area and are accounted for based on
established transfer prices. Revenues from external customers for
individual countries represent traffic originated in those countries. In
computing operating losses for foreign operations, no allocations of
general corporate expenses have been made. Summary information with
respect to the Company's geographic operations is as follows (in
thousands):
<TABLE>
<CAPTION>
OPERATING SEGMENTS
YEAR ENDED SEPTEMBER 30,
----------------------------------------
1999 1998 1997
<S> <C> <C> <C>
REVENUES
United States
- External Customers ................ $ 173,163 $ 116,384 $ 53,821
- Intercompany ...................... 126,843 25,742 2,046
United Kingdom
- External Customers ................ 63,308 22,972 1,052
- Intercompany ...................... 49,435 6,151 39
Germany
- External Customers ................ 63,143 2,383 --
- Intercompany ...................... 17,602 2,127 --
Sweden
- External Customers ................ 31,300 26,488 15,235
- Intercompany ...................... 30,776 32,591 7,861
Other
- External Customers ................ 72,852 16,019 447
- Intercompany ...................... 23,696 3,664 --
Eliminations ......................... (248,352) (70,275) (10,314)
--------- --------- --------
Total ............................ $ 403,766 $ 184,246 $ 70,187
========= ========= ========
OPERATING LOSS
United States ........................ $ (7,759) $ (22,771) $ (6,411)
United Kingdom ....................... (8,595) (4,728) (876)
Germany .............................. (6,594) (714) --
Sweden ............................... (7,611) (4,234) (4,080)
Other ................................ (23,286) (11,439) 7
--------- --------- --------
Total operating loss ............. (53,845) (43,886) (11,360)
Interest expense (income), net ... (30,051) (14,460) (1,336)
Foreign exchange loss ............ (1,590) (391) (1,335)
Other ............................ -- 791 --
--------- --------- --------
Loss before income taxes ......... $ (85,486) $ (57,946) $(14,031)
========= ========= ========
ASSETS
United States ........................ $ 627,095 $ 488,649 $ 38,116
United Kingdom ....................... 41,832 44,274 4,098
Germany .............................. 34,165 15,165 --
Sweden ............................... 57,493 37,935 17,046
Other ................................ 77,378 53,618 119
Eliminations ......................... (467,797) (260,757) (16,041)
--------- --------- --------
Total ............................ $ 370,166 $ 378,884 $ 43,338
========= ========= ========
CAPITAL EXPENDITURES
United States ........................ $ 81,187 $ 35,922 $ 6,905
United Kingdom ....................... 5,636 15,611 3,226
Germany .............................. 5,019 8,534 --
Sweden ............................... 5,515 10,505 2,773
Other ................................ 8,184 28,068 --
--------- --------- --------
Total ............................ $ 105,541 $ 98,640 $ 12,904
========= ========= ========
</TABLE>
F-23
<PAGE> 26
16. MARKETABLE SECURITIES
In accordance with SFAS 115, the Company's debt securities are considered
either held-to-maturity or available-for-sale. Held-to-maturity securities
represent those securities that the Company has both the positive intent
and the ability to hold to maturity, and are carried at amortized cost.
This classification includes those securities purchased and pledged for
payment of interest on the Notes. Available-for-sale securities represent
those securities that do not meet that classification of held-to-maturity,
are not actively traded and are carried at fair value. Unrealized gains
and losses on these securities are excluded from earnings and are reported
as a separate component of comprehensive loss until realized.
The amortized cost and estimated fair value of the marketable securities
are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
---------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
<S> <C> <C> <C> <C>
Held-to-Maturity (IN THOUSANDS)
U.S. Government Securities --------------
Maturing in 1 year or less ... $ 31,849 $ -- $ 46 $31,803
Maturing between 1 and 3 years 14,768 -- 116 14,652
----------- ----------- ---- -------
Total held-to-maturity ............ $ 46,617 $ -- $162 $46,455
=========== =========== ==== =======
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
--------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Held-to-Maturity
U.S. Government Securities
Maturing in 1 year or less ... $ 31,394 $ 79 $ -- $ 31,473
Maturing between 1 and 3 years 43,124 546 -- 43,670
-------- -------- -------- --------
Total held-to-maturity ............ 74,518 625 -- 75,143
-------- -------- -------- --------
Available-for-sale
Commercial paper ............. 6,887 -- -- 6,887
Government backed securities 31,787 24 -- 31,811
-------- -------- -------- --------
Total available-for-sale .......... 38,674 24 -- 38,698
-------- -------- -------- --------
Total marketable securities ....... $113,192 $ 649 $ -- $113,841
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AS REPORTED SEPTEMBER 30, 1999 AND 1998 (IN THOUSANDS): 1999 1998
------------------------------------------------------- ------- -------
Current Assets:
<S> <C> <C>
Held-to-maturity (at amortized cost) ................ $31,849 $31,394
Available-for-sale (at fair value) .................. -- 38,698
------- -------
Total current assets ..................................... $31,849 $70,092
======= =======
Noncurrent Assets
Held-to-maturity (at amortized cost) ................ $14,768 $43,124
======= =======
Capital Accounts:
Holding gain on marketable securities ............... $ -- $ 24
======= =======
</TABLE>
* * * * *
F-24
<PAGE> 27
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(b) PRO FORMA FINANCIAL INFORMATION.
On December 9, 1999, the Board of Directors adopted a plan to divest our
Equipment Group and further focus on our strategy to be a leading provider of
bundled voice, data and Internet services to key regions of the world. The
Equipment Group currently generates annual revenues in excess of $250 million
and consists of the following business units:
- Telco Systems Division, a leading provider of next generation transport
and access solutions for service providers throughout the world. Its
products include intelligent integrated access devices, multiplexers and
digital microwave radios. We acquired Telco Systems on November 30, 1998.
- NACT Switching Division, a rapidly growing provider of advanced switching
platforms with integrated proprietary applications software as well as
billing and telemanagement systems. We acquired NACT on February 27,
1998.
- Wireless Local Loop Division, which has developed a next generation,
CDMA-based, fixed wireless local loop system known as Velocity-2000.
- Cellular Infrastructure Supply Division, a value-added supplier of new
and re-furbished cellular base stations and related equipment. We
acquired Cellular Infrastructure Supply effective January 1997.
As a result of the adoption of a formal plan to divest our non-core
operations, we will report the results of the Equipment Group as discontinued
operations as defined in Accounting Principles Board Opinion No. 30. For the
years ended December 31, 1996 and 1997 the Equipment Group represented 100
percent of the Company's operations. The only continuing item in the pro forma
statements of operations are general corporate administrative costs and interest
income and expense. Reflecting the reclassification of the Equipment Group as
discontinued operations the operating loss, loss from continuing operations and
loss from continuing operations per common share for the years ended December
31, 1996 and 1997 would have been approximately $1.0 million and $1.7 million;
$588,000 and $547,000; and $.05 and $.03, respectively.
The following unaudited pro forma financial statements give effect to the
divestiture of our Equipment Group as well as the 1999 mergers with FaciliCom
International, Inc. and Comm/Net Holding Corporation and the 1998 merger with
Cherry Communications Incorporated, d/b/a Resurgens Communications Group, and
Cherry Communications U.K. Limited. Cherry Communications Incorporated, d/b/a
Resurgens Communications Group, and Cherry Communications U.K. Limited are
collectively referred to as Resurgens in the pro forma financial statements.
The Unaudited Pro Forma Combined Balance Sheet gives effect to our merger
with FaciliCom and related transactions as if they had been completed on
September 30, 1999. The Unaudited Pro Forma Combined Statements of Operations
give effect to (1) the divestiture of the Equipment Group, (2) our December 1999
merger with FaciliCom and related transactions, (3) our May 1999 merger with
Comm/Net and (4) our December 1998 merger with Resurgens, as if each had been
completed as of January 1, 1998.
We have prepared the pro forma financial statements to demonstrate how
these combined businesses might have looked if the mergers, divestitures and
related transactions had been completed as of the date or at the beginning of
the periods presented. The pro forma financial statements, while helpful in
illustrating characteristics of the combined company under one set of
assumptions, do not attempt to predict or suggest future results. The pro forma
financial statements are preliminary and subject to change based on a final
review of the fair values of FaciliCom's net assets.
In connection with our merger with FaciliCom, we expect to record a
one-time restructuring charge for the estimated costs of (1) consolidating
certain of our United States gateway switching centers and related technical
support functions into existing FaciliCom operations; (2) consolidating our
United Kingdom operations into existing FaciliCom operations; (3) consolidating
the administrative functions of
-3-
<PAGE> 28
our Telecommunications Group into FaciliCom's operations; and (4) eliminating
other redundant operations and assets as a result of combining our
Telecommunications Group's and FaciliCom's operations. The restructuring charge
will include the write-down of our switching and transmission equipment taken
out of service, the write-off of certain leasehold improvements, a provision for
lease commitments remaining on certain facilities and equipment taken out of
service and employee termination benefits. The restructuring program is expected
to be completed in the first quarter of 2000. We have not yet determined the
actual restructuring charge to be recorded but estimate that it will be
approximately $35.0 million. This one-time charge has been excluded from the pro
forma financial statements.
As a result of the FaciliCom merger and the restructuring program discussed
above, we expect to realize significant operational and financial synergies.
These synergies are expected to include cost reductions resulting from traffic
routing changes made to take advantage of each company's least cost routes,
elimination of redundant leased line costs, elimination of redundant switching
centers and consolidation of certain administrative functions. We currently
estimate that these annualized cost savings, which have been excluded from the
pro forma financial statements, will range from $20.0 million to $35.0 million.
The pro forma financial statements are presented for comparative purposes
only and are not intended to be indicative of the actual results had these
transactions occurred as of the dates indicated above nor do they purport to
indicate results which may be attained in the future. The pro forma financial
statements should be read in conjunction with the historical consolidated
financial statements of World Access, Resurgens and FaciliCom, which are
included herein or incorporated herein by reference.
-4-
<PAGE> 29
WORLD ACCESS, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
WORLD PRO FORMA PRO FORMA
ACCESS(1) FACILICOM(3) ADJUSTMENTS WORLD ACCESS
--------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and equivalents.................. $107,841 $ 14,706 $ 3,750(7) $ 126,297
Accounts receivable................... 123,062 104,005 (3,500)(6) 223,567
Marketable securities -- restricted... -- 31,849 -- 31,849
Inventories........................... 40,437 -- -- 40,437
Other current assets.................. 55,066 4,524 -- 59,590
-------- -------- -------- ----------
Total Current Assets.......... 326,406 155,084 250 481,740
Property and equipment, net............. 63,390 186,190 (70,144)(6) 179,436
Goodwill and other intangibles.......... 306,930 12,895 (12,521)(9) 995,370
560,641(6)
127,425(8)
Marketable securities -- restricted..... -- 14,768 -- 14,768
Other assets............................ 31,183 1,229 (350)(6) 32,062
-------- -------- -------- ----------
Total Assets.................. $727,909 $370,166 $605,301 $1,703,376
======== ======== ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term debt....................... $ 13,842 $ 58,256 $ -- $ 72,098
Accounts payable...................... 75,388 124,099 3,750(6) 203,237
Other accrued liabilities............. 47,515 7,936 -- 55,451
-------- -------- -------- ----------
Total Current Liabilities..... 136,745 190,291 3,750 330,786
Long-term debt.......................... 140,839 306,705 (15,000)(6) 432,544
Noncurrent liabilities.................. 8,421 -- -- 8,421
-------- -------- -------- ----------
Total Liabilities............. 286,005 496,996 (11,250) 771,751
-------- -------- -------- ----------
Stockholders' Equity
Preferred stock....................... 1 -- 4(6) 5
Common stock.......................... 450 2 (2)(5) 516
47(6)
19(7)
Capital in excess of par value........ 547,170 38,427 (38,427)(5) 1,036,821
288,023(6)
127,425(8)
74,203(7)
Stock-based compensation.............. -- 8,041 (8,041)(5) --
Foreign currency translation
adjustment......................... -- (2,770) 2,770(5) --
Accumulated deficit................... (105,717) (170,530) 170,530(5) (105,717)
-------- -------- -------- ----------
Total Stockholders' Equity.... 441,904 (126,830) 616,551 931,625
-------- -------- -------- ----------
Total Liabilities and
Stockholders' Equity........ $727,909 $370,166 $605,301 $1,703,376
======== ======== ======== ==========
</TABLE>
-5-
<PAGE> 30
WORLD ACCESS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
RESTATED PRO FORMA
WORLD DISCONTINUED WORLD PRO FORMA WORLD
ACCESS(1) OPERATIONS ACCESS FACILICOM(3) COMM/NET(4) ADJUSTMENTS ACCESS
--------- ------------ -------- ------------ ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Service
revenues........... $329,361 $ 1,136 $328,225 $279,695 $13,868 $(16,184)(10) $605,604
Equipment sales...... 194,929 194,929 -- -- -- -- --
-------- -------- -------- -------- ------- -------- --------
Total Sales........ 524,290 196,065 328,225 279,695 13,868 (16,184) 605,604
Operating Expenses:
Cost of services
(exclusive of
depreciation and
amortization shown
separately below)... 299,253 476 298,777 257,253 9,923 (14,590)(10) 551,363
Cost of equipment
sold............... 110,924 110,924 -- -- -- -- --
Amortization of
acquired
technology......... 3,600 3,600 -- -- -- -- --
Research and
development........ 13,282 13,282 -- -- -- --
Selling, general and
administrative..... 45,945 31,605 14,340 40,718 2,324 710(11) 58,092
Depreciation and
amortization....... 12,208 5,162 7,046 16,895 390 25,194(12) 44,155
(5,370)(13) --
-------- -------- -------- -------- ------- -------- --------
Total Operating
Expenses 485,212 165,049 320,163 314,866 12,637 5,944 653,610
-------- -------- -------- -------- ------- -------- --------
Operating Income
(Loss)........... 39,078 31,016 8,062 (35,171) 1,231 (22,128) (48,006)
Gain on exchange of
securities......... 8,704 8,704 -- -- --
Foreign exchange
loss............... -- -- -- (1,346) -- (1,346)
Interest and other
income............. 2,629 844 1,785 3,646 -- 5,431
Interest expense..... (7,394) (660) (6,734) (25,690) (65) (6,810)(14) (39,299)
-------- -------- -------- -------- ------- -------- --------
Income (Loss) From
Continuing
Operations Before
Income Taxes..... 43,017 39,904 3,113 (58,561) 1,166 (28,938) (83,220)
Income taxes
(benefits)......... 20,370 17,863 2,507 (6,682) 264 (1,440)(15) (5,351)
-------- -------- -------- -------- ------- -------- --------
Income (Loss) From
Continuing
Operations....... 22,647 22,041 606 (51,879) 902 (27,498) (77,869)
Preferred stock
dividends.......... 1,197 -- 1,197 -- -- 493(16) 1,690
-------- -------- -------- -------- ------- -------- --------
Income (Loss) From
Continuing
Operations
Available to
Common
Stockholders..... $ 21,450 $ 22,041 $ (591) $(51,879) $ 902 $(27,991) $(79,559)
======== ======== ======== ======== ======= ======== ========
Income (Loss) Per
Common Share From
Continuing
Operations:
Basic.............. $ 0.59 $ (1.58)(17)
======== ========
Diluted............ $ 0.56 $ (1.58)(17)
======== ========
Weighted Average
Shares Outstanding:
Basic.............. 36,245 50,365(17)
======== ========
Diluted............ 40,048 50,365(17)
======== ========
</TABLE>
-6-
<PAGE> 31
WORLD ACCESS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
RESTATED PRO
WORLD DISCONTINUED WORLD FORMA
ACCESS(1) OPERATIONS ACCESS RESURGENS(2) FACILICOM(3) COMM/NET(4) ADJUSTMENTS
--------- ------------ -------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Service revenues............ $ 13,143 $ 2,356 $10,787 $126,324 $184,246 $49,570 $ (5,922)(10)
Equipment sales............. 138,990 138,990 -- -- -- -- --
--------- --------- ------- -------- -------- ------- --------
Total Sales................ 152,133 141,346 10,787 126,324 184,246 49,570 (5,922)
Operating Expenses:
Cost of services (exclusive
of depreciation and
amortization shown
separately below).......... 12,522 2,385 10,137 145,043 184,989 44,599 (5,202)(10)
Cost of equipment sold...... 73,842 73,842 -- -- -- -- --
Write-down of inventories... 9,292 9,292 -- -- -- -- --
Amortization of acquired
technology................. 446 446 -- -- -- -- --
Research and development.... 6,842 6,842 -- -- -- -- --
Selling, general and
administrative............. 19,984 15,368 4,616 38,569 37,562 3,702 950 (11)
Depreciation and
amortization............... 4,255 3,838 417 -- 961 243 38,240 (12)
-- (8,395)(13)
In-process research and
development................ 100,300 100,300 -- -- -- -- --
Goodwill impairment......... 6,200 6,200 -- -- -- -- --
Provision for doubtful
accounts................... 11,332 11,332 -- 2,294 4,620 -- --
Restructuring and other
charges.................... 17,240 17,240 -- -- -- -- --
--------- --------- ------- -------- -------- ------- --------
Total operating expenses. 262,255 247,085 15,170 185,906 228,132 48,544 25,593
--------- --------- ------- -------- -------- ------- --------
Operating Income (Loss).... (110,122) (105,739) (4,383) (59,582) (43,886) 1,026 (31,515)
Foreign exchange loss....... -- -- -- -- (391) -- --
Interest and other income... 3,419 942 2,477 -- 8,943 213 --
Interest expense............ (6,832) -- (6,832) (9,457) (22,612) (141) (19,880)(14)
--------- --------- ------- -------- -------- ------- --------
Income (Loss) From
Continuing Operation
Before Income Taxes...... (113,535) (104,797) (8,738) (69,039) (57,946) 1,098 (51,395)
Income taxes (benefits)..... (1,387) 1,915 (3,302) -- (11,351) 368 (5,530)(15)
--------- --------- ------- -------- -------- ------- --------
Loss Before Minority
Interests................ (112,148) (106,712) (5,436) (69,039) (46,595) 730 (45,865)
Minority interests.......... (2,497) (2,497) -- -- -- -- --
--------- --------- ------- -------- -------- ------- --------
Loss From Continuing
Operations............... (114,645) (109,209) (5,436) $(69,039) $(46,595) 730 (45,865)
Preferred stock dividends... -- -- -- -- -- -- (985)(16)
--------- --------- ------- -------- -------- ------- --------
Income (loss) from Continuing
Operations Available to
Common Stockholders........ $(114,645) $(109,209) $(5,436) (69,039) (46,595) $ 730 $(46,850)
========= ========= ======= ======== ======== ======= ========
Loss From Continuing
Operations
Per Common Share:
Basic...................... $ (5.19)
=========
Diluted.................... $ (5.19)
=========
Weighted Average Shares
Outstanding:
Basic...................... 22,073
=========
Diluted.................... 22,073
=========
<CAPTION>
PRO
FORMA
WORLD
ACCESS
---------
<S> <C>
Service revenues............ $ 365,005
Equipment sales............. --
---------
Total Sales................ 365,005
Cost of services (exclusive
of depreciation and
amortization shown
separately below).......... 379,566
Cost of equipment sold...... --
Write-down of inventories... --
Amortization of acquired
technology................. --
Research and development.... --
Selling, general and
administrative............. 85,399
Depreciation and
amortization............... 31,466
In-process research and
development................ --
Goodwill impairment......... --
Provision for doubtful
accounts................... 6,914
Restructuring and other
charges.................... --
---------
Total Operating Expenses.... 503,345
---------
Operating Income (Loss).... (138,340)
Foreign exchange gain
(loss)..................... (391)
Interest and other income... 11,633
Interest expense............ (58,922)
---------
Income (Loss) From
Continuing Operation
Before Income Taxes...... (186,020)
Income taxes (benefits)..... (19,815)
---------
Loss Before Minority
Interests................ (166,205)
Minority interests.......... --
---------
Loss From Continuing
Operations................ (166,205)
Preferred stock dividends. (985)
---------
Income (Loss) From
Continuing Operations
Available to Common
Stockholders.............. $(167,190)
=========
Loss From Continuing
Operations
Per Common Share:
Basic...................... $ (4.21)(17)
=========
Diluted.................... $ (4.21)(17)
=========
Weighted Average Shares
Outstanding:
Basic...................... 39,727(17)
=========
Diluted.................... 39,727(17)
=========
</TABLE>
-7-
<PAGE> 32
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. These columns represent the historical results of operations and
financial position of World Access. With respect to the information
included in the Unaudited Pro Forma Results of Operations for the year
ended December 31, 1998, the World Access information includes the
results for the following businesses from their respective dates of
acquisition: Advanced TechCom, Inc. -- January 1998; NACT -- February
1998; Telco -- November 1998; and Resurgens -- December 1998. With
respect to the information included in the Unaudited Pro Forma Results
of Operations for the nine months ended September 30, 1999, The World
Access information includes the results of Comm/Net from May 1, 1999.
Depreciation and amortization related to network operations has been
reclassified from costs of carrier sales to depreciation and
amortization to conform with the FaciliCom presentation.
2. This column represents the historical results of Resurgens for the
period January 1, 1998 to December 14, 1998.
3. These columns represent the historical results of operations and
financial position of FaciliCom. With respect to the information
included in the Unaudited Pro Forma Combined Statements of Operations
for the year ended December 31, 1998 and the nine months ended
September 30, 1999, the FaciliCom information is for the twelve months
ended September 30, 1998 and the nine months ended June 30, 1999,
respectively.
4. These columns represent the historical results of Comm/Net for the
year ended December 31, 1998 and for the period January 1, 1999 to
April 30, 1999.
5. Elimination of the historical FaciliCom stockholders' equity accounts.
6. The FaciliCom merger has been accounted for under the purchase method
of accounting. World Access has not determined the final allocation of
the purchase price, and accordingly, the amount ultimately determined
may differ from the amounts shown below.
Under the terms of the Agreement and Plan of Merger dated as of August
17, 1999 and based on the valuation of the Series C Preferred Stock
and World Access common stock at that time, the purchase price was
determined as follows (in thousands):
<TABLE>
<S> <C>
Purchase price:
Issuance of preferred stock(a)............................ $252,187
Cash...................................................... 56,000
Issuance of common stock to FaciliCom noteholders(b)...... 15,000
Issuance of common stock(c)............................... 13,328
Fair value of World Access options issued in exchange for
FaciliCom options(d)................................... 7,531
Estimated fees and expenses............................... 14,500
--------
Total purchase price.............................. 358,546
--------
Allocation to fair values:
Historical stockholders' deficit.......................... 126,830
Adjust assets and liabilities:
Eliminate historical goodwill and debt issue costs........ 12,521
Write down property and equipment......................... 70,144
Adjust other assets and liabilities to fair market
value.................................................. 7,600
Discount on World Access 13.25% Senior Notes(e)........... (15,000)
--------
Estimated goodwill................................ $560,641
========
</TABLE>
---------------
(a) Represents the fair value of the 350,260 shares of Series C Preferred
Stock issued as part of the FaciliCom merger consideration. The fair
value was computed using the Black-Scholes Option Pricing Model
assuming a volatility factor of 45%, a risk free rate of 6% and a 10%
-8-
<PAGE> 33
WORLD ACCESS, INC
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
discount for the lack of liquidity in a private security. The Series
C Preferred Stock bears no dividend and is convertible into shares of
World Access common stock at a conversion rate of $20.38 per common
share of World Access common stock, subject to adjustment in the
event of below market issuances of World Access common stock, stock
dividends, subdivisions, combinations, reclassifications and other
distributions with respect to World Access common stock. If the
closing trading price of World Access common stock exceeds $20.38 per
share for 60 consecutive trading days, the Series C Preferred Stock
will automatically convert into World Access common stock.
(b) In connection with the merger of World Access and FaciliCom, all the
holders of FaciliCom's 10 1/2% Series B Senior Notes due 2008 have
tendered their notes and accepted in exchange for each $1,000 in
principal amount (1) $1,000 principal amount of World Access 13.25%
Senior Notes due 2008 (2) $10 in cash and (3) World Access common
stock having a market value of $50. These pro forma statements reflect
(1) the issuance of $300.0 million aggregate principal amount of the
World Access notes (2) the payment of $3.0 million cash to holders of
the FaciliCom notes, which represented the fee paid by World Access to
obtain the consent from the FaciliCom noteholders waiving their right
to put their notes at 101% of par in connection with the FaciliCom
merger and (3) the issuance of 942,627 shares of World Access common
stock equal in value to an aggregate amount of $15.0 million to the
holders of the FaciliCom notes.
(c) Represents the fair value of 963,722 shares of World Access common
stock issued to certain FaciliCom shareholders who elected to receive
World Access common shares in the merger. These shares were valued
based on the average market price on Nasdaq of World Access common
stock for the three days prior and three days subsequent to August 17,
1999, the date economic terms of the FaciliCom merger were announced,
or $13.83 per share.
(d) Represents the fair value of approximately 495,600 options to acquire
World Access common stock issued in exchange for certain options
outstanding to acquire FaciliCom common stock. The fair value has been
determined using the Black-Scholes Option Pricing Model with the
following assumptions: dividend yield 0%, volatility 70%, risk free
interest rate of 5.8% and an expected life of 3 years. The World
Access options have an average exercise price of $2.63 per share and
are fully vested.
(e) Represents the discount to face value to be recorded to adjust the
World Access notes to their estimated fair value. The estimated fair
value was based on the quoted market price of debt with similar
characteristics. The terms of the World Access notes were structured
to provide fair value equal to 95% of the principal amount.
7. In connection with the FaciliCom merger, World Access issued $75.0
million of World Access common stock (4,713,128 shares at $15.91 per
share) in a private transaction to a group of institutional and
sophisticated investors. World Access used the majority of the
proceeds from this private placement to fund the $56.0 million cash
portion of the merger consideration, as well as fees and expenses to
be incurred in connection with the merger.
8. In December 1998, World Access acquired Resurgens and issued
approximately 7,500,000 restricted shares of World Access common stock
which were placed in escrow for future release contingent upon their
future EBITDA performance. The release of these shares is accelerated
in connection with the FaciliCom merger as the FaciliCom merger
qualifies as a "Change in Control" as defined in the Resurgens merger
agreements. The release of the 7,500,000 shares has been accounted for
as an increase in goodwill and stockholders' equity. These shares were
valued
-9-
<PAGE> 34
WORLD ACCESS, INC
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
based on the market price on Nasdaq of World Access common stock
December 7, 1999, the date the FaciliCom merger was consummated, or
$17.00 per share.
9. Elimination of existing goodwill from prior FaciliCom acquisitions and
debt issue costs associated with the FaciliCom notes.
10. Elimination of inter-company carrier service revenues and related
costs.
11. In October 1999, FaciliCom granted stock options to its employees who
are expected to continue with the surviving corporation after the
merger with World Access. These options, which were granted under a new
FaciliCom 1999 Stock Option Plan, have a four year vesting period. In
connection with the merger, these options converted into non-qualified
options to purchase approximately 1.9 million shares of World Access
common stock at an exercise price of $15.00 per share. The intrinsic
value of these options represents the difference between the closing
price of World Access common stock on December 7, 1999 of $17.00 per
share and the exercise price of $15.00 per share times the number of
options granted or approximately $3.8 million. The pro forma statements
of operations include compensation expense related to the amortization
of the intrinsic value of these options over the vesting period.
12. Amortization of goodwill over an estimated life of 20 years. The pro
forma adjustment to goodwill for the nine months ended September 30,
1999 was computed as follows (in thousands):
<TABLE>
<CAPTION>
HISTORICAL
PRO FORMA GOODWILL PRO FORMA
GOODWILL AMORTIZATION AMORTIZATION ADJUSTMENTS
-------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
FaciliCom (see Note 5).................... $560,641 $21,024 $ (950) $20,074
Escrowed shares (see Note 7).............. 127,425 4,776 -- 4,776
Comm/Net.................................. 20,649 774 (430) 344
------- ------- -------
$26,574 $(1,380) $25,194
======= ======= =======
</TABLE>
The pro forma adjustment to goodwill for the year ended December 31,
1998 was computed as follows (in thousands):
<TABLE>
<CAPTION>
HISTORICAL
PRO FORMA GOODWILL PRO FORMA
GOODWILL AMORTIZATION AMORTIZATION ADJUSTMENT
-------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
FaciliCom (see Note 5).................... $560,641 $ 28,031 $ (961) $27,070
Escrowed shares (see Note 7).............. 127,425 6,370 -- 6,370
Resurgens................................. 78,625 3,934 (164) 3,770
Comm/Net.................................. 20,649 1,030 -- 1,030
-------- ------- -------
$ 39,365 $(1,125) $38,240
======== ======= =======
</TABLE>
13. Adjustment to depreciation and amortization expense for the adjustment
to fair value of switching equipment and license agreements at
FaciliCom and Resurgens.
14. Represents the adjustment to interest expense related to the exchange
of FaciliCom notes with a 10 1/2% coupon for World Access notes with
a 13.25% coupon and the amortization of the $15.0 million debt
discount related to the World Access notes over a period of eight
years. The FaciliCom notes were issued on January 28, 1998 and were
outstanding for approximately eight
-10-
<PAGE> 35
WORLD ACCESS, INC
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
months in fiscal 1998. The pro forma adjustment to interest expense
was computed as follows (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
<S> <C> <C>
Interest expense on World Access notes.......... $ 29,813 $ 39,750
Debt issue cost amortization on World Access
notes......................................... 1,405 1,875
Historical FaciliCom note interest expense...... (23,625) (21,000)
Historical FaciliCom debt issue cost
amortization.................................. (783) (745)
-------- --------
$ 6,810 $ 19,880
======== ========
</TABLE>
15. Adjustment for the additional tax benefit derived from certain pro
forma adjustments. World Access has not recorded any tax benefit on a
pro forma basis that may be derived from FaciliCom's net operating
losses.
16. To increase preferred stock dividends to reflect the Series B preferred
stock issued in connection with the Comm/Net acquisition as outstanding
for the full period.
17. Represents pro forma weighted average shares and basic and diluted
earnings from continuing operations per share. The weighted average
shares are computed assuming the issuance of (1) an aggregate of
4,713,128 shares issued for $75.0 million in connection with the
private placement of World Access common stock; (2) an aggregate of
942,627 shares issued to the holders of the FaciliCom notes; (3) an
aggregate 963,722 shares issued to certain FaciliCom shareholders; and
(4) 7,500,000 shares released from escrow related to the acceleration
of the Resurgens earn-out (see Note 7) as of the beginning of the
periods presented. Due to the pro forma loss from continuing operations
for the nine months ended September 30, 1999 and the year ended
December 31, 1998, potential common stock shares related to stock
options, stock warrants, convertible notes and convertible preferred
stock have been excluded from the diluted loss per share as the
inclusion of these potential common stock shares would be
anti-dilutive.
-11-
<PAGE> 36
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on behalf of the
undersigned hereunto duly authorized.
WORLD ACCESS, INC.
Date: September 8, 2000 By: /s/ Martin D. Kidder
--------------------------------
Martin D. Kidder
Vice President and Controller
-12-
<PAGE> 37
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------------------
<S> <C>
2.* Agreement and Plan of Merger dated as of August 17, 1999 among
World Access, Inc., FaciliCom International, Inc., Armstrong
International Telecommunications, Inc., EPIC Interests, Inc.
and BFV Associates, Inc. (incorporated by reference to
Appendix A to our Proxy Statement filed with the Commission on
November 5, 1999).
23.1 Consent of Deloitte & Touche LLP.
99.* Press Release dated December 7, 1999, announcing the
completion of the merger of World Access and FaciliCom.
</TABLE>
--------------
* Previously Filed
