<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 18, 2000
REGISTRATION NO. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
WORLD ACCESS, INC.
(Exact name of Registrant as specified in its charter)
---------------------
<TABLE>
<S> <C>
DELAWARE 58-2398004
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
945 EAST PACES FERRY ROAD
SUITE 2200
ATLANTA, GEORGIA 30326
(404) 231-2025
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
---------------------
BRYAN D. YOKLEY
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
WORLD ACCESS, INC.
945 EAST PACES FERRY ROAD
SUITE 2200
ATLANTA, GEORGIA 30326
(404) 231-2025
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
---------------------
COPIES OF COMMUNICATIONS TO:
LEONARD A. SILVERSTEIN, ESQ.
LONG ALDRIDGE & NORMAN LLP
5300 ONE PEACHTREE CENTER
303 PEACHTREE STREET
ATLANTA, GEORGIA 30308-3201
(404) 527-4000
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after the Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(c) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
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PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SHARES TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) FEE(1)
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value per
share............................ 14,722,340 3.094 45,550,919.96 12,025.45
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Pursuant to Rule 457(c), the proposed offering price and registration fee
are based upon the average of the high and low prices of the Registrant's
common stock as reported on the Nasdaq National Market on December 14, 2000.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 2
SUBJECT TO COMPLETION, DATED DECEMBER 18, 2000.
PROSPECTUS
(WORLD ACCESS LOGO)
WORLD ACCESS, INC.
Shares of World Access, Inc.
Common Stock
---------------------
TERMS OF SALE
This prospectus relates to the resale by their holders of shares of common
stock of World Access, Inc. The common stock is listed on the Nasdaq National
Market under the trading symbol "WAXS." On December 14, 2000, the last reported
sale price of the common stock on the Nasdaq National Market was $3.00 per
share.
The principal executive offices of World Access are located at 945 East
Paces Ferry Road, Suite 2200, Atlanta, Georgia 30326, and its telephone number
is (404) 231-2025.
---------------------
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
The date of this prospectus is December , 2000.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Description of World Access, Inc............................ 3
Securities Offered.......................................... 3
Forward-Looking Statements.................................. 3
Use of Proceeds............................................. 3
Unaudited Pro Forma Condensed Combined Financial
Statements................................................ 4
Selling Security Holders.................................... 49
Plan of Distribution........................................ 51
Legal Matters............................................... 52
Experts..................................................... 52
Where You Can Find More Information......................... 53
Incorporation of Certain Documents By Reference............. 54
</TABLE>
2
<PAGE> 4
DESCRIPTION OF WORLD ACCESS, INC.
World Access transports international long distance voice, data and
Internet traffic primarily for long distance carriers and local phone companies
operating in the United States and Europe. These services are provided through a
combination of its own network facilities and agreements with other carriers to
terminate traffic in regions of the world where World Access does not have its
own network. Through the acquisition of FaciliCom International in December 1999
and NETnet International in February 2000, World Access has expanded its service
offerings to include the sale of bundled voice, data and Internet services
directly to small and medium sized businesses located throughout Western Europe.
In 1999, World Access adopted a strategy designed to build on its
U.S.-based carrier service business and position itself to become a significant
provider of bundled voice, data and Internet services to retail business
customers located in selected European countries. World Access believes that the
European telecommunications market has become extremely fragmented in recent
years due primarily to deregulation and significant forecasted growth. As a
result, World Access expects that a significant consolidation of carriers
operating in Europe will occur in the next few years, not unlike that which
occurred in the United States telecommunications market during the late 1980's
and 1990's. The strategy of World Access is to establish a pan-European
telecommunications network and gain significant market share during this period
as a consolidator in this market. To execute its strategy, World Access intends
to aggressively pursue the acquisition of businesses, with a particular emphasis
on those that provide retail services to small and medium sized businesses
operating in Europe.
SECURITIES OFFERED
This prospectus relates to 14,722,340 shares of common stock of World
Access offered for resale for the account of holders of common stock. The common
stock trades on the Nasdaq National Market under the symbol "WAXS."
FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference in this
prospectus contain certain information regarding our financial projections,
plans and strategies that are "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. When used in this prospectus or in the documents
incorporated by reference, the words "may," "could," "should," "would,"
"believe," "anticipate," "estimate," "expect," "intend," "plan" and similar
terms and/or expressions are intended to identify forward-looking statements.
These statements reflect our assessment of a number of risks and uncertainties,
and our actual results could differ materially from the results anticipated in
these forward-looking statements. Important factors that could cause actual
results to differ materially from estimates or projections contained in the
forward-looking statements include, without limitation, actual future financial
results differing materially from financial projections, potential inability to
identify, complete and integrate acquisitions, difficulties in expanding into
new business activities, delays in new service offerings, the potential
termination of certain service agreements or the inability to enter into
additional service agreements and the other issues discussed in the Risk Factors
sections incorporated into this prospectus by reference. We caution you not to
place undue reliance on these forward-looking statements, which speak only as of
the date they were made.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the securities offered by
this prospectus. All proceeds will be payable solely to the selling security
holders, less any compensation payable by the selling security holders to broker
dealers in the form of commissions or otherwise.
3
<PAGE> 5
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The Unaudited Pro Forma Condensed Combined Financial Statements of World
Access give effect to the following different scenarios that World Access
currently contemplates in connection with the STAR and WorldxChange mergers and
the TelDaFax transactions. Because World Access and WorldxChange each has
received irrevocable proxies to vote in favor of the WorldxChange merger from
the holders of at least a majority of voting stock and, to the extent permitted
by law, World Access has assumed management of the business and affairs of
WorldxChange effective August 1, 2000 pursuant to a management services
agreement, it is highly likely that the stockholders of World Access and
WorldxChange will approve the WorldxChange merger. In addition, although World
Access solely controls whether to terminate the merger agreement or to take some
action giving WorldxChange the right to terminate the merger agreement, it is
unlikely that World Access will take any of these actions because of the
significant integration of World Access' and WorldxChanges' operations that has
occurred since August 1, 2000 and the significant financial obligations World
Access has assumed under the management services agreement. Accordingly, the
scenarios described below each contemplate that World Access has acquired
WorldxChange.
<TABLE>
<S> <C>
Scenario 1: World Access acquires STAR, WorldxChange and TelDaFax.
Scenario 2: World Access acquires STAR and WorldxChange.
Scenario 3: World Access acquires WorldxChange and TelDaFax.
Scenario 4: World Access acquires WorldxChange.
</TABLE>
The Unaudited Pro Forma Condensed Combined Statements of Operations for the
year ended December 31, 1999 also give effect to:
- the FaciliCom acquisition;
- the Comm/Net acquisition;
- the LDI acquisition; and
- the acquisition of 33.03% of TelDaFax
as if each of the acquisitions had occurred on January 1, 1999. The Unaudited
Pro Forma Condensed Combined Balance Sheets as of September 30, 2000 under all
four scenarios gives effect to the STAR, WorldxChange and TelDaFax acquisitions
as if each acquisition had occurred on September 30, 2000. The Unaudited Pro
Forma Condensed Combined Statements of Operations for the nine months ended
September 30, 2000 under all four scenarios also give effect to the LDI
acquisition and the acquisition of 33.03% of TelDaFax as if the acquisitions had
occurred on January 1, 1999.
On June 14, 2000, World Access entered into a definitive agreement pursuant
to which it agreed to acquire all of or a majority share in TelDaFax in a series
of transactions. TelDaFax is a facilities-based provider of bundled fixed line,
wireless, Internet and e-Commerce services to business and residential customers
in Germany. On September 21, 2000, World Access acquired a 33.03% interest in
TelDaFax held by the Apax funds by issuing World Access common stock at an
exchange ratio of 1.025 shares of World Access for each share of TelDaFax. World
Access intends to make a tender offer for all of the remaining shares of
TelDaFax at an exchange ratio of 1.16. Under the TelDaFax purchase agreement all
TelDaFax shares to be acquired were to be exchanged at the exchange ratio of
1.025. On December 5, 2000, World Access increased the exchange ratio to 1.16 in
order to comply with the German Takeover Code. TelDaFax shares to be acquired
from Dr. Klose and A+M will be exchanged at 1.025, as Dr. Klose and A+M waived
their rights under the TelDaFax purchase agreement to receive additional shares
under the new exchange ratio. The Apax funds also waived their rights under the
TelDaFax purchase agreement to receive additional shares under the new exchange
ratio. World Access also expects to contribute certain of its German businesses
to TelDaFax in exchange for newly issued TelDaFax shares.
The completion of the tender offer and the contribution of the German
businesses is subject to acquisitions by World Access in the transactions of no
less than 50.1% of the fully diluted shares outstanding of TelDaFax on a pro
forma basis, regulatory approvals, including antitrust approval in
4
<PAGE> 6
Germany, and the approval of the stockholders of World Access. The closing of
the tender offer and the contribution will occur simultaneously. The
transactions are anticipated to close in January 2001. Concurrent with the
transactions, World Access intends to apply for listing on one or more European
stock exchanges, including the Neuer Markt in Germany.
The pro forma adjustments are based upon currently available information
and upon assumptions that the management of World Access believes are
reasonable. Each of the acquisition transactions above has been accounted for
using the purchase method of accounting. The adjustments recorded in the
Unaudited Pro Forma Condensed Combined Financial Statements represent the
preliminary determination of these adjustments based upon available information.
The total estimated purchase price of each transaction has been allocated on a
preliminary basis to assets and liabilities based on management's estimate of
their fair values. There can be no assurance that the actual adjustments will
not differ significantly from the pro forma adjustments reflected in the
Unaudited Pro Forma Condensed Combined Financial Statements.
On a combined basis, the networks and operations of all three companies
contain redundant switching equipment, facilities and personnel. World Access
plans to eliminate these redundant assets and significantly reduce the headcount
of the combined company in an effort to realize cost synergies. Implementing
this process includes the write-down of switching and transmission equipment
taken out of service, the write-off of certain leasehold improvements,
establishing provisions for lease commitments remaining on certain facilities
with no future use, employee termination benefits and other related costs. To
the extent that these items relate to World Access facilities and personnel,
World Access will record a restructuring charge in accordance with EITF 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring) and
FAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of. All other costs relate to facilities and personnel of
the acquired enterprises, and, accordingly, will be treated as purchase price in
accordance with EITF 95-3, Recognition of Liabilities in Connection with a
Purchase Business Combination. Management expects to implement the process prior
to or shortly after consummation of each transaction and anticipates completion
within six months after implementation.
In connection with the Executive Services Management Contract entered into
by World Access and WorldxChange on August 1, 2000, World Access management
committed to such a consolidation plan. Pursuant to this agreement, World Access
began managing the operations and business affairs of WorldxChange as if the
WorldxChange merger had occurred as of August 1, 2000. The costs of this
restructuring plan was $38.3 million and has been recorded as a restructuring
charge by World Access in the third quarter of 2000.
Consolidation plans remain under development for the STAR and TelDaFax
integrations. Such plans indicate that consolidation activities associated with
the STAR transactions will not materially involve World Access facilities or
personnel; however, consolidation plans related to TelDaFax transaction are too
preliminary to estimate an impact.
During the third quarter of 2000, World Access has incurred approximately
$35.0 million in additional selling, general and administrative expenses. The
major categories of such costs include costs associated with billing system
migration issues, re-branding efforts and increases in reserves for doubtful
accounts. The first two items relate to the WorldxChange integration. The third
item is unrelated to any purchase transactions, but rather results from
significant shifts in credit policies applied to existing customers. Management
implemented substantially tighter credit policies as a result of market
conditions in the telecom industry, particularly the inability of customers to
obtain sources of working capital required to remain solvent.
The Unaudited Pro Forma Condensed Combined Financial Statements are not
necessarily indicative of the financial position or the future results of
operations or results that might have been achieved if the foregoing acquisition
transactions had been consummated as of the indicated dates. The Unaudited Pro
Forma Condensed Combined Financial Statements should be read in conjunction with
the historical
5
<PAGE> 7
consolidated financial statements of World Access, LDI, STAR, WorldxChange and
TelDaFax and the related notes thereto. See "Incorporation of Documents by
Reference" and "Available Information."
As noted above, on August 1, 2000, World Access and WorldxChange entered
into a management agreement. Generally, the agreement cannot be terminated by
WorldxChange, but may be terminated by World Access. Additionally, the merger
between WorldxChange and World Access will also cause the management agreement
to terminate. See "Executive management services agreement with WorldxChange"
for further discussion regarding the agreement. The agreement is being accounted
for as a management services agreement.
6
<PAGE> 8
WORLD ACCESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA WORLD ACCESS,
WORLD STAR AND STAR
ACCESS STAR(1) ADJUSTMENTS COMBINED
---------- --------- ------------- -------------
<S> <C> <C> <C> <C>
ASSETS
Cash and equivalents(2(i)).................................. $ 164,600 $ 104,567 $ -- $ 269,167
Short-term investments...................................... 82,249 1,599 -- 83,848
Restricted cash............................................. 17,229 -- -- 17,229
Accounts and notes receivable............................... 226,411 118,499 -- 344,910
Prepaid expenses and other current assets................... 23,333 36,777 -- 60,110
Net assets held for sale.................................... 42,946 -- -- 42,946
---------- --------- --------- ----------
Total Current Assets.................................. 556,768 261,442 -- 818,210
---------- --------- --------- ----------
Property and equipment...................................... 130,618 245,142 (94,000)(2) 281,760
Goodwill and other intangibles.............................. 1,097,251 3,605 (1,764)(4) 1,306,793
257,393(2)
11,900(2)
(61,592)(6)
Investment in TelDaFax...................................... 64,242 -- -- 64,242
Net advances to WorldxChange................................ 54,650 54,650
Other assets................................................ 74,426 5,534 -- 79,960
---------- --------- --------- ----------
Total Assets.......................................... $1,977,955 $ 515,723 $ 111,937 $2,605,615
========== ========= ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt............................................. $ 60,017 $ 137,673 $ (85,330)(6) $ 112,360
Accounts payable............................................ 260,994 87,474 -- 348,468
Other accrued liabilities................................... 167,303 116,581 3,000(2) 282,214
(4,670)(6)
---------- --------- --------- ----------
Total Current Liabilities............................. 488,314 341,728 (87,000) 743,042
Long-term debt.............................................. 247,151 34,462 -- 281,613
Other long-term liabilities................................. 3,789 22,076 -- 25,865
---------- --------- --------- ----------
Total Liabilities..................................... 739,254 398,266 (87,000) 1,050,520
---------- --------- --------- ----------
Minority Interests..........................................
Stockholders' Equity (Deficit):
Preferred Stock............................................. 6 -- -- 6
Common stock................................................ 732 58 (58)(5) 1,037
227(2)
78(6)
Additional paid in capital.................................. 1,539,915 366,309 (366,309)(5) 1,856,004
279,620(2)
8,139(2)
28,330(6)
Deferred compensation....................................... -- (1,224) 1,224(5) --
Notes receivable from shareholders.......................... -- (3,928) 3,928(5) --
Accumulated other comprehensive loss........................ (22,671) (10,077) 10,077(5) (22,671)
Accumulated deficit......................................... (279,281) (233,681) 233,681(5) (279,281)
---------- --------- --------- ----------
Total Stockholders' Equity (Deficit).................. 1,238,701 117,457 198,937 1,555,095
---------- --------- --------- ----------
Total Liabilities and Stockholders.................... $1,977,955 $ 515,723 $ 111,937 $2,605,615
========== ========= ========= ==========
<CAPTION>
PRO FORMA
WORLD ACCESS,
STAR AND
WORLDXCHANGE WORLDXCHANGE
WORLDXCHANGE(10) ADJUSTMENTS COMBINED
---------------- ------------- -------------
<S> <C> <C> <C>
ASSET ASSETS
Cash and equivalents(2(i)).................................. $ 12,123 $ -- $ 281,290
Short-term investments...................................... -- -- 83,848
Restricted cash............................................. -- -- 17,229
Accounts and notes receivable............................... 133,198 (2,201)(17) 517,513
41,606(11)
Prepaid expenses and other current assets................... 11,331 -- 71,441
Net assets held for sale.................................... -- -- 42,946
--------- --------- ----------
Total Current Assets.................................. 156,652 39,405 1,014,267
--------- --------- ----------
Property and equipment...................................... 193,257 (6,500)(11) 415,517
(68,000)(11)
15,000(11)
Goodwill and other intangibles.............................. 88,208 (76,327)(13) 1,936,844
593,978(11)
41,300(11)
(17,108)(15)
Investment in TelDaFax...................................... -- -- 64,242
Net advances to WorldxChange................................ (54,650)(11) --
Other assets................................................ 3,464 -- 83,424
--------- --------- ----------
Total Assets.......................................... $ 441,581 $ 467,098 $3,514,294
========= ========= ==========
LIABILITIES AND STOC LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt............................................. $ 204,219 $ (2,201)(17) $ 264,606
(14,040)(15)
(35,732)(11)
Accounts payable............................................ 103,989 (10,960)(15) 464,185
22,688(11)
Other accrued liabilities................................... 208,884 3,000(11) 494,098
--------- --------- ----------
Total Current Liabilities............................. 517,092 (37,245) 1,222,889
Long-term debt.............................................. 63,082 -- 344,695
Other long-term liabilities................................. 3,162 -- 29,027
--------- --------- ----------
Total Liabilities..................................... 583,336 (37,245) 1,596,611
--------- --------- ----------
Minority Interests..........................................
Stockholders' Equity (Deficit):
Preferred Stock............................................. 30,000 (30,000)(14) 6
Common stock................................................ 148,056 (148,056)(14) 1,357
298(11)
22(15)
Additional paid in capital.................................. -- 336,686(11) 2,218,272
17,712(11)
7,870(15)
Deferred compensation....................................... -- -- --
Notes receivable from shareholders.......................... (1,988) 1,988(14) --
Accumulated other comprehensive loss........................ (14,243) 14,243(14) (22,671)
Accumulated deficit......................................... (303,580) 303,580(14) (279,281)
--------- --------- ----------
Total Stockholders' Equity (Deficit).................. (141,755) 504,343 1,917,683
--------- --------- ----------
Total Liabilities and Stockholders.................... $ 441,581 $ 467,098 $3,514,294
========= ========= ==========
<CAPTION>
PRO FORMA
WORLD ACCESS,
STAR, WORLDXCHANGE
TELDAFAX AND TELDAFAX
TELDAFAX(20) ADJUSTMENTS COMBINED
------------ ------------ ------------------
<S> <C> <C> <C>
ASSET
Cash and equivalents(2(i)).................................. $ 18,115 $ -- $ 299,405
Short-term investments...................................... -- -- 83,848
Restricted cash............................................. -- -- 17,229
Accounts and notes receivable............................... 33,707 -- 551,220
Prepaid expenses and other current assets................... 21,581 -- 93,022
Net assets held for sale.................................... -- -- 42,946
-------- -------- ----------
Total Current Assets.................................. 73,403 -- 1,087,670
-------- -------- ----------
Property and equipment...................................... 57,144 (24,000)(21) 448,661
Goodwill and other intangibles.............................. 14,080 (10,900)(23) 2,051,338
78,314(21)
33,000(21)
Investment in TelDaFax...................................... -- (64,242)(21) --
Net advances to WorldxChange................................ --
Other assets................................................ 15,066 -- 98,490
-------- -------- ----------
Total Assets.......................................... $159,693 $ 12,172 $3,686,159
======== ======== ==========
LIABILITIES AND STOC
Short-term debt............................................. $ 6,983 $ -- $ 271,589
Accounts payable............................................ 56,738 -- 520,923
Other accrued liabilities................................... 9,374 5,000(21) 508,472
--
-------- -------- ----------
Total Current Liabilities............................. 73,095 5,000 1,300,984
--
Long-term debt.............................................. 16,206 -- 360,901
Other long-term liabilities................................. 314 -- 29,341
-------- -------- ----------
Total Liabilities..................................... 89,615 5,000 1,691,226
-------- -------- ----------
Minority Interests.......................................... 685 -- 685
Stockholders' Equity (Deficit):
Preferred Stock............................................. -- -- 6
Common stock................................................ 77,359 (77,359)(24) 1,616
259(21)
Additional paid in capital.................................. 7,099 (7,099)(24) 2,294,371
76,099(21)
Deferred compensation....................................... -- -- --
Notes receivable from shareholders.......................... -- -- --
Accumulated other comprehensive loss........................ (343) 343(24) (22,671)
Accumulated deficit......................................... (14,722) 14,722(24) (279,074)
207(24)
-------- -------- ----------
Total Stockholders' Equity (Deficit).................. 69,393 7,172 1,994,248
-------- -------- ----------
Total Liabilities and Stockholders.................... $159,693 $ 12,172 $3,686,159
======== ======== ==========
</TABLE>
7
<PAGE> 9
WORLD ACCESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
WORLD ACCESS
PRO FORMA STAR AND STAR
WORLD ACCESS(28) STAR(1) ADJUSTMENTS COMBINED
---------------- -------- ----------- ------------
<S> <C> <C> <C> <C>
Service revenues....................... $ 835,339 $347,188 $(61,839)(7) $1,120,688
Operating expenses:
Cost of services (exclusive of
depreciation and amortization shown
separately below)..................... 735,085 308,532 (61,839)(7) 981,778
Selling, general and administrative.... 125,497 60,977 186,474
Depreciation and amortization.......... 62,788 27,969 9,424(3) 86,508
(10,072)(3)
1,785(3)
(5,386)(6)
Expense under WorldxChange management
agreement............................. 22,688 -- -- 22,688
Restructuring and other special
charges............................... 34,326 -- -- 34,326
--------- -------- -------- ----------
Total operating expenses......... 980,384 397,478 (66,088) 1,311,774
--------- -------- -------- ----------
Operating loss................... (145,045) (50,290) 4,249 (191,086)
Reimbursement from World Access of net
loss under management agreement....... -- -- -- --
Interest and other income.............. 25,642 7,791 -- 33,433
Interest and other expense............. (43,688) (13,153) 1,223(6) (55,618)
Loss on investment in TelDaFax......... (4,853) -- -- (4,853)
Foreign exchange loss.................. (469) -- -- (469)
--------- -------- -------- ----------
Loss from continuing operations
before income taxes and minority
interests....................... (168,413) (55,652) 5,472 (218,593)
Provision (benefit) for income taxes... (18,005) (11,645) 3,899(8) (25,751)
--------- -------- -------- ----------
Loss from continuing operations
before minority interest........ (150,408) (44,007) 1,573 (192,842)
Minority interest...................... -- -- -- --
--------- -------- -------- ----------
Loss from continuing
operations...................... (150,408) (44,007) 1,573 (192,842)
Preferred stock dividends.............. (1,907) -- -- (1,907)
--------- -------- -------- ----------
Loss from continuing operations
available to common
stockholders.................... $(152,315) $(44,007) $ 1,573 $ (194,749)
========= ======== ======== ==========
Loss per common share from continuing
operations:
Basic............................... $ (2.57)
=========
Diluted............................. $ (2.57)
=========
Weighted average shares outstanding:
Basic............................... 59,199
=========
Diluted............................. 59,199
=========
<CAPTION>
PRO FORMA
WORLD ACCESS,
STAR AND
WORLDXCHANGE WORLDXCHANGE
WORLDXCHANGE(10) ADJUSTMENTS COMBINED
---------------- ------------ -------------
<S> <C> <C> <C>
Service revenues....................... $ 381,115 $(79,032)(16) $1,422,771
Operating expenses:
Cost of services (exclusive of
depreciation and amortization shown
separately below)..................... 321,228 (79,032)(16) 1,223,974
Selling, general and administrative.... 129,284 315,758
Depreciation and amortization.......... 38,825 16,251(12) 141,755
(4,958)(12)
6,195(12)
(1,066)(15)
Expense under WorldxChange management
agreement............................. -- (22,688)(11) --
Restructuring and other special
charges............................... -- -- 34,326
--------- -------- ----------
Total operating expenses......... 489,337 (85,298) 1,715,813
--------- -------- ----------
Operating loss................... (108,222) 6,266 (293,042)
Reimbursement from World Access of net
loss under management agreement....... 22,688 (22,688)(11) --
Interest and other income.............. -- -- 33,433
Interest and other expense............. (26,700) 901(15) (81,417)
Loss on investment in TelDaFax......... -- -- (4,853)
Foreign exchange loss.................. -- -- (469)
--------- -------- ----------
Loss from continuing operations
before income taxes and minority
interests....................... (112,234) (15,521) (346,348)
Provision (benefit) for income taxes... -- (138)(18) (25,889)
--------- -------- ----------
Loss from continuing operations
before minority interest........ (112,234) (15,383) (320,459)
Minority interest...................... -- -- --
--------- -------- ----------
Loss from continuing
operations...................... (112,234) (15,383) (320,459)
Preferred stock dividends.............. (1,898) (3,805)
--------- -------- ----------
Loss from continuing operations
available to common
stockholders.................... $(114,132) $(15,383) $ (324,264)
========= ======== ==========
Loss per common share from continuing
operations:
Basic...............................
Diluted.............................
Weighted average shares outstanding:
Basic...............................
Diluted.............................
<CAPTION>
PRO FORMA
WORLD ACCESS, STAR,
TELDAFAX WORLDXCHANGE AND
TELDAFAX(20) ADJUSTMENTS TELDAFAX COMBINED
------------ ----------- ----------------------
<S> <C> <C> <C>
Service revenues....................... $224,297 $(3,169)(25) $1,643,899
Operating expenses:
Cost of services (exclusive of
depreciation and amortization shown
separately below)..................... 181,588 (3,169)(25) 1,402,393
Selling, general and administrative.... 50,866 -- 366,624
Depreciation and amortization.......... 18,012 1,202(22) 162,319
(3,600)(22)
4,950(22)
Expense under WorldxChange management
agreement............................. -- -- --
Restructuring and other special
charges............................... -- -- 34,326
-------- ------- ----------
Total operating expenses......... 250,466 (617) 1,965,662
-------- ------- ----------
Operating loss................... (26,169) (2,552) (321,763)
Reimbursement from World Access of net
loss under management agreement....... -- -- --
Interest and other income.............. 1,086 -- 34,519
Interest and other expense............. (1,141) (26,700) (82,558)
Loss on investment in TelDaFax......... -- 4,853(21) --
Foreign exchange loss.................. -- -- (469)
-------- ------- ----------
Loss from continuing operations
before income taxes and minority
interests....................... (26,224) 2,301 (370,271)
Provision (benefit) for income taxes... (9,923) (554)(26) (36,366)
-------- ------- ----------
Loss from continuing operations
before minority interest........ (16,301) 2,855 (333,905)
Minority interest...................... 980 -- 980
-------- ------- ----------
Loss from continuing
operations...................... (15,321) 2,855 (332,925)
Preferred stock dividends.............. -- -- (3,805)
-------- ------- ----------
Loss from continuing operations
available to common
stockholders.................... $(15,321) $ 2,855 $ (336,730)
======== ======= ==========
Loss per common share from continuing
operations:
Basic............................... $ (2.12)(9)(19)(27)
==========
Diluted............................. $ (2.12)(9)(19)(27)
==========
Weighted average shares outstanding:
Basic............................... 159,066(9)(19)(27)
==========
Diluted............................. 159,066(9)(19)(27)
==========
</TABLE>
8
<PAGE> 10
WORLD ACCESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA WORLD ACCESS
WORLD ACCESS STAR STAR AND STAR
(28) (1) ADJUSTMENTS COMBINED
------------ -------- ----------- ------------
<S> <C> <C> <C> <C>
Service revenues.................. $1,019,553 $616,469 $(17,949)(7) $1,618,073
Operating expenses:
Cost of services (exclusive of
depreciation and amortization
shown separately below)........ 903,325 537,895 (17,949)(7) 1,423,271
Selling, general and
administrative................. 146,231 108,246 -- 254,477
Depreciation and amortization.... 97,517 29,635 4,335(3) 117,892
(13,429)(3)
2,380(3)
(2,546)(6)
Merger expense................... -- 1,867 -- 1,867
Restructuring and other special
charges........................ 44,187 -- -- 44,187
---------- -------- -------- ----------
Total operating expenses.... 1,191,260 677,643 (27,209) 1,841,694
---------- -------- -------- ----------
Operating loss.............. (171,707) (61,174) 9,260 (223,621)
Interest and other income......... 10,822 6,701 -- 17,523
Interest and other expense........ (58,208) (8,614) -- (66,822)
Loss on investment in TelDaFax.... (990) -- -- (990)
Foreign exchange loss............. (2,369) (3,471) -- (5,840)
---------- -------- -------- ----------
Loss from continuing
operations before income
taxes and minority
interests.................. (222,452) (66,558) 9,260 (279,750)
Provision (benefit) for income
taxes............................ (6,999) (11,041) 4,530(8) (13,510)
---------- -------- -------- ----------
Loss from continuing
operations before minority
interest................... (215,453) (55,517) 4,730 (266,240)
Minority interest................. -- -- -- --
---------- -------- -------- ----------
Loss from continuing
operations................. (215,453) (55,517) 4,730 (266,240)
Preferred stock dividends......... (2,461) -- -- (2,461)
---------- -------- -------- ----------
Loss from continuing
operations available to
common stockholders........ $ (217,914) $(55,517) $ 4,730 $ (268,701)
========== ======== ======== ==========
Loss per common share from
continuing operations:
Basic............................ $ (4.30)
==========
Diluted.......................... $ (4.30)
==========
Weighted average shares
outstanding:
Basic............................ 50,634
==========
Diluted.......................... 50,634
==========
<CAPTION>
PRO FORMA
WORLD ACCESS,
STAR AND
WORLDXCHANGE WORLDXCHANGE WORLDXCHANGE
(10) ADJUSTMENTS COMBINED
------------ ------------ -------------
<S> <C> <C> <C>
Service revenues.................. $ 607,035 $(25,601)(16) $2,199,507
Operating expenses:
Cost of services (exclusive of
depreciation and amortization
shown separately below)........ 477,317 (25,601)(16) 1,874,987
Selling, general and
administrative................. 193,070 -- 447,547
Depreciation and amortization.... 43,304 10,958(12) 173,298
(6,611)(12)
8,260(12)
(505)(15)
Merger expense................... -- -- 1,867
Restructuring and other special
charges........................ -- -- 44,187
--------- -------- ----------
Total operating expenses.... 713,691 (13,499) 2,541,886
--------- -------- ----------
Operating loss.............. (106,656) (12,102) (342,379)
Interest and other income......... -- -- 17,523
Interest and other expense........ (25,385) 1,230(15) (90,977)
Loss on investment in TelDaFax.... -- -- (990)
Foreign exchange loss............. -- -- (5,840)
--------- -------- ----------
Loss from continuing
operations before income
taxes and minority
interests.................. (132,041) (10,872) (422,663)
Provision (benefit) for income
taxes............................ -- (172)(18) (13,682)
--------- -------- ----------
Loss from continuing
operations before minority
interest................... (132,041) (10,700) (408,981)
Minority interest................. 1,614 -- 1,614
--------- -------- ----------
Loss from continuing
operations................. (130,427) (10,700) (407,367)
Preferred stock dividends......... (784) -- (3,245)
--------- -------- ----------
Loss from continuing
operations available to
common stockholders........ $(131,211) $(10,700) $ (410,612)
========= ======== ==========
Loss per common share from
continuing operations:
Basic............................
Diluted..........................
Weighted average shares
outstanding:
Basic............................
Diluted..........................
<CAPTION>
PRO FORMA
WORLD ACCESS, STAR,
TELDAFAX TELDAFAX WORLDXCHANGE AND
(20) ADJUSTMENTS TELDAFAX COMBINED
-------- ------------- ---------------------
<S> <C> <C> <C>
Service revenues.................. $364,039 $(8,914)(25) $2,554,632
Operating expenses:
Cost of services (exclusive of
depreciation and amortization (8,914)(2
shown separately below)........ 304,810 5) 2,170,883
Selling, general and
administrative................. 48,758 -- 496,305
Depreciation and amortization.... 18,369 3,311(22) 196,778
(4,800)(22)
6,600(22)
Merger expense................... -- -- 1,867
Restructuring and other special
charges........................ -- -- 44,187
-------- ------- ----------
Total operating expenses.... 371,937 (3,803) 2,910,020
-------- ------- ----------
Operating loss.............. (7,898) (5,111) (355,388)
Interest and other income......... 2,469 -- 19,992
Interest and other expense........ (2,171) -- (93,148)
Loss on investment in TelDaFax.... -- 990(28) --
Foreign exchange loss............. -- -- (5,840)
-------- ------- ----------
Loss from continuing
operations before income
taxes and minority
interests.................. (7,600) (4,121) (434,384)
Provision (benefit) for income
taxes............................ (3,830) (738)(26) (18,250)
-------- ------- ----------
Loss from continuing
operations before minority
interest................... (3,770) (3,383) (416,134)
Minority interest................. 774 -- 2,388
-------- ------- ----------
Loss from continuing
operations................. (2,996) (3,383) (413,746)
Preferred stock dividends......... -- -- (3,245)
-------- ------- ----------
Loss from continuing
operations available to
common stockholders........ $(2,996) $(3,383) $ (416,991)
======== ======= ==========
Loss per common share from
continuing operations:
Basic............................ $ (2.77)(9)(19)(27)
==========
Diluted.......................... $ (2.77)(9)(19)(27)
==========
Weighted average shares
outstanding:
Basic............................ 150,490(9)(19)(27)
==========
Diluted.......................... 150,490(9)(19)(27)
==========
</TABLE>
9
<PAGE> 11
WORLD ACCESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA WORLD ACCESS
WORLD STAR AND STAR
ACCESS(28) STAR(1) ADJUSTMENTS COMBINED
---------- --------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Cash and
equivalents(2(i))...... $ 164,600 $ 104,567 $ -- $ 269,167
Short-term
investments............ 82,249 1,599 -- 83,848
Restricted cash......... 17,229 -- -- 17,229
Accounts and notes
receivable............. 226,411 118,499 -- 344,910
Prepaid expenses and
other current assets... 23,333 36,777 -- 60,110
Net assets held for
sale................... 42,946 -- -- 42,946
---------- --------- --------- ----------
Total Current
Assets......... 556,768 261,442 -- 818,210
---------- --------- --------- ----------
Property and
equipment.............. 130,618 245,142 (94,000)(2) 281,760
Goodwill and other
intangibles............ 1,097,251 3,605 (1,764)(4) 1,306,793
257,393(2)
11,900(2)
(61,592)(6)
Investment in
TelDaFax............... 64,242 -- -- 64,242
Net advances to
WorldxChange........... 54,650 -- 54,650
Other assets............ 74,426 5,534 -- 79,960
---------- --------- --------- ----------
Total Assets..... $1,977,955 $ 515,723 $ 111,937 $2,605,615
========== ========= ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt......... $ 60,017 $ 137,673 $ (85,330)(6) $ 112,360
Accounts payable........ 260,994 87,474 --(6) 348,468
Other accrued
liabilities............ 167,303 116,581 3,000(2) 282,214
(4,670)(6)
---------- --------- --------- ----------
Total Current
Liabilities.... 488,314 341,728 (87,000) 743,042
Long-term debt.......... 247,151 34,462 -- 281,613
Other long-term
liabilities............ 3,789 22,076 -- 25,865
---------- --------- --------- ----------
Total
Liabilities.... 739,254 398,266 (87,000) 1,050,520
---------- --------- --------- ----------
Stockholders' Equity (Deficit):
Preferred Stock......... 6 -- -- 6
Common stock............ 732 58 (58)(5) 1,037
227(2)
68(6)
Additional paid in
capital................ 1,539,915 366,309 (366,309)(5) 1,856,004
279,620(2)
8,139(2)
28,330(6)
Deferred compensation... -- (1,224) 1,224(5) --
Notes receivable from
shareholders........... -- (3,928) 3,928(5) --
Accumulated other
comprehensive loss..... (22,671) (10,077) 10,077(5) (22,671)
Accumulated deficit..... (279,281) (233,681) 233,681(5) (279,281)
---------- --------- --------- ----------
Total
Stockholders'
Equity
(Deficit)...... 1,238,701 117,457 198,937 1,555,095
---------- --------- --------- ----------
Total Liabilities
and
Stockholders'
Equity......... $1,977,955 $ 515,723 $ 111,937 $2,605,615
========== ========= ========= ==========
<CAPTION>
PRO FORMA
WORLD ACCESS,
STAR AND
WORLDXCHANGE WORLDXCHANGE
WORLDXCHANGE(10) ADJUSTMENTS COMBINED
---------------- ------------- -------------
<S> <C> <C> <C>
ASSETS
Cash and
equivalents(2(i))...... $ 12,123 $ -- $ 281,290
Short-term
investments............ -- -- 83,848
Restricted cash......... -- -- 17,229
Accounts and notes
receivable............. 133,198 (2,201)(17) 517,513
41,606(11)
Prepaid expenses and
other current assets... 11,331 -- 71,441
Net assets held for
sale................... -- -- 42,946
--------- --------- ----------
Total Current
Assets......... 156,652 39,405 1,014,267
--------- --------- ----------
Property and
equipment.............. 193,257 (6,500)(11) 415,517
(68,000)(11)
15,000(11)
Goodwill and other
intangibles............ 88,208 (76,327)(13) 1,936,844
593,978(11)
41,300(11)
(17,108)(15)
Investment in
TelDaFax............... -- -- 64,242
Net advances to
WorldxChange........... (54,650)(11) --
Other assets............ 3,464 --(11) 83,424
--------- --------- ----------
Total Assets..... $ 441,581 $ 467,098 $3,514,294
========= ========= ==========
LI LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt......... $ 204,219 $ (2,201)(17) $ 264,606
(14,040)(15)
(35,732)(20)
Accounts payable........ 103,989 (10,960)(15) 464,185
22,688(11)
Other accrued
liabilities............ 208,884 3,000(11) 494,098
--------- --------- ----------
Total Current
Liabilities.... 517,092 (37,245) 1,222,889
Long-term debt.......... 63,082 -- 344,695
Other long-term
liabilities............ 3,162 -- 29,027
--------- --------- ----------
Total
Liabilities.... 583,336 (37,245) 1,596,611
--------- --------- ----------
Stockholders' Equity (De
Preferred Stock......... 30,000 (30,000)(14) 6
Common stock............ 148,056 (148,056)(14) 1,357
298(11)
22(15)
Additional paid in
capital................ -- 336,686(11) 2,218,272
17,712(11)
7,870(15)
Deferred compensation... -- -- --
Notes receivable from
shareholders........... (1,988) 1,988(14) --
Accumulated other
comprehensive loss..... (14,243) 14,234(14) (22,671)
Accumulated deficit..... (303,580) 303,580(14) (279,281)
--------- --------- ----------
Total
Stockholders'
Equity
(Deficit)...... (141,755) 504,343 1,917,683
--------- --------- ----------
Total Liabilities
and
Stockholders'
Equity......... $ 441,581 $ 467,098 $3,514,294
========= ========= ==========
</TABLE>
10
<PAGE> 12
WORLD ACCESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
WORLD STAR
ACCESS(29) STAR(1) ADJUSTMENTS
---------- -------- -----------
<S> <C> <C> <C>
Service revenues................... $ 835,339 $347,188 $(61,839)(7)
Operating expenses:
Cost of services (exclusive of
depreciation and amortization
shown separately below).......... 735,085 308,532 (61,839)(7)
Selling, general and
administrative................... 125,497 60,977 --
Depreciation and amortization...... 62,788 27,969 9,424(3)
(10,072)(3)
1,785(3)
(5,386)(6)
Expense under WorldxChange
management agreement............. 22,688 -- --
Restructuring and other special
charges.......................... 34,326 -- --
--------- -------- --------
Total operating expenses... 980,384 397,478 (66,088)
--------- -------- --------
Operating loss............. (145,045) (50,290) 4,249
Reimbursement from World Access of
net losses under management
agreement........................ -- -- --
Interest and other income.......... 25,642 7,791 --
Interest and other expense......... (43,688) (13,153) 1,223(6)
Loss on investment in TelDaFax..... (4,853) -- --
Foreign exchange loss.............. (469) -- --
--------- -------- --------
Loss from continuing
operations before income
taxes and minority
interests................ (168,413) (55,652) 5,472
Provision (benefit) for income
taxes............................ (18,005) (11,645) 3,899(8)
--------- -------- --------
Loss from continuing
operations before
minority interest........ (150,408) (44,007) 1,573
Minority interest.................. -- -- --
--------- -------- --------
Loss from continuing
operations............... (150,408) (44,007) 1,573
Preferred stock dividends.......... (1,907) -- --
--------- -------- --------
Loss from continuing
operations available to
common stockholders...... $(152,315) $(44,007) $ 1,573
========= ======== ========
Loss per common share from
continuing operations:
Basic.......................... $ (2.57)
=========
Diluted........................ $ (2.57)
=========
Weighted average shares
outstanding:
Basic.......................... 59,199
=========
Diluted........................ 59,199
=========
<CAPTION>
PRO FORMA PRO FORMA
WORLD WORLD ACCESS,
ACCESS STAR AND
AND STAR WORLDXCHANGE WORLDXCHANGE
COMBINED WORLDXCHANGE(10) ADJUSTMENTS COMBINED
---------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C>
Service revenues................... $1,120,688 $ 381,115 $(79,032)(16) $1,422,771
Operating expenses:
Cost of services (exclusive of
depreciation and amortization
shown separately below).......... 981,778 321,228 (79,032)(16) 1,223,974
Selling, general and
administrative................... 186,474 129,284 -- 315,758
Depreciation and amortization...... 86,508 38,825 16,251(12) 141,755
(4,958)(12)
6,195(12)
(1,066)(15)
Expense under WorldxChange
management agreement............. 22,688 -- (22,688)(11) --
Restructuring and other special
charges.......................... 34,326 -- -- 34,326
---------- --------- -------- ----------
Total operating expenses... 1,311,774 489,337 (85,298) 1,715,813
---------- --------- -------- ----------
Operating loss............. (191,086) (108,222) 6,266 (293,042)
Reimbursement from World Access of
net losses under management
agreement........................ -- 22,688 (22,688)(11) --
Interest and other income.......... 33,433 -- -- 33,433
Interest and other expense......... (55,618) (26,700) 901(15) (81,417)
Loss on investment in TelDaFax..... (4,853) -- -- (4,853)
Foreign exchange loss.............. (469) -- -- (469)
---------- --------- -------- ----------
Loss from continuing
operations before income
taxes and minority
interests................ (218,593) (112,234) (15,521) (346,348)
Provision (benefit) for income
taxes............................ (25,751) -- (138)(18) (25,889)
---------- --------- -------- ----------
Loss from continuing
operations before
minority interest........ (192,842) (112,234) (15,383) (320,459)
Minority interest.................. -- -- -- --
---------- --------- -------- ----------
Loss from continuing
operations............... (192,842) (112,234) (15,383) (320,459)
Preferred stock dividends.......... (1,907) (1,898) -- (3,805)
---------- --------- -------- ----------
Loss from continuing
operations available to
common stockholders...... $ (194,749) $(114,132) $(15,383) $ (324,264)
========== ========= ======== ==========
Loss per common share from
continuing operations:
Basic.......................... $ (2.66)(9)(19)
==========
Diluted........................ $ (2.66)(9)(19)
==========
Weighted average shares
outstanding:
Basic.......................... 121,725(9)(19)
==========
Diluted........................ 121,725(9)(19)
==========
</TABLE>
11
<PAGE> 13
WORLD ACCESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
WORLD ACCESS
PRO FORMA STAR AND STAR WORLDXCHANGE
WORLD ACCESS(28) STAR(1) ADJUSTMENTS COMBINED WORLDXCHANGE(10) ADJUSTMENTS
---------------- -------- ----------- ------------ ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Service revenues................. $1,019,553 $616,469 $(17,949)(7) $1,618,073 $ 607,035 $(25,601)(16)
Operating expenses:..............
Cost of services (exclusive of
depreciation and amortization
shown separately below)...... 903,325 537,895 (17,949)(7) 1,423,271 477,317 (25,601)(16)
Selling, general and
administrative............... 146,231 108,246 -- 254,477 193,070 --
Depreciation and
amortization................. 97,517 29,635 4,335(3) 117,892 43,304 10,958(12)
(13,429)(3) (6,611)(12)
2,380(3) 8,260(12)
(2,546)(6) (505)(15)
Merger expense................. -- 1,867 -- 1,867 -- --
Restructuring and other special
charges...................... 44,187 -- -- 44,187 -- --
---------- -------- -------- ---------- --------- --------
Total operating
expenses............... 1,191,260 677,643 (27,209) 1,841,694 713,691 (13,499)
---------- -------- -------- ---------- --------- --------
Operating loss........... (171,707) (61,174) 9,260 (223,621) (106,656) (12,102)
Interest and other income........ 10,822 6,701 -- 17,523 -- --
Interest and other expense....... (58,208) (8,614) -- (66,822) (25,385) 1,230(15)
Loss on investment in TelDaFax... (990) -- -- (990) -- --
Foreign exchange loss............ (2,369) (3,471) -- (5,840) -- --
---------- -------- -------- ---------- --------- --------
Loss from continuing
operations before
income taxes and
minority interests..... (222,452) (66,558) 9,260 (279,750) (132,041) (10,872)
Provision (benefit) for income
taxes.......................... (6,999) (11,041) 4,530(8) (13,510) -- (172)(18)
---------- -------- -------- ---------- --------- --------
Loss from continuing
operations before
minority interest...... (215,453) (55,517) 4,730 (266,240) (132,041) (10,700)
Minority interest................ -- -- -- -- 1,614 --
---------- -------- -------- ---------- --------- --------
Loss from continuing
operations............. (215,453) (55,517) 4,730 (266,240) (130,427) (10,700)
Preferred stock dividends........ (2,461) -- -- (2,461) (784) --
---------- -------- -------- ---------- --------- --------
Loss from continuing
operations available to
common stockholders.... $ (217,914) $(55,517) $ 4,730 $ (268,701) $(131,211) $(10,700)
========== ======== ======== ========== ========= ========
Loss per common share from
continuing operations:
Basic.......................... $ (4.30)
==========
Diluted...................... $ (4.30)
==========
Weighted average shares
outstanding:
Basic.......................... 50,634
==========
Diluted........................ 50,634
==========
<CAPTION>
PRO FORMA
WORLD ACCESS,
STAR AND
WORLDXCHANGE
COMBINED
-------------
<S> <C>
Service revenues................. $2,199,507
Operating expenses:..............
Cost of services (exclusive of
depreciation and amortization
shown separately below)...... 1,874,987
Selling, general and
administrative............... 447,547
Depreciation and
amortization................. 173,298
Merger expense................. 1,867
Restructuring and other special
charges...................... 44,187
----------
Total operating
expenses............... 2,541,886
----------
Operating loss........... (342,379)
Interest and other income........ 17,523
Interest and other expense....... (90,977)
Loss on investment in TelDaFax... (990)
Foreign exchange loss............ (5,840)
----------
Loss from continuing
operations before
income taxes and
minority interests..... (422,663)
Provision (benefit) for income
taxes.......................... (13,682)
----------
Loss from continuing
operations before
minority interest...... (408,981)
Minority interest................ 1,614
----------
Loss from continuing
operations............. (407,367)
Preferred stock dividends........ (3,245)
----------
Loss from continuing
operations available to
common stockholders.... $ (410,612)
==========
Loss per common share from
continuing operations:
Basic.......................... $ (3.63)(9)(19)
==========
Diluted...................... $ (3.63)(9)(19)
==========
Weighted average shares
outstanding:
Basic.......................... 113,149(9)(19)
==========
Diluted........................ 113,149(9)(19)
==========
</TABLE>
12
<PAGE> 14
WORLD ACCESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
WORLD ACCESS
PRO FORMA AND
WORLD WORLDXCHANGE WORLDXCHANGE
ACCESS(28) WORLDXCHANGE(10) ADJUSTMENTS COMBINED TELDAFAX(20)
---------------- ---------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and equivalents(2(i))......... $ 164,600 $ 12,123 $ -- $ 176,723 $ 18,115
Short-term investments............. 82,249 -- -- 82,249 --
Restricted cash.................... 17,229 -- -- 17,229 --
Accounts and notes receivable...... 226,411 133,198 -- 401,215 33,707
41,606(11)
Prepaid expenses and other current
assets............................ 23,333 11,331 -- 34,664 21,581
Net assets held for sale........... 42,946 -- -- 42,946
---------- --------- --------- ---------- ----------
Total Current Assets........ 556,768 156,652 41,606 755,226 73,403
---------- --------- --------- ---------- ----------
Property and equipment............. 130,618 193,257 (6,500)(11) 264,375 57,144
(68,000)(11)
15,000(11)
Goodwill and other intangibles..... 1,097,251 88,208 (76,327)(13) 1,727,302 14,080
593,978(11)
41,300(11)
(17,108)(15)
Investment in TelDaFax............. 64,242 -- -- 64,242 --
Net advances to WorldxChange....... 54,650 -- (54,650)(11) --
Other assets....................... 74,426 3,464 -- 77,890 15,066
---------- --------- --------- ---------- ----------
Total Assets................ $1,977,955 $ 441,581 $ 469,299 $2,888,835 $ 159,693
========== ========= ========= ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt.................... $ 60,017 $ 204,219 $ (14,040)(15) $ 214,464 $ 6,983
(35,732)(11)
Accounts payable................... 260,994 103,989 (10,960)(15) 376,711 56,738
22,688(11)
Other accrued liabilities.......... 167,303 208,884 3,000(11) 379,187 9,374
---------- --------- --------- ---------- ----------
Total Current Liabilities... 488,314 517,092 (35,044) 970,362 73,095
Long-term debt..................... 247,151 63,082 -- 310,233 16,206
Other long-term liabilities........ 3,789 3,162 -- 6,951 314
---------- --------- --------- ---------- ----------
Total Liabilities........... 739,254 583,336 (35,044) 1,287,546 89,615
---------- --------- --------- ---------- ----------
Minority interests................. 685
Stockholders' Equity (Deficit):
Preferred stock.................... 6 30,000 (30,000)(14) 6 --
Common stock....................... 732 148,056 (148,056)(14) 1,052 77,359
298(11)
22(15)
Additional paid in capital......... 1,539,915 -- 336,686(11) 1,902,183 7,099
17,712(11)
7,870(15)
Notes receivable from
shareholders...................... -- (1,988) 1,988(14) -- --
Accumulated other comprehensive
loss.............................. (22,671) (14,243) 14,243(14) (22,671) (343)
Accumulated deficit................ (279,281) (303,580) 303,580(14) (279,281) (14,722)
---------- --------- --------- ---------- ----------
Total Stockholders' Equity
(Deficit).................. 1,238,701 (141,755) 504,343 1,601,289 69,393
---------- --------- --------- ---------- ----------
Total Liabilities and
Stockholders' Equity....... $1,977,955 $ 441,581 $ 469,299 $2,888,835 $ 159,693
========== ========= ========= ========== ==========
<CAPTION>
PRO FORMA
WORLD ACCESS,
WORLDXCHANGE AND
TELDAFAX TELDAFAX
ADJUSTMENTS COMBINED
----------- ----------------
<S> <C> <C>
ASSETS
Cash and equivalents(2(i))......... $ -- $ 194,838
Short-term investments............. -- 82,249
Restricted cash.................... -- 17,229
Accounts and notes receivable...... -- 434,922
Prepaid expenses and other current
assets............................ -- 56,245
Net assets held for sale........... -- 42,946
-------- ----------
Total Current Assets........ -- 828,429
-------- ----------
Property and equipment............. (24,000)(21) 297,519
Goodwill and other intangibles..... (10,900)(23) 1,841,796
78,314(21)
33,000(21)
Investment in TelDaFax............. (64,242)(21) --
Net advances to WorldxChange.......
Other assets....................... -- 92,956
-------- ----------
Total Assets................ $ 12,172 $3,060,700
======== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Short-term debt.................... $ -- $ 221,447
Accounts payable................... -- 433,449
Other accrued liabilities.......... 5,000(21) 393,561
-------- ----------
Total Current Liabilities... 5,000 1,048,457
Long-term debt..................... -- 326,439
Other long-term liabilities........ -- 7,265
-------- ----------
Total Liabilities........... 5,000 1,382,161
-------- ----------
Minority interests................. -- 685
Stockholders' Equity (Deficit):
Preferred stock.................... -- 6
Common stock....................... (77,359)(24) 1,311
259(21)
Additional paid in capital......... (7,099)(24) 1,978,282
76,099(21)
Notes receivable from
shareholders...................... -- --
Accumulated other comprehensive
loss.............................. 343(24) (22,671)
Accumulated deficit................ 14,722(24) (279,074)
207(24)
-------- ----------
Total Stockholders' Equity
(Deficit).................. 7,172 1,677,854
-------- ----------
Total Liabilities and
Stockholders' Equity....... $ 12,172 $3,060,700
======== ==========
</TABLE>
13
<PAGE> 15
WORLD ACCESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
WORLD ACCESS AND
PRO FORMA WORLDXCHANGE WORLDXCHANGE
WORLD ACCESS(28) WORLDXCHANGE(10) ADJUSTMENTS COMBINED
---------------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C>
Service revenues.............................. $ 835,339 $ 381,115 $(73,529)(16) $1,142,925
Operating expenses:...........................
Cost of services (exclusive of depreciation
and amortization shown separately below).... 735,085 321,228 (73,529)(16) 982,784
Selling, general and administrative........... 125,497 129,284 -- 254,781
Depreciation and amortization................. 62,788 38,825 16,251(12) 118,035
(4,958)(12)
6,195(12)
(1,066)(15)
Expense under WorldxChange management
agreement................................... 22,688 -- (22,688)(11) --
Restructuring and other special charges....... 34,326 -- -- 34,326
--------- --------- -------- ----------
Total operating expenses.................... 980,384 489,337 (79,795) 1,389,926
--------- --------- -------- ----------
Operating loss.............................. (145,045) (108,222) 6,266 (247,001)
Reimbursement from World Access of net losses
under management agreement.................. -- 22,688 (22,688)(11) --
Interest and other income..................... 25,642 -- -- 25,642
Interest and other expense.................... (43,688) (26,700) 901(15) (69,487)
Loss on investment in TelDaFax................ (4,853) -- -- (4,853)
Foreign exchange loss......................... (469) -- -- (469)
--------- --------- -------- ----------
Loss from continuing operations before
income taxes and minority interests....... (168,413) (112,234) (15,521) (296,168)
Provision (benefit) for income taxes.......... (18,005) -- (138)(18) (18,143)
--------- --------- -------- ----------
Loss from continuing operations before
minority interest......................... (150,408) (112,234) (15,383) (278,025)
Minority interest............................. -- -- -- --
--------- --------- -------- ----------
Loss from continuing operations............. (150,408) (112,234) (15,383) (278,025)
Preferred stock dividends..................... (1,907) (1,898) -- (3,805)
--------- --------- -------- ----------
Loss from continuing operations available to
common stockholders....................... $(152,315) $(114,132) $(15,383) $ (281,830)
========= ========= ======== ==========
Loss per common share from continuing
operations:
Basic....................................... $ (2.57)
=========
Diluted..................................... $ (2.57)
=========
Weighted average shares outstanding:
Basic....................................... 59,199
=========
Diluted..................................... 59,199
=========
<CAPTION>
PRO FORMA
WORLD ACCESS,
WORLDXCHANGE
TELDAFAX AND TELDAFAX
TELDAFAX(20) ADJUSTMENTS COMBINED
------------ ----------- ----------------
<S> <C> <C> <C>
Service revenues.............................. $224,297 $(3,169)(25) $1,364,053
Operating expenses:...........................
Cost of services (exclusive of depreciation
and amortization shown separately below).... 181,588 (3,169)(25) 1,161,203
Selling, general and administrative........... 50,866 -- 305,647
Depreciation and amortization................. 18,012 1,202(22) 138,599
(3,600)(22)
4,950(22)
Expense under WorldxChange management
agreement................................... -- -- --
Restructuring and other special charges....... -- -- 34,326
-------- ------- ----------
Total operating expenses.................... 250,466 (617) 1,639,775
-------- ------- ----------
Operating loss.............................. (26,169) (2,552) (275,722)
Reimbursement from World Access of net losses
under management agreement.................. -- -- --
Interest and other income..................... 1,086 -- 26,728
Interest and other expense.................... (1,141) -- (70,628)
Loss on investment in TelDaFax................ -- 4,853(21) --
Foreign exchange loss......................... -- -- (469)
-------- ------- ----------
Loss from continuing operations before
income taxes and minority interests....... (26,224) 2,301 (320,091)
Provision (benefit) for income taxes.......... (9,923) (554)(26) (28,620)
-------- ------- ----------
Loss from continuing operations before
minority interest......................... (16,301) 2,855 (291,471)
Minority interest............................. 980 -- 980
-------- ------- ----------
Loss from continuing operations............. (15,321) 2,855 (290,491)
Preferred stock dividends..................... -- -- (3,805)
-------- ------- ----------
Loss from continuing operations available to
common stockholders....................... $(15,321) $ 2,855 $ (294,296)
======== ======= ==========
Loss per common share from continuing
operations:
Basic....................................... $ (2.29)(19)(27)
==========
Diluted..................................... $ (2.29)(19)(27)
==========
Weighted average shares outstanding:
Basic....................................... 128,562(19)(27)
==========
Diluted..................................... 128,562(19)(27)
==========
</TABLE>
14
<PAGE> 16
WORLD ACCESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
WORLD ACCESS AND
PRO FORMA WORLDXCHANGE WORLDXCHANGE
WORLD ACCESS(28) WORLDXCHANGE(10) ADJUSTMENTS COMBINED TELDAFAX(20)
---------------- ---------------- ------------ ----------------- ------------
<S> <C> <C> <C> <C> <C>
Service revenues....................... $1,019,553 $ 607,035 $(25,601)(16) $1,600,987 $364,039
Operating expenses:
Cost of services (exclusive of
depreciation and amortization shown
separately below).................. 903,325 477,317 (25,601)(16) 1,355,041 304,810
Selling, general and
administrative..................... 146,231 193,070 -- 339,301 48,758
Depreciation and amortization........ 97,517 43,304 10,958(12) 152,923 18,369
(6,611)(12)
8,260(12)
(505)(15)
Restructuring and other special
charges............................ 44,187 -- -- 44,187 --
---------- --------- -------- ---------- --------
Total operating expenses....... 1,191,260 713,691 (13,499) 1,891,452 371,937
---------- --------- -------- ---------- --------
Operating loss................. (171,707) (106,656) (12,102) (290,465) (7,898)
Interest and other income.............. 10,822 -- -- 10,822 2,469
Interest and other expense............. (58,208) (25,385) 1,230(15) (82,363) (2,171)
Loss on investment in TelDaFax......... (990) -- -- (990) --
Foreign exchange loss.................. (2,369) -- -- (2,369) --
---------- --------- -------- ---------- --------
Loss from continuing operations
before income taxes and
minority interests........... (222,452) (132,041) (10,872) (365,365) (7,600)
Provision (benefit) for income taxes... (6,999) -- (172)(18) (7,171) (3,830)
---------- --------- -------- ---------- --------
Loss from continuing operations
before minority interest..... (215,453) (132,041) (10,700) (358,194) (3,770)
Minority interest...................... -- 1,614 -- 1,614 774
---------- --------- -------- ---------- --------
Loss from continuing
operations................... (215,453) (130,427) (10,700) (356,580) (2,996)
Preferred stock dividends.............. (2,461) (784) -- (3,245) --
---------- --------- -------- ---------- --------
Loss from continuing operations
available to common
stockholders................. $ (217,914) $(131,211) $(10,700) $ (359,825) $ (2,996)
========== ========= ======== ========== ========
Loss per common share from continuing
operations:
Basic................................ $ (4.30)
==========
Diluted.............................. $ (4.30)
==========
Weighted average shares outstanding:
Basic................................ 50,634
==========
Diluted.............................. 50,634
==========
<CAPTION>
PRO FORMA
WORLD ACCESS,
TELDAFAX WORLDXCHANGE AND
ADJUSTMENTS TELDAFAX COMBINED
----------- --------------------
<S> <C> <C>
Service revenues....................... $ (8,914)(25) $1,956,112
Operating expenses:
Cost of services (exclusive of
depreciation and amortization shown
separately below).................. (8,914)(25) 1,650,937
Selling, general and
administrative..................... -- 388,059
Depreciation and amortization........ 3,311(22) 176,403
(4,800)(22)
6,600(22)
Restructuring and other special
charges............................ -- 44,187
-------- ----------
Total operating expenses....... (3,803) 2,259,586
-------- ----------
Operating loss................. (5,111) (303, 474)
Interest and other income.............. -- 13,291
Interest and other expense............. -- (84,534)
Loss on investment in TelDaFax......... 990(28) --
Foreign exchange loss.................. -- (2,369)
-------- ----------
Loss from continuing operations
before income taxes and
minority interests........... (4,121) (377,086)
Provision (benefit) for income taxes... (738)(26) (11,739)
-------- ----------
Loss from continuing operations
before minority interest..... (3,383) (365,347)
Minority interest...................... -- 2,388
-------- ----------
Loss from continuing
operations................... (3,383) (362,959)
Preferred stock dividends.............. -- (3,245)
-------- ----------
Loss from continuing operations
available to common
stockholders................. $ (3,383) $ (366,204)
======== ==========
Loss per common share from continuing
operations:
Basic................................ $ (3.05)(19)(27)
==========
Diluted.............................. $ (3.05)(19)(27)
==========
Weighted average shares outstanding:
Basic................................ 119,997(19)(27)
==========
Diluted.............................. 119,997(19)(27)
==========
</TABLE>
15
<PAGE> 17
WORLD ACCESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
WORLD ACCESS,
AND
WORLD WORLDXCHANGE WORLDXCHANGE
ACCESS(28) WORLDXCHANGE(10) ADJUSTMENTS COMBINED
---------- ---------------- ------------- -------------
<S> <C> <C> <C> <C>
ASSETS
Cash and equivalents.......................... $ 164,600 $ 12,123 $ -- $ 176,723
Short-term investments 82,249 -- -- 82,249
Restricted cash............................... 17,229 -- -- 17,229
Accounts and notes receivable................. 226,411 133,198 41,606(11) 401,215
Prepaid expenses and other current assets..... 23,333 11,331 -- 34,664
Net assets held for sale...................... 42,946 -- -- 42,946
---------- --------- -------- ----------
Total Current Assets................. 556,768 156,652 41,606 755,026
---------- --------- -------- ----------
Property and equipment........................ 130,618 193,257 (6,500)(11) 264,375
(68,000)(11)
15,000(11)
Goodwill and other intangibles................ 1,097,251 88,208 (76,327)(13) 1,727,302
593,978(11)
41,300(11)
(17,108)(15)
Investments................................... 64,242 -- -- 64,242
Net advances to WorldxChange.................. 54,650 -- (54,650)(11) --
Other assets.................................. 74,426 3,464 -- 77,890
---------- --------- -------- ----------
Total Assets......................... $1,977,955 $ 441,581 $469,299 $2,888,835
========== ========= ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt............................... $ 60,017 $ 204,219 $(14,040)(15) $ 214,464
(35,732)(11)
Accounts payable.............................. 260,994 103,989 (10,960)(15) 376,711
22,688(11)
Other accrued liabilities..................... 167,303 208,884 3,000(11) 379,187
---------- --------- -------- ----------
Total Current Liabilities............ 488,314 517,092 (35,044) 970,362
Long-term debt................................ 247,151 63,082 -- 310,233
Other long-term liabilities................... 3,789 3,162 -- 6,951
---------- --------- -------- ----------
Total Liabilities.................... 739,254 583,336 (35,044) 1,287,546
---------- --------- -------- ----------
Stockholders' Equity (Deficit):
Preferred stock............................... 6 30,000 (30,000)(14) 6
Common stock.................................. 732 148,056 (148,056)(14) 1,052
298(11)
22(15)
Additional paid in capital.................... 1,539,915 -- 336,686(11) 1,902,183
17,712(11)
7,870(15)
Notes receivable from shareholders............ -- (1,988) 1,988(14) --
Accumulated other comprehensive loss.......... (22,671) (14,243) 14,243(14) (22,671)
Accumulated deficit........................... (279,281) (303,580) 303,580(14) (279,281)
---------- --------- -------- ----------
Total Stockholders' Equity
(Deficit).......................... 1,238,701 (141,755) 504,343 1,601,289
---------- --------- -------- ----------
Total Liabilities and Stockholders... $1,977,955 $ 441,581 $469,299 $2,888,835
========== ========= ======== ==========
</TABLE>
16
<PAGE> 18
WORLD ACCESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
WORLD ACCESS AND
PRO FORMA WORLDXCHANGE WORLDXCHANGE
WORLD ACCESS(28) WORLDXCHANGE(10) ADJUSTMENTS COMBINED
---------------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C>
Service revenues................. $ 835,339 $ 381,115 $(73,529)(16) $1,142,925
Operating expenses:
Cost of services (exclusive of
depreciation and amortization
shown separately below)........ 735,085 321,228 (73,529)(16) 982,784
Selling, general and
administrative................. 125,497 129,284 -- 254,781
Depreciation and amortization.... 62,788 38,825 16,251(12) 118,035
(4,958)(12)
6,195(12)
(1,066)(15)
Expense under WorldxChange
management agreement........... 22,688 -- (22,688)(11) --
Restructuring and other special
charges........................ 34,326 -- -- 34,326
--------- --------- -------- ----------
Total operating
expenses.............. 980,384 489,337 (79,795) 1,389,926
--------- --------- -------- ----------
Operating loss.......... (145,045) (108,222) 6,266 (247,001)
Reimbursement from World Access
of net losses under management
agreement...................... -- 22,688 (22,688)(11) --
Interest and other income........ 25,642 -- -- 25,642
Interest and other expense....... (43,688) (26,700) 901(15) (69,487)
Loss on investment in TelDaFax... (4,853) -- -- (4,853)
Foreign exchange loss............ (469) -- -- (469)
--------- --------- -------- ----------
Loss from continuing
operations before income
taxes and minority
interests.................. (168,413) (112,234) (15,521) (296,168)
Provision (benefit) for income
taxes.......................... (18,005) -- (138)(18) (18,143)
--------- --------- -------- ----------
Loss from continuing
operations before minority
interest................... (150,408) (112,234) (15,383) (278,025)
Minority interest................ -- -- -- --
--------- --------- -------- ----------
Loss from continuing
operations................. (150,408) (112,234) (15,383) (278,025)
Preferred stock dividends........ (1,907) (1,898) -- (3,805)
--------- --------- -------- ----------
Loss from continuing
operations available
to common
stockholders.......... $(152,315) $(114,132) $(15,383) $ (281,830)
========= ========= ======== ==========
Loss per common share from
continuing operations:
Basic........................ $ (2.57) $ (3.09)(19)
========= ==========
Diluted...................... $ (2.57) $ (3.09)(19)
========= ==========
Weighted average shares
outstanding:
Basic........................ 59,199 91,221(19)
========= ==========
Diluted...................... 59,199 91,221(19)
========= ==========
</TABLE>
17
<PAGE> 19
WORLD ACCESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
WORLD ACCESS AND
PRO FORMA WORLDXCHANGE WORLDXCHANGE
WORLD ACCESS(28) WORLDXCHANGE(10) ADJUSTMENTS COMBINED
---------------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C>
Service revenues............. $1,019,553 $ 607,035 $ (25,601)(16) $1,600,987
Operating expenses:..........
Cost of services (exclusive
of depreciation and
amortization shown
separately below)........ 903,325 477,317 (25,601)(16) 1,355,041
Selling, general and
administrative........... 146,231 193,070 -- 339,301
Depreciation and
amortization............. 97,517 43,304 10,958(12) 152,923
(6,611)(12)
8,260(12)
(505)(15)
Restructuring and other
special charges.......... 44,187 -- -- 44,187
---------- --------- ------------ ----------
Total operating
expenses.......... 1,191,260 713,691 (13,499) 1,891,452
---------- --------- ------------ ----------
Operating loss...... (171,707) (106,656) (12,102) (290,465)
Interest and other income.... 10,822 -- -- 10,822
Interest and other expense... (58,208) (25,385) 1,230(15) (82,363)
Loss on investment in
TelDaFax................... (990) -- -- (990)
Foreign exchange loss........ (2,369) -- -- (2,369)
---------- --------- ------------ ----------
Loss from continuing
operations before
income taxes and
minority
interests......... (222,452) (132,041) (10,872) (365,365)
Provision (benefit) for
income taxes............... (6,999) -- (172)(18) (7,171)
---------- --------- ------------ ----------
Loss from continuing
operations before
minority
interest.......... (215,453) (132,041) (10,700) (358,194)
Minority interest............ -- 1,614 -- 1,614
---------- --------- ------------ ----------
Loss from continuing
operations........ (215,453) (130,427) (10,700) (356,580)
Preferred stock dividends.... (2,461) (784) -- (3,245)
---------- --------- ------------ ----------
Loss from continuing
operations
available to
common
stockholders...... $ (217,914) $(131,211) $ (10,700) $ (359,825)
========== ========= ============ ==========
Loss per common share from
continuing operations:
Basic...................... $ (4.30) $ (4.35)(19)
========== ==========
Diluted.................... $ (4.30) $ (4.35)(19)
========== ==========
Weighted average shares
outstanding:
Basic...................... 50,634 82,656(19)
========== ==========
Diluted.................... 50,634 82,656(19)
========== ==========
</TABLE>
18
<PAGE> 20
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
STAR ADJUSTMENTS
(1) These columns represent the historical financial position and results
of operations of STAR as of and for the nine months ended September
30, 2000 and for the year ended December 31, 1999 and have been
adjusted to reflect the sale of PT-1, a required condition of the STAR
merger. For pro forma purposes, we have assumed that PT-1 will be sold
to Counsel and the net cash proceeds received from the sale will be
approximately $120.0 million, including $22.5 million placed into
escrow.
<TABLE>
<CAPTION>
STAR
STAR EXCLUSION OF EXCLUDING PT-1
SEPTEMBER 30, 2000 PT-1 SEPTEMBER 30, 2000
------------------ ------------ ------------------
<S> <C> <C> <C>
Cash and equivalents.................. $ 12,244 $ (5,177)(i) $104,567
97,500(ii)
Short-term investments................ 1,599 --(i) 1,599
Accounts and notes receivable......... 175,979 (79,980)(i) 118,499
22,500(ii)
Prepaid expenses and other current
assets.............................. 53,495 (16,718)(i) 36,777
-------- --------- --------
Total Current Assets........ 243,317 18,125 261,442
-------- --------- --------
Property and equipment, net........... 283,521 (38,379)(i) 245,142
Goodwill and other intangibles........ 190,405 (186,800)(i) 3,605
Other assets.......................... 6,355 (821)(i) 5,534
-------- --------- --------
Total Assets................ $723,598 $(207,875) $515,723
======== ========= ========
Short-term debt....................... $139,746 $ (2,073)(i) $137,673
Accounts payable...................... 109,376 (21,902)(i) 87,474
Other accrued liabilities............. 173,103 (56,522)(i) 116,581
-------- --------- --------
Total Current Liabilities... 422,225 (80,497) 341,728
-------- --------- --------
Long-term debt........................ 37,932 (3,470)(i) 34,462
Other long-term liabilities........... 22,966 (890)(i) 22,076
-------- --------- --------
Total Liabilities........... 483,123 (84,857) 398,266
-------- --------- --------
Total Stockholders'
Equity.................... 240,475 (123,018)(iii) 117,457
-------- --------- --------
Total Liabilities and
Stockholders' Equity...... $723,598 $(207,875) $515,723
======== ========= ========
</TABLE>
(i) Represents the historical asset and liability amounts for PT-1,
including PT-1 goodwill recorded by STAR. It does not include
certain liabilities that Counsel will not assume in connection
with the PT-1 asset sale. These liabilities consist primarily of
income taxes, certain network operating costs and litigation
matters that have been managed on a consolidated basis and
historically accounted for on STAR's balance sheet. There are no
significant liabilities on PT-1's balance sheet that are not being
assumed by Counsel.
19
<PAGE> 21
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(ii) Represents the net cash proceeds expected to be received from the
PT-1 asset sale, estimated as follows:
<TABLE>
<S> <C>
Gross purchase price........................ $150,000
Net assets adjustment....................... (8,000)
Fees and expenses........................... (2,100)
STAR income taxes........................... (19,000)
Other costs................................. (900)
--------
Net cash proceeds...................... 120,000
Escrowed cash............................... (22,500)
--------
Unrestricted cash...................... $ 97,500
========
</TABLE>
The gross purchase price will be adjusted upward or downward if
(a) the aging of PT-1's accounts receivable and accounts payable
at the closing date differs materially from the related aging as
of December 31, 1999, and (b) the net assets of PT-1 as of the
closing date differ from $37.2 million, the net assets of PT-1 as
of December 31, 1999. Net assets, as defined in the PT-1 asset
purchase agreement, excludes goodwill, deferred income taxes,
inter-company balances and other liabilities not included on
PT-1's December 31, 1999 balance sheet and therefore not assumed
by Counsel.
Based on an analysis prepared by STAR in December 2000, there has
been no material change in the aging of PT-1's accounts receivable
and accounts payable during 2000, and accordingly no adjustment in
purchase price is expected for this provision. Based on the net
assets of PT-1 as of September 30, 2000, we expect the purchase
price to be reduced by approximately $8.0 million.
The $19.0 million of income taxes represents the net cash
liability we expect STAR to incur as a result of the gain it will
realize on the PT-1 asset sale for federal and state income tax
purposes. This liability, which was calculated net of PT-1
operating loss carryforwards available to offset the tax gain,
will be assumed by World Access in connection with the STAR
merger.
The PT-1 asset purchase agreement requires 15% of the gross
purchase price, or $22.5 million, to be placed into escrow on the
closing date. This escrowed purchase price will be immediately
released to World Access upon (i) the completion of the STAR
merger and (ii) World Access' agreement to assume STAR and PT-1's
representations, warranties and other obligations under the PT-1
asset purchase agreement. World Access plans to assume these
obligations and accordingly expects to receive the $22.5 million
of cash shortly after completion of the STAR merger.
(iii) Represents the assumed loss on the sale of PT-1. As the sale of
PT-1 by STAR is a required condition to the merger and which must
be completed before the merger is consummated, the assumed loss on
the sale of PT-1 of $123.0 million is not reflected in the World
Access unaudited pro forma combined financial statements.
<TABLE>
<CAPTION>
STAR
STAR EXCLUDING PT-1
NINE MONTHS NINE MONTHS
ENDED EXCLUSION OF ENDED
SEPTEMBER 30, 2000 PT-1 SEPTEMBER 30, 2000
------------------ ------------ ------------------
<S> <C> <C> <C>
Carrier service revenue.................. $ 733,725 $(386,537) $347,188
Cost of carrier services................. (638,123) 329,591 (308,532)
Selling, general and administrative...... (89,329) 28,352 (60,977)
</TABLE>
20
<PAGE> 22
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
STAR
STAR EXCLUDING PT-1
NINE MONTHS NINE MONTHS
ENDED EXCLUSION OF ENDED
SEPTEMBER 30, 2000 PT-1 SEPTEMBER 30, 2000
------------------ ------------ ------------------
<S> <C> <C> <C>
Depreciation and amortization............ (40,059) 12,090 (27,969)
Interest and other income................ 7,923 (132) 7,791
Interest expense......................... (14,021) 868 (13,153)
Benefit for income taxes................. 5,174 6,471 11,645
--------- --------- --------
Net loss....................... $ (34,710) $ (9,297) $(44,007)
========= ========= ========
</TABLE>
<TABLE>
<CAPTION>
STAR
STAR EXCLUDING PT-1
YEAR ENDED EXCLUSION OF YEAR ENDED
DECEMBER 31, 1999 PT-1 DECEMBER 31, 1999
----------------- ------------ -----------------
<S> <C> <C> <C>
Carrier service revenues.................. $1,061,774 $(445,305) $ 616,469
Cost of carrier services.................. (925,206) 387,311 (537,895)
Selling, general and administrative....... (160,067) 51,821 (108,246)
Depreciation and amortization............. (44,236) 14,601 (29,635)
Merger expense............................ (1,878) 11 (1,867)
Interest and other income................. 7,036 (335) 6,701
Interest expense.......................... (9,895) 1,281 (8,614)
Foreign exchange loss..................... (3,471) -- (3,471)
Benefit for income taxes.................. 12,096 (1,055) 11,041
---------- --------- ---------
Net loss........................ $ (63,847) $ 8,330 $ (55,517)
========== ========= =========
</TABLE>
(2) The STAR merger will be accounted for under the purchase method of
accounting. The total cost to acquire STAR is subject to change, to
the extent that the number of shares of STAR common stock to be
acquired will not be fixed until the effective date of the merger. A
change in total cost will result in a corresponding change in goodwill
and related amortization expense. The excess of the purchase price
over the fair value of the net assets acquired has been allocated to
goodwill and other intangible assets. These allocations are subject to
change pending the completion of the final analysis of the total
purchase price and fair values of the assets acquired and the
liabilities assumed. The impact of these changes could be material.
<TABLE>
<S> <C>
Purchase price:
Issuance of World Access common stock(i).................. $ 279,847
Fair value of World Access options issued in exchange for
STAR options(ii)....................................... 8,139
Estimated fees and expenses............................... 3,000
---------
Total estimated purchase price.................... $ 290,986
Allocation to fair values:
Pro forma stockholders' equity as of September 30,
2000(iii).............................................. $(117,457)
Intangible assets(v)...................................... (11,900)
Adjust assets and liabilities:
Eliminate historical goodwill as of September 30,
2000.................................................. 1,764
Write-down of fixed assets to fair value............... 94,000
---------
Preliminary goodwill(iv).......................... $ 257,393
=========
</TABLE>
21
<PAGE> 23
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
-----------------------
(i) In accordance with the STAR merger agreement, each share of STAR
common stock issued and outstanding shall be converted into the
right to receive 0.3866 shares of World Access common stock. At
September 30, 2000, approximately 22,678,000 shares of World Access
common stock are assumed to have been issued in connection with the
STAR merger as follows (in thousands, except per share amounts):
<TABLE>
<S> <C>
STAR common shares outstanding at September 30, 2000........ 58,660
Multiplied by: Exchange ratio............................... 0.3866
--------
Shares of World Access Common Stock assumed to be
exchanged................................................. 22,678
Multiplied by: Average market price(a)...................... $ 12.34
--------
Value of World Access Common Stock exchanged................ $279,847
========
</TABLE>
In accordance with the STAR merger agreement, World Access, at its
option, may pay up to 40% of the purchase price in the form of cash.
Currently, World Access has no intention of paying any portion of
the STAR purchase price with cash other than an immaterial amount to
be paid for fractional shares and any cash to be paid for
Dissenters' Shares. However, should World Access decide to pay a
portion of the STAR purchase price in cash, assuming the maximum of
40% and based upon the average closing price of World Access Common
Stock on the Nasdaq National Market for the 10 trading day period
ended July 17, 2000 of $10.83, World Access would be required to pay
STAR shareholders approximately $98.2 million in cash and issue
approximately 13.6 million shares of World Access Common Stock
having an approximate value of $171.5 million in connection with the
merger. Since the option to pay a portion of the STAR purchase price
in cash is solely at the option of the World Access and World Access
has no intention of paying any portion of the STAR purchase price
with the cash option, the pro forma balance sheets have been
prepared excluding the cash option.
---------------------------
(a) The average market price represents the average market price of
World Access Common Stock for the three trading days prior to
and after June 7, 2000, the date economic terms of the merger
were amended.
(ii) As the consummation of the merger is expected to occur after July
1, 2000, we have valued the World Access options using the guidance
in FIN 44, Accounting for Certain Transactions Involving Stock
Compensation, an interpretation of APB Opinion No. 25. Under FIN 44,
the fair value of vested options issued will be included as part of
the purchase price. The fair value of unvested options issued will
also be included as part of the purchase price; however, a portion
of the intrinsic value (if any) of the unvested options will be
allocated to unearned compensation and recognized as compensation
cost over the remaining future vesting period. The intrinsic value
to be allocated to unearned compensation is not significant and has
not been reflected in these pro forma financial statements.
In accordance with the merger agreement, each STAR option is to be
converted into an option to purchase 0.3866 shares of World Access
Common Stock. At September 30, 2000, STAR had approximately 3.5
million options outstanding; 1.7 million of which were vested and
1.8 million were unvested. The vested and unvested options are
convertible to approximately 686,000 and 751,000 World Access
options, respectively, totaling 1.4 million.
The fair value of the 686,000 vested options is $4.4 million
computed using the Black-Scholes Option Pricing Model and is
included in the purchase price. The fair value of the
22
<PAGE> 24
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
751,000 unvested options is $3.7 million computed using the
Black-Scholes Option Pricing Model. The assumptions used in the
Black-Scholes model are: dividend yield 0%, volatility 70%, risk
free interest rate of 6.43%, and an expected life of 3 years.
(iii) STAR pro forma stockholders' equity as of September 30, 2000
assumes the sale of PT-1 for net cash proceeds of $120.0 million.
(iv) The pro forma goodwill is preliminary and subject to change based
on a final review of the fair values of STAR's net assets as of the
actual merger date. Upon a final review of the fair value of STAR's
assets and liabilities, it is likely that certain tangible and
intangible assets such as international licenses, foreign carrier
operating agreements and property and equipment may be recognized
at amounts which differ from the amounts estimated in these
unaudited pro forma financial statements. Although we do not expect
these final adjustments to be significant, they could increase or
decrease the depreciation and amortization expense reflected in the
unaudited pro forma financial statements. In addition, certain
liabilities related to exiting STAR activities or terminating STAR
employees may be recorded as part of the purchase price allocation
in accordance with EITF 95-3, Recognition of Liabilities in
Connection with a Purchase Business Combination. This would
increase goodwill and related amortization expense. World Access
has not finalized a plan to exit any activities of STAR or
terminate any STAR employees, and will not have a final plan until
a detailed analysis of the combined operations is performed shortly
after the STAR merger is consummated.
(v) Intangible assets consist of wholesale and retail customer base,
licenses and interconnection, management and workforce expertise.
Amortization is provided using the straight-line method over a
5-year period.
(3) Amortization of additional goodwill over an estimated life of 20
years. The pro forma adjustment to goodwill was computed as follows
(in thousands):
<TABLE>
<CAPTION>
HISTORICAL
PRO FORMA GOODWILL PRO FORMA
GOODWILL AMORTIZATION AMORTIZATION ADJUSTMENT
-------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
STAR -- for the nine months ended
September 30, 2000..................... $257,393 $ 9,652 $ (228) $9,424
STAR -- for the year ended December 31,
1999................................... $257,393 $12,870 $(8,535) $4,335
</TABLE>
Depreciation benefit as a result of write-down of fixed assets to fair
value is arrived at using an estimated life of 7 years. The pro forma
adjustment to property and equipment was computed as follows (in
thousands):
<TABLE>
<CAPTION>
PRO FORMA
PROPERTY AND DEPRECIATION
EQUIPMENT ADJUSTMENT
------------ ------------
<S> <C> <C>
STAR -- for the nine months ended September 30, 2000........ $94,000 $(10,072)
STAR -- for the year ended December 31, 1999................ $94,000 $(13,429)
</TABLE>
23
<PAGE> 25
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Amortization of additional intangible assets over an estimated life of 5
years. The pro forma adjustment to intangible assets was computed as
follows (in thousands):
<TABLE>
<CAPTION>
PRO FORMA
INTANGIBLE AMORTIZATION
ASSETS ADJUSTMENT
---------- ------------
<S> <C> <C>
STAR -- for the nine months ended June 30, 2000............. $11,900 $1,785
STAR -- for the year ended December 31, 1999................ $11,900 $2,380
</TABLE>
(4) Elimination of STAR's historical goodwill.
(5) Elimination of STAR's historical stockholders' equity accounts.
(6) In connection with the consummation of the STAR merger, a vendor of
STAR has agreed to convert up to approximately $90.0 million of STAR
indebtedness into approximately 7,826,000 shares of World Access
common stock based upon a conversion rate of $11.50 per share. As of
December 11, 2000, the closing price per share of World Access common
stock was $3.63. Since the fair value of the World Access common stock
is less than $11.50 per share, World Access is paying consideration
less than the carrying amount of the debt. This difference is recorded
as a decrease to goodwill of approximately $61.6 million. These shares
are assumed to be issued for purposes of the calculation of basic and
diluted earnings per share in the pro forma condensed combined
statement of operations. The balance sheet adjustment reflects the
conversion of approximately $90.0 million from debt and accrued
interest to common stock, paid-in capital and goodwill for the amount
of indebtedness outstanding as of September 30, 2000. The adjustments
to the pro forma statement of operations are to eliminate the interest
expense recorded on the debt included in the historical results and to
record a reduction in goodwill amortization.
(7) Elimination of intercompany revenues and related costs.
(8) Adjustment for the additional tax benefit derived from pro forma
adjustments. World Access has not recorded any tax benefit on a pro
forma basis that may be derived from STAR's net operating losses.
(9) Represents pro forma weighted average shares for basic and diluted
earnings from continuing operations per share. The weighted average
shares are computed assuming the issuance of approximately 22,678,000
shares of common stock to complete the STAR merger and 7,826,000
shares upon the conversion of STAR indebtedness into World Access
common stock, see Note 6. Due to the pro forma loss from continuing
operations, 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.
24
<PAGE> 26
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
WORLDXCHANGE ADJUSTMENTS
(10) These columns represent the historical financial position and results
of operations of WorldxChange as of and for the nine months ended
September 30, 2000 and for the year ended December 31, 1999. As
WorldxChange's fiscal year end is September 30 the following table
represents a reconciliation of WorldxChange's results of operations
for its fiscal year ended on September 30, 1999 to the year ended
December 31, 1999:
<TABLE>
<CAPTION>
HISTORICAL
RESULTS FOR
FISCAL YEAR EXCLUSION OF INCLUSION OF
ENDED OPERATIONS OPERATIONS YEAR ENDED
SEPTEMBER 30, FROM 10/1/98- FROM 10/1/99- DECEMBER 31,
1999 12/31/98 12/31/99 1999
-------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues............................ $ 421,580 $(89,927) $ 143,327 $ 474,980
Cost of services.................... (328,334) 70,922 (112,545) (369,957)
Selling, general and
administrative.................... (124,112) 27,952 (43,430) (139,590)
Depreciation and amortization....... (17,705) 3,564 (9,375) (23,516)
Interest and other expense.......... (17,531) 4,234 (6,420) (19,717)
Minority interest................... 2,251 (637) -- 1,614
Preferred stock dividends........... (2) 2 (784) (784)
--------- -------- --------- ---------
Net loss.................. $ (63,853) $ 16,110 $ (29,227) $ (76,970)
========= ======== ========= =========
</TABLE>
On November 4, 1999, WorldxChange acquired the outstanding shares
of certain European subsidiaries of ACC Corp. ("ACC"), a subsidiary of
AT&T. The historical results of operations of WorldxChange includes
ACC's results for the two months ended December 31, 1999. The results of
ACC for the period from January 1, 1999 to October 31, 1999 have been
added to the WorldxChange historical results of operations as follows:
<TABLE>
<CAPTION>
WXC WXC
YEAR ENDED ACC FOR YEAR ENDED
DECEMBER 31, 1999 THE PERIOD DECEMBER 31, 1999
INCLUDING 1/1/99 TO INCLUDING
2 MONTHS OF ACC 10/31/99 12 MONTHS OF ACC
----------------- ---------- -----------------
<S> <C> <C> <C>
Revenues................................ $ 474,980 $ 132,055 $ 607,035
Cost of services........................ (369,957) (107,360) (477,317)
Selling, general and administrative..... (139,590) (53,480) (193,070)
Depreciation and amortization........... (23,516) (19,788) (43,304)
Interest and other expense.............. (19,717) (5,668) (25,385)
Minority interest....................... 1,614 -- 1,614
Preferred stock dividends............... (784) -- (784)
--------- --------- ---------
Net loss...................... $ (76,970) $ (54,241) $(131,211)
========= ========= =========
</TABLE>
25
<PAGE> 27
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following table represents a reconciliation of WorldxChange's
results of operations for the nine months ended September 30, 2000 (as
shown in the WorldxChange financial statements included in this
registration statement) to the results of operations for the six months
ended September 30, 2000:
<TABLE>
<CAPTION>
RESULTS FOR THE EXCLUSION OF
YEAR ENDED RESULTS FOR THE RESULTS FOR THE
SEPTEMBER 30, THREE MONTHS ENDED NINE MONTHS ENDED
2000 DECEMBER 31, 1999 SEPTEMBER 30, 2000
----------------- ------------------ ------------------
<S> <C> <C> <C>
Revenues................... $ 524,442 $ (143,327) $ 381,115
Cost of services........... (433,773) 112,545 (321,228)
Selling, general and
administrative........... (172,714) 43,430 (129,284)
Depreciation and
amortization............. (48,200) 9,375 (38,825)
Reimbursement from World
Access of net losses
under management
agreement................ 22,688 -- 22,688
Interest and other
expense.................. (33,120) 6,420 (26,700)
Preferred stock
dividends................ (2,682) 784 (1,898)
---------- ---------- ----------
Net loss applicable to
common stockholders...... $ (143,359) $ 29,227 $ (114,132)
========== ========== ==========
</TABLE>
(11) The WorldxChange merger will be accounted for under the purchase
method of accounting. The total cost to acquire WorldxChange is
subject to change, to the extent that the number of shares of
WorldxChange capital stock to be acquired will not be fixed until the
effective date of the merger. A change in total cost will result in a
corresponding change in goodwill and related amortization expense. The
excess of the purchase price over the fair value of the net assets
acquired has been allocated to goodwill and other intangible assets.
These allocations are subject to change pending the completion of the
final analysis of the total purchase price and fair values of the
assets acquired and the liabilities assumed. The impact of these
changes could be material. The preliminary purchase price and goodwill
is currently estimated as follows (in thousands):
<TABLE>
<S> <C>
Purchase price:
Issuance of World Access common stock(i).................. $336,984
Fair value of World Access options issued in exchange for
WorldxChange options(ii)............................... 17,712
Net advances from World Access(iii)....................... 54,650
Estimated fees and expenses............................... 3,000
--------
Total estimated purchase price.................... 412,346
Allocation to fair values:
Historical shareholders' deficit as of September 30,
2000................................................... 141,755
Intangible assets (vi).................................... (41,300)
Eliminate net advances payable to World Access............ (54,650)
</TABLE>
26
<PAGE> 28
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<S> <C>
Adjust assets and liabilities:
Eliminate historical goodwill as of September 30,
2000.................................................. 76,327
Write-off of PC based switches(iv)..................... 6,500
Write-down of fixed assets to fair value............... 68,000
Write-up of management information systems to fair
value................................................. (15,000)
--------
Preliminary goodwill(v)................................... $593,978
========
</TABLE>
-----------------------
(i) In accordance with the merger agreement, each share of WorldxChange
common stock issued and outstanding shall be converted into the
right to receive 0.6583 shares of World Access common stock. At
September 30, 2000, a total of 29,848,000 shares of World Access
common stock are assumed to have been issued in connection with the
WorldxChange merger as follows (in thousands, except per share
amounts):
<TABLE>
<S> <C>
WorldxChange common shares outstanding upon the conversion
of preferred shares outstanding at September 30, 2000..... 2,727
WorldxChange common shares outstanding at September 30,
2000...................................................... 42,614
--------
Total WorldxChange common shares outstanding...... 45,341
Multiplied by: Exchange ratio............................... 0.6583
--------
Shares of World Access Common Stock assumed to be
exchanged................................................. 29,848
Multiplied by: Average market price (a)..................... $ 11.29
--------
Value of World Access Common Stock exchanged................ $336,984
========
</TABLE>
---------------
(a) The average price represents the average market price of World
Access common stock for the three trading days prior to and
after May 23, 2000, the date economic terms of the merger were
amended.
(ii) As the consummation of the merger is expected to occur after July
1, 2000, we have valued the World Access options using the guidance
in FIN 44, Accounting for Certain Transactions Involving Stock
Compensation, an interpretation of APB opinion No. 25. Under FIN
44, the fair value of vested options issued will be included as
part of the purchase price. The fair value of unvested options
issued will also be included as part of the purchase price;
however, a portion of the intrinsic value (if any) of the unvested
options will be allocated to unearned compensation and recognized
as compensation cost over the remaining future vesting period. The
intrinsic value to be allocated to unearned compensation is not
significant and has not been reflected in these pro forma financial
statements.
In accordance with the merger agreement, each WorldxChange option is
to be converted into an option to purchase 0.6583 shares of World
Access common stock. At September 30, 2000, WorldxChange had
approximately 4.1 million options outstanding; 2.6 million of which
were vested and 1.5 million were unvested. The vested and unvested
options are convertible to approximately 1.6 million and 1.0 million
World Access options respectively, totaling 2.6 million. The fair
value of the 1.6 million vested options is $12.7 million computed
using the Black-Scholes Option Pricing Model and is included in the
purchase price. The fair value of the 1.0 million unvested options
is $5.0 million computed using the Black-Scholes Option Pricing
Model. The assumptions used in the Black-Scholes model are: dividend
yield 0%, volatility 70%, risk free interest rate of 6.43%, and an
expected life of three years.
27
<PAGE> 29
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(iii) As of September 30, 2000, WorldxChange has net advances due to
World Access of $54.7 million, which consisted of the following
(in thousands):
<TABLE>
<S> <C>
Net expenses under Management Agreement..................... $(22,688)
Secured term loan........................................... 35,732
Working capital advances.................................... 41,606
--------
$ 54,650
========
</TABLE>
On August 1, 2000, WorldxChange entered into an Executive Management
Services Agreement ("Management Agreement") with World Access. Under
this agreement, World Access serves as the exclusive agent for
WorldxChange to provide all management services required for the
operation and management of WorldxChange. World Access has the
authority, to the fullest extent permitted by law, to take all
actions and make all decisions on behalf of WorldxChange in the
operation and management of WorldxChange's day to day business
affairs. This includes the direction and use of and access to
WorldxChange's assets and the power to select, terminate and
determine the compensation of the management and employees of
WorldxChange. Under this agreement, World Access has also assumed
all financial responsibility related to the operations of
WorldxChange subsequent to August 1, 2000.
As a result of World Access assuming all financial responsibility
for WorldxChange, World Access has recorded the net loss incurred by
WorldxChange since August 1, 2000 as a single line item, "Expense
under WorldxChange Management Agreement", in its Statement of
Operations and recorded a liability to WorldxChange. This item has
been presented as part of both company's operations due to the
significant integration that has occurred between the companies.
As an integral component of the merger agreement, World Access
agreed to provide WorldxChange up to $45.0 million in bridge funds,
$35.7 million of which had been advanced as of September 30, 2000.
Stockholders holding a majority of the outstanding shares of voting
stock of both the World Access and WorldxChange have entered into
agreements in which they agreed to vote in favor of the WorldxChange
merger. In early August 2000, when it was determined that completion
of the WorldxChange merger was highly likely under the voting
agreements, World Access began advancing funds to WorldxChange for
working capital purposes. As of September 30, 2000, World Access has
advanced approximately $41.6 million to WorldxChange.
These funds are being used to finance operating losses expected to
be incurred by WorldxChange prior to the merger date and to make
permanent investments in working capital that are required to
support WorldxChange growth. World Access intends to fully forgive
these loans, net of the expenses under the management agreement, in
connection with the consummation of the merger. As a result, the
bridge financing and other advances already funded are being
accounted for as additional purchase price, net of the expenses
under the management agreement.
(iv) At September 30, 2000, WorldxChange has PC based switches with net
book value of approximately $6.5 million. The merger with World
Access would result in these assets becoming idle, hence, the
adjustment to write-off these assets in the acquisition.
Consequently, depreciation expense is decreased by $722,000 and
$542,000 for the year
28
<PAGE> 30
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
ended December 31, 1999 and the nine months ended September 30,
2000, respectively. See note 12 for adjustment to depreciation
expense.
(v) The pro forma goodwill is preliminary and subject to change based
on a final review of the fair values of WorldxChange's net assets
as of the actual merger date. Upon a final review of the fair value
of WorldxChange's assets and liabilities, it is likely that certain
tangible and intangible assets such as international licenses,
foreign carrier operating agreements and property and equipment may
be recognized at amounts which differ from the amounts estimated in
these unaudited pro forma financial statements. Although we do not
expect these final adjustments to be significant, they could
increase or decrease the depreciation and amortization expense
reflected in the unaudited pro forma financial statements.
(vi) Intangible assets consist of wholesale and retail customer base,
management information systems, licenses and interconnection,
management and workforce expertise. Amortization is provided using
the straight-line method over a 5-year period.
(12) Amortization of goodwill over an estimated life of 20 years. The pro
forma adjustment to goodwill was computed as follows (in thousands):
<TABLE>
<CAPTION>
HISTORICAL
PRO FORMA GOODWILL PRO FORMA
GOODWILL AMORTIZATION AMORTIZATION ADJUSTMENT
-------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
WorldxChange -- For the nine months ended
September 30, 2000..................... $593,978 $22,274 $ (6,023) $16,251
WorldxChange -- For the year ended
December 31, 1999...................... $593,978 $29,699 $(18,741) $10,958
</TABLE>
Depreciation benefit as a result of write-off of impaired assets,
write-down of fixed assets to fair value and write-up of management
information systems to fair value is arrived at using an estimated
life of nine years. The pro forma adjustment to property and
equipment was computed as follows (in thousands):
<TABLE>
<CAPTION>
PRO FORMA
PROPERTY AND DEPRECIATION
EQUIPMENT ADJUSTMENT
------------ ------------
<S> <C> <C>
WorldxChange -- for the nine months ended September 30,
2000...................................................... $ 59,500 $(4,958)
WorldxChange -- for the year ended December 31, 1999........ $ 59,500 $(6,611)
</TABLE>
Amortization of additional intangible assets over an estimated life
of 5 years. The pro forma adjustment to intangible assets was
computed as follows (in thousands):
<TABLE>
<CAPTION>
PRO FORMA
INTANGIBLE AMORTIZATION
ASSETS ADJUSTMENT
----------- -------------
<S> <C> <C>
WorldxChange -- for the nine months ended September 30,
2000...................................................... $41,300 $6,195
WorldxChange -- for the year ended December 31, 1999........ $41,300 $8,260
</TABLE>
(13) Elimination of WorldxChange's historical goodwill.
(14) Elimination of WorldxChange's historical shareholders' deficit
accounts.
(15) In connection with the consummation of the WorldxChange merger, a
vendor of WorldxChange has agreed to convert up to approximately $25.0
million of WorldxChange indebtedness into approximately 2,174,000
shares of World Access common stock based upon a conversion rate of
$11.50 per share. As of December 11, 2000, the closing price per share
of World Access Common Stock was $3.63. Since the fair value of the
World Access common stock is less than
29
<PAGE> 31
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
$11.50 per share, World Access is paying consideration less than the
carrying amount of the accounts payable and debt. This difference is
recorded as a decrease to goodwill of approximately $17.1 million. These
shares are assumed to be issued for purposes of the calculation of basic
and diluted earnings per share in the pro forma condensed combined
statement of operations. The balance sheet adjustment reflects the
conversion of approximately $25.0 million accounts payable and debt to
common stock, paid-in-capital and goodwill for the amount of
indebtedness outstanding as of September 30, 2000. The adjustments to
the pro forma statement of operations are to eliminate the interest
expense recorded on the debt included in the historical results and to
record a reduction in goodwill amortization.
(16) Elimination of intercompany carrier service revenues and related
costs.
(17) At September 30, 2000, WorldxChange had a $2.2 million note payable to
STAR. Assuming the mergers of WorldxChange and STAR with World Access
are consummated, this adjustment is necessary to eliminate the
intercompany debt.
(18) Adjustment for the additional income tax provision derived from pro
forma adjustments. World Access has not recorded any tax benefit on a
pro forma basis that may be derived from WorldxChange's net operating
losses.
(19) Represents pro forma weighted average shares for basic and diluted
earnings from continuing operations per share. The weighted average
shares are computed assuming the issuance of an aggregate of
29,848,000 shares issued to complete the WorldxChange merger and
2,174,000 shares upon the conversion of WorldxChange indebtedness into
World Access Common Stock, see Note 15. Due to the pro forma loss from
continuing operations 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.
30
<PAGE> 32
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
TELDAFAX ADJUSTMENTS
(20) These columns represent the historical financial position and results of
operations of TelDaFax as of and for the nine months ended September 30,
2000 and for the year ended December 31, 1999.
The following tables represent the conversion of TelDaFax's balance sheet
as of September 30, 2000 and statements of operations for the nine months
and year ended September 30, 2000 and December 31, 1999, respectively, from
local currency (DM) into U.S. dollars. The U.S. dollar equivalent was
computed by multiplying the deutsche mark balance by 0.4497, the exchange
rate as of September 30, 2000 for the balance sheet and by 0.4822 and
0.5435 which represent the average exchange rates for the nine month period
and year ended September 30, 2000 and December 31, 1999, respectively.
<TABLE>
<CAPTION>
TELDAFAX TELDAFAX
SEPTEMBER 30, EXCHANGE SEPTEMBER 30,
2000 RATE 2000
------------------- -------- --------------------
(IN THOUSANDS - DM) (IN THOUSANDS - USD)
<S> <C> <C> <C>
Cash and equivalents...................... 40,282 0.4497 $ 18,115
Accounts receivable....................... 74,955 0.4497 33,707
Prepaid expenses and other current
assets.................................. 47,990 0.4497 21,581
------- --------
Total current assets.................. 163,227 73,403
------- --------
Property and equipment, net............... 127,072 0.4497 57,144
Goodwill.................................. 31,310 0.4497 14,080
Other assets.............................. 33,503 0.4497 15,066
------- --------
Total assets.......................... 355,112 $159,693
======= ========
Short-term debt........................... 15,529 0.4497 $ 6,983
Accounts payable.......................... 126,169 0.4497 56,738
Other accrued liabilities................. 20,845 0.4497 9,374
------- --------
Total current liabilities............. 162,543 73,095
------- --------
Long-term debt............................ 36,039 0.4497 16,206
Other long-term liabilities............... 699 0.4497 314
------- --------
Total liabilities..................... 199,281 89,615
------- --------
Minority interests........................ 1,524 0.4497 685
Stockholders' Equity (Deficit):
Common stock.............................. 172,024 0.4497 77,359
Additional paid in capital................ 15,787 0.4497 7,099
Accumulated other comprehensive loss...... -- (343)
Accumulated deficit....................... (33,504) 0.4394 (14,722)
------- --------
Total stockholders' equity............ 154,307 69,393
------- --------
Total liabilities and stockholders'
equity.............................. 355,112 $159,693
======= ========
</TABLE>
31
<PAGE> 33
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
TELDAFAX TELDAFAX
NINE MONTHS ENDED EXCHANGE NINE MONTHS ENDED
SEPTEMBER 30, 2000 RATE SEPTEMBER 30, 2000
------------------- -------- --------------------
(IN THOUSANDS - DM) (IN THOUSANDS - USD)
<S> <C> <C> <C>
Service revenues 465,153 0.4822 $224,297
Operating expenses:
Cost of services (exclusive of
depreciation and amortization shown
separately below) 376,582 0.4822 181,588
Selling, general and administrative 105,487 0.4822 50,866
Depreciation and amortization 37,353 0.4822 18,012
------- --------
Total operating expenses 519,422 250,466
------- --------
Operating loss (54,269) (26,169)
Interest and other income 2,253 0.4822 1,086
Interest expense (2,367) 0.4822 (1,141)
------- --------
Loss from continuing operations
before income taxes and
minority interests (54,383) (26,224)
Provision (benefit) for income taxes (20,578) 0.4822 (9,923)
------- --------
Loss from continuing operations
before minority interests (33,805) (16,301)
Minority interests 2,033 0.4822 980
------- --------
Loss from continuing operations (31,772) $(15,321)
======= ========
</TABLE>
Effective October 1, 1999, TelDaFax acquired a majority interest in the
telecommunications equipment distributor Demuth & Dietl Co.
Kommunikationselektronik GmbH (D & D). The historical results of operations
of TelDaFax for the year ended December 31, 1999 includes D & D results for
the three months ended December 31, 1999. The results of D & D for the
period from January 1, 1999 to September 30, 1999 have been added to the
TelDaFax historical results of operations as follows:
<TABLE>
<CAPTION>
TELDAFAX TELDAFAX TELDAFAX
YEAR ENDED D&D FOR YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 THE PERIOD DECEMBER 31, 1999 DECEMBER 31, 1999
INCLUDING 3 MONTHS JANUARY 1, 1999 TO INCLUDING 12 MONTHS EXCHANGE INCLUDING 12 MONTHS
OF D&D SEPTEMBER 30, 1999 OF D&D RATE OF D&D
------------------ ------------------- ------------------- -------- --------------------
(IN THOUSANDS - DM) (IN THOUSANDS - USD)
<S> <C> <C> <C> <C> <C>
Service revenues...... 611,018 58,787 669,805 0.5435 $364,039
Operating expenses:
Cost of services
(exclusive of
depreciation and
amortization shown
separately
below)............. 507,745 53,083 560,828 0.5435 304,810
Selling, general and
administrative..... 84,008 5,703 89,711 0.5435 48,758
</TABLE>
32
<PAGE> 34
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
TELDAFAX TELDAFAX TELDAFAX
YEAR ENDED D&D FOR YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 THE PERIOD DECEMBER 31, 1999 DECEMBER 31, 1999
INCLUDING 3 MONTHS JANUARY 1, 1999 TO INCLUDING 12 MONTHS EXCHANGE INCLUDING 12 MONTHS
OF D&D SEPTEMBER 30, 1999 OF D&D RATE OF D&D
------------------ ------------------- ------------------- -------- --------------------
(IN THOUSANDS - DM) (IN THOUSANDS - USD)
<S> <C> <C> <C> <C> <C>
Depreciation and
amortization....... 33,630 168 33,798 0.5435 18,369
-------- ------- -------- --------
Total operating
expenses........... 625,383 58,954 684,337 371,937
-------- ------- -------- --------
Operating loss.... (14,365) (167) (14,532) (7,898)
Interest and other
income............. 4,456 86 4,542 0.5435 2,469
Interest expense..... (3,692) (302) (3,994) 0.5435 (2,171)
-------- ------- -------- --------
Loss from
continuing
operations
before income
taxes and
minority
interests....... (13,601) (383) (13,984) (7,600)
Provision (benefit)
for income taxes... (7,009) (37) (7,046) 0.5435 (3,830)
-------- ------- -------- --------
Loss from
continuing
operations
before minority
interest........ (6,592) (346) (6,938) (3,770)
Minority interest.... 1,336 89 1,425 0.5435 774
-------- ------- -------- --------
Loss from
continuing
operations...... (5,256) (257) (5,513) $ (2,996)
======== ======= ======== ========
</TABLE>
(21) The board of directors of World Access has approved a Purchase and Transfer
Agreement, dated as of June 14, 2000, under which World Access will acquire
shares of TelDaFax stock. Pursuant to the TelDaFax Purchase Agreement,
World Access will attempt to acquire 100% of the outstanding shares of
TelDaFax in five transactions (collectively referred to as the TelDaFax
Purchase):
Purchase of the TelDaFax Shares Owned by the Apax Funds. On September 21,
2000, World Access acquired 11,178,176 shares of TelDaFax held by the
funds advised by Apax, except the A+M fund, in exchange for 11,457,631
shares of World Access common stock. The shares held by the Apax funds,
excluding the A+M fund represented 33.03% of the outstanding capital stock
of TelDaFax. As of December 1, 2000, there were 33,828,600 shares of
TelDaFax stock outstanding.
A+M is a fund advised by Apax; however, because World Access intends to
purchase the TelDaFax shares of A+M separately pursuant to a put/call
arrangement, all references to "Apax funds" exclude A+M unless otherwise
noted.
Put/Call Option for Shares of Dr. Klose and A+M. From June 14, 2000 until
December 31, 2001, Dr. Klose has the right to sell to World Access all of
the outstanding shares of TelDaFax he owns in up to three installments.
From July 1, 2002 until December 31, 2002, World Access has the right to
buy from Dr. Klose all of the outstanding shares of TelDaFax owned by Dr.
Klose at the time World Access exercises its right to purchase. As of
December 1, 2000, Dr. Klose owned 2,756,200 shares of TelDaFax stock,
equal to 8.15% of the outstanding capital stock of TelDaFax.
From January 1, 2001 until April 30, 2001, A+M has the right to sell to
World Access all of the outstanding shares of TelDaFax owned by A+M in one
installment. From July 1, 2001 until December 31, 2001, World Access has
the right to buy from A+M all of the outstanding shares owned by A+M. As
of December 1, 2000, A+M owned 143,492 shares of TelDaFax stock, equal to
0.42% of the outstanding capital stock of TelDaFax.
33
<PAGE> 35
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Consideration for the Purchase of TelDaFax Shares of the Apax Funds
and Dr. Klose. In exchange for each share of TelDaFax common stock
purchased by World Access from A+M and Dr. Klose, World Access will issue
a number of shares of World Access common stock determined using an
exchange ratio of 1.025. Dr. Klose and A+M waived their rights under the
purchase agreement to receive additional shares under the new exchange
ratio.
Tender Offer. World Access will launch a tender offer for all of the
shares of TelDaFax pursuant to which each share of TelDaFax would receive
1.16 shares of World Access common stock.
Combination of German Businesses of World Access and Business of
TelDaFax. Under the TelDaFax contribution agreement, World Access agreed
to contribute the German operations of two of its subsidiaries, NETnet
Telekommunications, or NETnet Germany and NewTel Communications, to
TelDaFax. In exchange, TelDaFax agreed to issue 1,620,334 of its shares to
NETnet Germany and 925,905 shares to Newtel. The total TelDaFax shares
received for these World Access subsidiaries would represent 7.0% of the
outstanding capital stock of TelDaFax.
The TelDaFax Purchase will be accounted for under the purchase method of
accounting. The contribution of NETnet Germany and NewTel and the tender
offer are all contractually required to close on the same day and the
consummation of these transactions is conditioned on World Access obtaining
at least 50.1% ownership of the outstanding capital stock of TelDaFax.
Although the shares to be acquired from Dr. Klose and A+M may not happen on
the same date as the contribution of NETnet Germany and NewTel and the
tender offer, it is World Access' intent to acquire 100% of the outstanding
stock of TelDaFax and as such, for purposes of the pro forma financial
information, we have assumed World Access acquired 100% of the TelDaFax
outstanding stock.
In accordance with EITF 90-13, Accounting for Simultaneous Common Control
Mergers, the transfer of NETnet Germany and NewTel to TelDaFax should be
accounted for by World Access as a purchase of TelDaFax under APB Opinion
16, Business Combinations. World Access will fair value TelDaFax assets and
liabilities to the extent acquired by World Access. World Access will fair
value NETnet Germany and NewTel assets and liabilities to the extent NETnet
Germany and NewTel are sold to minority shareholders. As the pro forma
financial information assumes World Access will acquire 100% of the
outstanding capital stock of TelDaFax, all of TelDaFax assets and
liabilities will be recorded at fair value and the NETnet Germany and
NewTel assets and liabilities will remain at historical cost. Consequently,
under this scenario, World Assess would not recognize any gain or loss on
the contribution of NETnet Germany and NewTel to TelDaFax.
34
<PAGE> 36
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The total cost to acquire TelDaFax is subject to change, to the extent
that the number of shares of TelDaFax capital stock to be acquired will not
be fixed until the effective date of the merger. A change in total cost
will result in a corresponding change in goodwill and related amortization
expense. The excess of the purchase price over the fair value of the net
assets acquired has been allocated to goodwill and other intangible assets.
These allocations are subject to change pending the completion of the final
analysis of the total purchase price and fair values of the assets acquired
and the liabilities assumed. The impact of these changes could be material.
The preliminary purchase price and goodwill is currently estimated as
follows (in thousands):
<TABLE>
<S> <C>
Purchase price:
Acquisition of 33.03% of TelDaFax common stock(i)......... $ 64,449
Issuance of World Access Common Stock (ii)................ 76,358
Estimated fees and expenses............................... 5,000
--------
Total estimated purchase price.................... 145,807
Allocation to fair values:
Historical shareholders' equity as of September 30,
2000................................................... (69,393)
Intangible assets (iv).................................... (33,000)
Adjust assets and liabilities:
Eliminate historical goodwill.......................... 10,900
Write down of fixed assets to fair value............... 24,000
--------
Preliminary goodwill (iii).................................. $ 78,314
========
</TABLE>
---------------
(i) On September 21, 2000, World Access purchased all of the outstanding
shares of TelDaFax held by the Apax funds, except the A+M fund, in
exchange for shares of World Access common stock. The Apax funds,
excluding the A+M fund, owned 11,178,176 shares of TelDaFax stock,
equal to 33.03% of the outstanding capital stock of TelDaFax. In
accordance with the purchase agreement, each share of TelDaFax common
stock shall be converted into the right to receive 1.025 shares of
World Access Common Stock. The fair value of the World Access common
stock is determined as follows (in thousands, except per share
amounts):
<TABLE>
<S> <C>
TelDaFax common shares acquired by World Access............. 11,178
Multiplied by: Exchange ratio............................... 1.025
--------
Shares of World Access common stock exchanged............... 11,458
Multiplied by: Average market price(a)...................... $ 5.63
--------
Value of World Access common stock exchanged................ $ 64,449
========
</TABLE>
(a) The average price represents the market price of World Access common
stock on September 21, 2000, the date that World Access acquired
33.03% of the outstanding capital stock of TelDaFax.
(ii) In accordance with the purchase agreement, each share of TelDaFax
common stock held by Dr. Klose and A+M shall be converted into the
right to receive 1.025 shares of World Access common stock and all
TelDaFax common stock subject to the tender offer shall be converted
into the right to receive 1.16 shares of World Access common stock and
this World Access
35
<PAGE> 37
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
common stock is assumed to have been issued in connection with the
TelDaFax purchase as follows (in thousands, except per share amounts):
TelDaFax common shares held by:
<TABLE>
<S> <C> <C>
Dr. Klose and A+M........................................... 2,900
Multiplied by: Exchange ratio............................... 1.025
------
Shares of World Access common stock to be exchanged to Dr.
Klose and A+M............................................. 2,973
Remaining shares subject to the tender offer................ 19,751
Multiplied by: Exchange ratio............................... 1.16
------
Shares of World Access common stock to be exchanged in the
tender offer.............................................. 22,911
-------
Total shares of World Access common stock to be
exchanged....................................... 25,884
Multiplied by: Average market price(a)...................... $ 2.95
-------
Value of World Access common stock exchanged................ $76,358
=======
</TABLE>
---------------
(a) The average price represents the average market price of World
Access common stock for the three trading days prior to and after
December 5, 2000, the date the economic terms of the tender offer
were amended.
(iii) The pro forma goodwill is preliminary and subject to change based on
a final review of the fair values of TelDaFax's net assets as of the
actual purchase date. Upon a final review of the fair value of
TelDaFax's assets and liabilities, it is likely that certain tangible
and intangible assets such as customer lists, trademarks and property
and equipment may be recognized at amounts which differ from the
amounts estimated in these unaudited pro forma financial statements.
Although we do not expect these final adjustments to be significant,
they could increase or decrease the amortization and depreciation
expense reflected in the unaudited pro forma financial statements.
(iv) Intangible assets consist of wholesale and retail customer base,
licenses and interconnection, management and workforce expertise.
Amortization is provided using the straight-line method over a 5-year
period.
(22) Amortization of goodwill over an estimated life of 20 years. The pro forma
adjustment to goodwill was computed as follows (in thousands):
<TABLE>
<CAPTION>
HISTORICAL
PRO FORMA GOODWILL PRO FORMA
GOODWILL AMORTIZATION AMORTIZATION ADJUSTMENT
-------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
TelDaFax -- For the nine months ended
September 30, 2000.................... $78,314 $2,937 $(1,735) $1,202
TelDaFax -- For the year ended December
31, 1999.............................. $78,314 $3,916 $ (605) $3,311
</TABLE>
Depreciation benefit as a result of write-down of fixed assets to fair
value is arrived at using an estimated life of 5 years. The pro forma
adjustment to property and equipment was computed as follows (in
thousands):
<TABLE>
<CAPTION>
PRO FORMA
PROPERTY AND DEPRECIATION
EQUIPMENT ADJUSTMENT
------------ ------------
<S> <C> <C>
TelDaFax -- For the nine months ended September 30,
2000................................................ $24,000 $(3,600)
TelDaFax -- For the year ended December 31, 1999...... $24,000 $(4,800)
</TABLE>
36
<PAGE> 38
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Amortization of additional intangible assets over an estimated life of 5
years. The pro forma adjustment to intangible assets was computed as
follows (in thousands):
<TABLE>
<CAPTION>
PRO FORMA
INTANGIBLE AMORTIZATION
ASSETS ADJUSTMENT
------------ ------------
<S> <C> <C>
TelDaFax -- For the nine months ended September 30,
2000................................................ $33,000 $4,950
TelDaFax -- For the year ended December 31, 1999...... $33,000 $6,600
</TABLE>
(23) Elimination of historical goodwill.
(24) Elimination of historical shareholders' equity accounts and the $207,000
historical loss related to the investment in TelDaFax reported in the
historical results of World Access.
(25) Elimination of intercompany service revenues and related costs.
(26) Adjustment to record additional tax provision (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 TelDaFax's net
operating losses.
(27) Represents pro forma weighted average shares for basic and diluted earnings
from continuing operations per share. The weighted average shares are
computed assuming the issuance of an aggregate of 37,342,000 shares issued
to complete the TelDaFax purchase. Due to the pro forma loss from
continuing operations 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.
The following represents the pro forma net loss and net loss per share
assuming World Access acquires a 50.1% majority interest in TelDaFax for
the various scenarios listed below:
<TABLE>
<CAPTION>
OPERATING NET LOSS
SCENARIO LOSS NET LOSS PER SHARE
-------- --------- --------- ---------
<S> <C> <C> <C>
World Access acquires STAR, WorldxChange and TelDaFax:
Year ended December 31, 1999........................... $(352,833) $(407,315) $(3.11)
Nine months ended September 30, 2000................... $(320,487) $(328,086) $(2.35)
World Access acquires WorldxChange and TelDaFax:
Year ended December 31, 1999........................... $(300,919) $(362,520) $(3.61)
Nine months ended September 30, 2000................... $(274,446) $(285,652) $(2.62)
</TABLE>
37
<PAGE> 39
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following represents the pro forma summarized balance sheets as at
September 30, 2000 assuming World Access acquires a 50.1% majority interest
in TelDaFax for the various scenarios listed below:
<TABLE>
<CAPTION>
WORLD ACCESS ACQUIRES:
---------------------------
STAR,
WORLDXCHANGE WORLDXCHANGE
& TELDAFAX & TELDAFAX
------------ ------------
<S> <C> <C>
Current assets.............................................. $1,087,670 $ 828,429
Noncurrent assets........................................... 2,570,052 2,203,834
---------- ----------
Total assets................................................ $3,657,722 $3,032,263
========== ==========
Current liabilities......................................... $1,300,984 $1,048,457
Noncurrent liabilities...................................... 390,242 333,704
Minority interests.......................................... 34,364 34,364
Stockholders' equity........................................ 1,932,132 1,615,738
---------- ----------
Total liabilities and stockholders' equity.................. $3,657,722 $3,032,263
========== ==========
</TABLE>
PRO FORMA WORLD ACCESS
(28) On December 17, 1999, World Access entered into an Asset Purchase Agreement
with Long Distance International, Inc. ("LDI") whereby it agreed to
purchase substantially all of its assets in exchange for World Access
Convertible Preferred Stock, Series D, with an Aggregate Liquidation
Preference of $185,000,000 ("World Access Preferred") and the assumption of
certain of LDI's liabilities. At the closing of the transaction, 81% of the
World Access Preferred was issued to holders of LDI's 12 1/4% Senior Notes
due 2008 ("Note Holders"), in satisfaction of LDI's obligations thereunder;
6% of World Access Preferred was issued to NETnet International S.A.
("S.A.") in satisfaction of LDI's obligation under an Acquisition Agreement
dated October 9, 1998; 3% of the World Access Preferred was issued to LDI
to satisfy any remaining obligations; and 10% of the World Access Preferred
was deposited into escrow to secure LDI's indemnification obligations under
the Asset Purchase Agreement. Any escrow proceeds not so applied will be
allocated 70% to the Note Holders; 20% to S.A. and 10% to LDI.
The Unaudited Pro Forma World Access Condensed Combined Statement of
Operations for the year ended December 31, 1999 give effect to our February
2000 acquisition of LDI, our December 1999 merger with FaciliCom and
related transactions, and our May 1999 acquisition of Comm/Net as if the
acquisitions had been completed on January 1, 1999. The Unaudited Pro Forma
World Access Condensed Combined Statement of Operations for the nine months
ended September 30, 2000 gives effect to our February 2000 acquisition of
LDI as if the acquisition had been completed on January 1, 1999. The
unaudited pro forma condensed combined statements of operations, while
helpful in illustrating characteristics of the combined company under one
set of assumptions, does not attempt to predict or suggest future results.
As a result of the FaciliCom merger and the restructuring program initiated
by World Access in the fourth quarter of 1999, World Access expects 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 administrative functions. World
Access currently estimates that these annualized cost savings, which have
been excluded from the unaudited pro forma condensed combined statement of
operations, will range from $20.0 million to $35.0 million.
38
<PAGE> 40
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The unaudited pro forma condensed combined statements of operations are
presented for comparative purposes only and are not intended to be
indicative of the actual results had these transactions occurred as of the
beginning of the period nor does it purport to indicate results which may
be attained in the future.
39
<PAGE> 41
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
PRO FORMA WORLD ACCESS
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
WORLD PRO FORMA PRO FORMA
ACCESS(A) ADJUSTMENTS WORLD ACCESS
---------- ----------- ------------
<S> <C> <C> <C>
ASSETS
Cash and equivalents................................... $ 324,600 $(160,000)(B) $ 164,600
Short-term investments................................. 82,249 -- 82,249
Restricted cash........................................ 17,229 -- 17,229
Accounts and notes receivable.......................... 226,411 -- 226,411
Prepaid expenses and other current assets.............. 23,333 -- 23,333
Net assets held for sale............................... 42,946 -- 42,946
---------- --------- -----------
Total Current Assets......................... 716,768 (160,000) 556,768
---------- --------- -----------
Property and equipment................................. 130,618 -- 130,618
Goodwill and other intangibles......................... 1,097,251 -- 1,097,251
Investment in TelDaFax................................. 64,242 -- 64,242
Net advances to WorldxChange........................... 54,650 -- 54,650
Other assets........................................... 74,426 -- 74,426
---------- --------- -----------
Total Assets................................. $2,137,955 $(160,000) $ 1,977,955
========== ========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt........................................ $ 60,017 $ -- $ 60,017
Accounts payable....................................... 260,994 -- 260,994
Other accrued liabilities.............................. 167,303 -- 167,303
---------- --------- -----------
Total Current Liabilities.................... 488,314 -- 488,314
Long-term debt......................................... 407,151 (160,000)(B) 247,151
Other long-term liabilities............................ 3,789 -- 3,789
---------- --------- -----------
Total Liabilities............................ 899,254 (160,000) 739,254
---------- --------- -----------
Stockholders' Equity (Deficit):
Preferred Stock........................................ 6 -- 6
Common stock........................................... 732 -- 732
Additional paid in capital............................. 1,539,915 -- 1,539,915
Accumulated other comprehensive loss................... (22,671) -- (22,671)
Accumulated deficit.................................... (279,281) -- (279,281)
---------- --------- -----------
Total Stockholders' Equity (Deficit)......... 1,238,701 -- 1,238,701
---------- --------- -----------
Total Liabilities and Stockholders' Equity... $2,137,955 $(160,000) $ 1,977,955
========== ========= ===========
</TABLE>
40
<PAGE> 42
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
PRO FORMA WORLD ACCESS
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
WORLD PRO FORMA PRO FORMA
ACCESS(A) LDI(E) ADJUSTMENTS WORLD ACCESS
--------- -------- ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Service revenues............................... $ 826,660 $ 8,679 $ -- $ 835,339
Operating expenses:
Cost of carrier services (exclusive of
depreciation and amortization shown
separately below)............................ 725,060 10,025 -- 735,085
Selling, general and administrative............ 117,405 8,092 -- 125,497
Depreciation and amortization.................. 56,331 2,595 1,916(H) 62,788
1,946(H)
Expense under WorldxChange management
agreement.................................... 22,688 -- -- 22,688
Restructuring charge........................... 34,326 -- -- 34,326
--------- -------- ------- ---------
Total operating expenses............. 955,810 20,712 3,862 980,384
--------- -------- ------- ---------
Operating income (loss).............. (129,150) (12,033) (3,862) (145,045)
Interest and other income...................... 21,900 3,742 -- 25,642
Interest expense............................... (42,471) (6,235) 5,018(K) (43,688)
Loss on investment in TelDaFax................. -- -- (4,853)(P) (4,853)
Foreign exchange gain (loss)................... (375) (94) -- (469)
--------- -------- ------- ---------
Income (loss) from continuing
operations before income taxes..... (150,096) (14,620) (3,697) (168,413)
Provision (benefit) for income taxes........... (19,265) -- 1,260(L) (18,005)
--------- -------- ------- ---------
Income (loss) from continuing
operations......................... (130,831) (14,620) (4,957) (150,408)
Preferred stock dividends...................... (1,907) -- -- (1,907)
--------- -------- ------- ---------
Income (loss) from continuing
operations available to common
stockholders....................... $(132,738) $(14,620) $(4,957) $(152,315)
========= ======== ======= =========
Loss per common share from continuing
operations:
Basic........................................ $ (2.24) $ (2.57)(O)
========= =========
Diluted...................................... $ (2.24) $ (2.57)(O)
========= =========
Weighted average shares outstanding:
Basic........................................ 59,199 59,199(O)
========= =========
Diluted...................................... 59,199 59,199(O)
========= =========
</TABLE>
41
<PAGE> 43
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
PRO FORMA WORLD ACCESS
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
WORLD PRO FORMA PRO FORMA
ACCESS(A) FACILICOM(C) COMM/NET(D) LDI(E) ADJUSTMENTS WORLD ACCESS
--------- ------------ ----------- -------- ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Carrier service revenues...... $501,081 $404,485 $13,868 $117,662 $(17,543)(G) $1,019,553
Operating expenses:
Cost of carrier services
(exclusive of depreciation
and amortization shown
separately below)........... 448,305 364,773 9,923 97,867 (17,543)(G) 903,325
Selling, general and
administrative.............. 28,433 56,652 2,324 58,822 -- 146,231
Depreciation and
amortization................ 13,541 27,823 390 20,716 36,229(H) 97,517
5,786(H)
(6,968)(I)
Restructuring and other
special charges............. 37,800 -- -- 6,387 -- 44,187
-------- -------- ------- -------- -------- ----------
Total operating
expenses........... 528,079 449,248 12,637 183,792 17,504 1,191,260
-------- -------- ------- -------- -------- ----------
Operating income
(loss)............. (26,998) (44,763) 1,231 (66,130) (35,047) (171,707)
Interest and other income..... 3,308 3,026 -- 4,488 -- 10,822
Interest expense.............. (12,914) (33,413) (65) (33,607) (8,325)(J) (58,208)
30,116(K)
Loss on investment in
TelDaFax.................... -- -- -- -- (990)(P) (990)
Foreign exchange loss......... (620) (1,749) -- -- -- (2,369)
-------- -------- ------- -------- -------- ----------
Income (loss) from
continuing
operations before
income taxes....... (37,224) (76,899) 1,166 (95,249) (14,246) (222,452)
Provision (benefit) for income
taxes....................... (10,126) (7,335) 264 -- 10,198(L) (6,999)
-------- -------- ------- -------- -------- ----------
Income (loss) from
continuing
operations......... (27,098) (69,564) 902 (95,249) (24,444) (215,453)
Preferred stock dividends..... (1,968) -- -- (2,049) (493)(M) (2,461)
2,049(N)
-------- -------- ------- -------- -------- ----------
Income (loss) from
continuing
operations
available to common
stockholders....... $(29,066) $(69,564) $ 902 $(97,298) $(22,888) $ (217,914)
======== ======== ======= ======== ======== ==========
Loss per common share from
continuing operations:
Basic....................... $ (0.78) $ (4.30)(O)
======== ==========
Diluted..................... $ (0.78) $ (4.30)(O)
======== ==========
Weighted average shares
outstanding:
Basic....................... 37,423 50,634(O)
======== ==========
Diluted..................... 37,423 50,634(O)
======== ==========
</TABLE>
42
<PAGE> 44
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
A. This column represents the historical financial position and results of
operations of World Access. The World Access results of operations for
the year ended December 31, 1999 includes the results of Comm/Net from
May 1, 1999 and the results of FaciliCom from December 7, 1999. The
World Access results of operations for the nine months ended September
30, 2000 include the results of operations of LDI from February 11,
2000.
B. Under the terms of the Indenture governing World Access' $300.0 million
of 13.25% Senior Notes due 2008, World Access has an obligation to
utilize the net cash proceeds from the sale of certain of its equipment
businesses to retire debt. Based on the net cash received to date from
the sale of Telco Systems in April 2000, World Access is currently
obligated to utilize approximately $160.0 million to retire
unsubordinated indebtedness or make a tender offer for its 13.25%
Senior Notes by January 2, 2001. The net cash relates to the $268.6
million cash element of the Telco Systems sales price, less
approximately $11.0 million in transaction expenses and $97.0 million
of income taxes. The income taxes represents the net cash liability
World Access is expected to incur as a result of the gain it will
realize on the sale of Telco Systems for federal and state income tax
purposes. Income taxes assume a tax basis for Telco Systems of
approximately $92.0 million and a combined federal and state tax rate
of 40%.
To the extent the Company uses its net cash proceeds to tender for the
13.25% Senior Notes, the actual tender price is defined in the
Indenture as face value of the Notes, plus accrued and unpaid interest,
less the current market value of $15.0 million, or five points, of
World Access common stock paid to the note holders as exchange
consideration in December 1999. Assuming $5.00 per share as the value
of World Access common stock, the current tender price would be
approximately 98% of face value, plus accrued and unpaid interest. We
have included a pro forma adjustment to reflect the potential $160.0
million reduction in cash and $160.0 million reduction in long-term
debt that will occur as a result of retiring unsubordinated
indebtedness and/or the future tender offer.
Under the Indenture, World Access will also be required to retire
indebtedness when it receives additional net cash proceeds from the
sale of 9.6 million shares of BATM Advanced Communications stock or
from the sale of its NACT business. The BATM shares, which had a value
of approximately $82.2 million at September 30, 2000, were received by
World Access in connection with the sale of Telco Systems. World Access
is contractually restricted from selling or otherwise monetizing these
shares until April 5, 2001 without the consent of BATM. Any tender
offer related to these two events must be commenced within nine months
from the date World Access receives the related cash proceeds. World
Access will be required to retire unsubordinated indebtedness or make a
tender offer for its 13.25% Senior Notes within nine months from the
date World Access receives the related cash proceeds from these two
events. Since the amount and timing of this retirement of indebtedness
or future tender offer is contingent upon future events, no pro forma
adjustment to reflect this potential reduction in cash and long-term
debt has been included in these pro forma financial statements.
C. This column represents the historical results of operations of
FaciliCom for the period January 1, 1999 to December 6, 1999.
On August 17, 1999 the Company entered into a definitive merger
agreement with FaciliCom International, Inc. ("FaciliCom"), a privately
owned company that is a facilities-based provider of European and U.S.
originated international long-distance voice, data and Internet
services. On December 7, 1999, the transaction was completed in its
final form whereby FaciliCom merged into the Company (the "FaciliCom
Merger").
43
<PAGE> 45
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
In connection with the FaciliCom Merger, the stockholders of FaciliCom
received approximately $56.0 million in cash, 369,901 shares of
Convertible Preferred Stock, Series C (the "Series C Preferred Stock"),
and 495,557 vested options that each may be exercised to acquire one
share of the Company's common stock at an average exercise price of
$2.63 per share. In addition, the Company issued 1,912,500 non-qualified
options to purchase Company common stock at an exercise price of $15.00
per share in exchange for substantially all the options held by
FaciliCom's employees. The Series C Preferred Stock, which has a $369.9
million liquidation preference, was valued at $265.5 million based on
its estimated market value during the period including the three trading
days prior and the three trading days subsequent to August 17, 1999, the
date economic terms of the FaciliCom Merger was announced. The stock
options were valued at $24.8 million based on the Black-Scholes option
valuation model. Included in other liabilities in the table below, is
$300.0 million 10 1/2% FaciliCom Series B Senior Notes due 2008 which
were exchanged for the Company's 13.25% Senior Notes due 2008 having an
aggregate principal amount of $300.0 million. As consideration for this
exchange the Company issued 942,627 shares of its common stock valued at
$15.0 million to FaciliCom noteholders.
The Series C Preferred Stock bears no dividend and is convertible into
shares of the Company's common stock at a conversion rate of $20.38 per
common share, subject to adjustment in the event of below market
issuances of common stock, stock dividends, subdivisions, combinations,
reclassifications and other distributions with respect to common stock.
If the closing trading price of the Company's common stock exceeds
$20.38 per share for 60 consecutive trading days, the Series C Preferred
Stock will automatically convert into common stock. Initially, the
holders of the Series C Preferred Stock were entitled to elect four new
directors to the Company's board of directors. Except for the election
of directors, the holders of the Series C Preferred Stock vote on an
as-converted basis with the holders of the Company's common stock.
The acquisition of FaciliCom has been accounted for using the purchase
method of accounting. Accordingly, the results of FaciliCom's operations
have been included in the accompanying consolidated financial statements
from December 7, 1999. The excess of purchase price over the fair value
of net assets acquired has been recorded as goodwill and is being
amortized over a 20 year period. The following summarizes the allocation
of the purchase price (in thousands):
<TABLE>
<S> <C>
Purchase price:
Cash...................................................... $ 56,000
Preferred stock issued.................................... 265,515
Common stock issued....................................... 15,000
Stock options issued...................................... 24,785
Fees and expenses......................................... 15,650
---------
Total purchase price.............................. 376,950
Allocation to fair value of net assets:
Current assets............................................ (183,934)
Property and equipment.................................... (116,479)
Intangible assets......................................... (9,206)
Other assets.............................................. (1,362)
Current liabilities....................................... 207,362
Other liabilities......................................... 313,148
---------
Goodwill.......................................... $ 586,479
=========
</TABLE>
44
<PAGE> 46
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
D. This column represents the historical results of operations of Comm/Net
for the period January 1, 1999 to April 30, 1999.
In May 1999, the Company acquired substantially all the assets and
assumed certain liabilities of Comm/Net Holding Corporation and its
wholly owned subsidiaries, Enhanced Communications Corporation, Comm/Net
Services Corporation and Long Distance Exchange Corporation (Comm/Net
Holdings and its wholly owned subsidiaries are collectively referred to
herein as "Comm/Net"). Comm/Net, headquartered in Plano, Texas, is a
facilities-based provider of wholesale international long distance and
wholesale prepaid calling card services, primarily to the Mexican
telecommunications markets.
In connection with the acquisition, the Company issued 23,174 shares of
4.25% Cumulative Junior Convertible Preferred Stock, Series B (the
"Series B Preferred Stock"), valued at approximately $18.5 million with
a $23.2 million liquidation preference, and paid approximately $3.5
million to retire certain Comm/Net notes payable outstanding at the time
of acquisition. The Series B Preferred Stock is convertible into shares
of the Company's common stock at a conversion rate of $16.00 per common
share, subject to standard anti-dilution adjustments. If the closing
trading price of the Company's common stock exceeds $16.00 per share for
45 consecutive trading days, the Series B Preferred Stock will
automatically convert into common stock. Preferred dividends began
accruing July 1, 1999 and are payable quarterly. In March 2000, the
Series B Preferred Stock was converted into 1,448,373 shares of the
Company's common stock.
The acquisition of Comm/Net has been accounted for under the purchase
method of accounting. Accordingly, the results of Comm/Net's operations
have been included in the accompanying consolidated financial statements
from May 1, 1999. The excess of purchase price over the fair value of
net assets acquired has been recorded as goodwill and is being amortized
over a 20 year period. the following summarizes the allocation of the
purchase price (in thousands):
<TABLE>
<S> <C>
Purchase price:
Preferred stock issued.................................... $18,539
Debt paid................................................. 3,502
Fees and expenses......................................... 800
-------
Total purchase price.............................. 22,841
Allocation to fair values of net assets:
Current assets............................................ (7,754)
Property and equipment.................................... (3,351)
Current liabilities....................................... 9,609
Other assets and liabilities, net......................... 1,368
-------
Goodwill.......................................... $22,713
=======
</TABLE>
E. These columns represents the historical results of operations of LDI.
For the Unaudited Pro Forma Condensed Combined Statement of Operations
for the nine months ended September 30, 2000, the historical results of
operations of LDI are for the period January 1, 2000 to February 10,
2000. For the Unaudited Pro Forma Condensed Combined Statement of
Operations for the year ended December 31, 1999, the historical results
of operations of LDI are for the period January 1, 1999 to December 31,
1999.
45
<PAGE> 47
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
F. The LDI merger has been accounted for under the purchase method of
accounting. Under the terms of the Agreement and Plan of Merger dated
as of December 17, 1999, the purchase price was determined as follows
(in thousands):
<TABLE>
<S> <C>
Purchase price:
Issuance of preferred stock (i)........................... $217,560
Debt forgiven............................................. 4,674
Fair value of World Access options issued in exchange for
LDI options (ii)....................................... 21,731
Fees and expenses......................................... 2,000
--------
245,965
Allocation to fair value of net assets:
Cash...................................................... (42,476)
Other current assets...................................... (15,447)
Intangible assets......................................... (27,614)
Property and equipment.................................... (17,113)
Other assets.............................................. (871)
Current liabilities....................................... 80,433
Other liabilities......................................... 723
--------
Goodwill.................................................... $223,600
========
</TABLE>
(i) World Access management has determined the fair value of the
185,000 shares of Series D Preferred Stock issued as part of the LDI
merger consideration to be $217,560 based on its estimated market value
during the period including the three trading days prior and the three
trading days subsequent to December 17, 1999, the date economic terms of
the LDI merger was announced. The Series D Preferred Stock bears no
dividend and is convertible into shares of World Access Common Stock at
a conversion rate of $18 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 $18 per share for 60 consecutive trading days, the Series D
Preferred Stock will automatically convert into World Access Common
Stock.
(ii) Represents the fair value of approximately 1,500,000 options
to acquire World Access Common Stock issued in exchange for options
outstanding to acquire shares of LDI 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 6.3% and an expected life of 4 years. The World Access
options have an exercise price of $18.50 per share. The holders of the
LDI redeemable warrants have agreed to terminate their warrants as part
of the closing of the acquisition by World Access.
G. Elimination of inter-company revenues and related costs.
46
<PAGE> 48
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
H. Amortization of additional goodwill as a result of the FaciliCom,
Comm/Net and LDI Acquisitions over an estimated life of 20 years. The
additional Resurgens goodwill of $127.4 million is a result of the
7,500,000 shares released from escrow related to the acceleration of
the Resurgens earn-out in connection with the FaciliCom Merger. The
pro forma adjustment to goodwill was computed as follows (in
thousands):
<TABLE>
<CAPTION>
HISTORICAL
PRO FORMA GOODWILL PRO FORMA
GOODWILL AMORTIZATION AMORTIZATION ADJUSTMENTS
-------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
For the nine months ended September 30,
2000:
LDI....................................... $223,600 $ 8,385 $ (6,469) $ 1,916
======= ======== =======
For the year ended December 31, 1999:
FaciliCom................................. 586,479 29,324 (2,475) 26,849
Resurgens................................. 127,425 6,371 (409) 5,962
LDI....................................... 223,600 11,180 (8,210) 2,970
Comm/Net.................................. 22,713 1,136 (688) 448
------- -------- -------
$48,011 $(11,782) $36,229
======= ======== =======
</TABLE>
Amortization of additional intangible assets over their estimated useful
lives. The pro forma adjustment for intangible asset amortization was
computed as follows (in thousands):
<TABLE>
<CAPTION>
INTANGIBLE PRO FORMA HISTORICAL PRO FORMA
ASSETS AMORTIZATION AMORTIZATION ADJUSTMENT
---------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
For the nine months ended September 30,
2000:
LDI........................................ $27,614 $2,958 $(1,854) $1,104
FaciliCom.................................. 9,206 1,380 (538) 842
------- ------ ------- ------
$36,820 $4,338 $(2,392) $1,946
======= ====== ======= ======
For the year ended December 31, 1999:
LDI........................................ $27,614 $3,944 $ -- $3,944
FaciliCom.................................. 9,206 1,842 -- 1,842
------- ------ ------- ------
$36,820 $5,786 $ -- $5,786
======= ====== ======= ======
</TABLE>
I. Adjustment to depreciation expense for the adjustment to fair values
of switching equipment and IRUs at FaciliCom.
J. Represents the adjustment to interest expense related to the exchange
of $300.0 million of FaciliCom notes with a 10.5% coupon for World
Access notes with a 13.25% coupon and the amortization of the $15.0
million debt discount related to World Access notes over a period of
eight years. The pro forma adjustment to interest expense was computed
as follows (in thousands):
<TABLE>
<S> <C>
Interest expense on World Access notes for eleven months.... $(36,438)
Debt issue cost amortization on World Access notes for
eleven months............................................. (1,719)
Historical FaciliCom note interest expense.................. 28,875
Historical FaciliCom debt issue cost amortization........... 957
--------
Net increase in interest expense.................. $ (8,325)
========
</TABLE>
47
<PAGE> 49
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
K. Adjustment to reduce interest expense related to the elimination of LDI
indebtedness resulting from the acquisition as follows:
<TABLE>
<CAPTION>
FOR THE 42 DAY FOR THE YEAR
PERIOD ENDED ENDED
FEBRUARY 11, DECEMBER 31,
2000 1999
--------------- -----------------
<S> <C> <C>
Interest expense on LDI's 12 1/4% Senior Notes... $4,609 $27,656
Amortization of original issue discount on LDI's
12 1/4% Senior Notes........................... 200 1,202
Amortization of LDI's 12 1/4% Senior Notes
offering costs................................. 157 944
Interest expense on notes payable to the holders
of LDI's 12 1/4% Senior Notes.................. 52 314
------ -------
Net decrease in interest expense....... $5,018 $30,116
====== =======
</TABLE>
L. Adjustment for the additional tax benefit derived from pro forma
adjustments. World Access has not recorded any tax benefit on a pro
forma basis that may be derived from LDI's and FaciliCom's net operating
losses.
M. 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.
N. To eliminate historical LDI preferred stock dividends and preferred
stock and warrant redemption accretion.
O. Represents pro forma weighted average shares and basic diluted earnings
from continuing operations per share for the year ended December 31,
1999. 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 in
conjunction with the FaciliCom merger; (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 in connection with the FaciliCom merger as of
January 1, 1999. Due to the pro forma loss from continuing operations
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.
For the six months ended June 30, 2000, no additional shares of common
stock are deemed to be outstanding. Due to the pro forma loss from
continuing operations 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 shares would be anti-dilutive.
P. On September 21, 2000, World Access acquired 33.03% of the outstanding
shares of TelDaFax. The Unaudited Pro Forma Condensed Combined
Statements of Operations for the year ended December 31, 1999 and the
nine months ended September 30, 2000, give effect to this acquisition
as if it had occurred on January 1, 1999. As a result, the following
loss from investments have been recognized:
<TABLE>
<CAPTION>
33.03% HISTORICAL
TELDAFAX ACQUISITION BY LOSS ON PRO FORMA
NET LOSS WORLD ACCESS INVESTMENT ADJUSTMENT
-------- -------------- ---------- ----------
<S> <C> <C> <C> <C>
Nine months ended September 30, 2000....... $(15,320) $(5,060) $207 $(4,853)
Year ended December 31, 1999............... (2,996) (990) -- (990)
</TABLE>
48
<PAGE> 50
SELLING SECURITY HOLDERS
World Access issued the shares of common stock offered by this prospectus
in private placement transactions with the holders named below in transactions
exempt from the registration requirements of the Securities Act. The selling
security holders may from time to time offer and sell any or all of these shares
pursuant to this prospectus. For purposes of this prospectus, the term selling
security holder includes the holders named below, the beneficial owners of these
shares and their transferees, pledgees, donees or other such successors. The
percent of beneficial ownership for each stockholder is based on 73,392,231
shares of common stock outstanding as of December 14, 2000.
The following table sets forth information with respect to the selling
security holders as of December 14, 2000 and the shares beneficially owned by
them that they may offer pursuant to this prospectus. We have obtained this
information from the selling security holders.
<TABLE>
<CAPTION>
SHARES OF
SHARES OF COMMON STOCK PERCENTAGE OF
COMMON SHARES SHARES OF BENEFICIALLY COMMON STOCK
BENEFICIALLY COMMON OWNED BENEFICIALLY
OWNED STOCK UPON OWNED
PRIOR TO OFFERED COMPLETION UPON COMPLETION
SELLING SECURITY HOLDERS OFFERING(1) HEREBY OF OFFERING OF OFFERING
------------------------ ------------- ----------- ------------ ---------------
<S> <C> <C> <C> <C>
HOLDER OF 4.25% CUMULATIVE SENIOR
PERPETUAL CONVERTIBLE PREFERRED
STOCK, SERIES A
The 1818 Fund III, L.P. (2)........... 6,086,956 1,739,130(3) 4,347,826 5.59%
HOLDERS OF CONVERTIBLE PREFERRED
STOCK, SERIES E
David Marcus(4)....................... 76,276 76,276(5) -- --
Luc Baechler(6)....................... 20,276 20,276(5) -- --
3i Group plc.......................... 310,805 310,805(5) -- --
Symphony Finance Ltd.................. 6,437 6,437(5) -- --
HOLDERS OF CONVERTIBLE PREFERRED
STOCK, SERIES F
Daho Bettoumi......................... 17,659 17,659(7) -- --
Yves Blondeel......................... 7,788 7,788(7) -- --
Hein de Bont.......................... 17,482 17,482(7) -- --
Alfred Heilbron(8).................... 88,243 88,243(7) -- --
Max Heilbron(9)....................... 88,242 88,242(7) -- --
Marco Koningsberger................... 17,482 17,482(7) -- --
Philippe Monheim(10).................. 88,242 88,242(7) -- --
Leo Povel(11)......................... 28,034 28,034(7) -- --
OTHER SELLING STOCKHOLDERS:
PrimeTEC International, Inc........... 664,773 664,773 -- --
AP Vermogensverwaltung GbR............ 1,359,970 1,359,970 -- --
Apax Funds Nominees Limited B
Account(12)......................... 2,570,778 2,570,778 -- --
Apax Funds Nominees Limited D
Account(13)......................... 3,849,888 3,849,888 -- --
APAX Germany II L.P................... 3,676,995 3,676,995 -- --
Christian Vogl........................ 8,729 8,729 -- --
LAN Equities Partnership, L.P......... 106,953(14) 38,411 68,542 *
Soditic............................... 29,655 29,655 -- --
John M. Boles......................... 4,303 4,303 -- --
Jonathan Frederick Catherwood......... 703 703 -- --
J. Richard Knop....................... 4,303 4,303 -- --
</TABLE>
49
<PAGE> 51
<TABLE>
<CAPTION>
SHARES OF
SHARES OF COMMON STOCK PERCENTAGE OF
COMMON SHARES SHARES OF BENEFICIALLY COMMON STOCK
BENEFICIALLY COMMON OWNED BENEFICIALLY
OWNED STOCK UPON OWNED
PRIOR TO OFFERED COMPLETION UPON COMPLETION
SELLING SECURITY HOLDERS OFFERING(1) HEREBY OF OFFERING OF OFFERING
------------------------ ------------- ----------- ------------ ---------------
<S> <C> <C> <C> <C>
Richard Miller........................ 1,519 1,519 -- --
Jeffrey S. Rubin...................... 2,531 2,531 -- --
Susan C. Wright....................... 1,843 1,843 -- --
Robert W. Wright...................... 1,843 1,843 -- --
</TABLE>
* Less than one percent.
(1) Beneficial ownership has been determined in accordance with Rule 13d-3
under the Exchange Act. Unless otherwise noted, we believe that all persons
named in the table have sole voting and investment power with respect to
the shares beneficially owned by them.
(2) Lawrence C. Tucker, a partner at Brown Brothers Harriman & Company, the
general partner of The 1818 Fund III, L.P., is a member of the World Access
Board of Directors.
(3) Represents shares of common stock issuable upon conversion of shares of
4.25% Cumulative Senior Perpetual Convertible Preferred Stock, Series A.
(4) David Marcus is Chairman and Chief Executive Officer of GTN Telecom
Switzerland, which is a subsidiary of World Access.
(5) Represents shares of common stock issuable upon conversion of shares of
Convertible Preferred Stock, Series E.
(6) Luc Baechler is a member of the Counsel of Administration of GTN Telecom
Switzerland, which is a subsidiary of World Access.
(7) Represents shares of common stock issuable upon conversion of shares of
Convertible Preferred Stock, Series F.
(8) Alfred Heilbron was a director of UniNet International N.V. until November
29, 2000. UniNet is a subsidiary of World Access.
(9) Max Heilbron was a director of UniNet International N.V. until November 29,
2000. UniNet is a subsidiary of World Access.
(10) Philippe Monheim was a director of UniNet International N.V. until November
29, 2000. UniNet is a subsidiary of World Access.
(11) Leo Povel was a director of UniNet International N.V. until November 29,
2000. UniNet is a subsidiary of World Access.
(12) APAX Funds Nominees Limited B Account holds the shares as custodian for
Apax Ventures IV and Apax Ventures IV International Partners LP, which
beneficially own 942,931 and 1,627,847 shares, respectively. Apax Ventures
IV and Apax Ventures IV International Partners LP are managed by Apax
Partners & Co. Ventures Ltd.
(13) APAX Funds Nominees Limited D Account holds the shares as custodian for
Apax UK V-A LP and UK V-B LP, which beneficially own 1,960,156 and
1,889,732 shares, respectively. Apax UK V-A LP and Apax UK V-B LP are
managed by Apax Partners & Co. Ventures Ltd.
(14) Represents shares of common stock issued to Long Aldridge & Norman LLP in
partial payment of legal fees.
Except as noted above, none of the selling security holders has, or within
the past three years has had, any position, office or other material
relationship with World Access or any of our predecessors or affiliates. The
selling security holders identified above may have sold, transferred or
otherwise disposed of all or a portion of their shares, in transactions exempt
from the registration requirements of the Securities Act, since the date on
which they provided the information regarding their shares. If required, we may
identify and provide additional selling security holders and information with
respect to them in one or more prospectus supplements.
50
<PAGE> 52
PLAN OF DISTRIBUTION
As used herein, "selling security holders" includes donees, pledgees,
transferees or other successors-in-interest selling shares received after the
date of this prospectus from a named selling security holder as a gift, pledge,
partnership distribution or other non-sale related transfer. The selling
security holders may offer all or part of the shares included in this prospectus
from time to time in one or more types of transactions (which may include block
transactions) on applicable exchanges or automated interdealer quotation
systems, in negotiated transactions, through put or call options transactions
relating to the securities offered by this prospectus, through short sales or a
combination of such methods of sale, at fixed prices that may be changed, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. Each selling security holder
will act independently of us in making decisions with respect to the timing,
manner and size of each sale. The methods by which the selling security holders
may resell their shares include, but are not limited to, the following:
- a cross or block trade in which the broker or dealer engaged by a selling
security holder will attempt to sell the securities as agent but may
position and resell a portion of the block as principal to facilitate the
transaction;
- purchases by a broker or dealer as principal and resale by such broker or
dealer for its account;
- an exchange distribution in accordance with the rules of such exchange;
- ordinary brokerage transactions and transactions in which the broker
solicits purchasers;
- negotiated transactions;
- short sales or borrowing, returns and reborrowings of the shares pursuant
to stock loan agreements to settle short sales;
- pledge and hedging transactions with broker-dealers or other financial
institutions;
- delivery in connection with the issuance of securities by issuers, other
than us, that are exchangeable for (whether on an optional or mandatory
basis), or payable in, such shares (whether such securities are listed on
a national securities exchange or otherwise) or pursuant to which such
shares may be distributed; and
- a combination of any such methods of sale or distribution.
In effecting sales, brokers or dealers engaged by a selling security holder
may arrange for other brokers or dealers to participate in such sales. Brokers
or dealers may receive commissions or discounts from a selling security holder
or from the purchasers in amounts to be negotiated immediately prior to the
sale. A selling security holder may also sell the shares in accordance with Rule
144 or Rule 144A under the Securities Act or pursuant to other exemptions from
registration under the Securities Act.
If the securities offered by this prospectus are sold in an underwritten
offering, the underwriters may acquire them for their own account and may
further resell these securities from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price or at
varying prices determined at the time of sale. The names of the underwriters
with respect to any such offering and the terms of the transactions, including
any underwriting discounts, concessions or commissions and other items
constituting compensation of the underwriters and broker-dealers, if any, will
be set forth in a prospectus supplement relating to such offering. Any public
offering price and any discounts, concessions or commissions allowed or
reallowed or paid to broker-dealers may be changed from time to time. Unless
otherwise set forth in a prospectus supplement, the obligations of the
underwriters to purchase the securities will be subject to certain conditions
precedent and the underwriters will be obligated to purchase all the securities
specified in such prospectus supplement if any such shares are purchased.
Brokers who borrow the securities to settle short sales of securities and who
wish to offer and sell the securities under circumstances requiring use of the
prospectus or making use of the prospectus desirable may use this prospectus.
This prospectus may be amended and supplemented from time to time to describe a
specific plan of distribution.
51
<PAGE> 53
From time to time the security holders may engage in short sales, short
sales against the box, puts, calls and other transactions in our securities, or
derivatives thereof, and may sell and deliver the shares offered by this
prospectus in connection therewith.
We will not receive any of the proceeds from the sales of the securities by
the security holders pursuant to this prospectus. We will, however, bear certain
expenses in connection with the registration of the securities being offered by
the selling security holders, including all costs, expenses and fees incident to
the offering and sale of the securities to the public other than any commissions
and discounts of underwriters, dealers or agents and any transfer taxes. Our
common stock is listed for trading on the Nasdaq National Market, and the shares
offered by this prospectus have been approved for quotation on Nasdaq.
In order to comply with the securities laws of certain states, the selling
security holders may only sell the securities through registered or licensed
brokers or dealers. In addition, in certain states, the selling security holders
may only sell the securities if they have been registered or qualified for sale
in the applicable state or an exemption from the registration or qualification
requirements of such state is available and is complied with.
A selling security holder, and any broker dealer who acts in connection
with the sale of shares hereunder, may be deemed an underwriter within the
meaning of Section 2(11) of the Securities Act, and any commissions received by
them and profit on any resale of the securities as principal might be deemed
underwriting discounts and commissions under the Securities Act. We have agreed
to indemnify certain of the selling security holders, underwriters and other
participants in an underwriting or distribution of the securities and their
directors, officers, employees and agents against certain liabilities including
liabilities arising under the Securities Act. Because the selling security
holders may be deemed underwriters within the meaning of Section 2(11) of the
Securities Act, the selling security holders will be subject to the prospectus
delivery requirements of the Securities Act.
We are permitted to suspend the use of this prospectus in connection with
the sales of securities by selling security holders upon the happening of
certain events. These include the existence of any fact that makes any statement
of material fact made in this prospectus untrue or that requires the making of
additions to or changes in this prospectus in order to make the statements
herein not misleading. The suspension will continue until such time as we advise
the selling security holders that use of the prospectus may be resumed, in which
case the period of time during which we are required to maintain the
effectiveness of the registration statement shall be extended. World Access will
bear the expense of preparing and filing the registration statement and all
post-effective amendments.
LEGAL MATTERS
Long Aldridge & Norman LLP, Atlanta, Georgia, has passed upon certain legal
matters regarding the securities offered by this prospectus. LAN Equities
Partnership, L.P., an affiliate of Long Aldridge & Norman LLP, is the owner of
106,953 of the shares of common stock 38,411 of which are being registered
pursuant to this registration statement.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedules included in our Annual Report on Form 10-K/A,
Amendment No. 4, for the years ended December 31, 1999 and 1998, as set forth in
their report, which is incorporated by reference in this prospectus. Our
consolidated financial statements and schedules are incorporated by reference in
reliance on Ernst & Young LLP's report, given on their authority as experts in
accounting and auditing.
The financial statements of World Access for the year ended December 31,
1997 incorporated in this prospectus by reference to the Annual Report on Form
10-K/A, Amendment No. 4, of World Access for the year ended December 31, 1999
have been so incorporated in reliance on the report of
52
<PAGE> 54
PricewaterhouseCoopers LLP, independent accountants, dated March 5, 1998, except
for the discontinued operations described in Note C, which are as of March 14,
2000, given on the authority of that firm as experts in auditing and accounting.
The consolidated financial statements of FaciliCom International, Inc. and
subsidiaries incorporated in this prospectus by reference to the World Access
Current Report on Form 8-K dated December 7, 1999, as amended, have been audited
by Deloitte & Touche LLP, independent auditors, as stated in their report, which
is also incorporated herein by reference, and have been so incorporated in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
Ernst & Young LLP, independent certified public accountants, have audited
the consolidated financial statements of Long Distance International, Inc. at
December 31, 1999 and 1998, and for each of the three years in the period ended
December 31, 1999, as set forth in their report, which is incorporated by
reference in this prospectus. The Long Distance International, Inc. financial
statements are incorporated by reference in reliance on Ernst & Young LLP's
report, given on their authority as experts in accounting and auditing.
The consolidated financial statements of STAR are incorporated in this
prospectus by reference to STAR's Annual Report on Form 10-K for the year ended
December 31, 1999, as amended by Form 10-K/A filed on September 11, 2000, have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report dated April 14, 2000 with respect thereto, which is
also incorporated by reference into this prospectus, and are so incorporated in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports.
Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements of WorldxChange at September 30, 1999, and for each of the
two years in the period ended September 30, 1999, as set forth in their report.
The WorldxChange financial statements are included in this prospectus in
reliance on Ernst & Young LLP's report, given on their authority as experts in
accounting and auditing.
BDO Deutsche Warentreuhand, independent auditors, have audited the
consolidated financial statements of TelDaFax AG at December 31, 1999 and 1998,
and for each of the three years in the period ended December 31, 1999, as set
forth in their report. The TelDaFax financial statements are included in this
prospectus in reliance on BDO Deutsche Warentreuhand's report, given on their
authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
Federal securities laws require us to file information with the Securities
and Exchange Commission concerning our business and operations. Accordingly, we
file annual, quarterly and special reports, proxy statements and other
information with the Commission. You can read and copy this information at the
following SEC locations:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. Seven World Trade Center Northwest Atrium Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Suite 1400
Chicago, Illinois 60661
</TABLE>
You can get additional information about the operation of the Commission's
public reference facilities by calling the Commission at 1-800-SEC-0330. The
Commission also maintains a web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding companies that,
like us, file information electronically with the Commission. You can also
inspect information about us at the offices of the Nasdaq Stock Market, 1735 K
Street, N.W., Washington, D.C. 20006.
53
<PAGE> 55
This prospectus is part of a registration statement that we filed with the
Commission and omits certain information contained in the registration statement
as permitted by the Commission. Additional information about the Company and our
common stock is contained in the registration statement on Form S-3 of which
this prospectus forms a part, including certain exhibits and schedules. You can
obtain a copy of the registration statement from the Commission at the street
address or Internet site listed above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Commission allows us to "incorporate by reference" the information we
file with it, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered part of this prospectus, and later information that we file with the
Commission will automatically update and supersede this information. We
incorporate by reference documents listed below and any future filings made with
the Commission under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
until the selling security holders sell all their shares offered by this
prospectus.
World Access has filed the following documents with the Commission:
- Our Annual Report on Form 10-K for the year ended December 31, 1999, as
amended by Form 10-K/A filed on August 4, 2000, September 11, 2000,
October 6, 2000 and November 13, 2000 (File Number 0-29782);
- Quarterly Report on Form 10-Q for the quarter ended March 31, 2000, as
amended by Form 10-Q/A filed on August 4, 2000, September 11, 2000 and
October 6, 2000 (File Number 0-29782);
- Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, as
amended by Form 10-Q/A filed on September 11, 2000 and October 6, 2000
(File Number 0-29782);
- Quarterly Report on Form 10-Q for the quarter ended September 30, 2000
(File Number 0-29782);
- Our Current Report on Form 8-K filed on December 15, 2000 (event date:
December 14, 2000) (File Number 0-29782);
- Our Current Report on Form 8-K filed on December 7, 2000 (event date:
December 6, 2000) (File Number 0-29782);
- Our Current Report on Form 8-K filed on June 26, 2000 (event date: June
14, 2000) (File Number 0-29782);
- Our Current Report on Form 8-K filed on June 26, 2000 (event date: June
7, 2000) (File Number 0-29782);
- Our Current Report on Form 8-K filed April 18, 2000 (event date: April
10, 2000) (File Number 0-29782);
- Our Current Report on Form 8-K filed March 1, 2000 relating to the
acquisition of WorldxChange (event date: February 11, 2000) (File Number
0-29782);
- Our Current Report on Form 8-K filed March 1, 2000 relating to the
acquisition of STAR Telecommunications (event date: February 11,
2000)(File Number 0-29782);
- Our Current Report on Form 8-K filed February 28, 2000 (event date:
February 11, 2000), as amended by Forms 8-K/A filed on April 26, 2000 and
August 4, 2000 (File Number 0-29782);
- Our Current Report on Form 8-K filed February 9, 2000 (event date:
February 2, 2000) (File Number 0-29782);
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<PAGE> 56
- Our Current Report on Form 8-K filed December 22, 1999 (event date:
December 7, 1999), as amended by Forms 8-K/A filed on February 22, 2000,
August 4, 2000 and September 11, 2000 (File Number 0-29782);
- The risk factors included in our Registration Statement on Form S-4
(Registration No. 333-37750), filed with the Commission on May 24, 2000,
as amended by Amendment No. 1 to Form S-4 filed on August 7, 2000,
Amendment No. 2 to Form S-4 filed on September 12, 2000, Amendment No. 3
to Form S-4 filed on October 10, 2000, and Amendment No. 4 to Form S-4
filed on November 14, 2000;
- The risk factors included in our Registration Statement on Form S-4
(Registration No. 333-44864), filed with the Commission on August 31,
2000, as amended by Amendment No. 1 to Form S-4 filed on November 14,
2000; and
- Our description of common stock included in the Registration Statement on
Form S-4 (No. 333-67025), filed on November 10, 1998.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
945 E. Paces Ferry Road
Suite 2200
Atlanta, Georgia 30326
Attention: Ms. Michele Wolf
Vice President, Investor Relations
Telephone: (404) 231-2025
STAR Telecommunications, Inc. has filed the following documents with the
Commission:
- Quarterly Report on Form 10-Q for the quarter ended September 30, 2000
filed on November 20, 2000;
- Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, as
amended by Form 10-Q/A filed on October 10, 2000;
- Quarterly Report on Form 10-Q for the quarter ended March 31, 2000, as
amended by Form 10-Q/A filed on October 10, 2000; and
- Annual Report on Form 10-K for fiscal year ended December 31, 1999, as
amended by Form 10-K/A filed on September 11, 2000.
You should rely only on the information incorporated by reference or
provided in this prospectus or any supplement. We have not authorized anyone
else to provide you with different information. The selling security holders
cannot offer any of these shares in any state where the offer is not permitted.
You should not assume that the information in this prospectus or any supplement
is accurate as of any date other than the date on the front of the respective
document.
We have not authorized anyone, including brokers and dealers, to give any
information or make any representation not contained in this prospectus and, if
given or made, such information or representation must not be relied upon as
having been authorized by us or any other person. This prospectus does not
constitute an offer to sell or solicitation of any offer to buy any of the
securities offered hereby in any jurisdiction in which it is unlawful to make
such offer or solicitation.
55
<PAGE> 57
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
COMMUNICATIONS TELESYSTEMS INTERNATIONAL D.B.A. WORLDXCHANGE
COMMUNICATIONS
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Balance Sheets as of September 30, 2000
(Unaudited) and 1999...................................... F-3
Consolidated Statements of Operations for the year ended
September 30, 2000 (Unaudited) and each of the two years
in the period ended September 30, 1999.................... F-4
Consolidated Statements of Shareholders' Deficit and
Comprehensive Income/Loss for the year ended September 30,
2000 (Unaudited) and each of the two years in the period
ended September 30, 1999.................................. F-5
Consolidated Statements of Cash Flows for the year ended
September 30, 2000 (Unaudited) and each of the two years
in the period ended September 30, 1999.................... F-6
Notes to Consolidated Financial Statements.................. F-7
TELDAFAX AG
Independent Auditors' Report................................ F-27
Consolidated Balance Sheets as of September 30, 2000
(Unaudited), December 31, 1999 and 1998................... F-28
Consolidated Statements of Operations for the nine months
ended September 30, 2000 (Unaudited) and 1999 (Unaudited)
and each of the three years in the period ended December
31, 1999.................................................. F-29
Consolidated Statements of Shareholders' Deficit and
Comprehensive of Changes in Combined Equity Shareholder's
Funds for the nine months ended September 30, 2000
(Unaudited) and each of the three years in the period
ended December 31, 1999................................... F-30
Consolidated Statements of Cash Flows for the nine months
ended September 30, 2000 (Unaudited) and 1999 (Unaudited)
and each of the three years in the period ended December
31, 1999.................................................. F-31
Notes to the Consolidated Financial Statements.............. F-32
</TABLE>
F-1
<PAGE> 58
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Communications Telesystems International d.b.a.
WorldxChange Communications
We have audited the consolidated balance sheet of Communications
Telesystems International d.b.a. WorldxChange Communications as of September 30,
1999 and the related consolidated statements of operations, shareholders'
deficit, and cash flows for each of the two 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 the financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Communications Telesystems International d.b.a. WorldxChange Communications at
September 30, 1999 and the consolidated results of its operations and its cash
flows for each of the two years in the period ended September 30, 1999, in
conformity with accounting principles generally accepted in the United States.
ERNST & YOUNG LLP
San Diego, California
December 10, 1999,
except for the second
and eleventh paragraphs of
Note 5 as to which the
date is May 22, 2000
F-2
<PAGE> 59
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------
2000 1999
----------- ---------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 12,123 $ 38,030
Accounts receivable, net of allowance of $26,563 at
September 30, 2000 (unaudited) and $9,590 at September
30, 1999................................................ 133,198 54,991
Prepaid expenses and other current assets................. 11,331 8,224
--------- ---------
Total current assets............................... 156,652 101,245
Equipment and leasehold improvements, net................... 193,257 114,765
Intangible assets........................................... 88,208 12,194
Other assets................................................ 3,464 6,798
--------- ---------
Total assets....................................... $ 441,581 $ 235,002
========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accrued network costs..................................... $ 162,736 $ 83,993
Accounts payable.......................................... 103,989 13,770
Accrued taxes............................................. 12,871 3,734
Accrued interest.......................................... 8,511 634
Other accrued liabilities................................. 17,761 11,965
Payable to related parties................................ 2,696 --
Deferred revenue.......................................... 4,309 3,941
Current portion of long-term debt......................... 190,394 9,799
Current portion of capital lease obligations.............. 13,825 10,582
--------- ---------
Total current liabilities.......................... 517,092 138,418
Long-term debt.............................................. 34,427 100,324
Capital lease obligations................................... 28,655 29,395
Other long-term liabilities................................. 3,162 1,918
--------- ---------
Total liabilities.................................. 583,336 270,055
Shareholders' deficit:
Preferred Stock, no par value; Authorized
shares -- 10,000,000:
Series A Cumulative Preferred Stock; Issued and
outstanding 30,000 at September 30, 2000 (unaudited)
and September 30, 1999; liquidation preference of
$30,000................................................ 30,000 30,000
Common Stock, no par value; Authorized
shares -- 100,000,000, Issued and outstanding 42,613,954
at September 30, 2000 (unaudited), and 36,965,911 at
September 30, 1999...................................... 148,056 99,047
Notes receivable from shareholders........................ (1,988) (1,474)
Accumulated deficit....................................... (303,580) (160,221)
Accumulated other comprehensive loss...................... (14,243) (2,405)
--------- ---------
Total shareholders' deficit........................ (141,755) (35,053)
--------- ---------
Total liabilities and shareholders' deficit........ $ 441,581 $ 235,002
========= =========
</TABLE>
See accompanying notes.
F-3
<PAGE> 60
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------------
2000 1999 1998
----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Revenues.................................................... $ 524,442 $421,580 $398,867
Operating expenses:
Cost of services (exclusive of depreciation and
amortization shown separately below)................... 433,773 328,334 287,312
Selling, general and administrative....................... 172,714 124,112 114,897
Depreciation and amortization............................. 48,200 17,705 12,332
--------- -------- --------
Total operating expenses.......................... 654,687 470,151 414,541
Operating loss.............................................. (130,245) (48,571) (15,674)
Reimbursement from World Access of net losses under
Management Agreement...................................... 22,688 -- --
Interest expense............................................ 31,418 16,883 11,947
Other expense, net.......................................... 1,702 648 1,378
--------- -------- --------
Loss before minority interest............................... (140,677) (66,102) (28,999)
Minority interest........................................... -- 2,251 1,546
--------- -------- --------
Net loss.................................................... (140,677) (63,851) (27,453)
Preferred stock dividends................................. 2,682 2 7
--------- -------- --------
Net loss applicable to common shareholders.................. $(143,359) $(63,853) $(27,460)
========= ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 61
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT AND
COMPREHENSIVE INCOME/LOSS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SERIES A SERIES B
CUMULATIVE CUMULATIVE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK NOTES RECEIVABLE
------------------ ------------------ --------------------- FROM
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHAREHOLDERS
------- -------- ------- -------- ---------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT OCTOBER 1, 1997......... 23 $ 7 -- $ -- 27,734,000 $ 258 $ --
Dividends on Series A
Preferred Stock.................... -- -- -- -- -- -- --
Issuance of Common Stock........... -- -- -- -- 788,127 10,000 --
Exercise of options/warrants....... -- -- -- -- 54,425 39 --
Comprehensive loss:
Net loss........................... -- -- -- -- -- -- --
Foreign currency translation
adjustment........................ -- -- -- -- -- -- --
Total comprehensive loss.....
------ ------- ------- ------- ---------- -------- -------
BALANCE AT SEPTEMBER 30, 1998...... 23 7 -- -- 28,576,552 10,297 --
Repurchase of Series A
Cumulative Preferred Stock......... (23) (7) -- -- -- -- --
Dividends on Series A
Preferred Stock.................... -- -- -- -- -- -- --
Issuance of Series A
Cumulative Preferred Stock......... 30,000 30,000 -- -- -- -- --
Issuance of Common Stock........... -- -- -- -- 8,153,120 87,102 --
Exercise of options/warrants....... -- -- -- -- 236,239 1,648 --
Notes receivable for sales of
common stock...................... -- -- -- -- -- -- (1,474)
Comprehensive loss:
Net loss........................... -- -- -- -- -- -- --
Foreign currency translation
adjustment........................ -- -- -- -- -- -- --
Total comprehensive loss.....
------ ------- ------- ------- ---------- -------- -------
BALANCE AT SEPTEMBER 30, 1999...... 30,000 30,000 -- -- 36,965,911 99,047 (1,474)
Dividends on Series A Cumulative
Preferred Stock (unaudited)....... -- -- -- -- -- -- --
Issuance of Series B Cumulative
Preferred Stock
net of issuance cost of $1,342
(unaudited)..................... -- -- 50,000 48,658 -- -- --
Conversion of Series B Cumulative
Preferred Stock into Common Stock
(unaudited)....................... -- -- (50,000) (48,658) 5,555,550 48,658 --
Exercise of options/warrants
(unaudited)....................... -- -- -- -- 92,493 351 --
Notes receivable for sales of
common stock (unaudited).......... -- -- -- -- -- -- (514)
Comprehensive loss:
Net loss (unaudited)............... -- -- -- -- -- -- --
Foreign currency translation
adjustment (unaudited)............ -- -- -- -- -- -- --
Total comprehensive loss
(unaudited).................
------ ------- ------- ------- ---------- -------- -------
BALANCE AT SEPTEMBER 30, 2000
(UNAUDITED)....................... 30,000 $30,000 -- $ -- 42,613,954 $148,056 $(1,988)
====== ======= ======= ======= ========== ======== =======
<CAPTION>
ACCUMULATED
OTHER TOTAL
ACCUMULATED COMPREHENSIVE SHAREHOLDERS'
DEFICIT LOSS DEFICIT
----------- ------------- -------------
<S> <C> <C> <C>
BALANCE AT OCTOBER 1, 1997......... $ (68,908) $ (237) $ (68,880)
Dividends on Series A
Preferred Stock.................... (7) -- (7)
Issuance of Common Stock........... -- -- 10,000
Exercise of options/warrants....... -- -- 39
Comprehensive loss:
Net loss........................... (27,453) -- (27,453)
Foreign currency translation
adjustment........................ -- (3,292) (3,292)
---------
Total comprehensive loss..... (30,745)
--------- -------- ---------
BALANCE AT SEPTEMBER 30, 1998...... (96,368) (3,529) (89,593)
Repurchase of Series A
Cumulative Preferred Stock......... -- -- (7)
Dividends on Series A
Preferred Stock.................... (2) -- (2)
Issuance of Series A
Cumulative Preferred Stock......... -- -- 30,000
Issuance of Common Stock........... -- -- 87,102
Exercise of options/warrants....... -- -- 1,648
Notes receivable for sales of
common stock...................... -- -- (1,474)
Comprehensive loss:
Net loss........................... (63,851) -- (63,851)
Foreign currency translation
adjustment........................ -- 1,124 1,124
---------
Total comprehensive loss..... (62,727)
--------- -------- ---------
BALANCE AT SEPTEMBER 30, 1999...... (160,221) (2,405) (35,053)
Dividends on Series A Cumulative
Preferred Stock (unaudited)....... (2,682) -- (2,682)
Issuance of Series B Cumulative
Preferred Stock
net of issuance cost of $1,342
(unaudited)..................... -- -- 48,658
Conversion of Series B Cumulative
Preferred Stock into Common Stock
(unaudited)....................... -- -- --
Exercise of options/warrants
(unaudited)....................... -- -- 351
Notes receivable for sales of
common stock (unaudited).......... -- -- (514)
Comprehensive loss:
Net loss (unaudited)............... (140,677) -- (140,677)
Foreign currency translation
adjustment (unaudited)............ -- (11,838) (11,838)
---------
Total comprehensive loss
(unaudited)................. (152,514)
--------- -------- ---------
BALANCE AT SEPTEMBER 30, 2000
(UNAUDITED)....................... $(303,580) $(14,243) $(141,755)
========= ======== =========
</TABLE>
See accompanying notes.
F-5
<PAGE> 62
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------------
2000 1999 1998
----------- ---------- ---------
(UNAUDITED)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(140,677) $ (63,851) $ (27,453)
Adjustments to reconcile net loss to net cash used in
operating activities:
Provision for bad debt.................................... 26,980 15,202 15,170
Depreciation and amortization............................. 48,200 17,705 12,332
Deferred revenue.......................................... (1,838) 3,255 (2,275)
Minority interest......................................... - (2,251) (1,546)
Changes in operating assets and liabilities:
Accounts receivable..................................... (66,344) (31,227) (391)
Receivables from related parties........................ - (1,448) (1,864)
Prepaid expenses and other assets....................... 14,467 (4,740) (5,551)
Accrued network costs................................... 55,872 34,629 (12,255)
Accounts payable........................................ (1,620) (1,031) (1,584)
Other accrued liabilities............................... 50,095 2,208 (6,318)
--------- ---------- ---------
Net cash used in operating activities.............. (14,865) (31,549) (31,735)
INVESTING ACTIVITIES
Acquisition of equipment and leasehold improvements......... (12,746) (27,633) (11,990)
Acquisition of ACC Europe, net of cash acquired............. (55,745) - -
--------- ---------- ---------
Net cash used in investing activities.............. (68,491) (27,633) (11,990)
FINANCING ACTIVITIES
Proceeds from revolving credit agreement.................... 303,695 283,485 256,535
Repayments on revolving credit agreement.................... (296,727) (278,407) (255,885)
Proceeds from issuance of long-term debt.................... 35,725 - 55,152
Repayment of long-term debt, subordinated debentures, loans
payable and capital leases................................ (33,221) (30,433) (5,299)
Payment of dividends on preferred stock..................... - (2) (7)
Proceeds from the issuance of preferred stock............... 48,658 30,000 -
Proceeds from issuance of common stock...................... 20 71,648 10,039
Repurchase of preferred stock............................... - (7) -
--------- ---------- ---------
Net cash provided by financing activities.......... 58,150 76,284 60,535
Effect of exchange rate changes on cash..................... (701) 11 (219)
--------- ---------- ---------
Net increase (decrease) in cash and cash
equivalents...................................... (25,907) 17,113 16,591
Cash and cash equivalents at beginning of year.............. 38,030 20,917 4,326
--------- ---------- ---------
Cash and cash equivalents at end of year.................... $ 12,123 $ 38,030 $ 20,917
========= ========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest.................................................. $ 21,341 $ 9,248 $ 6,686
Income taxes.............................................. - 2 8
NON-CASH INVESTING AND FINANCING ACTIVITIES
Assets acquired by incurring capital lease obligations or
long-term debt............................................ 31,549 53,391 10,421
Common stock issued in exchange for the acquisition of
certain minority interest................................. - 17,102 -
Debt issued in conjunction with acquisition of ACC.......... 53,000 - -
</TABLE>
See accompanying notes.
F-6
<PAGE> 63
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO SEPTEMBER 30,
2000 AND FOR THE YEAR ENDED SEPTEMBER 30, 2000 IS UNAUDITED)
1. BUSINESS ACTIVITY
Communications TeleSystems International d/b/a WorldxChange Communications
("WorldxChange"), a California corporation, is a facilities-based
telecommunications carrier that provides international and domestic
long-distance service to retail and carrier customers. Our retail base is
comprised of residential and commercial customers. Our wholesale base is
comprised of other U.S. and foreign telecommunications carriers and resellers.
We have established retail and carrier operations in the United States, the
Pacific Rim, Canada, Europe and Latin America. WorldxChange also provides
operator, debit/calling card service, toll free, private line and other enhanced
services.
WorldxChange has established operations in the United Kingdom, France,
Germany, Belgium, The Netherlands, Australia, New Zealand and Canada through
wholly-owned subsidiaries. WorldxChange has additional subsidiaries domiciled in
various other countries; however, the activity of these subsidiaries to date has
not been significant.
The revenue from WorldxChange's international operations continues to
increase as a percentage of total revenue. For the years ended September 30,
1998, 1999 and 2000 international revenue, including Canada, represented
approximately 20%, 22% and 47% of WorldxChange's total revenue, respectively.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared assuming that
WorldxChange will continue as a going concern. WorldxChange has experienced
recurring losses and has a deficiency in working capital and shareholders'
equity. WorldxChange's rapid growth and investments for additional anticipated
growth have required significant capital. Historically, WorldxChange's capital
needs have been met primarily through a combination of a revolving credit
facility, debt, lease financing, cash flows from operations and private
placement equity offerings. In February 2000, WorldxChange executed a definitive
merger agreement with World Access, Inc. ("World Access") (See Note 13). As of
December 14, 2000, the shareholders of WorldxChange and World Access have
approved the merger and Management believes that the merger will be consummated
before December 31, 2000. On August 1, 2000, the Company entered into an
Executive Management Services Agreement ("Management Agreement")(See Note 13)
with World Access. Under this agreement, World Access has assumed all financial
responsibility related to the operations of WorldxChange subsequent to August 1,
2000. The duration of the Management Agreement is indefinite but can be
terminated in certain limited circumstances. Although WorldxChange believes it
unlikely that the Management Agreement would be terminated, in such event
WorldxChange would be required to raise substantial additional debt or equity
financing or seek out another merger partner. There can be no assurance that
WorldxChange would be able to obtain such financing or find another merger
partner, which may impact its ability to continue as a going concern. The
accompanying September 30, 2000 financial statements do not include any
adjustments to reflect the possible effects on the recoverability and
classification of assets or the amounts and classifications of liabilities that
may result from the possible inability of WorldxChange to continue as a going
concern.
Unaudited Financial Information
The accompanying financial statements at September 30, 2000 and for the
year then ended are unaudited but include all adjustments (consisting of normal
recurring accruals), which in the opinion of
F-7
<PAGE> 64
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO SEPTEMBER 30,
2000 AND FOR THE YEAR ENDED SEPTEMBER 30, 2000 IS UNAUDITED)
management, are necessary for a fair presentation of the statement of financial
position and operating results and cash flows.
Consolidation
The accompanying consolidated financial statements include the accounts of
WorldxChange and its wholly and majority owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Cash Equivalents
Cash equivalents are highly liquid investments purchased with maturities of
three months or less when purchased.
Foreign Currency
Assets and liabilities of operations outside the United States, for which
the functional currency is not U.S. dollars, are translated into U.S. dollars
using the exchange rate in effect at each period end. Revenues and expenses are
translated at the average exchange rate prevailing during the period. Cumulative
translation adjustments are included as a separate component of shareholders'
deficit. Exchange gains and losses from foreign currency transactions are
included in "Other (income) expense," in the accompanying Consolidated
Statements of Operations.
Concentration of Credit Risk
WorldxChange's customer base is comprised of several hundred carrier
customers and over 750,000 residential and commercial users of its direct dial
long distance telephone services, as well as hotels and other users of its
operator-assisted long distance telephone services. These customers are located
principally throughout the United States (U.S.) and Europe, and to a much lesser
extent in the Pacific Rim, Latin America, and Canada. WorldxChange's U.S.
revenues from residential and smaller commercial users are billed and collected
by local exchange carriers (LECs). These LECs pass through to WorldxChange their
collection experience with customers billed under these billing agreements.
WorldxChange direct bills carrier and certain commercial customers in the U.S.
and direct bills all customers in its international markets. WorldxChange
performs credit evaluations of the financial condition of these direct bill
customers, and may require a deposit in certain circumstances. Revenue is
reported net of estimated customer credits which are provided for in the
financial statements at the same time the corresponding revenue is recognized.
The Company periodically estimates its reserve requirements for uncollectable
accounts, and the bad debt expense is included in selling, general and
administrative expense. No one customer accounted for more than 10% of revenues
for any period during fiscal 2000, 1999, and 1998.
Equipment and Leasehold Improvements
Equipment and leasehold improvements are recorded at cost and are
depreciated or amortized using the straight-line method over the estimated
useful lives of the assets (generally two to seven years). Equipment under
capital leases are recorded at the net present value of the minimum lease
payments and are amortized over the shorter of the useful life of the asset or
the lease term (ranging from three to seven years). Interests in international
undersea and on-land fiber-optic cable systems are amortized over their
F-8
<PAGE> 65
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO SEPTEMBER 30,
2000 AND FOR THE YEAR ENDED SEPTEMBER 30, 2000 IS UNAUDITED)
estimated useful lives, typically 20 years. Total depreciation expense for the
fiscal years ended September 30, 2000, 1999 and 1998 was $38,873,000,
$17,705,000 and $12,332,000.
Installation Costs
Installation costs consists of costs incurred by WorldxChange for the
expansion of its switching capacity and related network. These costs also
include dialer installation costs incurred upon establishing network services
with certain operator services customers. These costs are amortized using the
straight-line method over three years.
Impairment of Long-Lived Assets
The Company evaluates impairment of long-lived assets pursuant to SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," which requires impairment losses to be recorded on
long-lived assets used in operations when events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Management
periodically evaluates property and equipment and intangible assets for
impairment whenever events or changes in circumstances indicate the assets may
be impaired. This evaluation consists of comparing estimated future cash flows
(undiscounted and without interest charges) over the remaining life of the asset
to its carrying value. When such evaluation results in a deficiency, the asset
is written down to its estimated fair value.
Accrued Network Costs
Accrued network costs represent an estimate for cost of network services
received from third party telecommunications companies for which WorldxChange
has not been invoiced. The estimates are based upon vendor contract rates and
actual minutes utilized per WorldxChange's records.
Minority Interest
Certain of WorldxChange's subsidiaries have sold stock to outside
investors. Income or losses from these operations are allocated to minority
shareholders based on ownership percentages. Losses in excess of the amounts
invested by the minority shareholders are absorbed by WorldxChange. In September
1999, WorldxChange issued 1,554,763 shares of its common stock in exchange for
the shares held by certain minority shareholders of its Australian subsidiary
and a related holding company (Note 8). At September 30, 1999 and 2000 a 2.2%
minority interest remains in a WorldxChange subsidiary.
Stock-Based Compensation
As permitted by SFAS No. 123, Accounting for Stock-Based Compensation,
WorldxChange accounts for compensation expense under its stock-based
compensation plans in accordance with Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees. Pro forma disclosure of net loss,
as if the fair value-based method had been applied in measuring compensation
expense, is presented in Note 8.
F-9
<PAGE> 66
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO SEPTEMBER 30,
2000 AND FOR THE YEAR ENDED SEPTEMBER 30, 2000 IS UNAUDITED)
Revenue Recognition
Revenue is recognized as long distance telecommunications services are
provided. Prepaid calling card revenue is reported net of selling discounts and
recorded when minutes are used. Deferred revenue relates to amounts received
from or billed to customers prior to WorldxChange providing telecommunications
services.
Cost of Services
Cost of services is exclusive of depreciation and amortization related to
the services network which is included in "Depreciation and amortization"
presented separately on the consolidated statements of operations.
Advertising
WorldxChange charges advertising costs to expense as the costs are
incurred. Total advertising expense was $14,117,000, $19,118,000 and $17,129,000
for the years ended September 30, 1998, 1999 and 2000, respectively.
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Comprehensive Income
Effective April 1, 1998, WorldxChange adopted SFAS No. 130, Reporting
Comprehensive Income. This statement requires that all components of
comprehensive income be reported, net of any related tax effect, in the
financial statements in the period in which they are recognized. The components
of comprehensive income for WorldxChange include net loss and foreign currency
translation adjustments.
Segment Information
Effective October 1, 1998, WorldxChange adopted SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information. This statement requires
disclosures of certain information about WorldxChange's operating segments,
products, geographic areas in which it operates and its major customers. This
information is presented in Note 12.
Fair Values of Financial Instruments
WorldxChange believes that the carrying amounts of its cash, cash
equivalents, accounts receivable, accounts payable, accrued liabilities,
long-term debt and capital lease obligations approximate their fair market
values due to their short-term nature or variable interest rates.
F-10
<PAGE> 67
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO SEPTEMBER 30,
2000 AND FOR THE YEAR ENDED SEPTEMBER 30, 2000 IS UNAUDITED)
New Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. In May
1999, the FASB voted to delay the effective date of SFAS No. 133 by one year.
The Company will be required to adopt FAS 133 for fiscal year 2001. This
statement establishes a new model for accounting for derivatives and hedging
activities. Under SFAS No. 133, all derivatives must be recognized as assets and
liabilities and measured at fair value. WorldxChange does not expect the
adoption of SFAS No. 133 to have a material impact on its consolidated financial
position or results of operations.
Reclassifications
Certain prior period amounts have been reclassified to conform with the
current period presentation.
3. ACQUISITIONS
In December 1998, WorldxChange completed a business combination with CTS
Telcom, Inc. and WorldxChange Limited, affiliates under common ownership and
management control, both of which have been accounted for in a manner similar to
a pooling-of-interests. WorldxChange issued 278,000 shares in connection with
the acquisition of WorldxChange Limited, and no consideration was paid for the
acquisition of CTS Telcom. The accompanying pooled consolidated financial
statements are derived from the combined historical financial statements of CTS
Telcom, WorldxChange Limited and WorldxChange. All significant intercompany
accounts and transactions have been eliminated.
Net revenues and net loss for fiscal 1998 preceding the merger by entity
are as follows (in thousands):
<TABLE>
<CAPTION>
NET NET
REVENUES LOSS
-------- --------
<S> <C> <C>
WxC....................................................... $394,232 $(24,932)
CTS Telcom................................................ 16,343 (2,099)
WxL New Zealand........................................... 21,204 (422)
Eliminations.............................................. (32,912) --
-------- --------
Combined.................................................. $398,867 $(27,453)
======== ========
</TABLE>
On November 4, 1999, WorldxChange acquired the outstanding shares of
certain European subsidiaries of ACC Corp, a subsidiary of AT&T. The operations
of these subsidiaries are located in the United Kingdom, Germany, France and
Italy. As part of this transaction, WorldxChange also acquired from ACC Corp a
switch located in the United States and certain indefeasible rights of use of a
transatlantic telecommunications cable system. The $113 million purchase price
for this transaction was comprised of $60 million cash and a $53 million, 12%
per annum interest rate note due on or before December 28, 2000. The acquisition
has been accounted for as a purchase, and accordingly, the excess purchase price
over the fair value of the net assets acquired of approximately $85.0 million
has been allocated to goodwill and customer base based on management's
estimates. Goodwill is being amortized on a straight-line basis over twenty
years and the customer base is being amortized over five years.
WorldxChange financed $50 million of the cash payment through the issuance
in November 1999 of 50,000 shares of Series B Convertible Preferred Stock to two
existing shareholders for $50 million. The
F-11
<PAGE> 68
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO SEPTEMBER 30,
2000 AND FOR THE YEAR ENDED SEPTEMBER 30, 2000 IS UNAUDITED)
Series B Convertible Preferred Stock has a liquidation preference of $1,000 per
share. In May 2000, the Series B Convertible Preferred Stock was converted into
5,555,550 shares of common stock.
Assuming that the acquisition of ACC Corp. had occurred on the first day of
WorldxChange's fiscal year ended September 30, 1998, pro forma condensed
consolidated results of operations would have been as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
--------------------
1999 1998
--------- --------
(UNAUDITED)
<S> <C> <C>
Revenues.................................................... $ 581,826 $517,670
Net loss.................................................... (128,654) (47,765)
</TABLE>
4. BALANCE SHEET INFORMATION
Sale of Accounts Receivable with Recourse
WorldxChange sells certain receivables, subject to full recourse
provisions, to Zero Plus Dialing Incorporated (ZPDI), one of WorldxChange's
providers of billing and collection services. At September 30, 1999 the
outstanding balance of such accounts for which WorldxChange is contingently
liable was approximately $1,962,000. No amounts were outstanding under this
arrangement at September 30, 2000.
Equipment and Leasehold Improvements
Equipment and leasehold improvements consist of the following (in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
2000 1999
----------- --------
(UNAUDITED)
<S> <C> <C>
Telecommunications equipment and cables..................... $220,743 $125,190
Computer equipment and software............................. 33,856 15,365
Office furniture, equipment and vehicles.................... 12,912 9,745
Leasehold improvements...................................... 11,404 3,147
Equipment in progress....................................... -- 10,266
-------- --------
278,915 163,713
Accumulated depreciation and amortization................... (85,658) (48,948)
-------- --------
$193,257 $114,765
======== ========
</TABLE>
Telecommunications equipment and cables include eight indefeasible rights
of use in cable systems amounting to $41,892,000 and eleven ownership interests
in international cables amounting to $15,605,000 at September 30, 1999. As of
September 2000, WorldxChange had indefeasible rights of use in cable systems
amounting to $60,891,000 and ownership interests in international cables
amounting to $17,140,000. These assets are amortized over the life of the
agreements of 15 to 20 years.
F-12
<PAGE> 69
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO SEPTEMBER 30,
2000 AND FOR THE YEAR ENDED SEPTEMBER 30, 2000 IS UNAUDITED)
Intangible Assets
Intangible assets, including goodwill from acquisitions, representing the
excess of purchase price paid over the value of net assets acquired, consisted
of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
2000 1999
----------- -------
(UNAUDITED)
<S> <C> <C>
Goodwill.................................................... $80,467 $12,194
Customer base............................................... 17,068 --
------- -------
97,535 12,194
Accumulated amortization.................................... (9,327) --
------- -------
$88,208 $12,194
======= =======
</TABLE>
The Company amortizes goodwill and customer base to expense on a
straight-line basis over 20 years and 5 years, respectively. The Company reviews
the net carrying value of intangibles, including goodwill, on a regular basis,
and if deemed necessary, charges are recorded against current operations for any
impairment in the value of these assets. Such reviews include an analysis of
current results and take into consideration the undiscounted value of projected
operating cash flows. Intangibles are removed from the books when fully
amortized. Amortization expense for fiscal 2000, 1999 and 1998 was $9,327, $0
and $0, respectively.
5. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
2000 1999
----------- ----------
(UNAUDITED)
<S> <C> <C>
Unsecured subordinated note balance due December 2000 with
interest payable at maturity of 12%....................... $ 53,000 $ --
Secured subordinated note, balance due November 2000 with
interest payable quarterly at 12.5%....................... 45,200 45,200
Unsecured note due February 2002 with varying monthly
principal payments from $300,000 to $1,250,000. The unpaid
principal bears interest at 13.0%, which is payable at
maturity.................................................. 15,101 --
Term loan due October 2000, with principal reductions of
$300,000 due monthly and interest payable monthly at prime
plus 5.00% (14.5% at September 30, 2000) and prime plus
6.75% (15.00% at September 30, 1999)...................... 2,900 4,600
Loan and security agreement payable upon collections of
accounts receivable with interest payable monthly at prime
rate plus 1.75% (11.25% at September 30, 2000) and prime
plus 2.75% (11.00% at September 30, 1999)................. 30,000 24,362
Term loan due February 2001 with interest payable at a per
annum rate equal to 11.0%................................. 35,725 --
</TABLE>
F-13
<PAGE> 70
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO SEPTEMBER 30,
2000 AND FOR THE YEAR ENDED SEPTEMBER 30, 2000 IS UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
2000 1999
----------- ----------
(UNAUDITED)
<S> <C> <C>
Note payable due March 2004, with principal and interest
payments payable in monthly installments of $184,000 at
12.00%.................................................... 6,148 7,521
Notes payable due June 2004 to March 2005, with aggregate
monthly principal and interest payments at 12% due in
monthly installments of $355,000 at September 30, 2000 and
$197,000 at September 30, 1999............................ 16,932 8,693
Note payable due May 2004, with principal and interest
payments payable in monthly installments of $323,000 at
11.5%..................................................... 11,326 13,742
Note payable due August 2004, with principal and interest
payments payable in monthly installments of $73,000 at
11.5%..................................................... 2,714 3,247
Note payable due June 2004, with principal and interest
payments payable in monthly installments of $57,000 at
10%....................................................... 2,084 2,568
Note Payable due June 2002 with quarterly payments of
$67,000................................................... 499 --
Note payable due May 2004 with principal and interest
payments made payable in monthly installments of $93,000
at 11%.................................................... 3,104 --
Secured and unsecured notes, with principal and interest
payments payable in quarterly installments, maturing at
various dates through June 2002. Interest rates ranging
from 10% to 14.25%........................................ 88 190
---------- ----------
224,821 110,123
Less current portion........................................ (190,394) (9,799)
---------- ----------
$ 34,427 $ 100,324
========== ==========
</TABLE>
In March 1997, WorldxChange entered into a credit facility, which consists
of an accounts receivable-based revolving credit facility and a term loan. In
February and May 2000, the credit facility was amended to increase the maximum
borrowing capacity, add a bridge loan, extend the maturity date of the revolving
credit agreement and term loan and reduce the interest rate charge. The amended
credit facility allows WorldxChange to borrow up to a maximum of $80.0 million,
subject to certain restrictions and borrowing base limitations. The maximum
available borrowing base under the revolving credit agreement is $30.0 million
and is determined as a specified percentage of eligible accounts receivable. The
balance outstanding on the revolving credit agreement is reduced by the
application of payments received on collections of accounts receivable. The
accounts receivable revolving credit facility had an outstanding balance of
approximately $30.0 million at September 30, 2000. This facility bears interest
at the prime rate plus 1.75% and is repaid through collections of accounts
receivable. The term loan was issued in the amount of $5.0 million, which at
September 30, 2000 had an outstanding balance of approximately $2.9 million,
bears interest at the prime rate plus 5.00% and requires monthly reductions of
principal of $300,000 plus interest. The bridge loan has a maximum borrowing
availability of $45.0 million, bears interest at 11% and matures on February 11,
2001. The maturity date may be extended until October 1, 2003 by the bridge loan
participant. As part of the amended agreement and the WorldxChange merger
agreement, World Access agreed to participate in the bridge loan and agreed to
fund the $45.0 million under the agreement. As of September 30, 2000, the
outstanding balance on the bridge loan was $35.7
F-14
<PAGE> 71
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO SEPTEMBER 30,
2000 AND FOR THE YEAR ENDED SEPTEMBER 30, 2000 IS UNAUDITED)
million and $9.3 million was available for borrowing. In total, as of September
30, 2000, WorldxChange had $68.6 million borrowed under the credit facility and
$9.3 million available for borrowing. In November 2000, all outstanding amounts
owed under this arrangement were paid off by World Access and the borrowing
agreement was terminated. This transaction increased the amount WorldxChange
owes to World Access.
From May through August 1998, WorldxChange issued and sold subordinated
promissory notes in the aggregate principal amounts of $55.0 million. These
notes bear interest at 12.5% per annum, provide for quarterly payments of
interest only and mature on November 30, 2000. These notes provide the lender
the right to require WorldxChange to use a portion of the net proceeds from any
private placement or public offering of WorldxChange's common stock to repay the
notes. As of September 30, 1999 and 2000 the outstanding balance was
$45,200,000.
In addition, WorldxChange also issued a promissory note in August 1998 in
the amount of $1.2 million representing accrued interest on the subordinated
promissory notes. This note bears interest at the rate of 10.0% per annum,
provides for quarterly payments of interest only and matures on November 30,
2000. In accordance with the terms of the note, this balance was repaid out of
the proceeds of the private placement equity offerings.
In July 1999, WorldxChange entered into an indefeasible right of use
agreement to lease capacity in a transatlantic telecommunications cable system
for $4,000,000. At September 30, 2000 the outstanding balance related to this
agreement was $3,104,000.
In October 1998, WorldxChange entered into an indefeasible right of use
agreement to lease capacity in a transatlantic telecommunications cable system
for $8,250,000. The purchase was vendor financed with a note that bears interest
at 12.0% per annum and provides for monthly payments of principal and interest.
WorldxChange's obligations under this agreement are secured by a first-priority
security interest in the leased capacity. At September 30, 2000 and September
30, 1999, the outstanding balance related to this agreement was $6,148,000 and
$7,521,000, respectively.
In February 1999, WorldxChange entered into an indefeasible right of use
agreement to lease capacity in a nationwide fiber optic communications system.
The initial fee for each capacity segment is calculated based on mileage between
cities, as defined per the agreement. This purchase was vendor financed with
notes that bear interest at 12.0% per annum and provide for payments in equal
monthly installments of principal and interest. At September 30, 2000 and
September 30, 1999, the outstanding balances related to this agreement were
$16,932,000 and $8,693,000 respectively.
In March 1999, WorldxChange entered into an indefeasible right of use
agreement to lease capacity in a nationwide telecommunications network. Pursuant
to this agreement, WorldxChange signed notes payable to the vendor for the
purchase price. These notes bear interest at 11.5% per annum and provide for
monthly payments of principal and interest. WorldxChange's obligations under
this agreement are secured by a security interest in the leased capacity. At
September 30, 2000 and September 30, 1999, the aggregate outstanding balance
were approximately $14,040,000 and $16,989,000, respectively, which was
comprised of two separate notes with balances outstanding of $11,326,000 and
$2,714,000 at September 30, 2000.
In June 1999, WorldxChange entered into an indefeasible right of use
agreement to lease capacity in a fiber optic communications system for
$2,969,000. The purchase was vendor financed with a note that bears interest at
10.0% per annum and provides for payments in equal monthly installments of
principal
F-15
<PAGE> 72
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO SEPTEMBER 30,
2000 AND FOR THE YEAR ENDED SEPTEMBER 30, 2000 IS UNAUDITED)
and interest, which are inclusive of all operation and maintenance fees. At
September 30, 2000 and September 30, 1999, the outstanding balances related to
this agreement were $2,084,000 and $2,568,000 respectively.
In January 2000, WorldxChange secured a loan, which allows for borrowing of
up to $15 million from a shareholder. The loan bears interest at 15% and becomes
payable on December 31, 2000.
In January 2000, WorldxChange negotiated payment terms with a network
provider to finance outstanding invoices payable to the carrier. Under the terms
of the agreement, the Company agreed to pay to the carrier a total of $24.1
million for services through August 31, 1999. Payments in the aggregate of $4.3
million were due and payable in monthly installments through September 30, 2000
and the remainder is payable in monthly installments of $1.25 million beginning
October 2000. At September 30, 2000 $15.1 million remains outstanding and bears
interest at 13%.
Maturities of long-term debt as of September 30, 2000 (unaudited) are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30,
-------------------------
<S> <C>
2001........................................................ $190,394
2002........................................................ 12,315
2003........................................................ 12,010
2004........................................................ 9,135
2005........................................................ 967
--------
Total............................................. $224,821
========
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
Leases
WorldxChange leases its primary operating facilities under noncancellable
operating leases which expire at various dates through March 2015. Certain of
these leases contain escalation clauses based on inflation or fixed amounts and
the leases generally require WorldxChange to pay utilities, insurance, taxes and
other operating expenses. Rental expense under such leases was $8,618,000,
$4,783,000, and $3,129,000, respectively, for the years ended September 30,
2000, 1999 and 1998.
WorldxChange leases its switches and certain other telecommunication and
computer equipment under capital leases, most of which contain bargain or fair
market value purchase options. At September 30, 2000 and September 30, 1999
assets acquired under these leases have an original cost of $52,142,000 and
$42,958,000, respectively, and accumulated amortization of $33,010,000 and
$24,375,000, respectively. The amortization of these assets is included with
depreciation and amortization expense presented in the Consolidated Statements
of Operations.
F-16
<PAGE> 73
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO SEPTEMBER 30,
2000 AND FOR THE YEAR ENDED SEPTEMBER 30, 2000 IS UNAUDITED)
Future minimum payments for capital leases and noncancellable operating
leases with initial or remaining terms of one year or more as of September 30,
2000 (unaudited) are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING SEPTEMBER 30, LEASES LEASES
------------------------- -------- ---------
<S> <C> <C>
2001........................................................ $ 17,386 $ 4,047
2002........................................................ 15,906 3,333
2003........................................................ 10,070 2,343
2004........................................................ 5,020 1,873
2005........................................................ 7 1,803
Thereafter.................................................. -- 1,383
-------- -------
Total minimum lease payments................................ 48,389 $14,782
=======
Less amount representing interest........................... 5,909
--------
Present value of minimum lease payments..................... 42,480
Less current portion........................................ (13,825)
--------
Amounts due after one year.................................. $ 28,655
========
</TABLE>
Commitments for Undersea Cable and Land-based Fiber Optic Cable Systems
WorldxChange has entered into three agreements to increase its ownership of
undersea cables. These commitments will continue WorldxChange's further
expansion in international markets, and are expected to require incremental
capital expenditures of approximately $18.0 million. Of this balance, $4.0
million will be vendor financed at 11% interest, with monthly principal and
interest payments over a four year amortization period. The remaining $14.0
million will be paid in installments of $6.8 million upon service delivery date
and payments of $3.0 million and $4.2 million on the 1st and 2nd anniversaries
of the service delivery dates, respectively. As of September 30, 1999 and
September 30, 2000 these obligations remain outstanding.
WorldxChange entered into an agreement during the year ended September 30,
1999 to acquire $25.0 million of capacity in land-based fiber optic cable
systems. The vendor has agreed to finance 90% of the commitment at 12% interest,
with monthly principal and interest payments over a five year amortization
period. At September 30, 1999, WorldxChange has purchased for cash of
approximately $10.0 million, leaving $15.0 million to be ordered. As of
September 30, 2000, $3.2 million remained to be ordered.
7. INCOME TAXES
Income taxes are provided for in accordance with the provisions of FASB
Statement No. 109, Accounting for Income Taxes. Under this method, WorldxChange
recognizes deferred tax assets and liabilities for the expected future tax
effects of temporary differences between the carrying amounts and the tax bases
of assets and liabilities, as well as operating loss carryforwards.
F-17
<PAGE> 74
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO SEPTEMBER 30,
2000 AND FOR THE YEAR ENDED SEPTEMBER 30, 2000 IS UNAUDITED)
The significant components of WorldxChange's deferred tax assets and
liabilities as of September 30, 2000 and 1999 are shown below (in thousands). At
September 30, 2000, a valuation allowance of $93,041,000 has been recorded as
realization of such net deferred assets is uncertain:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
2000 1999
----------- --------
(UNAUDITED)
<S> <C> <C>
Deferred tax assets:
U.S. net operating loss carryforward...................... $ 57,968 $ 28,541
Foreign net operating loss carryforwards.................. 31,265 19,263
Accrued liabilities and reserves.......................... 4,725 4,263
Other..................................................... -- --
-------- --------
93,958 52,067
Deferred tax liabilities:
Depreciation and amortization............................. (913) (1,153)
Other..................................................... (4) 199
-------- --------
Net deferred tax assets..................................... 93,041 51,113
Deferred tax assets valuation allowance..................... (93,041) (51,113)
-------- --------
$ -- $ --
======== ========
</TABLE>
At September 30, 2000, WorldxChange had net operating loss carryforwards
available for federal, state and foreign tax purposes of approximately
$153,000,000, $78,000,000 and $89,000,000 respectively. The federal tax loss
carryforwards will begin expiring in 2007, unless previously utilized. The state
tax loss carryforwards continue expiring in 2000 and will continue to expire
through 2003, unless previously utilized. The Netherlands net operating loss
carryforward in the amount of $9,480,000 will begin expiring in 2003. Other
foreign loss carryforwards may be carried forward indefinitely. The realization
of future domestic benefits from net operating loss carryforwards may be limited
under Section 382 of the Internal Revenue Code if certain cumulative changes
occur in WorldxChange's ownership.
8. SHAREHOLDERS' DEFICIT
Common Stock
In September 1998, WorldxChange completed a private placement for the
issuance of 1,659,214 shares of common stock. WorldxChange issued 788,127 shares
of common stock in September 1998 for $10,000,000. The remaining 871,087 shares
of common stock were issued in December 1998 for another $10,000,000. During
fiscal 1999, WorldxChange issued 5,727,000 shares of common stock for proceeds
of $60,000,000.
In September 1999, WorldxChange issued 1,554,763 shares of its common stock
in exchange for minority interests held in certain of its subsidiaries. The
acquisition was accounted for under the purchase method of accounting at a value
of $17,102,000, or $11.00 per share. The excess value of the stock issued over
the minority interest balance at September 30, 1999 was recorded as goodwill of
$12,194,000. This intangible asset is being amortized on a straight-line basis
over 20 years.
F-18
<PAGE> 75
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO SEPTEMBER 30,
2000 AND FOR THE YEAR ENDED SEPTEMBER 30, 2000 IS UNAUDITED)
Preferred Stock
As of September 30, 1998, WorldxChange had 23 shares of Series A Cumulative
Preferred Stock outstanding. The shares were non-voting and entitled the holders
to certain annual cumulative dividends. During fiscal 1999, all 23 shares were
repurchased by WorldxChange.
In August 1999, WorldxChange issued 30,000 shares of Series A Convertible
Preferred Stock for $30,000,000. The holders of the Series A Convertible
Preferred Stock are entitled to receive an annual cash dividend of $40 per share
(an aggregate of $1,300,000 and $100,000 at September 30, 2000 and 1999,
respectively). The holders of the Series A Convertible Preferred Stock are
entitled to certain antidilution rights and have liquidation rights senior to
those of common shareholders.
Each share of Series A Convertible Preferred Stock is convertible into
90.9091 shares of common stock. The stock is convertible at the option of the
holder six months after issuance provided WorldxChange has not completed a
public offering and no such offering is pending. The stock is automatically
convertible: (i) six months from a completed registered public offering,
provided there has been no other registered public offering during the course of
the six months and no registered public offering is pending, or (ii) in the
event there is no registered public offering, two years from the date of
issuance, provided there is no registered public offering pending.
In connection with the ACC acquisition, WorldxChange financed $50 million
of the cash payment through the issuance in November 1999 of 50,000 shares of
Series B Convertible Preferred Stock to two existing shareholders for $50
million. In May 2000 the Series B stock converted into 5,555,550 shares of
common stock.
Stock Options
WorldxChange's 1996 Stock Option Plan provides for the granting of stock
options to purchase, and the issuance of, up to 3 million shares to employees,
non-exempt directors and consultants. Generally, options are granted at prices
at least equal to fair value of WorldxChange's common stock on the date of grant
as determined by WorldxChange's Board of Directors. In addition, certain
officers and directors have been granted stock options outside the Plan.
Pro forma information regarding net loss is required by SFAS No. 123, and
has been determined as if WorldxChange had accounted for its employee stock
options under the fair value method of that statement. The fair value of these
options was estimated at the date of grant using the minimum value method and
the following weighted average assumptions for fiscal year 1998, 1999 and 2000,
respectively: risk free interest rate of 5.25%, 5.75% and 6.43%; expected option
life of seven years; and no annual dividends.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period of such options. The
effects of applying SFAS 123 for pro forma disclosure purposes are not likely to
be representative of the effects on pro forma net income or loss in future years
because they do not take into consideration pro forma compensation expenses
related to grants made prior to fiscal 1996. WorldxChange's pro forma
information follows:
<TABLE>
<CAPTION>
2000 1999 1998
----------- -------- --------
(UNAUDITED)N THOUSANDS)
<S> <C> <C> <C>
Pro forma net loss.................................. $(142,231) $(65,016) $(28,176)
========= ======== ========
</TABLE>
F-19
<PAGE> 76
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO SEPTEMBER 30,
2000 AND FOR THE YEAR ENDED SEPTEMBER 30, 2000 IS UNAUDITED)
A summary of WorldxChange's stock option activity, including those issued
outside of the plans and related information are as follows:
<TABLE>
<CAPTION>
SHARES WEIGHTED-
AVAILABLE NUMBER PRICE AVERAGE
FOR GRANT OF SHARES PER SHARE EXERCISE PRICE
----------- ----------- ------------- --------------
<S> <C> <C> <C> <C>
Balance as of October 1, 1997..... 712,566 2,197,434 $ 0.42-$7.00 $ 2.84
Additional shares reserved...... 1,008,166 -- -- --
Grants.......................... (1,377,453) 1,377,453 $ 7.00-$10.00 9.67
Exercises....................... -- (54,425) $ 0.67-$7.00 0.72
Cancellations................... 320,162 (320,162) $ 4.33-$5.00 5.00
----------- ----------- ------------- -------
Balance as of September 30,
1998............................ 663,441 3,200,300 $ 0.42-$10.00 5.73
Additional shares reserved...... 4,000,000 -- -- --
Grants.......................... (1,273,752) 1,273,752 $10.00-$11.00 10.34
Exercises....................... -- (236,239) $ 0.67-$11.00 6.98
Cancellations................... 495,391 (495,391) $ 5.00-$10.00 9.06
----------- ----------- ------------- -------
Balance as of September 30,
1999............................ 3,885,080 3,742,422 $ 0.42-$11.00 6.85
Grants (unaudited).............. (1,574,081) 1,574,081 $ 3.52-$13.00 7.48
Exercises (unaudited)........... -- (92,493) $ 0.42-$10.00 3.80
Cancellations (unaudited)....... 1,140,532 (1,140,532) $ 5.00-$13.00 9.76
----------- ----------- ------------- -------
Balance as of September 30, 2000
(unaudited)..................... 3,451,531 4,083,478 $ 0.42-$13.00 $ 6.32
=========== =========== ============= =======
</TABLE>
The following table summarizes significant ranges of outstanding and
exercisable options at September 30, 2000 (unaudited):
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED --------------------------
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING LIFE AVERAGE AVERAGE
EXERCISE PRICES SHARES IN YEARS EXERCISE PRICE SHARES EXERCISE PRICE
--------------- --------- -------------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
$0.42-$3.52 1,131,575 3.96 $ 1.16 950,975 $ 0.71
$3.62-$6.80 1,162,833 8.04 5.45 502,317 5.14
$7.00-$10.00 1,221,572 8.10 9.66 604,905 9.47
$11.00-$13.00 567,506 8.98 11.21 118,367 11.20
--------- ---- ------ --------- ------
4,083,485 7.06 $ 6.32 2,176,564 $ 4.74
========= ==== ====== ========= ======
</TABLE>
The weighted average fair value at date of grant for options granted during
fiscal 1998, 1999 and 2000 were $1.88, $2.52 and $3.46 per share, respectively.
9. RELATED PARTY TRANSACTIONS
Affiliated Long Distance Companies
In fiscal 1996, WorldxChange began utilizing long distance services from
four affiliated companies owned by a relative of WorldxChange's
officers/shareholders. Billings by the four affiliates for long distance
services provided to WorldxChange were approximately $5,409,000 and $1,705,000
for the years
F-20
<PAGE> 77
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO SEPTEMBER 30,
2000 AND FOR THE YEAR ENDED SEPTEMBER 30, 2000 IS UNAUDITED)
ended September 30, 1998 and 1999, respectively. Effective January 1999,
WorldxChange terminated the agreements with these affiliates.
10. SAVINGS PLAN
In January 1996, WorldxChange adopted a 401(k) Savings Plan covering
substantially all employees that have been employed for at least one year and
meet other age and eligibility requirements. Participants may elect to
contribute up to six percent of their compensation. WorldxChange matches 25% of
participant contributions. WorldxChange's matching contribution totaled $82,000,
$100,000 and $116,000 during the years ended September 30, 1998, 1999 and 2000,
respectively.
11. LITIGATION AND REGULATION
WorldxChange is required under federal law and regulations to file tariffs
showing rates, terms and conditions affecting its services. WorldxChange has
filed interstate long distance tariffs with the FCC. The FCC has adopted an
order that, with certain exceptions, rescinds the requirement that carriers such
as WorldxChange maintain FCC tariffs and mandates that tariffs be withdrawn. The
FCC stayed its order pending judicial review. If tariffs are eliminated, it will
probably be necessary for WorldxChange to secure contractual agreements with its
customers providing for many of the terms of its existing tariffs. Absent
tariffs and contracts, WorldxChange believes that disputes could arise
concerning the respective rights of WorldxChange and its customers, which could
hinder WorldxChange's ability to collect its accounts receivable, increase
WorldxChange's overall bad debt losses and collection expenses, and increase
WorldxChange's exposure to unlimited damage claims. The FCC has not proposed to
change its requirements that tariffs for international services be filed, and
WorldxChange continues to file such tariffs.
The intrastate long distance operations of WorldxChange are also subject to
various state laws. The majority of states require certification or
registrations. WorldxChange has secured the ability to offer intra-state service
in forty-one states. Many states require tariff filing as well.
WorldxChange has been successful in obtaining all necessary regulatory
approvals to date, although revision of tariffs, authorities and approvals are
being made on a continuing basis and many such requests are pending at any one
time.
Some states may assess penalties on long distance service providers for
traffic sold prior to tariff approval. Such states may require refunds to be
made to customers. It is the opinion of management that such penalties and
refunds, if any, would not have a material adverse effect on the consolidated
results of operations, financial position or liquidity of WorldxChange.
In May 1997, the California Public Utilities Commission issued an order,
which became effective in October 1997, revoking WorldxChange's Certificate of
Public Convenience and Necessity in California and imposing certain other fines
and penalties against WorldxChange based on the California Public Utilities
Commission's findings that WorldxChange violated California laws and regulations
requiring WorldxChange to obtain prior consumer authorization before switching
consumers' long distance carriers. As a result of the revocation for
WorldxChange's Certificate of Public Convenience and Necessity, WorldxChange
cannot provide intrastate telecommunication services in California. In addition,
WorldxChange must, among other things, (i) pay a $19.6 million fine to the state
of California, $2 million of which has been paid with the balance suspended so
long as WorldxChange is not found to have committed any future violations of
California law or California Public Utilities Commission directives;
F-21
<PAGE> 78
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO SEPTEMBER 30,
2000 AND FOR THE YEAR ENDED SEPTEMBER 30, 2000 IS UNAUDITED)
(ii) reimburse the California Public Utilities Commission for $100,000 in
prosecution costs which has also been paid; and (iii) pay approximately $1.9
million in reparations to consumers, of which $1,211,000 was payable at
September 30, 1999 with no remaining amounts outstanding at September 30, 2000.
Under the California Public Utilities Commission's order, the suspension of
WorldxChange's Certificate of Public Convenience and Necessity and the other
sanctions and fines imposed on WorldxChange are binding on any successor of
WorldxChange. WorldxChange may apply to the California Public Utilities
Commission for reinstatement of the Certificate of Public Convenience and
Necessity after October 22, 2000, although there can be no assurance that such
reinstatement would be granted.
In addition, WorldxChange is subject to certain legal, regulatory and
administrative proceedings, claims and inquiries arising in the ordinary course
of business, some of which involve claims for substantial amounts of damages.
The ultimate outcome of such proceedings, claims or inquiries cannot be
predicted at this time. It is management's opinion, after consultation with its
legal counsel, that any such liability or possible restrictions placed on
WorldxChange's operations resulting from the ultimate resolution of such
proceedings, claims, and inquiries, beyond that provided, would not have a
material effect on WorldxChange's consolidated financial position or
WorldxChange's future consolidated results of operations or cash flows.
12. SEGMENT INFORMATION
In 1999, WorldxChange adopted SFAS 131. The prior year's segment
information has been restated to present three reportable operating segments.
WorldxChange's segments are organized on the basis of geographic location and
include North America, Pacific Rim and Europe. None of WorldxChange's operating
segments have been aggregated.
WorldxChange evaluates performance and allocates resources based on profit
or loss from operations before interest expense, other income (loss) and
minority interest. The accounting policies of the reportable segments are the
same as those described in the basis of presentation and summary of significant
accounting policies. Intersegment sales and transfers between geographic regions
are accounted for at prices that approximate arm's length transactions. No
single customer accounted for 10% or more of revenues in fiscal 2000, 1999, and
1998.
WorldxChange's regional segments earn revenue from direct-dial long
distance services as well as operator, debit/calling card, toll free, private
line and other enhanced services to residential customers, other
telecommunications carriers, and small to medium-sized businesses. Each of
WorldxChange's reportable regions represents a strategic business segment that
functions in an environment with common economic characteristics determined
based on historical and expected future performance.
F-22
<PAGE> 79
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO SEPTEMBER 30,
2000 AND FOR THE YEAR ENDED SEPTEMBER 30, 2000 IS UNAUDITED)
The Company markets its products domestically and internationally, with its
principal international markets being Australia and Europe. The tables below
contain information about the geographical areas in which the Company operates
and represent information utilized by management to evaluate its operating
segments. Revenues are attributed to countries based on location in which the
sale originated. Long-lived assets are based on the country of domicile.
<TABLE>
<CAPTION>
NORTH PACIFIC
AMERICA RIM EUROPE TOTALS
-------- ------- -------- ----------
<S> <C> <C> <C> <C>
September 30, 2000, and for the year then ended
(unaudited) (in thousands)
Sales to unaffiliated customers.................... $285,347 $52,186 $186,909 $ 524,442
Intersegment revenues.............................. 36,184 5,451 16,882 58,517
-------- ------- -------- ----------
Segment revenues................................... 321,531 57,637 203,791 582,959
Depreciation and amortization...................... 21,379 2,862 23,959 48,200
Segment operating loss............................. (73,151) (10,918) (46,176) (130,245)
Segment assets..................................... 698,255 30,738 305,210 1,034,203
Expenditures for long-lived assets................. 4,523 1,237 6,936 12,746
Reconciliations:
NET LOSS
Total operating loss for reportable segments....... $ (130,245)
Interest expense................................... (31,418)
Other expense, net................................. 20,986
----------
Total consolidated net loss................ $ (140,677)
==========
ASSETS
Total assets for reportable segments............... $1,034,203
Elimination of intercompany receivables............ (592,622)
----------
Total consolidated assets.................. $ 441,581
==========
</TABLE>
<TABLE>
<CAPTION>
September 30, 1999, and for the year then ended
(in thousands)
<S> <C> <C> <C> <C>
Sales to unaffiliated customers.................... $337,457 $55,619 $ 28,504 $ 421,580
Intersegment revenues.............................. 48,345 11,025 6,169 65,539
-------- ------- -------- ----------
Segment revenues................................... 385,802 66,644 34,673 487,119
Depreciation and amortization...................... 13,871 1,948 1,886 17,705
Segment operating loss............................. (24,619) (5,166) (18,786) (48,571)
Segment assets..................................... 444,250 18,273 111,987 574,510
Expenditures for long-lived assets................. 15,731 1,842 10,060 27,633
Reconciliations:
NET LOSS
Total operating loss for reportable segments....... $ (48,571)
Interest expense................................... (16,883)
Other expense, net................................. (648)
Minority interest.................................. 2,251
----------
Total consolidated net loss................ $ (63,851)
==========
</TABLE>
F-23
<PAGE> 80
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO SEPTEMBER 30,
2000 AND FOR THE YEAR ENDED SEPTEMBER 30, 2000 IS UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C> <C> <C>
Total assets for reportable segments............... $ 574,510
Elimination of intercompany receivables............ (339,508)
----------
Total consolidated assets.................. $ 235,002
==========
September 30, 1998, and for the year then ended
(in thousands)
Sales to unaffiliated customers.................... $321,763 $58,382 $ 18,722 $ 398,867
Intersegment revenues.............................. 44,650 22,605 7,576 74,831
-------- ------- -------- ----------
Segment revenues................................... 366,413 80,987 26,298 473,698
Depreciation and amortization...................... 9,988 1,484 860 12,332
Segment operating loss............................. (5,547) (3,041) (7,086) (15,674)
Segment assets..................................... 176,678 19,883 28,705 225,266
Expenditures for long-lived assets................. 11,790 200 -- 11,990
Reconciliations:
NET LOSS
Total operating loss for reportable segments......... $ (15,674)
Interest expense................................... 11,947
Other expense, net................................. 1,378
Minority interest.................................. 1,546
----------
Total consolidated net loss................ $ (27,453)
==========
ASSETS
Total assets for reportable segments............... $ 225,266
Elimination of intercompany receivables............ (105,137)
----------
Total consolidated assets.................. $ 120,129
==========
</TABLE>
The following table summarizes revenue by region and by type of customer
for the years ended September 30, 2000 and 1999:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER
30,
-----------------------
2000 1999
----------- ---------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
REVENUE BY REGIONS:
United States............................................... $275.5 $330.0
North America (other)....................................... 9.8 7.5
------ ------
North America total......................................... 285.3 337.5
Pacific Rim................................................. 52.2 55.6
Europe...................................................... 186.9 28.5
------ ------
Total............................................. $524.4 $421.6
====== ======
REVENUE BY CUSTOMERS:
Carrier..................................................... $203.9 $186.9
Residential................................................. 220.4 185.3
</TABLE>
F-24
<PAGE> 81
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO SEPTEMBER 30,
2000 AND FOR THE YEAR ENDED SEPTEMBER 30, 2000 IS UNAUDITED)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER
30,
-----------------------
2000 1999
----------- ---------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
Operator Services........................................... 7.8 22.9
Commercial.................................................. 92.3 26.5
------ ------
Total............................................. $524.4 $421.6
====== ======
</TABLE>
13. MERGER AND MANAGEMENT SERVICES AGREEMENTS WITH WORLD ACCESS
In February 2000, WorldxChange executed a definitive merger agreement with
World Access, Inc. ("World Access"). On August 1, 2000, WorldxChange entered
into an Executive Management Services Agreement ("Management Agreement") with
World Access. Under this agreement, World Access serves as the exclusive agent
for WorldxChange to provide all management services required for the operation
and management of WorldxChange. World Access has the authority, to the fullest
extent permitted by law, to take all actions and make all decisions on behalf of
WorldxChange in the operation and management of WorldxChange's assets and the
power to select, terminate and determine the compensation of the management and
employees of WorldxChange. Under this agreement, World Access has also assumed
all financial responsibility related to the operations of WorldxChange
subsequent to August 1, 2000.
As of September 30, 2000, WorldxChange has net advances due to World Access
of $91.0 million, which consisted of the following (in thousands):
<TABLE>
<CAPTION>
(UNAUDITED)
<S> <C>
Reimbursement from World Access of Net Losses under
Management Agreement...................................... $ (22,688)
Secured term loan........................................... 35,732
Working capital advances.................................... 77,957
------------
$ 91,001
============
</TABLE>
As a result of World Access assuming all financial responsibility for
WorldxChange, WorldxChange has recorded the reimbursement of the net loss
incurred by WorldxChange since August 1, 2000 as a single line item,
"Reimbursement from World Access of Net Losses Under Management Agreement," in
its Statement of Operations.
As of September 30, 2000, World Access and WorldxChange have consolidated
their sales forces, billing systems and network operations centers, as well as
decommissioned certain switches as traffic has migrated from one network to the
other.
F-25
<PAGE> 82
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO SEPTEMBER 30,
2000 AND FOR THE YEAR ENDED SEPTEMBER 30, 2000 IS UNAUDITED)
The Statement of Operations for WorldxChange for the two months ended
September 30, 2000 while operating under the Management Agreement consisted of
the following (in thousands):
<TABLE>
<CAPTION>
(UNAUDITED)
<S> <C>
Revenue..................................................... $ 74,031
Cost of services............................................ 55,920
Selling, general and administrative......................... 25,842
Depreciation and network amortization....................... 6,808
Amortization of intangibles................................. 1,889
--------
Total operating expense........................... 90,459
--------
Operating loss.............................................. (16,428)
Interest and other income................................... 280
Interest expense............................................ 6,511
========
Loss before income taxes.................................... (22,659)
Income taxes................................................ 29
--------
Net loss.................................................... $(22,688)
========
</TABLE>
If WorldxChange had not entered into this Management Agreement its net loss
for the year ended September 30, 2000 (unaudited) would have been $163,365,000.
In February 2000, World Access entered into a participation agreement with
a lender under which WorldxChange can borrow money. In this participation
agreement, the lender is the lead lender and acts as agent for World Access in
dispersing the funds and in administering and collecting the loan. The
participation agreement allows World Access to advance up to $45.0 million to
WorldxChange. The terms of the loan are governed by the terms of an existing
loan agreement between the lender and WorldxChange.
Advances by World Access under the participation agreement are structured
as a term loan which bears interest at a rate of 11% per annum and matures on
February 11, 2001. Both the term loan and the existing indebtedness under the
loan arrangement are secured by a security interest in all personal property of
WorldxChange. Subsequent to September 30, 2000, the borrowings under this loan
were repaid by World Access.
As of September 30, 2000, WorldxChange owed $69.1 million under the loan,
including $35.7 million advanced by World Access. These funds are being used to
finance operating losses expected to be incurred by WorldxChange prior to the
merger date as well as to make permanent investments in working capital that are
required to support WorldxChange's growth.
As of December 14, 2000, the shareholders of WorldxChange and World Access
have approved the Merger and Management believes that the merger will be
consummated before December 31, 2000.
F-26
<PAGE> 83
Herrn
Dr. Henning F. Klose
Vorsitzender des Vorstands
TelDaFax AG
Postfach 22 06
35010 Marburg
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of TelDaFax AG
as of December 31, 1999, 1998 and 1997, and the related consolidated statements
of operations, retained earnings, and cash flows for the years then ended. 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 auditing standards generally
accepted in the United States. 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, the financial statements referred to above present fairly,
in all material respects, the financial position of TelDaFax AG as of December
1999, 1998 and 1997, and the results of its operations and its cash flows for
the years then ended in conformity with accounting principles generally accepted
in the United States.
As discussed in Note 11, the Company's 1999 financial statements have been
restated to account for the acquisition of Demuth & Dietl only from the
acquisition date, October 4, 1999.
Wiesbaden, August 2, 2000
BDO Deutsche Warentreuhand
Aktiengesellschaft
Wirtschaftsprufungsgesellschaft
<TABLE>
<S> <C> <C>
/s/ BUNGERS /s/ KARLIK
------------------------------ ------------------------------
H.G. Bungers Karlik
</TABLE>
F-27
<PAGE> 84
TELDAFAX GROUP
CONSOLIDATED BALANCE SHEETS
(ALL AMOUNTS IN DM '000)
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -----------------
2000 1999 1998
------------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and equivalents...................................... 40,282 178,287 159,011
Accounts receivable, less allowance for doubtful accounts
of DM 408 as of September 30, 2000 (unaudited) and DM
1,128 and DM 3,115 as of December 31, 1999 and 1998,
respectively........................................... 74,955 80,260 63,853
Inventories............................................... 9,061 4,129 68
Prepaid expenses and other current assets................. 38,929 29,422 7,843
Total current assets.............................. 163,227 292,098 230,775
Equipment and leasehold improvements, net................... 127,072 137,929 67,355
Intangible assets........................................... 31,310 16,451 13,624
Loan to related parties..................................... 1,375 1,411 --
Financial assets............................................ 4,461 -- --
Deferred tax assets, net.................................... 24,288 3,255 --
Other assets................................................ 3,379 4,027 815
------- ------- -------
Total assets...................................... 355,112 455,171 312,569
======= ======= =======
Current liabilities:
Accounts payable.......................................... 126,169 196,041 90,699
Accrued expenses.......................................... 10,219 6,575 12,094
Other current liabilities................................. 10,626 4,778 --
Current portion of long-term debt......................... 2,120 1,553 --
Current portion of capital lease obligations.............. 13,409 13,761 4,818
------- ------- -------
Total current liabilities......................... 162,543 222,708 107,611
Long-term debt.............................................. 1,543 1,572 --
Capital lease obligations................................... 34,496 44,251 10,076
Deferred tax liabilities.................................... -- -- 2,794
Other long-term liabilities................................. 699 721 753
------- ------- -------
Total long-term liabilities....................... 36,738 46,544 13,623
Minority interests.......................................... 1,524 (160) --
Shareholders' equity:
Common stock, Eur 2,60 as of September 30, 2000
(unaudited) and December 31, 1999 and DM 5 par value as
of December 31, 1998, 33,828,600 authorized, issued and
outstanding as of September 30, 2000 (unaudited) and
December 31, 1999 and 1998, respectively............... 172,024 172,024 169,143
Additional paid in capital................................ 15,787 15,787 15,787
Retained earnings......................................... (33,504) (1,732) 6,405
------- ------- -------
Total shareholders' equity........................ 154,307 186,079 191,335
------- ------- -------
Total liabilities and shareholders' equity........ 355,112 455,171 312,569
======= ======= =======
</TABLE>
F-28
<PAGE> 85
TELDAFAX GROUP
CONSOLIDATED STATEMENTS OF OPERATIONS
(ALL AMOUNTS IN DM '000, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
----------------------- -----------------------------------
2000 1999 1999 1998 1997
---------- ---------- ---------- ---------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales................................. 465,153 447,681 611,018 263,050 32,271
Cost of services...................... (407,311) (353,126) (548,110) (202,359) (31,085)
Sales expenses........................ (84,799) (67,273) (50,716) (31,417) (3,434)
General administration expenses....... (19,901) (4,842) (17,723) (8,570) (2,797)
Other operating income................ 4,740 9,625 791 327 76
Other operating expenses.............. (12,151) (7,470) (9,625) (2,969) (1,448)
Operating income (loss)............... (54,269) 24,595 (14,365) 18,062 (6,417)
Financial result...................... (114) 1,266 764 425 (1,104)
Taxes................................. 20,578 (13,365) 7,009 (9,713) 1,667
Minority interests.................... 2,033 207 1,336 -- --
Net income (loss)..................... (31,772) 12,703 (5,256) 8,774 (5,854)
Income (loss) per Common Share from
Continuing Operations:
Basic and Diluted................... (0.94) 0.38 (0.16) 0.45 (5.16)
Weighted Average Shares Outstanding:
Basic and Diluted................... 33,828,600 33,828,600 33,828,600 19,296,826 1,133,525
</TABLE>
F-29
<PAGE> 86
TELDAFAX GROUP
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT AND
COMPREHENSIVE OF CHANGES IN COMBINED EQUITY SHAREHOLDER'S FUNDS
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID SHARE RETAINED
SHARES AMOUNT IN CAPITAL CAPITAL EARNINGS TOTAL
------------ ------- ------------- ------- -------- -------
PIECES DM'000 DM'000 DM'000 DM'000
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996...... -- -- -- 4,000 (7,732) (3,732)
Issuance of common stock.......... 20,000 100 100
Issuance of common stock.......... 1,648,000 8,240 8,240
Issuance of common stock.......... 714,860 3,574 14,450 18,024
Retirement of share capital....... (4,000) (4,000)
Loss of predecessor company....... (3,663) 3,663 --
Contribution in kind.............. 7,554 7,554
Loss for the period............... (5,854) (5,854)
---------- ------- ------ ------ ------- -------
BALANCE AT DECEMBER 31, 1997...... 2,382,860 11,914 10,787 -- (2,369) 20,332
Issuance of common stock.......... 1,000,000 5,000 5,000 10,000
Issuance of IPO -- public......... 9,725,722 48,629 48,629
Issuance of IPO -- old
shareholders.................... 20,720,018 103,600 103,600
Cash dividends.................... --
Transfer to legal reserve......... 334 (334) --
Profit for the period............. 8,774 8,774
---------- ------- ------ ------ ------- -------
BALANCE AT DECEMBER 31, 1998...... 33,828,600 169,143 16,121 -- 6,071 191,335
Issue of share capital (Euro), Dec
17, 1999........................ -- 2,881 (2,881) --
Loss for the period............... (5,256) (5,256)
---------- ------- ------ ------ ------- -------
BALANCE AT DECEMBER 31, 1999...... 33,828,600 172,024 16,121 -- (2,066) 186,079
Loss for the period (unaudited)... (31,772) (31,772)
---------- ------- ------ ------ ------- -------
BALANCE AT SEPTEMBER 30, 2000..... 33,828,600 172,024 16,121 -- (33,838) 154,307
========== ======= ====== ====== ======= =======
</TABLE>
F-30
<PAGE> 87
CONSOLIDATED STATEMENTS OF CASH FLOWS
TELDAFAX GROUP
(ALL AMOUNTS IN DM '000)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30 DECEMBER 31
----------------------- -----------------------------
2000 1999 1999 1998 1997
---------- ---------- -------- -------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net income (loss)...................................... (33,805) 12,496 (5,256) 8,774 (5,854)
Minority interests..................................... 2,033 207 (1,336) -- --
Amortization and depreciation.......................... 33,392 22,595 33,630 18,086 5,040
Depreciation of current assets......................... 3,961 -- -- -- --
Loss on the sale of property, plant and equipment...... 32 -- 3,800 6 --
Decrease (increase) in deferred tax assets............. (21,033) -- (3,255) -- --
Increase (decrease) in deferred tax liabilities........ -- -- (2,794) -- --
-------- -------- -------- -------- -------
(15,420) 35,298 24,789 26,866 (814)
-------- -------- -------- -------- -------
Decrease (increase) in accounts receivable trade, net
of bad debts......................................... 5,305 (11,759) (16,407) (59,817) (2,759)
Increase (decrease) in inventories..................... (4,932) (804) (4,061) -- --
Decrease (increase) in prepaid expenses and other
current assets....................................... (9,507) (24,616) (21,579) (8,376) --
Decrease (increase) in other assets.................... 648 (1,818) (3,112) 130 --
Increase (decrease) in accounts payable................ (69,872) 30,936 105,342 48,856 7,205
Increase (decrease) in other accrued liabilities....... 9,492 (1,576) 5,469 34,164 3,091
Increase (decrease) in tax provisions.................. -- 1,750 (6,210) 6,179 31
Increase (decrease) in provision for deferred taxes.... -- 10 -- (60) 2,854
Decrease (increase) in deferred taxes from loss
carryforwards........................................ -- -- -- 4,525 (4,525)
Increase (decrease) in other long-term liabilities..... 215 (26) 927 2,121 (1,674)
Adjustment for effects of acquisition of
subsidiaries......................................... (2,277) (326) 4,472 -- --
-------- -------- -------- -------- -------
CASH FLOWS FROM OPERATING ACTIVITIES................... (86,348) 27,069 89,630 54,588 3,409
-------- -------- -------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures................................... (14,486) (93,343) (110,397) (65,796) (30,718)
Acquisitions........................................... (27,365) (30) (4,757) (350) --
-------- -------- -------- -------- -------
(41,851) (93,373) (115,154) (66,146) (30,718)
-------- -------- -------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from capital increases........................ -- -- -- 157,229 2,199
Loans to related parties............................... -- -- (1,411) -- --
Proceeds in respect of share premium amounts........... -- -- -- 5,000 7,512
Proceeds from outstanding amounts due in respect of
capital subscribed................................... -- -- -- 9,615 --
Proceeds from outstanding amounts due in respect of
share premium amounts................................ -- -- -- 3,275 --
Payments on debt....................................... (29) (22) -- (6) (86)
Proceeds from issuance of debt......................... -- 22 3,125 (9,519) 9,519
Payments on capital lease obligations.................. (9,755) -- -- (12,066) --
Proceeds from long-term accounts payable............... -- 36,748 43,118 10,076 --
Payments on other long-term liabilities................ (22) (26) (32) (64) --
Other proceeds from paid-in capital.................... -- -- -- -- 3,663
Proceeds from issuance of other long-term debt......... -- -- -- -- 10,546
-------- -------- -------- -------- -------
(9,806) 36,723 44,800 163,540 33,353
-------- -------- -------- -------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS... (138,005) (29,581) 19,276 151,982 6,044
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD....... 178,287 159,011 159,011 7,029 985
CASH AND CASH EQUIVALENTS AT END OF PERIOD............. 40,282 129,430 178,287 159,011 7,029
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for: 13,580 13,944 26,812 5,468 1,106
Interest............................................. 2,382 1,777 3,415 5,425 1,106
Income taxes......................................... 11,198 12,167 23,397 43 --
NON-CASH INVESTING AND FINANCING ACTIVITIES............ 475 53,682 57,695 10,821 9,519
Assets acquired by incurring capital lease obligations
or................................................... 525 53,682 56,086 20,340 --
long term debt......................................... (50) -- 1,609 (9,519) 9,519
</TABLE>
F-31
<PAGE> 88
TELDAFAX AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DM IN THOUSANDS)
1. DESCRIPTION OF BUSINESS
TelDaFax Telefon-, Daten- und Fax Transfer GmbH & Co. KG was founded in
March 1995. On July 1, 1997, TelDaFax Telefon-, Daten und Fax Transfer GmbH &
Co. KG transferred all of its business assets to TelDaFax GmbH. TelDaFax AG was
then established through a change in the legal form of TelDaFax GmbH. The
transfer of the business assets was a contribution-in-kind to TelDaFax GmbH in
exchange for new shares. The assets were contributed at their fair market value.
The step-up amounts were treated as contributed capital. Following a resolution,
of the General Meeting of Shareholders on May 27, 1998, the legal form was
changed again to that of a stock corporation in accordance with Sections 190ff
and 238ff of the law governing changes in legal form. The incorporation into
TelDaFax AG was entered in the Commercial Register on June 10, 1998.
TelDaFax AG ("TelDaFax"), a German company, provides voice telephony, fax
and data transmission services along with mobile hardware and mobile phone cards
throughout Germany. TelDaFax provides fixed-to-mobile, -international and
-domestic connections to commercial and residential customers through a
communication network of dedicated lines leased from Deutsche Telekom AG. Prior
to January 1, 1998, these services were provided solely to commercial customers.
The receipt of a Category 4 License from the Federal Ministry for Post and
Telecommunications for fixed-line telecommunication services on September 30,
1997 and the full liberalization of the German telecommunications market on
January 1, 1998 allowed TelDaFax to expand these services to residential
customers under the carrier number "01030". TelDaFax also provides internet
access through its majority-owned subsidiary GeoNet Systems GmbH and mobile
phone hardware and calling cards through its majority-owned subsidiaries Demuth
& Dietl + Co. Kommunikationselektronic GmbH and Netztel Plus Drillish AG.
TelDaFax also wholly owns BNC Kommunikationssysteme GmbH & Co. KG, an operating
division responsible for monitoring TelDaFax router system, and TelDaFax
Vertriebs GmbH, an operating division consisting of TelDaFax's sales
organization.
The accompanying financial statements have been prepared in accordance with
United States generally accepted accounting principles, referred to as US GAAP.
TelDaFax maintains its financial records in accordance with German statutory
regulations which represents generally accepted accounting principles in
Germany. Generally, accepted accounting principles in Germany vary in certain
respects from US GAAP. Accordingly, TelDaFax has recorded certain adjustments in
order that these financial statements be in accordance with US GAAP.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Information (Unaudited)
The unaudited consolidated balance sheet as of September 30, 2000 and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the nine month periods ended September 30, 2000 and 1999, have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. All adjustments, in the opinion of management, that are
necessary for the fair statement of the financial position and the operating
results and cash flows for the interim periods have been presented. Results of
operations for the nine month periods ended September 30, 2000 and 1999 are not
necessarily indicative of the results that may be achieved for the entire years
or future periods.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
TelDaFax and its wholly-and majority-owned financial subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
F-32
<PAGE> 89
TELDAFAX AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cash and Cash Equivalents
TelDaFax considers all highly liquid investments purchased with an initial
maturity of three months or less to be cash equivalents.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and cash equivalents
and trade receivables. Concentration of credit risk with respect to trade
receivables is limited as the outstanding total represents a large number of
customers with individually small balances. The Company does not require
collateral or other security interests against trade receivable balances;
however, it does maintain reserves for potential credit losses and such losses
have been within management's expectations. Substantially all of the Company's
cash and cash equivalents are deposited in financial institutions in Germany.
Inventories
Inventories are stated at the lower of cost or market and are valued using
the weighted-average method.
Property, Plant and Equipment
Property, plant and equipment, is valued at acquisition or production cost
and depreciated or amortized over their estimated useful lives, using the
straight-line method. Equipment under capital leases are recorded at the net
present value of the minimum lease payments and are amortized over the shorter
of the useful life of the asset or the lease term using the straight-line
method. The range of depreciable lives are as follows:
<TABLE>
<CAPTION>
YEARS
------
<S> <C>
Technical equipment, plant and machinery.................... 4 - 7
Operational, office and other equipment..................... 4 - 20
</TABLE>
Intangible Assets
Intangible assets mainly relate to goodwill, acquired software, acquired
technical know-how and the license for fixed-line telecommunication services.
Goodwill is amortized on a straight-line basis over 15 years. Goodwill as
of September 30, 2000 and December 31, 1999, 1998 and 1997, net of accumulated
amortization, was DM 24,238, DM 8,049, DM 3,852 and DM 2,694, respectively.
Software is capitalized when it is purchased from a third party, either in
the ordinary course of business or, in the case of the acquisition of
subsidiaries, as allocated goodwill. It is amortized over 4 years.
Technical know-how is capitalized as allocated goodwill in the case of the
acquisition of subsidiaries. It is amortized over 4 years.
Technical know-how as of September 30, 2000 and December 31, 1999, 1998 and
1997, net of accumulated amortization, was DM 676, DM 1,245, DM 2,054 and DM
2,614, respectively.
TelDaFax evaluates the recoverability of long-lived assets by measuring the
carrying amount of the assets against the estimated undiscounted future cash
flows associated with them. At the time such evaluations indicate that the
future undiscounted cash flows of long-lived assets are not sufficient to
recover the carrying value of such assets, the assets are adjusted to their fair
values. Based on these evaluations, there were no material adjustments to the
carrying value of long-lived assets during the nine
F-33
<PAGE> 90
TELDAFAX AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
month period ended September 30, 2000 and 1999 and the years ended December 31,
1999, 1998 and 1997.
Revenue Recognition
Telecommunication revenue is recognized as services are provided. Mobile
hardware revenue is reported when the customer takes possession of the product
and prepaid mobile calling card revenue is recorded when the minutes are used.
Advertising
TelDaFax expenses advertising costs as incurred. Total advertising costs
were DM 12,485 DM 5,041, DM 24,696, DM 12,321 and DM 3,434 for the nine month
periods ended September 30, 2000 and 1999 and the years ended December 31, 1999,
1998 and 1997, respectively.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133 "Accounting for Derivative
Instruments and Hedging Activities", which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. In June 1999, SFAS No.
133 was amended by SFAS 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of SFAS 133". As a result of this
amendment, SFAS No. 133 shall be effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000. In accordance with SFAS No. 133, an entity
is required to recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
SFAS No. 133 requires that changes in the derivatives' fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement and requires
that a company formally document, designate and assess the effectiveness of
transactions that receive hedge accounting. The Company does not expect the
adoption of this standard to have a material effect on its consolidated
financial position or results of operations.
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.
Reclassification
Certain amounts in prior years financial statements have been reclassified
to conform with the presentation in 1999.
F-34
<PAGE> 91
TELDAFAX AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
SEPTEMBER
30, DECEMBER 31,
----------- ------------
2000 1999 1998
----------- ----- ----
(UNAUDITED)
<S> <C> <C> <C>
Raw materials............................................... -- -- 68
Work-in-progress............................................ -- 1,027 --
Finished goods.............................................. 9,061 3,102 --
----- ----- --
9,061 4,129 68
===== ===== ==
</TABLE>
4. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- --------------
2000 1999 1998
------------- ------ -----
(UNAUDITED)
<S> <C> <C> <C>
Contractual claim of purchase reduction for traffic
services................................................ -- -- --
Prepaid income taxes...................................... 10,060 16,858 --
Short-term portion of prepaid commissions................. 8,052 5,090 --
Other..................................................... 20,817 7,474 7,843
------ ------ -----
Total........................................... 38,929 29,422 7,843
====== ====== =====
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, consist of:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- -----------------
2000 1999 1998
------------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
Technical equipment, plant and machinery............... 169,648 160,723 75,755
Other equipment, operational and office equipment...... 23,761 18,769 8,657
Construction in progress............................... 2,323 578 570
-------- ------- -------
Total cost................................... 195,732 180,070 84,982
Accumulated depreciation and amortization.............. (68,660) (42,141) (17,627)
-------- ------- -------
Net book value............................... 127,072 137,929 67,355
======== ======= =======
</TABLE>
F-35
<PAGE> 92
TELDAFAX AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- -------------
2000 1999 1998
------------- ----- -----
(UNAUDITED)
<S> <C> <C> <C>
Loan due November 2002 with a yearly principal reduction of
DM 34.787 and an interest rate of 5.5 %.................. 43 72 --
Term loan due September, 2003 with interest payable at per
annum rate equal to 6.75 %............................... 1,500 1,500 --
----- ----- -----
Total............................................ 1,543 1,572 --
===== ===== =====
</TABLE>
Aggregate maturities of long-term debt as of December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
PRINCIPAL INTEREST TOTAL
--------- -------- --------
<S> <C> <C> <C>
2001........................................................ 35 101 136
2002........................................................ 37 100 137
2003........................................................ 1,500 74 1,574
2004........................................................ -- -- --
Thereafter.................................................. -- -- --
----- --- -----
Total............................................. 1,572 275 1,847
===== === =====
</TABLE>
The loans are secured by transfers of ownership by way of security, blank
assignments as well as land charges of Demuth & Dietl.
7. CAPITAL LEASE OBLIGATIONS
The future minimum lease payments as of December 31, 1999 under capital
leases consist of the following:
<TABLE>
<CAPTION>
CAPITAL LEASES
--------------
<S> <C>
2000........................................................ 16,609
2001........................................................ 15,213
2002........................................................ 14,803
2003........................................................ 13,641
2004........................................................ 4,226
Thereafter.................................................. --
-------
Total minimum lease payments................................ 64,492
Less amount representing interests.......................... 6,480
-------
Present value of minimum lease payments..................... 58,012
Less current portion........................................ (13,761)
-------
Amounts due after one year........................ 44,251
=======
</TABLE>
8. INCOME TAXES
Income taxes are provided for in accordance with the provisions of FASB
Statement No. 109, Accounting for Income Taxes. Under this method, TelDaFax
recognizes deferred tax assets and liabilities for the expected future tax
effects of temporary differences between the carrying amounts and the tax basis
of assets and liabilities, as well as operating loss carryforwards.
F-36
<PAGE> 93
TELDAFAX AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1998 1999
------------ ------------
<S> <C> <C>
Current income taxes:
Payment for 1998 in 1999.................................. -- 989
Corporate tax claim from loss carryback 1999 to 1998...... -- (950)
Prepaid trade taxes....................................... (25) --
Prepaid corporate taxes................................... (475) --
Provision from trade taxes................................ (732) --
Provision from corporate taxes............................ (5,500) --
------ -----
(6,732) 39
Deferred taxes:
Provision from trade taxes................................ (1,042) 2,278
Provision from corporate taxes............................ (1,934) 4,231
------ -----
(2,976) 6,509
------ -----
Total provision for income taxes.................. (9,708) 6,548
====== =====
</TABLE>
Deferred income taxes consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------
1998 1999
------ -----
<S> <C> <C>
Deferred tax liabilities:
On Amortization of intangible assets........................ 2,794 1,589
Elimination of intermediate earnings
from tangible assets...................................... -- (535)
Differences in value assessment............................. -- 211
------ -----
Total deferred tax liabilities.................... 2,794 1,265
Deferred tax assets:
Tax loss carry forward...................................... -- 4,520
------ -----
Total deferred tax assets......................... -- 4,520
------ -----
Net deferred tax assets........................... (2,794) 3,255
====== =====
</TABLE>
The provision for income taxes differs from the amount of income tax
provision computed by applying the Germany federal income tax rate to income
before income taxes and minority interest. A reconciliation of the differences
is as follows:
<TABLE>
<S> <C> <C>
Loss before income taxes and minority interest:............. DM (13,486)
Income tax rate............................................. 46%
Expected income tax:........................................ DM (6,204)
Prior year payment.......................................... DM (989)
Differences in value assessment............................. DM (211)
Elimination of intermediate earnings........................ DM 535
Higher tax rate on loss carryback........................... DM 321
-------------
Total provision for income taxes.................. DM (6,548)
=============
</TABLE>
F-37
<PAGE> 94
TELDAFAX AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997 1998 1999
------- ------- -------
DM '000 DM '000 DM '000
<S> <C> <C> <C>
Profit (loss) for the period................................ (5,854) 8,774 (5,256)
Loss of predecessor company................................. 3,663 -- --
Increase contributed capital................................ 10,787 5,000 --
Capital increase............................................ 15,468 -- --
Issue of share capital...................................... -- 157,229 --
------ ------- -------
Net changes in combined equity shareholder's funds.......... 24,064 171,003 (5,256)
Opening combined equity shareholder's funds................. (3,732) 20,332 191,335
------ ------- -------
Closing combined equity shareholder's funds....... 20,332 191,335 186,079
====== ======= =======
</TABLE>
The share capital is divided into 33,828,600 non par value bearer shares with a
theoretical nominal value of EUR 2,60.
The executive board is authorized, with the approval of the supervisory
board, to increase the share capital of TelDaFax in the period up to June 9,
2004 at one time or on several occasions by up to a total amount of EUR
42,900,000.00 through the issue of new no par value bearer shares with a
theoretical nominal value of EUR 2,60 each against payment in cash or
contribution in kind (authorized capital). Shareholder's are to be granted
subscription rights with respect thereto. However, subject to the approval of
the supervisory board may decide on the exclusion of subscription rights for
existing shareholders.
The executive board is authorized, with the approval of the supervisory
board, at one time or on several occasions in the period up to June 9, 2004, to
grant bearer options and/or convertible bonds with up to a total nominal amount
of EUR 858,000,000.00 and a term of no longer than 20 years and to grant option
rights to the bearers of convertible debenture stock or to grant the bearers of
convertible bonds right of conversion for new shares of TelDaFax with stake in
share capital of up to EUR 42,900,000.00 -- or up to 16,500,000 shares -- within
the limits of the conditions for options or bonds.
10. COMMITMENTS AND CONTINGENCIES
Operating Leases
Certain buildings and automobiles are under noncancellable operating lease
agreements expiring in various years. Minimum future lease obligations, by year
and in aggregate, as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
OPERATING LEASES
----------------
<S> <C>
2000........................................................ 2,033
2001........................................................ 1,888
2002........................................................ 1,470
2003........................................................ 1,218
2004........................................................ 1,167
Thereafter.................................................. 17,505
------
Total minimum lease payments...................... 25,281
======
</TABLE>
Legal Proceedings
TelDaFax and certain of its suppliers have entered into legal proceedings
regarding the cost, functionality and period of services provided. TelDaFax has
two such disputes outstanding which
F-38
<PAGE> 95
TELDAFAX AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
individually amount to DM 21,000 and DM 5,000, respectively. TelDaFax has
refused payment of these amounts because of defective delivery or cancellation
of the supplier contracts. TelDaFax has accrued amounts, including legal fees,
which it believes reflect the amounts for which it will ultimately settle these
disputes. Although there can be no assurance as to the ultimate disposition of
these matters, it is the opinion of TelDaFax's management, based on information
available at this time, that the expected outcome of these matters,
individually, or in the aggregate, will not have an adverse effect on the
results of operations and financial condition of TelDaFax.
11. ACQUISITIONS
On July 1, 1997, TelDaFax acquired 100% of the stock of BNC
Kommunikationssysteme GmbH & Co. KG, a router management service provider, for
DM 3,037. TelDaFax recorded the acquisition in accordance with purchase
accounting resulting in goodwill of DM 1,374 and goodwill allocated to technical
know-how of DM 2,987.
On January 1, 1998, TelDaFax acquired 100% of the stock of TelDaFax
Vertriebs GmbH, a sales organization, for DM 250. TelDaFax recorded the
acquisition in accordance with purchase accounting resulting in goodwill of DM
115.
On December 8, 1998, TelDaFax acquired 75% of the stock of GeoNet Systems
GmbH, an internet access provider, for DM 400. TelDaFax recorded the acquisition
in accordance with purchase accounting as of January 1, 1999 (the acquisition
was classified as an investment as of December 31, 1998) resulting in goodwill
of DM 1,478.
On October 4, 1999, TelDaFax acquired 51% of the stock of Demuth & Dietl +
Co. Kommunikationselektronik GmbH, a provider of mobile hardware and calling
cards, for DM 5,200. TelDaFax recorded the acquisition in accordance with
purchase accounting resulting in goodwill of DM 3,414.
Previously, the financial statements reflected the acquisition of Demuth &
Dietl from January 1, 1999 in accordance with the terms to the agreement between
TelDaFax and the sellers but, under US GAAP, the Company subsequently determined
that it did not "control" Demuth & Dietl until the transaction closed in
October, 1999.
Unaudited pro forma information with respect to TelDaFax as if the 1998,
1999 and 2000 acquisitions had occurred on January 1, 1998, is as follows:
<TABLE>
<CAPTION>
NET INCOME
YEAR ENTITY NET REVENUE (LOSS)
---- ------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
1999 TelDaFax................................................. 630,232 (10,911)
Demuth & Dietl........................................... 58,787 (181)
Netztel.................................................. 17,781 (613)
Eliminations............................................. (19,214) 5,579
------- -------
Combined................................................. 687,586 (6,126)
======= =======
1998 TelDaFax................................................. 292,033 16,890
Demuth & Dietl........................................... 107,204 (50)
Netztel.................................................. -- (204)
Eliminations............................................. (28,983) (8,116)
------- -------
Combined................................................. 370,254 8,520
======= =======
</TABLE>
F-39
<PAGE> 96
TELDAFAX AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. RELATED PARTY TRANSACTIONS
In conjunction with TelDaFax's acquisition of Demuth & Dietl + Co.
Kommunikationselektronic GmbH, a DM 1,411 loan was made to a division of the
acquired company excluded from the transaction with payments beginning in 2000.
13. BUSINESS SEGMENT INFORMATION
TelDaFax provides telecommunication products and services to its customers
in Germany in three distinct business segments organized around the different
services provided: Fixed Network, Mobile and Internet. The Fixed Network is made
up of one operating unit: TelDaFax. TelDaFax provides fixed-to-mobile,
-international and -domestic telephony, fax and data connections to commercial
and residential customers through its communication network leased from Deutsche
Telekom AG. Mobile services, which consist of hardware sales and calling cards
provided through a distribution network consisting of over 1,500 retailer
dealers in Germany, are provided by Demuth + Dietl + Co.
Kommunikationselektronic GmbH and Netztel Plus Drillish. Internet services,
which consists of internet access, is provided by GeoNet Systems GmbH.
The tables below present information about the business segments in which
TelDaFax operates and represent information utilized by management to evaluate
its business segments.
TELDAFAX FINANCIAL DATA PER SEGMENT
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 2000
---------------------------------------
FIXED CELLULAR
NETWORK INTERNET SERVICE TOTAL
------- -------- -------- -------
(IN THOUSAND DM)
<S> <C> <C> <C> <C>
Sales to unaffiliated customers............................ 362,895 5,450 96,808 465,153
Intersegment revenues...................................... -- -- -- --
Segment revenues........................................... 362,895 5,450 96,808 465,153
Depreciation and amortization.............................. (33,193) (746) (3,414) (37,353)
Segment operating profit (loss)............................ (37,201) (8,201) (13,607) (59,009)
Segment assets............................................. 330,498 1,594 57,807 389,899
Expenditures for long-lived assets......................... 39,831 197 1,823 41,851
Reconciliations:
NET RESULT
Total operating result for the reportable segments....... (59,009)
Other income............................................. 4,740
Financial result......................................... (114)
Other expense, net....................................... 20,578
Minority interest........................................ 2,033
Total consolidated profit (loss)................. (31,772)
ASSETS
Total assets for reportable segments..................... 389,899
Elimination of intercompany receivables.................. (34,787)
Total consolidated assets........................ 355,112
</TABLE>
F-40
<PAGE> 97
TELDAFAX AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999
---------------------------------------
FIXED CELLULAR
NETWORK INTERNET SERVICE TOTAL
------- -------- -------- -------
(IN THOUSAND DM)
<S> <C> <C> <C> <C>
Sales to unaffiliated customers............................. 445,404 2,277 -- 447,681
Intersegment revenues....................................... -- -- -- --
Segment revenues............................................ 445,404 2,277 -- 447,681
Depreciation and amortization............................... (22,227) (368) -- (22,595)
Segment operating profit (loss)............................. 16,716 (1,746) -- 14,970
Segment assets.............................................. 400,011 1,089 -- 401,100
Expenditures for long-lived assets.......................... 92,319 1,054 -- 93,373
Reconciliations:
NET RESULT
Total operating result for the reportable segments........ 14,970
Other income.............................................. 9,625
Financial result.......................................... 1,266
Other expense, net........................................ (13,365)
Minority interest......................................... 207
Total consolidated profit (loss).................. 12,703
ASSETS
Total assets for reportable segments...................... 401,100
Elimination of intercompany receivables................... (8,698)
Total consolidated assets......................... 392,402
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999, AND FOR THE YEAR
THEN ENDED
-----------------------------------
FIXED CELLULAR
NETWORK INTERNET SERVICE TOTAL
------- -------- -------- -------
(IN THOUSAND DM)
<S> <C> <C> <C> <C>
Sales to unaffiliated customers........................... 587,299 4,124 19,595 611,018
Intersegment revenues..................................... -- -- -- --
Segment revenues.......................................... 587,299 4,124 19,595 611,018
Depreciation and amortization............................. (33,391) (183) (56) (33,630)
Segment operating profit (loss)........................... (10,279) (4,843) (34) (15,156)
Segment assets............................................ 458,507 3,587 14,154 476,248
Expenditures for long-lived assets........................ 108,185 1,367 845 110,397
Reconciliations:
NET RESULT
Total operating result for the reportable segments........ (15,156)
Other income.............................................. 791
Financial result.......................................... 764
Other expense, net........................................ 7,009
Minority interest......................................... 1,336
Total consolidated profit (loss).................. (5,256)
ASSETS
Total assets for reportable segments...................... 476,248
Elimination of intercompany receivables................... (21,077)
Total consolidated assets......................... 455,171
</TABLE>
F-41
<PAGE> 98
TELDAFAX AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1998, AND FOR THE YEAR
THEN ENDED
-----------------------------------
FIXED CELLULAR
NETWORK INTERNET SERVICE TOTAL
------- -------- -------- --------
(IN THOUSAND DM)
<S> <C> <C> <C> <C>
Sales to unaffiliated customers....................... 263,050 -- -- 263,050
Intersegment revenues................................. -- -- -- --
Segment revenues...................................... 263,050 -- -- 263,050
Depreciation and amortization......................... (18,086) -- -- (18,086)
Segment operating profit (loss)....................... 17,735 -- -- 17,735
Segment assets........................................ 314,392 -- -- 314,392
Expenditures for long-lived assets.................... 66,146 -- -- 66,146
Reconciliations:
NET RESULT
Total operating result for the reportable segments.... 17,735
Other income.......................................... 327
Financial result...................................... 425
Other expense, net.................................... (9,713)
Minority interest..................................... --
Total consolidated profit (loss).............. 8,774
ASSETS
Total assets for reportable segments.................. 314,392
Elimination of intercompany receivables............... (1,823)
Total consolidated assets..................... 312,569
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997, AND FOR THE YEAR THEN ENDED
----------------------------------------------
FIXED CELLULAR
NETWORK INTERNET SERVICE TOTAL
-------- ----------- ----------- -------
(IN THOUSAND DM)
<S> <C> <C> <C> <C>
Sales to unaffiliated customers..................... 32,271 -- -- 32,271
Intersegment revenues............................... -- -- -- --
Segment revenues.................................... 32,271 -- -- 32,271
Depreciation and amortization....................... (5,040) -- -- (5,040)
Segment operating profit (loss)..................... (6,493) -- -- (6,493)
Segment assets...................................... 61,885 -- -- 61,885
Expenditures for long-lived assets.................. 30,718 -- -- 30,718
Reconciliations:
NET RESULT
Total operating result for the reportable
segments......................................... (6,493)
Other income........................................ 76
Financial result.................................... (1,104)
Other expense, net.................................. 1,667
Minority interest................................... --
Total consolidated profit (loss)............ (5,854)
ASSETS
Total assets for reportable segments................ 61,885
Elimination of intercompany receivables............. --
Total consolidated assets................... 61,885
</TABLE>
Other Information
TelDaFax is dependent upon one significant supplier for the leasing of
transmission lines and billing operations for call-by-call customers. TelDaFax's
reliance on this external source can be shifted, over a period of time, to
alternative sources should the changes be necessary. However, there may be a
material adverse effect on the business, financial and operations of TelDaFax.
F-42
<PAGE> 99
TELDAFAX AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. SUBSEQUENT EVENTS
Investment in Netztel Plus Drillish AG
On February 3, 2000, TelDaFax acquired an 81.9% of the stock of Netztel
Plus Drillish AG, a mobile phone calling card provider, for DM 15,000. TelDaFax
recorded the acquisition in accordance with purchase accounting resulting in
goodwill of DM 13,658.
Investment in Internet AG
On April 5, 2000, TelDaFax acquired a 32% interest in Internet AG, a
provider of e-commerce solutions with integrated payment systems, on-line shops
and electronic market places. TelDaFax's investment totaled Euro 2,275.
F-43
<PAGE> 100
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
SEC registration fee........................................ $12,025.45
Accounting fees and expenses................................ 25,000.00
Legal fees and expenses..................................... 20,000.00
Printing and mailing expenses............................... 20,000.00
Miscellaneous expenses...................................... 2,974.55
----------
Total............................................. $80,000.00
==========
</TABLE>
The foregoing items, except for the SEC registration fee, are estimated. We
will pay all of the above expenses. The selling security holders will pay their
own expenses, including expenses of their own counsel, broker or dealer fees,
discounts and expenses, and all transfer and other taxes on the sale of the
shares of common stock offered by this prospectus.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 102 of the Delaware General Corporation Law ("DGCL") allows a
corporation to eliminate or limit the personal liability of directors of a
corporation to the corporation or to any of its security holders for monetary
damages for a breach of fiduciary duty as a director, except for:
- breach of the director's duty of loyalty,
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law,
- certain unlawful dividends and stock repurchases, or
- any transaction from which the director derived an improper personal
benefit.
Section 145 of the DGCL provides that in the case of any action other than
one by or in the right of the corporation, a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that such person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
in such capacity on behalf of another corporation or enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful.
Section 145 of the DGCL provides that in the case of an action by or in the
right of a corporation to procure a judgment in its favor, a corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any action or suit by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation in such capacity on behalf of another corporation
or enterprise, against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit if he acted under standards similar to those set forth in the
preceding paragraph, except that no indemnification may be made in respect of
any action or claim as to which such person shall have been adjudged to be
liable to the corporation unless a court determines that such person is fairly
and reasonably entitled to indemnification.
Articles X and XI of World Access' Amended Certificate of Incorporation
provide for indemnification of directors, officers and employees to the fullest
extent permissible under the DGCL.
II-1
<PAGE> 101
Officers and directors of World Access are presently covered by insurance
that (with certain exceptions and with certain limitations) indemnifies them
against any losses or liabilities arising from any alleged "wrongful act"
including any alleged breach of duty, neglect, error, misstatement, misleading
statement, omissions or other act done or wrongfully attempted. The cost of such
insurance is borne by World Access as permitted by the DGCL.
World Access has entered into separate indemnification agreements with its
directors and non-director officers at the level of Vice President and above.
These indemnification agreements provide as follows:
- there is a rebuttable presumption that the director or officer has met
the applicable standard of conduct required for indemnification;
- World Access will advance litigation expenses to a director or officer at
his request provided that he undertakes to repay the amount advanced if
it is ultimately determined that he is not entitled to indemnification
for such expenses;
- World Access will indemnify a director or officer for amounts paid in
settlement of a derivative suit;
- in the event of a determination by the disinterested members of the board
of directors or independent counsel that a director or officer did not
meet the standard of conduct required for indemnification, the director
or officer may contest this determination by petitioning a court or
commencing any arbitration proceeding conducted by a single arbitrator
pursuant to the rules of the American Arbitration Association to make an
independent determination of whether such director or officer is entitled
to indemnification under his indemnification agreement; and
- World Access will reimburse a director or officer for expenses incurred
in enforcing his rights under his indemnification agreement.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits. The following exhibits are filed as part of this
registration statement.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S> <C>
5.1 -- Opinion of Long Aldridge & Norman LLP.
23.1 -- Consent of Long Aldridge & Norman LLP (included in Exhibit
5.1).
23.2 -- Consent of Ernst & Young LLP with respect to the financial
statements of World Access, Inc.
23.3 -- Consent of PricewaterhouseCoopers LLP with respect to the
financial statements of World Access, Inc.
23.4 -- Consent of Deloitte & Touche LLP with respect to the
financial statements of FaciliCom International, Inc.
23.5 -- Consent of Ernst & Young LLP with respect to the financial
statements of Long Distance International, Inc.
23.6 -- Consent of Arthur Andersen LLP with respect to the financial
statements of STAR Telecommunications, Inc.
23.7 -- Consent of Ernst & Young LLP with respect to the financial
statements of Communications Telesystems International d/b/a
WorldxChange Communications.
23.8 -- Consent of BDO Deutsche Warentreuhand with respect to the
financial statements of TelDaFax AG.
24.1 -- Power of Attorney of World Access (included in the signature
pages to this Registration Statement).
</TABLE>
(b) Financial Statement Schedules. The financial statement schedules that
are required by Regulation S-X are incorporated herein by reference to our
Annual Report on Form 10-K for the year ended December 31, 1999.
II-2
<PAGE> 102
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a) (3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
registration statement is on Form S-3 or Form S-8, and the information
required to be included in the post-effective amendment by those paragraphs
is contained in periodic reports filed by the registrants pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrants hereby undertake that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15 (d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
II-3
<PAGE> 103
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Atlanta, State of Georgia, on December 18, 2000.
WORLD ACCESS, INC.
By: /s/ John D. Phillips
------------------------------------
John D. Phillips
Chairman and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints John D. Phillips and Bryan D. Yokley, and each of
them, as his true and lawful attorneys-in-fact and agents, with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or either of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities indicated
as of December 18, 2000.
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<C> <S>
/s/ John D. Phillips Chairman and Chief Executive Officer
----------------------------------------------------- (Principal Executive Officer)
John D. Phillips
/s/ Bryan D. Yokley Executive Vice President and Chief Financial
----------------------------------------------------- Officer (Principal Financial Officer)
Bryan D. Yokley
/s/ Henry C. Lyon Vice President and Corporate Controller
----------------------------------------------------- (Principal Accounting Officer)
Henry C. Lyon
/s/ Walter J. Burmeister Director
-----------------------------------------------------
Walter J. Burmeister
/s/ Kirby Campbell Director
-----------------------------------------------------
Kirby Campbell
/s/ Bryan Cipoletti Director
-----------------------------------------------------
Bryan Cipoletti
/s/ Stephen J. Clearman Director
-----------------------------------------------------
Stephen J. Clearman
</TABLE>
II-4
<PAGE> 104
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<C> <S>
/s/ John P. Imlay, Jr. Director
-----------------------------------------------------
John P. Imlay, Jr.
/s/ Massimo Prelz Oltramonti Director
-----------------------------------------------------
Massimo Prelz Oltramonti
/s/ John P. Rigas Director
-----------------------------------------------------
John P. Rigas
/s/ Carl E. Sanders Director
-----------------------------------------------------
Carl E. Sanders
/s/ Dru A. Sedwick Director
-----------------------------------------------------
Dru A. Sedwick
/s/ Lawrence C. Tucker Director
-----------------------------------------------------
Lawrence C. Tucker
</TABLE>
II-5
<PAGE> 105
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S> <C>
5.1 -- Opinion of Long Aldridge & Norman LLP.
23.1 -- Consent of Long Aldridge & Norman LLP (included in Exhibit
5.1).
23.2 -- Consent of Ernst & Young LLP with respect to the financial
statements of World Access, Inc.
23.3 -- Consent of PricewaterhouseCoopers LLP with respect to the
financial statements of World Access, Inc.
23.4 -- Consent of Deloitte & Touche LLP with respect to the
financial statements of FaciliCom International, Inc.
23.5 -- Consent of Ernst & Young LLP with respect to the financial
statements of Long Distance International, Inc.
23.6 -- Consent of Arthur Andersen LLP with respect to the financial
statements of STAR Telecommunications, Inc.
23.7 -- Consent of Ernst & Young LLP with respect to the financial
statements of Communications Telesystems International d/b/a
WorldxChange Communications.
23.8 -- Consent of BDO Deutsche Warentreuhand with respect to the
financial statements of TelDaFax AG.
24.1 -- Power of Attorney of World Access (included in the signature
pages to this Registration Statement).
</TABLE>
