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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
/ / TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No.: 0-29207
For the quarter ended June 30, 2000
FLAG TELECOM HOLDINGS LIMITED
BERMUDA
(State or Other Jurisdiction of Incorporation or Organisation)
NOT APPLICABLE
(IRS Employer Identification No.)
CEDAR HOUSE
41 CEDAR AVENUE
HAMILTON HM12, BERMUDA
(Address of principal executive office)
[++1-441-296-0909]
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
133,944,057 common shares were outstanding as of August 10, 2000.
The Exhibit Index, filed as a part of this report, appears on page 22.
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FLAG TELECOM HOLDINGS LIMITED
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I FINANCIAL INFORMATION ................................................. 1
ITEM 1: FINANCIAL STATEMENTS................................................... 1
1.A Consolidated Balance Sheets as of June 30, 2000 and
December 31, 1999................................................... 1
1.B Consolidated Statements of Operations for the three
months and six months ended June 30, 2000, the three months ended
June 30, 1999, the period from incorporation to 30 June, 1999 and
the period from January 1, 1999 to February 26, 1999 (FLAG
Limited).......................................................... 2
1.C Consolidated Statement of Comprehensive Income for the three
months and six months ended June 30, 2000, the three months ended
June 30, 1999, the period from incorporation to 30 June, 1999 and
the period from January 1, 1999 to February 26, 1999 (FLAG
Limited)............................................................ 3
1.D Consolidated Statements of Cash Flows for the six months ended
June 30, 2000, the period from incorporation to 30 June, 1999 and
the period from January 1, 1999 to February 26, 1999 (FLAG
Limited))........................................................... 4
1.E Notes to Consolidated Financial Statements.......................... 5
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.............................................. 10
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK............. 19
PART II ADDITIONAL INFORMATION................................................. 21
ITEM 1: LEGAL PROCEEDINGS...................................................... 21
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS.............................. 21
ITEM 3: DEFAULTS UPON SENIOR SECURITIES........................................ 21
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................... 21
ITEM 5: OTHER INFORMATION...................................................... 21
ITEM 6: EXHIBITS AND REPORTS FILED ON FORM 8-K................................. 22
SIGNATURES ....................................................................... 23
</TABLE>
<PAGE>
PART I
Item 1.A
FLAG TELECOM HOLDINGS LIMITED
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2000 AND DECEMBER 31, 1999
(EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
(UNAUDITED) (AUDITED)
--------------------- ---------------------
<S> <C> <C>
ASSETS:
Current assets:
Cash $ 1,085,992 $ 3,191
Accounts receivable, net of allowance for doubtful accounts
Of $5,831 (1999 - $6,827) 95,591 90,065
Due from affiliate 2,000 2,000
Prepaid expenses and other assets 16,320 3,460
----------- -----------
1,199,903 98,716
Funds held by collateral trustee or in escrow 260,059 134,066
Capacity available for sale -- 774,366
Capitalized financing costs, net of accumulated
Amortization of $4,340 (1999 - $3,142) 13,759 11,678
Investment in FLAG Atlantic Limited 9,726 7,162
Fixed assets, net 1,057,529 299,743
Construction in progress 15,182 --
Other long-term assets 8,000 --
----------- -----------
$ 2,564,158 $ 1,325,731
=========== ===========
LIABILITIES:
Current liabilities:
Accrued construction costs $ 50,067 $ 52,411
Accrued liabilities 51,145 39,152
Accounts payable 42,628 7,807
Income taxes payable 4,585 4,531
Deferred revenue 55,321 48,501
----------- -----------
203,746 152,402
Senior notes, net of unamortized
Discount of $15,861 (1999 - $5,173) 999,528 425,270
Other long-term debt 150,000 190,000
Deferred revenue and other 170,935 100,724
Deferred taxes 3,925 3,973
----------- -----------
1,528,134 872,369
MINORITY INTEREST -- 154,817
SHAREHOLDERS' EQUITY:
Common shares, $.0006 par value 80 42
Additional paid-in capital 1,106,979 313,848
Foreign currency translation adjustment 303 141
Accumulated deficit (71,338) (15,486)
----------- -----------
1,036,024 298,545
----------- -----------
$ 2,564,158 $ 1,325,731
=========== ===========
</TABLE>
1
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PART I
ITEM 1.B
FLAG TELECOM HOLDINGS LIMITED
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2000,
THE THREE MONTHS ENDED JUNE 30, 1999,
THE PERIOD FROM INCORPORATION TO JUNE 30, 1999 AND THE
PERIOD FROM JANUARY 1, 1999 TO FEBRUARY 26, 1999 (FLAG LIMITED)
(EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS PERIOD FROM | FLAG LTD
THREE MONTHS ENDED ENDED INCORPORATION | PERIOD FROM
JUNE 30, JUNE 30, TO JUNE 30, | JAN 1 TO FEB 26,
2000 1999 2000 1999 | 1999
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) | (AUDITED)
----------- ----------- ----------- ----------- | ---------
<S> <C> <C> <C> <C> | <C>
REVENUES 24,687 59,501 43,873 64,070 | 30,012
|
SALES AND OTHER OPERATING COSTS: |
Cost of capacity sold -- 24,748 -- 25,211 | 8,294
|
Network expenses 2,324 -- 3,602 -- | --
|
Operations and maintenance |
(including non-cash compensation |
expense of $335, nil, $1166, nil, nil) 8,905 7,771 16,971 9,925 | 5,114
|
Sales and marketing |
(including non-cash compensation |
expense of $225, nil, $706, nil, nil) 2,581 1,625 6,390 2,898 | 637
|
General and administrative |
(including non-cash compensation |
expense of $765, nil, $2,675, nil, nil) 9,129 6,487 17,687 8,053 | 2,870
|
Depreciation and amortization 19,890 2,018 39,998 2,117 | 233
---------- --------- ----------- --------- | ----------
42,829 42,649 84,648 48,204 | 17,148
|
OPERATING (LOSS)/INCOME (18,142) 16,852 (40,775) 15,866 | 12,864
|
INCOME FROM AFFILIATES 1,582 -- 2,188 -- | --
INTEREST EXPENSE (28,073) (12,982) (43,762) (17,728) | (9,758)
INTEREST INCOME 20,205 2,013 27,271 2,836 | 1,825
---------- --------- ----------- --------- | ----------
(LOSS)/INCOME BEFORE MINORITY INTEREST |
AND INCOME TAXES (24,428) 5,883 (55,078) 974 | 4,931
|
MINORITY INTEREST -- (2,048) -- (333) | --
---------- --------- ----------- --------- | ----------
|
(LOSS)/INCOME BEFORE INCOME TAXES (24,428) 3,835 (55,078) 641 | 4,931
|
PROVISION FOR INCOME TAXES 338 393 771 479 | 171
---------- --------- ----------- --------- | ----------
NET (LOSS)/INCOME (24,766) 3,442 (55,849) 162 | 4,760
---------- --------- ----------- --------- | ----------
|
Basic and diluted (loss)/income per |
common share $ (0.18) $ 0.05 $ (0.44) $ - | $ 0.01
|
Weighted average common shares |
outstanding 133,941,344 69,709,935 127,638,252 69,709,935 | 635,796,338
</TABLE>
2
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PART I
ITEM 1.C
FLAG TELECOM HOLDINGS LIMITED
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2000,
THE THREE MONTHS ENDED JUNE 30, 1999,
THE PERIOD FROM INCORPORATION TO JUNE 30, 1999 AND THE
PERIOD FROM JANUARY 1, 1999 TO FEBRUARY 26, 1999 (FLAG LIMITED)
(EXPRESSED IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS PERIOD FROM | FLAG LTD
THREE MONTHS ENDED ENDED INCORPORATION | PERIOD FROM
JUNE 30, JUNE 30, TO JUNE 30, | JAN 1 TO FEB 26,
2000 1999 2000 1999 | 1999
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) | (AUDITED)
----------- ----------- ----------- ----------- | ---------
<S> <C> <C> <C> <C> | <C>
NET (LOSS)/INCOME (24,766) 3,442 (55,849) 162 | 4,760
|
Foreign currency translation adjustment 90 (173) 162 (13) | 178
---------- --------- ----------- --------- | ----------
|
COMPREHENSIVE (LOSS)/INCOME (24,676) 3,269 (55,687) 149 | 4,938
=========== ========= =========== ========= | ==========
</TABLE>
3
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PART I
ITEM 1.D
FLAG TELECOM HOLDINGS LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2000,
THE PERIOD FROM INCORPORATION TO JUNE 30, 1999 AND THE
PERIOD FROM JANUARY 1, 1999 TO FEBRUARY 26,1999 (FLAG LIMITED)
(EXPRESSED IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
| FLAG LIMITED
PERIOD FROM | PERIOD FROM
INCORPORATION | JANUARY 1 TO
JUNE 30, TO JUNE 30, | FEBRUARY 26
2000 1999 | 1999
(UNAUDITED) (UNAUDITED) | (AUDITED)
------------- ------------- | -----------
<S> <C> <C> | <C>
CASH FLOWS FROM OPERATING ACTIVITIES: |
Net (loss)/income applicable to common shareholders $ (55,849) $ 162 | $ 4,760
Adjustments to reconcile net income to net cash |
provided by/(used in) operating activities: |
Amortization of financing costs 1,197 197 | 274
Provision for doubtful accounts (996) -- | --
Senior debt discount 639 548 | 98
Non-cash stock compensation 4,549 -- | --
Depreciation and amortization 39,998 2,117 | 233
Loss on disposal of fixed assets 84 -- | --
Deferred taxes 34 -- | --
Minority interest -- 333 | --
Add (deduct) net changes in assets and liabilities: |
Accounts receivable (4,559) (4,442) | 1,710
Prepaid expenses and other assets (20,959) 127 | (645)
Capacity available for sale -- 29,318 | 8,664
Accounts payable and accrued liabilities 47,423 10,613 | (16,541)
Income taxes payable 60 (1,300) | 168
Due to affiliate -- (271) | (668)
Deferred revenue and other 77,031 18,003 | (21,157)
------------ ------------- | ---------
Net cash provided by (used in) operating activities 88,652 55,405 | (23,104)
------------ ------------- | ---------
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
Financing costs incurred (3,278) -- | --
Net proceeds from issuance of 11 5/8% senior notes 576,649 -- | --
Repayment of long-term debt (40,000) (15,000) | (15,000)
Capital contributions - initial public offering 633,803 -- | --
(Increase)/decrease in funds held by collateral trustee |
or in escrow (125,993) 48,331 | 36,230
------------ ------------- | ---------
Net cash provided by financing activities 1,041,181 33,331 | 21,230
------------ ------------- | ---------
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
Cash paid for construction (17,527) (89,016) | 788
Investments in FLAG Atlantic (2,564) -- | --
Proceeds from disposal of assets 32 -- | --
Investment in fixed assets and networks (incl L/T Asset) (23,789) (586) | (200)
------------ ------------- | ----------
Net cash (used in)/provided by investing activities (43,848) (89,602) | 588
------------ ------------- | ----------
|
NET INCREASE/(DECREASE) IN CASH 1,085,985 (866) | (1,286)
Effect of foreign currency movements (3,184) (27) | 178
CASH, beginning of period 3,191 1,916 | 3,024
------------ ------------- | -----------
CASH, end of period $ 1,085,992 $ 1,023 | $ 1,916
============ ============= | ===========
SUPPLEMENTAL INFORMATION ON NON-CASH INVESTING |
ACTIVITIES: |
Costs incurred for construction in progress $ 17,527 $ 89,016 | $ (788)
========== ============ | ===========
SUPPLEMENTAL INFORMATION DISCLOSURE OF |
CASH FLOW INFORMATION: |
Interest paid $ 22,484 $ 3,735 | $ 22,688
========== ============ | ===========
Interest capitalized $ -- $ -- | $ --
========== ============ | ===========
Taxes paid $ 541 $ 1,771 | $ --
========== ============ | ===========
</TABLE>
4
<PAGE>
PART I
ITEM 1.E
FLAG TELECOM HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000 AND 1999
1. GENERAL
The interim consolidated financial statements presented herein have
been prepared on the basis of U.S. generally accepted accounting
principles and include the accounts and balances of the Company and its
wholly-owned subsidiaries. All significant intercompany transactions
have been eliminated in consolidation. In the opinion of management,
the unaudited consolidated financial statements reflect all adjustments
(consisting of normal recurring accruals) necessary for a fair
presentation of the results of operations for the three months and six
months ended June 30, 2000, the three months ended June 30, 1999, the
period from incorporation to June 30, 1999 and the period from January
1, 1999 to February 26, 1999 (FLAG Limited), the balance sheets as of
June 30, 2000 and December 31, 1999, and the cash flows for the six
months ended June 30, 2000, the period from incorporation to June 30,
1999 and the period from January 1, 1999 to February 26, 1999 (FLAG
Limited). Our interim consolidated financial statements should be read
in conjunction with our audited consolidated financial statements for
the year ended December 31, 1999. The results of operations for any
interim period are not necessarily indicative of results for the full
year.
FLAG Telecom Holdings Limited ("FLAG Telecom" or the "Company") was
incorporated on February 3, 1999 to serve as the holding company for
the FLAG Telecom group of companies (the "Group"). On February 26, 1999
FLAG Telecom acquired approximately 65.79% of FLAG Limited by
exchanging 69,709,935 shares of FLAG Limited common stock for the same
number of shares of FLAG Telecom common stock. The minority shareholder
of FLAG Limited exchanged its remaining holdings in FLAG Limited for
shares in FLAG Telecom on January 4, 2000 such that on that date FLAG
Limited became a wholly owned subsidiary of FLAG Telecom. This
acquisition has been accounted for as a recapitalisation such that no
goodwill arises and assets and liabilities are reflected at their
carryover basis.
The results of the operations of FLAG Limited have been included in the
consolidated results of FLAG Telecom's operations since the date of
recapitalisation.
2. REVENUE RECOGNITION
Capacity contracts are accounted for as leases. For contracts that
satisfy sales type lease accounting, revenues are recognized upon the
date the risks and rewards of ownership are transferred to the
purchaser, which is the date the capacity is made available for
activation and the customer becomes responsible for maintenance
charges. As a result of the issuance of FASB Interpretation No. 43,
with effect
5
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from July 1, 1999, certain sales of capacity may no longer be
recognized as current revenue because they do not satisfy the
requirements for sales-type lease accounting. Revenues from these
capacity sales are now deferred and amortized over the term of the
contracts. The change to the accounting treatment has no impact on cash
flows. Until June 30, 1999 revenues from operating lease transactions
were considered incidental and recorded as a reduction of the capacity
available for sale.
3. CAPACITY AVAILABLE FOR SALE
Historically capacity for sale has been recorded at the lower of cost
or fair value less cost to sell and charged to cost of sales as
capacity is sold. Until contracts were entered into that precluded
sales type lease accounting for a particular segment, the cost of such
segment remained in capacity available for sale.
As a result of extending the range of products and services offered by
FLAG Telecom, the greater part of future revenue is expected to arise
under agreements that will be accounted for as operating leases or
service contracts and will require the recognition of revenues over the
relevant term of the agreements. The remaining cost of the FLAG Telecom
Network has therefore been reclassified from capacity available for
sale to fixed assets on January 1, 2000. This cost will be depreciated
over the remaining estimated economic life of the system.
4. EQUITY ISSUE
Direct third party costs incurred as a result of the issuance of equity
are offset against the proceeds from the issue and debited against
additional paid in capital.
5. DEBT ISSUE
New debt issues are recorded net of any discount on the offering.
Direct third party costs incurred during an issuance are capitalised
and classified as non current assets. Capitalized costs and discounts
are amortized as an adjustment to interest expense over the lives of
the relevant instruments.
6. DEBT MODIFICATION
Fees paid to the lender as a result of a credit facility amendment are
offset against the modified debt instrument and amortized as an
adjustment to interest expense over the remaining term of the modified
debt instrument along with any existing unamortized premium or
discount.
7. CONTINGENCIES
The Company is involved in litigation from time to time in the ordinary
course of business. In management's opinion, the litigation in which
the Company is currently involved, individually and in the aggregate,
is not material to it.
6
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8. NET INCOME \(LOSS)PER COMMON SHARE
Basic net income \ (loss) per common share is computed by dividing net
income \ (loss) applicable to common shareholders by the weighted
average number of common shares outstanding in the period. Diluted net
income \ (loss) per common share is computed by dividing net income by
the weighted average number of common shares and common share
equivalents outstanding during the period. For the three and six month
periods ended June 30, 2000 presented, no potentially dilutive
securities have been included in the calculation of diluted net loss
per share as such amounts would be antidilutive in periods in which a
loss has been reported. The aggregate number of potential common share
equivalents that have been excluded from the diluted net loss per share
calculation was 1,737,257 and 1,742,624 for the three and six month
periods ended June 30, 2000, respectively, and related entirely to
stock options.
9. SEGMENTAL INFORMATION
The Company has prepared segmental information using accounting
policies that are consistent across segments.
As a result of extending the range of products and services offered by
FLAG Telecom, management now reviews financial results of the Group on
the basis of the following two business segments: Capacity Sales and
Operations and Network Services. The Network Services business now
makes a material and growing contribution to the Company's revenue. The
segments include revenues from the various types of products and
services as noted:
Capacity Sales and Traditional carrier services, involving
Operations dispositions of capacity by sale, right
of use or lease
Operations and maintenance
revenues
Network Services Managed bandwidth services
Other value added and related
services
Details of the financial results of the two business segments for
the quarter ended June 30, 2000 are summarized below reconciled to
the totals for the Group as a whole. Substantially all the revenues
and operating results in earlier periods arose from Capacity Sales
and Operations.
(Numbers in $'000's)
<TABLE>
<CAPTION>
Capacity Sales Network Total
and Operations Services
<S> <C> <C> <C>
Revenues from external parties
Capacity Sale 10,221 -- 10,221
Operations & Maintenance 10,364 -- 10,364
Network Services -- 4,102 4,102
------ ----- ------
20,585 4,102 24,687
Operating Loss (17,647) (495) (18,142)
Adjusted EBITDA(1) 34,754 (252) 34,502
</TABLE>
7
<PAGE>
Details of the financial results of the two business segments for the
six months ended June 30, 2000 are summarized below reconciled to the
totals for the Group as a whole. Substantially all the revenues and
operating results in earlier periods arose from Capacity Sales and
Operations.
(Numbers in $'000's)
Capacity Sales Network Total
and Operations Services
Revenues from external parties
<TABLE>
<S> <C> <C> <C>
- Capacity Sale 18,036 -- 18,036
- Operations & Maintenance 19,716 -- 19,716
- Network Services -- 6,121 6,121
------- ------- -------
37,752 6,121 43,873
Operating Loss (38,933) (1,842) (40,775)
Adjusted EBITDA(1) 82,151 (1,318) 80,833
</TABLE>
----------
(1) Adjusted EBITDA is operating income/(loss) plus the following
non-cash items: depreciation/cost of capacity sold, non-cash stock
compensation and changes in deferred revenues.
SEGMENTAL ASSETS
(Numbers in $'000's)
<TABLE>
<CAPTION>
Capacity Sales Network TOTAL
and Operations Services
<S> <C> <C> <C>
Fixed Assets and Construction
in Progress 1,054,680.2 18,030.4 1,072,710.6
</TABLE>
All fixed assets in earlier periods were held in Capacity Sales and
Operations. All other assets/liabilities are managed on a unified basis
and, therefore, no segmental analysis is prepared.
10. OTHER INFORMATION
On February 16, 2000, FLAG Telecom completed an initial public offering
of its common shares. Approximately $633.8 million net proceeds were
received from that offering. On March 17, 2000, FLAG Telecom completed
a private placement of 300 million dollar denominated and 300 million
Euro denominated 11 5/8% Senior Notes due 2010. Approximately $576
million net proceeds were received from that offering.
On February 16, 2000, FLAG Limited amended its existing credit
facilities to consist of a $150 million six-year term loan facility
(all of which is outstanding) and a $10 million revolving credit
facility (none of which is outstanding).
The undersea survey for the FLAG Pacific-1 (FP-1) cable system has
begun. Upon completion of FP-1, scheduled for 2002, the multi-terabit
dual cable system is designed to link the major internet hub cities of
Seattle, Vancouver, San Francisco, Los Angeles and Tokyo. With FP-1,
the FLAG Telecom network will extend over 64,500 km route.
11. PENDING ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standard No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133) and Statement of
8
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Financial Accounting Standard No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities - an Amendment of
FASB Statement No. 133" (SFAS 138). Following the amendment made by
SFAS No. 137, SFAS 133 and SFAS 138 is effective for periods beginning
after June 15, 2000. Management is currently assessing the impact of
the adoption of SFAS 133 and SFAS 138 on the Company's financial
position and results of operations, which may be material.
The Securities and Exchange Commission (SEC) issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB
101). SAB 101 outlines the SEC's views on applying generally accepted
accounting principles to revenue recognition in financial statements.
Specifically, the bulletin provides both general and specific guidance
as to the periods in which companies should recognize revenues. In
addition, SAB 101 also highlights factors to be considered when
determining whether to recognize revenues on a gross or net basis.
SAB 101, as amended by SAB 101/A and SAB 101/B, is effective
beginning no later than their fourth fiscal quarter of the fiscal
year beginning after December 15, 1999. The Group believes that its
policies in regards to the recognition of revenues are in compliance
with the guidance of SAB 101 and does not expect that the adoption of
this standard will have any material effects on its results of
operations, cash flows or financial position.
The Emerging Issues Task Force (EITF) has recently issued EITF 00-2
("Accounting for Web Site Development Costs"). The Task Force has
reached a consensus that all costs associated with the planning of
web site development projects should be expensed as incurred, while
costs incurred in the application and development stage should
generally be capitalized in accordance with American Institute of
Certified Public Accountants Statement of Position 98-1. "Accounting
for the Costs of Computer Software Developed or Obtained for
Internal Use", or other relevant pronouncements. Costs incurred in
the operations of the web site are generally expensed as incurred.
The EITF has not yet reached a consensus as to the accounting for the
costs of developing and displaying content or other information on a
web site, but the Task Force plans further discussion on this issue.
EITF 00-2 is effective for web site development costs incurred for
fiscal quarters beginning after June 30, 2000. As the Company's
current policy is substantially consistent with the consensuses
reached in EITF 00-2, the Company does not expect that the issuance
of this pronouncement will have a material effect on its financial
condition or results of operations.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART I
ITEM 2
QUARTER ENDED JUNE 30, 2000 COMPARED WITH THE QUARTER ENDED JUNE 30, 1999
RESULTS OF OPERATIONS
REVENUES
Total revenue recognized by the Company during the quarter ended June 30, 2000,
was $24.7 million compared to $59.5 million total revenue for the quarter ended
June 30, 1999.
Revenue recognized from the sale of capacity was $10.2 million for the quarter
ended June 30, 2000 compared to $52.4 million during the quarter ended June 30,
1999. As a result of the issuance of FASB Interpretation No. 43, with effect
from July 1, 1999, certain sales of capacity may no longer be recognized as
current revenue because they do not satisfy the requirements for sales-type
lease accounting. Revenues from these capacity sales are now deferred and
amortized over the term of the contracts. The change to the accounting treatment
has no impact on cash flows.
As of June 30, 2000, the Company had entered into sales transactions with in
excess of 100 international telecommunication carriers, compared to 88 as of
June 30, 1999.
Revenue recognized from operations and maintenance was $10.4 million for the
quarter ended June 30, 2000 compared to $7.1 million for the quarter ended June
30, 1999, reflecting the increased cumulative sales on the FLAG Telecom Network.
Revenue recognized from Network Services was $4.1 million for the quarter ended
June 30, 2000. No Network Services revenue was generated for the quarter ended
June 30, 1999.
OPERATING EXPENSES
For the quarter ended June 30, 2000 the Company recorded $19.9 million in
respect of depreciation compared to $26.8 million for depreciation and cost of
capacity sold recorded in the quarter ended June 30, 1999. The adoption of FASB
Interpretation No. 43 discussed above, has meant that the remaining capacity
available for sale has been reclassified to fixed assets on January 1, 2000 and
is being depreciated over the remaining economic life of the network.
During the quarter ended June 30, 2000 the Company incurred $2.3 million in
network services costs. No network services costs were incurred for the quarter
ended June 30, 1999.
During the quarter ended June 30, 2000 the Company incurred $8.9 million in
operations and maintenance costs compared to $7.8 million for the quarter ended
June 30, 1999. Operations and maintenance costs relate primarily to
10
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the provision of standby maintenance under Maintenance Zone Agreements as well
as salaries and overheads directly associated with operations and maintenance
activities. The increase is primarily due to additional costs arising from
increased activity plus increased use of contracted services.
During the quarter ended June 30, 2000, $2.6 million in sales and marketing
costs were incurred compared to $1.6 million incurred during the quarter ended
June 30, 1999. Sales and marketing costs are comprised of all sales and
marketing activities that are directly undertaken by the Group. The increase in
sales and marketing costs in the quarter ended June 30, 2000 over the quarter
ended June 30, 1999 is due to greater employment and related costs associated
with the increased world-wide sales and marketing activity and non-cash stock
compensation costs.
During the quarter ended June 30, 2000, $9.1 million of general and
administrative expenses were incurred compared to $6.5 million during the
quarter ended June 30, 1999. Increases are primarily due to non-cash stock
compensation costs incurred plus additional staff and office related costs.
Costs for the quarter ended June 30, 2000 include charges for non-cash stock
compensation expense in respect of certain awards under our long term incentive
plan. These charges are required under US accounting standards and are purely
accounting charges having no effect on cash flows.
INTEREST EXPENSE AND INTEREST INCOME
Interest expense on borrowings increased from $13.0 million for the quarter
ended June 30, 1999 to $28.1 million for the quarter ended June 30, 2000. The
increase in interest expense of $15.1 million is attributable to additional
borrowings obtained. See also "Liquidity and Capital Resources."
Interest income of $20.2 million was earned during the quarter ended June 30,
2000 compared to $2.0 million earned during the quarter ended June 30, 1999. The
interest income was earned on cash balances, short term investments and cash
held by the Collateral Trustee (with respect to FLAG Limited's 81/4% Senior
Notes) or in escrow arising from ongoing business operations. These amounts have
increased significantly due to proceeds received from the initial public
offering of our shares and further borrowings, including the issuance of our
Senior Notes, which are currently held on deposit.
PROVISION FOR TAXES
The provision for taxes was $0.3 million for the quarter ended June 30, 2000
compared to $0.4 million for the quarter ended June 30, 1999. The tax provisions
for periods consists of taxes on income derived from capacity sales and standby
maintenance revenue from customers in certain jurisdictions along the FLAG
Telecom Network where the Group is deemed to have a taxable presence or is
otherwise subject to tax. At the present time, no income, profit, capital or
capital gains taxes are levied in Bermuda. In the event that such taxes are
levied, the Group of companies incorporated in Bermuda received an undertaking
from the Bermuda Government exempting it from all such taxes until March 28,
2016.
NET LOSS AND LOSS PER COMMON SHARE
For the quarter ended June 30, 2000 the Company recorded a net loss of $(24.8)
million compared to net income of $3.4 million for the quarter ended
June 30, 1999. This is attributable primarily to reduced accounting revenue and
increased depreciation costs caused by the adoption of FASB Interpretation No.
43 with effect from July 1, 1999.
Basic and diluted loss per common share was $(0.18) for the quarter ended
June 30, 2000 compared to income per common share of $0.05 for the quarter
ended June 30, 1999.
11
<PAGE>
SIX MONTHS ENDED 30 JUNE, 2000 COMPARED WITH THE SIX MONTHS ENDED 30 JUNE, 1999
RESULTS OF OPERATIONS
ADJUSTED CONSOLIDATED RESULTS
The table below shows the significant income statement amounts, in thousands,
for the six months ended June 30, 1999, being a combination of the results of
FLAG Limited for the period from January 1, 1999 to February 26, 1999 and the
results of FLAG Telecom for the period from incorporation to June 30, 1999.
<TABLE>
<CAPTION>
Adjusted
six months ended
June 30, 1999
(Expressed in
thousands of dollars)
------------------
<S> <C>
REVENUE $ 94,082
SALES AND OTHER OPERATING COSTS:
Cost of capacity sold 33,505
Operations and maintenance 15,039
Sales and marketing 3,535
General and administrative 10,923
Depreciation and amortization 2,350
INTEREST EXPENSE (27,486)
INTEREST INCOME 4,661
--------
INCOME BEFORE MINORITY INTEREST
AND INCOME TAXES 5,905
PROVISION FOR INCOME TAXES 650
</TABLE>
12
<PAGE>
Statement of Cash Flow Data:
<TABLE>
<CAPTION>
Adjusted
six months as
of June 30,
1999
(Expressed in
thousands of dollars)
----------
<S> <C>
Cash flow from operating activities 32,301
Cash flow from financing activities 54,561
Cash flow from investing activities (89,014)
</TABLE>
REVENUES
Total revenue recognized by the Company during the six months ended June 30,
2000 was $43.9 million compared to $94.1 million in total revenue for the six
months ended June 30, 1999.
Revenue recognized from the sale of capacity was $18.1 million for the six
months ended June 30, 2000 compared to $80.3 million during the six months ended
June 30, 1999. As a result of the issue of FASB Interpretation No. 43, with
effect from July 1, 1999, certain sales of capacity may no longer be recognized
as current revenue because they do not satisfy the requirements for sales-type
lease accounting. Revenues from these capacity sales are deferred and amortized
over the term of the contracts. The change to the accounting treatment has no
impact on cash flows.
As of June 30, 2000, the Company had entered into sales transactions with in
excess of 100 international telecommunication carriers, compared to 88 as of
June 30, 1999.
Revenue recognized from operations and maintenance was $19.7 million for the Six
months ended June 30, 2000 compared to $13.8 million for the six months ended
June 30, 1999, reflecting the increased cumulative sales on the FLAG Telecom
Network.
Revenue recognized from Network Services was $6.1 million for the six months
ended June 30, 2000. No Network Services revenue was generated for the six
months ended June 30, 1999.
OPERATING EXPENSES
For the six months ended June 30, 2000, the Company recorded $40.0 million in
respect of depreciation compared to $35.9 million for depreciation and cost
of capacity sold recorded in the six months ended June 30, 1999. The adoption
of FASB Interpretation No. 43 discussed above, has meant that the remaining
capacity available for sale has been reclassified to fixed assets on January
1, 2000 and is being depreciated over the remaining economic life of the
network.
13
<PAGE>
During the six months ended June 30, 2000 the Company incurred $3.6 million in
network services costs. No network services costs were incurred for the six
months ended June 30, 1999.
During the six months ended June 30, 2000 the company incurred $17.0 million in
operations and maintenance costs compared to $15.0 million for the six months
ended June 30, 1999. Operations and maintenance costs relate primarily to the
provision of standby maintenance under Maintenance Zone Agreements as well as
salaries and overheads directly associated with operations and maintenance
activities. The increase is primarily due to additional costs arising from
increased activity plus increased use of contracted services.
During the six months ended June 30, 2000, $6.4 million in sales and marketing
costs were incurred compared to $3.5 million incurred during the six months
ended June 30, 1999. Sales and marketing costs are comprised of all sales and
marketing activities that are directly undertaken by the Group. The increase in
sales and marketing costs in the six months ended June 30, 2000 over the six
months ended June 30, 1999 is due to the greater employment and related costs
associated with the increased world-wide sales and marketing activity and
non-cash stock compensation costs.
During the six months ended June 30, 2000, $17.7 million of general and
administrative expenses were incurred compared to $10.9 million during the six
months ended June 30, 1999. Increases are primarily due to non-cash stock
compensation costs incurred plus additional staff and office related costs.
Costs for the six months ended June 30, 2000 includes charges for non-cash stock
compensation expense in respect of certain awards under our long term incentive
plan. These charges are required under US accounting standards and are purely
accounting charges having no effect on cash flows.
INTEREST EXPENSE AND INTEREST INCOME
Interest expense on borrowings increased from $27.5 million for the six months
ended June 30, 1999 to $43.8 million for the six months ended June 30, 2000. The
increase in interest expense of $16.3 million is attributable to additional
borrowings obtained. See also "Liquidity and Capital Resources."
Interest income of $27.3 million was earned during the six months ended June 30,
2000 compared to $4.7 million earned during the six months ended June 30, 1999.
Interest was earned on cash balances and short term investments and cash held by
the Collateral Trustee (with respect to FLAG Limited's 81/4% Senior Notes) or in
escrow arising from ongoing business operations. These amounts have increased
significantly due to proceeds received from the initial public offering of our
shares and further borrowings, including the issuance of our Senior Notes, which
are currently held on deposit.
PROVISION FOR TAXES
The provision for taxes was $0.8 million for the six months ended June 30, 2000
compared to $0.7 million for the six months ended June 30, 1999. The tax
provisions for periods consists of taxes on income derived from capacity sales
and standby maintenance revenue from customers in certain jurisdictions along
the FLAG Telecom Network where the Group is deemed to have a taxable presence or
is otherwise subject to tax. At the present time, no income, profit, capital or
capital gains taxes are levied in Bermuda. In the event that such taxes are
levied, the Group of companies incorporated in Bermuda
14
<PAGE>
received an undertaking from the Bermuda Government exempting it from all such
taxes until March 28, 2016.
NET LOSS AND LOSS PER COMMON SHARE
For the six months ended June 30, 2000 the Company recorded a net loss of
$(55.8) million compared to net income of $4.9 million for the six months ended
June 30, 1999. This is attributable primarily to reduced accounting revenue and
increased depreciation costs caused by the adoption of FASB Interpretation No.
43 with effect from July 1, 1999.
Basic and diluted loss per common share was $(0.44) for the six months ended
June 30, 2000 compared to nil for the six months ended June 30, 1999.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations to date through a combination of equity
contributions, bank debt, the proceeds of debt offerings, and the proceeds of an
initial public offering of our common shares.
On February 16, 2000 we completed an initial public offering (IPO) of our common
shares. We received $633.8 million in net proceeds from that offering. On March
17, 2000 we completed the issue of 11 5/8% Senior Notes in the US and Europe,
raising net proceeds of $576.6 million.
On February 16, 2000, FLAG Limited amended its existing credit facilities to
consist of a $150 million six-year term loan facility (all of which remained
outstanding at June 30, 2000) and a $10 million revolving credit facility
(none of which is outstanding). Dresdner Kleinwort Benson and Barclays
Capital acted as joint lead arrangers. These facilities bear interest at a
rate of 225 basis points over LIBOR for the first six months and thereafter
at a rate of between 150 and 250 basis points over LIBOR, depending on the
credit rating of the 8 1/4% Senior Notes of FLAG Limited. The facilities are
secured by a pledge by us of all of the capital stock of FLAG Limited and by
assignment of FLAG Limited's contracts and a security interest in its bank
accounts and intangible property. In connection with this amendment, FLAG
Limited paid fees and expenses to the joint lead arrangers totaling
approximately $3.3 million.
At the end of March 1998, we entered into two interest rate swap agreements to
manage our exposure to interest rate fluctuations on FLAG Limited's credit
facilities. Under the swap agreements, we pay a fixed rate of 5.6% on a notional
amount of $60 million and a fixed rate of 5.79% on a notional amount of $100
million and the swap counterparty pays the floating rate based on LIBOR. One
swap agreement terminated in January 2000 and the other swap agreement
terminated in July 2000. We will be putting a further interest rate hedge
agreement into effect by August 31, 2000 as required by the bank loan facility.
We recognize the net cash amount received or paid on interest rate hedging
instruments as an adjustment to interest cost on the related debt.
We are developing the FLAG Atlantic-1 cable system under a 50/50 joint venture
between GTS TransAtlantic and FLAG Atlantic Holdings. FLAG Atlantic Limited has
a $575 million construction/term loan facility and a $25 million revolving
credit facility. These facilities have a term of 7.5 years and bear interest at
LIBOR plus 125 basis points for that portion of the loans (not to exceed 50% of
the outstanding loans) which are backed by investment grade receivables and
LIBOR plus 300 basis points for the balance of the loans. Commitment fees accrue
on the undrawn balance of the loans at between 37.5 basis points and 75 basis
points.
FLAG Atlantic Limited's bank facility is secured by an assignment of all of FLAG
Atlantic Limited's assets, a pledge of all of the stock in FLAG Atlantic Limited
and a commitment by each of its shareholders to contribute $100 million in
equity.
The undersea survey for the FLAG PACIFIC-1 (FP-1) cable system has
16
<PAGE>
begun. Upon completion of FP-1, scheduled for 2002, the multi-terabit dual cable
system will link the hub internet cities of Seattle, Vancouver, San Francisco,
Los Angeles and Tokyo. We expect to fund the costs required to complete the
project from some of the proceeds from our IPO and the proceeds from our 11 5/8%
Senior Notes offering and other debt financings and pre-sales.
As of June 30, 2000 and December 31, 1999, the Company had a working capital
surplus of $996.2 million and a deficit of $53.7 million respectively. The
working capital deficit was primarily a result of the current accounts payable
to the contractors which is classified as a current liability but for which the
associated funds held in escrow are classified as a non-current asset and are
hence excluded from the measure of working capital.
Total cash provided by operating activities and used in investing activities
during the six months ended June 30, 2000 was $88.7 million and $(43.8) million
respectively. As of June 30, 2000, cash on deposit, or with the collateral
trustee or in escrow had increased to $1,346.1 million from $137.3 million at
December 31, 1999, primarily as a result of the additional funds obtained from
the IPO of $633.8 million and from the 11 5/8% Senior Notes offering of $576.6
million.
Total cash provided by operating activities and used in investing activities
during the six months ended June 30, 1999 was $32.3 million and $(89.0) million
respectively.
ASSETS
Our major asset is the remaining capital cost of the FLAG Telecom Network
recorded in fixed assets totalling $1,049.9 million.
As a result of the application of FASB Interpretation No. 43, the costs of
certain segments of the FLAG Telecom Network were reclassified at July 1, 1999
and during the six months ended December 31, 1999 from capacity available for
sale to fixed assets and are being depreciated over their remaining useful life.
As a result of extending our range of products and services, we expect the
greater part of our future revenue to be under agreements that will be accounted
for as operating leases or service contracts and will require us to recognize
revenues over the relevant terms of the agreements. We have therefore
reclassified the remaining cost of the FLAG Telecom Network from capacity
available for sale to fixed assets in the first quarter of 2000. This cost will
be depreciated over the remaining estimated economic life of the system.
Our other fixed assets consist primarily of office furniture, leasehold
improvements, computer equipment and motor vehicles totaling $22.8 million.
OTHER INFORMATION
The interpretation and application of FASB Interpretation No. 43 and also the
accounting for sales of capacity are evolving within the telecom industry. A
17
<PAGE>
number of questions and issues are being taken to the accounting standard
setting boards and different accounting treatments may ultimately be approved,
which may change the timing and methods of the recognition of revenues and the
related costs. We do not, however, anticipate any impact on our current
accounting treatment or that there will be an impact on our cash flows.
SAFE HARBOR STATEMENT UNDER
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The statements included in this Quarterly Report regarding future financial
performance and results and the other statements that are not historical facts
are forward-looking statements. The words "believes," "intends," "expects,"
"anticipates," "projects," "estimates," "predicts" and similar expressions are
also intended to identify forward-looking statements. Such statements reflect
various assumptions by the Company concerning anticipated results and are
subject to significant business, economic and competitive risks, uncertainties
and contingencies, including, without limitation, the risks, uncertainties and
contingencies described in registration statements, reports and other documents
filed by the Company from time to time with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended. Accordingly, there can be no
assurance that such statements will be realized. Such risks, uncertainties and
contingencies could cause the Company's actual results for the quarter ended
June 30, 2000 and beyond to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Company. The Company
makes no representation or warranty as to the accuracy or completeness of such
statements contained in this Quarterly Report.
18
<PAGE>
PART I
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Currency Risk.
We do not believe that we are exposed to significant risk from movements in
foreign currency exchange rates. All revenues from the disposition of capacity
and billings of standby maintenance and restoration services are payable in U.S.
dollars. All contracts for the provision by third parties of restoration are
invoiced to us in U.S. dollars. Some vendor contracts for the provision to the
FLAG Europe-Asia cable system of operations and maintenance services and local
operating expenses of our subsidiary companies are payable in currencies other
than U.S. dollars. Management believes that these exposures are not material to
our financial position. Whenever deemed appropriate, we may hedge our exposure
to foreign currency movements.
Interest Rate Risk.
We are exposed to interest rate risk in our financing instruments. Our long-term
financing is provided by fixed rate senior notes and floating rate bank debt. We
use derivative financial instruments for the purpose of reducing our exposure to
fluctuations in interest rates. We do not utilize derivative financial
instruments for trading or other speculative purposes. The counterparties to
these instruments are major financial institutions with high credit quality. We
are exposed to credit loss in the event of nonperformance by these
counterparties.
19
<PAGE>
FLAG TELECOM HOLDINGS LIMITED
LONG TERM DEBT AS OF JUNE 30, 2000
<TABLE>
<CAPTION>
CURRENCY
AND
PRINCIPAL CURRENCY AND
PRINCIPAL AMOUNT FAIR VALUE FLAG OPTION
TYPE OF INSTRUMENT PAYMENTS DUE MATURITY DATE INTEREST RATE (MILLION) (MILLION) TO REDEEM
------------------ ------------ ------------- ------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Any time
11 5/8% Senior Semi-annually March 2010 Fixed 11 5/8% $300.0 $289.9 after March
Notes 2005
Any time
11 5/8% Senior Semi-annually March 2010 Fixed 11 5/8% Euro300.0 Euro273.9 after March
Notes 2005
</TABLE>
FLAG LIMITED
LONG-TERM DEBT AS OF JUNE 30, 2000
<TABLE>
<CAPTION>
PRINCIPAL
PRINCIPAL AMOUNT FAIR VALUE FLAG OPTION
TYPE OF INSTRUMENT PAYMENTS DUE MATURITY DATE INTEREST RATE ($, MILLION) ($, MILLION) TO REDEEM
------------------ ------------ ------------- ------------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Any time
8 1/4% Senior Notes Semi-annually January 2008 Fixed 8 1/4% 430.0 381.6 after January
2003
Floating
FLAG Limited Quarterly January 2006 LIBOR + 150 150.0 150.0 At any time
credit facility to 250 basis
points
</TABLE>
INTEREST RATE SWAPS OF JUNE 30, 2000
<TABLE>
<CAPTION>
NOTIONAL COUNTERPARTY'S
TYPE OF PAYMENTS MATURITY RATE RATE AMOUNT FAIR VALUE OPTION TO
INSTRUMENT DUE DATE PAYABLE RECEIVABLE ($, MILLION) ($, MILLION) EXTEND UNTIL
---------- --- ---- ------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Three-
Pay fixed, receive Quarterly July 2000 5.79% month 100.0 0.2 January 2001
Floating LIBOR
</TABLE>
The three-month LIBOR rate at June 30, 2000 was 6.76938%
20
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
We are involved in litigation from time to time in the ordinary course
of business. In management's opinion, the litigation in which we are currently
involved, individually and in the aggregate, is not material to us.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d) Proceeds to us from our initial public offering, after deduction of
the underwriting discounts and commissions of approximately $33.6 million and
offering expenses of approximately $3.8 million, totaled approximately $633.8
million. Of the $633.8 million raised by us, approximately $105 million has been
used to fund our equity contribution to FLAG Atlantic Limited, $25 million has
been used to repay long term indebtedness, $40 million has been used for working
capital purposes and the balance of the offering proceeds to us remains
available to use to fund additional expansions of the FLAG Telecom network and
to develop additional wholesale and bundled product and service offerings and
for general corporate purposes. The occurrence of unforseen events or changed
business conditions could cause us to use the proceeds of our initial public
offering in a manner other than as described above.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the second quarter of 2000, no meetings of our shareholders were
held.
ITEM 5. OTHER INFORMATION
On March 29, 2000, we announced plans to begin construction of FLAG
Pacific-1, a system designed to link the cities of Seattle, Vancouver, San
Francisco, Los Angeles and Tokyo. We recently entered into a supply agreement
for the subsea portion of the proposed cable project and announced the lead
banks providing underwritten loan financing to help fund the construction of the
project. We cannot assure you, however, that we will successfully complete the
project.
On July 10, 2000, we completed our registered offer to exchange up to
U.S.$300,000,000 aggregate principal amount of our privately placed 11-5/8%
Senior Notes due 2010 (which we refer to as the Initial Dollar Notes) and
300,000,000 Euro aggregate principal amount of our privately placed 11-5/8%
Senior Notes due 2010 (which we refer to as the Initial Euro Notes and, together
with the Initial Dollar Notes, our Initial Notes) for like principal amounts of
registered 11-5/8% Senior Notes due 2010. Our exchange agent advised us that, as
of the expiration of the offer to exchange on June 26, 2000, an aggregate of
U.S.$300,000,000 principal amount of the Initial Dollar Notes had been tendered
for exchange in the offer and that an aggregate of 291,950,000 Euro principal
amount of the Initial Euro Notes had been tendered for exchange in the offer. We
have executed, and the Bank of New York, as Trustee, has authenticated,
U.S.$300,000,000 aggregate principal amount of our 11-5/8% Senior Notes due 2010
(which we refer to as the Dollar Exchange Notes) and 291,950,000 Euro aggregate
principal amount of our 11-5/8% Senior Notes due 2010 (which we refer to as our
Euro Exchange Notes and, together with the Dollar Exchange Notes, our Exchange
Notes) to be issued pursuant to the exchange. The Exchange Notes issued in the
offer to exchange have substantially the same terms and conditions as the
Initial Notes, except that
21
<PAGE>
the Exchange Notes are not subject to the restrictions on resale or transfer
which applied to the Initial Notes and which continue to apply to the
outstanding Initial Notes that were not tendered in the offer to exchange. The
Exchange Notes have been accepted for listing on the Luxembourg Stock Exchange.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Not applicable
(b) REPORTS ON FORM 8-K.
We did not file any Reports on Form 8-K during the quarter to which
this Quarterly Report relates.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized this 14th day of August 2000.
FLAG Telecom Holdings Limited
BY: /s/ EDWARD MCCORMACK
-----------------------------
Edward McCormack
CHIEF OPERATING OFFICER AND
CHIEF FINANCIAL OFFICER
BY: /s/ STUART RUBIN
-----------------------------
Stuart Rubin
GENERAL COUNSEL AND
SECRETARY
23
