FORM 10QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
(Mark One)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY
PERIOD ENDED September 30, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION
PERIOD FROM __________________ TO __________________
Commission file number 0-25194
FIRSTCOM CORPORATION
(Exact name of registrant as specified in charter)
TEXAS 87-0464860
(State of Incorporation) (IRS Employee Identification)
220 ALHAMBRA CIRCLE, SUITE 910
CORAL GABLES, FLORIDA 33134
(Address of principal executive offices) (Zip Code)
Registrant's telephone number:
(305) 448-4422
(Former name, former address and fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) filed all reports required by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period than 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 [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of November 8, 1999 - 24,376,556
NOTE: Page 1 of 19 sequentially numbered pages.
1
<PAGE>
FIRSTCOM CORPORATION
INDEX
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
(unaudited)
Condensed Consolidated Balance Sheets - as of
September 30, 1999 (unaudited)and December 31, 1998 3
Condensed Consolidated Statements of Operations -
Nine Months and Three Months Ended September 30, 1999 and 1998
(unaudited) 4
Condensed Consolidated Statement of Stockholders'
Equity - Nine Months Ended September 30, 1999
(unaudited) 5
Condensed Consolidated Statement of Cash Flows -
Nine Months Ended September 30, 1999
(unaudited) 6
Notes to Condensed Consolidated Financial Statements
(unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results Of Operations 9
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
Exhibit Index 19
2
<PAGE>
PART I FINANCIAL INFORMATION
FIRSTCOM CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
09/30/99 12/31/98
--------- ---------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents .................... $ 7,737 $ 8,892
Restricted cash .............................. 627 22,599
Restricted investments ....................... 19,180 19,670
Accounts receivable, net ...................... 7,703 6,935
Prepaid expenses and other current assets .... 2,081 624
--------- ---------
Total current assets ................. 37,328 58,720
Restricted investments ......................... 11,428 20,021
Telecommunications networks, net ............... 88,138 45,901
Intangible assets, net ......................... 15,130 15,765
Deferred financing costs and other ............. 15,288 14,437
--------- ---------
Total assets ......................... $ 167,312 $ 154,844
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................. $ 10,953 $ 8,238
Vendor Financing,current ..................... 459 254
Bank debt .................................... 856 --
Accrued interest ............................. 8,981 3,695
Other accrued expenses ....................... 1,620 1,963
Lease obligations, current ................... 93 136
Other current liabilities .................... 748 471
--------- ---------
Total current liabilities ............ 23,710 14,757
Senior notes, net .............................. 132,967 132,338
Vendor Financing ............................... 2,539 1,337
Bank debt ...................................... 1,851 --
Lease obligations, less current portion ........ 150 238
Other liabilities 217 --
--------- ---------
Total liabilities .................... 161,434 148,670
--------- ---------
Minority Interest .............................. 1,601 --
Commitments and contingencies .................. -- --
Stockholders' equity
Preferred stock, $.001 par value, authorized
10,000,000 shares, 1,296,875 issued and
outstanding as of September 30, 1999...... 1 --
Common stock, $.001 par value, authorized
50,000,000 shares, issued and outstanding
22,663,747 and 19,084,300 as of September
30, 1999 and December 31, 1998,
respectively............................... 24 19
Additional paid in capital ................... 55,822 31,737
Warrants ..................................... 26,737 26,737
Accumulated deficit .......................... (77,463) (51,475)
Cumulative translation adjustments ........... (238) (238)
--------- ---------
4,883 6,780
Shareholder loans ............................ (606) (606)
--------- ---------
Total stockholders' equity ........... 4,277 6,174
--------- ---------
Total liabilities and
stockholders' equity ............... $ 167,312 $ 154,844
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
FIRSTCOM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------- --------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Long distance ..................... $ 21,934 $ 9,799 $ 6,929 $ 3,600
Internet and data ................. 9,476 852 3,504 236
------------ ------------ ------------ ------------
31,410 10,651 10,433 3,836
Operating expenses:
Cost of revenues .................. 20,354 8,491 5,606 2,984
Selling, general and administrative 16,462 7,975 5,925 3,435
Depreciation and amortization ..... 4,768 1,612 2,065 512
------------ ------------ ------------ ------------
Loss from operations ................ (10,174) (7,427) (3,163) (3,095)
------------ ------------ ------------ ------------
Interest expense .................... (16,632) (15,284) (5,912) (4,632)
Interest income and other ........... 1,193 4,287 575 1,028
------------ ------------ ------------ ------------
Net loss ............................ $ (25,613) $ (18,424) $ (8,500) $ (6,699)
============ ============ ============ ============
Net basic and diluted loss per share $ (1.31) $ (0.97) $ (0.42) $ (0.35)
============ ============ ============ ============
Weighted average common shares
outstanding ......................... 19,521,831 19,084,300 20,106,387 19,084,300
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
FIRSTCOM CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK ADDITIONAL
--------------------------- --------------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1998 19,084,300 $ 19 -- $ -- $ 31,737
Exercise of stock options
(unaudited) ................ 2,979,447 3 -- -- 8,994
Stock option grants
(unaudited) ................ -- -- -- -- 296
Common Stock issued
(unaudited) ................ 100,000 1 -- -- 279
Preferred Stock Issued
(unaudited) ................ -- -- 1,250,000 1 9,610
Preferred Stock Dividend
(unaudited) ................ -- -- 46,875 -- 375
Promissory Note Conversion
(unaudited) ................ 500,000 1 -- -- 4,531
Net loss
(unaudited) ................ -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Balances at September 30, 1999
(unaudited) .................. 22,663,747 $ 24 1,250,000 $ 1 $ 55,822
========== ========== ========== ========== ==========
<CAPTION>
CUMULATIVE
ACCUMULATED TRANSLATION SHAREHOLDER
WARRANTS DEFICIT ADJUSTMENT LOANS TOTAL
---------- ---------- ---------- ---------- ----------
Balances at December 31, 1998 $ 26,737 $ (51,475) $ (238) (606) 6,174
Exercise of stock options
(unaudited) ................ -- -- -- -- 8,997
Stock option grants
(unaudited) ................ -- -- -- -- 296
Common Stock issued
(unaudited) ................ -- -- -- -- 280
Preferred Stock Issued
(unaudited) ................ -- -- -- -- 9,611
Preferred Stock Dividend
(unaudited) ................ -- (375) -- -- --
Promissory Note Conversion
(unaudited) ................ -- -- -- -- 4,532
Net loss
(unaudited) ................ -- (25,613) -- -- (25,613)
---------- ---------- ---------- ---------- ----------
Balances at September 30, 1999
(unaudited) .................. $ 26,737 $ (77,463) $ (238) $ (606) $ 4,277
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
FIRSTCOM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF US DOLLARS)
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1999 1998
----------- ----------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ........................................ $(25,613) $(18,425)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization expense ......... 4,718 1,612
Amortization of deferred financing costs and
original issue discounts .................... 1,128 932
Accretion of discount on restricted
Investments ................................. (1,401) (2,197)
Capitalized interest related to network ....... (1,532) (1,605)
Construction
Stock options issued ........................... 296 --
Changes in assets and liabilities:
Accounts receivable ......................... 47 (704)
Prepaid expenses and other current assets ... (1,409) 242
Other assets ................................ (592) (319)
Accounts payable and accrued expenses ....... 5,190 5,840
Due to related parties ...................... -- (263)
Other current liabilities ................... 281 619
-------- --------
Cash used in operating activities ........ (18,887) (14,268)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of telecommunications network .......... (25,133) (28,381)
Use of restricted cash .......................... 21,971 29,067
Acquisition of Teleductos, net .................. (4,936) --
-------- --------
Cash used in investing activities ....... (8,098) 686
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on convertible debentures .............. -- (1,550)
Restricted Investments .......................... 10,500 10,500
Shareholder loans ............................... -- (606)
Issuance of preferred stock ..................... 9,613 --
Exercise of stock options and warrants .......... 8,997 --
Bank debt, net .................................. (4,572) --
Vendor debt ..................................... 1,407 --
Payments under leasing obligations .............. (115) (263)
-------- --------
Cash provided by financing activities, net 25,830 8,081
-------- --------
Net decrease in cash and cash equivalents ......... (1,155) (5,501)
Cash and cash equivalents, beginning of period .... 8,892 14,936
-------- --------
Cash and cash equivalents end of period ........... $ 7,737 $ 9,435
======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
<PAGE>
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS OF DOLLARS)
BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements included herein
have been prepared by FirstCom Corporation (the "Company"). The foregoing
statements contain all adjustments, consisting only of normal recurring
adjustments which are, in the opinion of the Company's management, necessary to
present fairly the consolidated financial position of the Company as of
September 30, 1999 and the consolidated results of its operations and its
consolidated cash flows for the three and nine month periods ended September 30,
1999 and 1998. Results of operations for the nine months ended September 30,
1999 are not necessarily indicative of the results of operations for the full
year.
Certain information and footnote disclosure normally included in financial
statements, prepared in accordance with generally accepted accounting
principles, have been condensed or omitted pursuant to the instructions, rules
and regulations prescribed by the Securities and Exchange Commission ("the
Commission"). Although the Company believes the disclosures provided are
adequate to make the information presented not misleading, it strongly
recommends that these unaudited condensed consolidated financial statements be
read in conjunction with the audited consolidated financial statements and the
footnotes thereto included in the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1998.
NOTE 1 - TELECOMMUNICATIONS NETWORKS
Telecommunications networks are recorded at cost and are depreciated on a
straight-line method over the estimated useful lives of the related assets.
Construction, engineering, interest , labor costs and import and value added
taxes directly related to the development of the Company's networks are
capitalized. The Company begins depreciating these costs when the networks
become commercially operational.
Telecommunications networks consists of:
<TABLE>
<CAPTION>
ESTIMATED
SEPTEMBER 30, DECEMBER 31, USEFUL
1999 1998 LIFE
----------- ----------- ---------------
<S> <C> <C> <C>
Telecommunications equipment ........................ $ 62,667 $15,837 5 to 20 years
Telecommunications equipment pending installation and
construction in progress .......................... 23,832 27,635 --
Office equipment, furniture and vehicles ............ 8,539 5,104 3 to 7
----------- -------
95,038 48,576
Less: accumulated depreciation ...................... (6,900) (2,675)
----------- -------
$ 88,138 $45,901
=========== ======
</TABLE>
7
<PAGE>
NOTE 2- ACQUISITION OF TELEDUCTOS
On February 2, 1999, the Company acquired 76% of Teleductos S.A.s'(now
known as FirstCom Colombia S.A.) outstanding stock for approximately $6,000 in
cash, $7,000 in short-term promissory notes (the "Promissory Notes"), a $2,000
stock subscription payable on February 8, 2000 and 100,000 shares of the
Company's common stock. The Promissory Notes bear interest at 5% per annum and
mature at various dates through February 2000. On August 4, 1999, the Company
converted the remaining outstanding principal balance under the Promissory Notes
of $5,000 into 500,000 shares of the Company's common stock.
The allocation of the purchase price is preliminary, pending
finalization of appraisals and other estimates.
NOTE 3- PREFERRED STOCK
On June 30, 1999, the Company issued 1,250,000 shares of 15%
Convertible Redeemable Preferred Stock (the "Preferred Stock") for an aggregate
amount of $10 million. The Preferred Stock is convertible at any time at the
option of the holders into the Company's common stock on a one for one basis,
subject to adjustment. Beginning June 30, 2001, if the closing price of the
Company's common stock ,as quoted on the NASDAQ Stock Market, exceeds $15 per
share for 30 consecutive trading days, the Preferred Stock must be converted
into the Company's common stock. The holders of the Preferred Stock also have
certain preemptive, redemption, anti-dilution, tag along and registration
rights.
NOTE 4- VENDOR FINANCING
On July 28, 1999 a subsidiary of the Company increased the maximum amount
available under certain vendor financing from $10,000 to $29,500. Interest
rates, repayment terms and collateral property under such financing remained
unchanged.
8
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (THOUSANDS OF DOLLARS, EXCEPT SHARE, PER SHARE AND UNIT
AMOUNTS)
FORWARD-LOOKING STATEMENTS
Certain statements set forth herein including information with respect to
the Company's plans and strategy for its business, acquisitions and related
financings, are forward-looking statements. Such forward-looking statements are
subject to material risks, uncertainties and contingencies, many of which are
beyond control of the Company. As a result, the actual results, performance or
achievements of the Company, may be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Given these uncertainties, investors and creditors
are cautioned not to place undue reliance on such forward-looking statements.
RECENT DEVELOPMENT -- TRANSACTION WITH AT&T CORP.
On November 1, 1999, the Company entered into an Agreement and Plan of
Merger with AT&T Corp., a New York corporation, Kiri Inc., a Delaware
corporation which is changing its corporate name to AT&T Latin America and which
is an indirect wholly-owned subsidiary of AT&T Corp., and Frantis, Inc., a
Delaware corporation which is a direct wholly-owned subsidiary of AT&T Latin
America. The merger agreement provides for the merger of FirstCom with and into
Frantis. In the merger, the shareholders of the Company will receive (i) one
Class A common share of AT&T Latin America in exchange for each common share of
the Company Corporation; and (ii) one Series A preferred share of AT&T Latin
America in exchange for each Series A preferred share of FirstCom. The terms of
the Merger Agreement and the Merger were determined through arms-length
negotiations among the parties.
On August 20, 1999, Jamtis, Inc., a Delaware corporation and an indirect
wholly-owned subsidiary of AT&T Corp., entered into agreements to acquire quotas
representing 100% of the outstanding equity interest in Netstream Telecom Ltda.,
a Brazilian company. Further, under the Netstream acquisition agreements, Promon
Tecnologia S.A., a Brazilian corporation (sociedade anonima), and its affiliates
agreed to purchase, prior to the closing under our merger agreement, a 10%
interest in the capital of AT&T Latin America, in the form of Class A shares.
Prior to the closing of the Company's merger, Netstream will become an indirect
wholly-owned subsidiary of AT&T Latin America.
Upon consummation of the merger, on a fully-diluted basis AT&T Corp. will
own approximately 60% of the common shares of AT&T Latin America, in the form of
Class B shares, Promon will own approximately 6% of the common shares of AT&T
Latin America, in the form of Class A shares, and the former shareholders of the
Company will own approximately 34% of the common shares of AT&T Latin America in
the form of Class A shares.
Each Class A share will be entitled to one vote per share and each Class B
share will be entitled to ten votes per share, on all matters submitted to a
vote of the stockholders of AT&T Latin America. Upon the closing of the merger,
the Class A Shares will be listed for trading on the NASDAQ National Market, and
our common shares will no longer be traded.
Upon the closing under the merger agreement, AT&T Corp. and AT&T Latin
America will enter into a "Regional Vehicle Agreement" that provides for various
ways in which AT&T Latin America will interface with AT&T Corp., AT&T Corp.'s
Concert venture with British Telecom and AT&T's global network services
business. The Regional Vehicle Agreement contemplates that AT&T Latin America
will serve as AT&T Corp.'s strategic vehicle in the countries of Latin America
(excluding Mexico and Venezuela) and the Caribbean (excluding Cuba and Puerto
Rico) for the provision of broadband high-speed connectivity to business
customers, and certain other telecommunications services, upon the terms and
conditions of that agreement. The services to be provided by AT&T Latin America
will be provided under the "AT&T" brand name, under the terms and conditions of
a Service Mark License Agreement between AT&T Corp. and AT&T Latin America.
The closing of the merger agreement is subject to certain conditions,
including the completion of the Netstream acquisition, the contribution by the
stockholders of AT&T Latin America (other than the Company's stockholders) to
AT&T Latin America of not less than $70 million in cash equity and the provision
by AT&T Corp. of a $100 million revolving credit facility to AT&T Latin America
and, if requested by AT&T Corp., the successful completion of a tender offer our
14% Senior Notes due 2007. Further, the merger is subject to the approval of the
merger by the Company's shareholders and certain regulatory approvals, including
those required under the Hart-Scott Rodino Antitrust Improvement Act of 1976, as
amended.
As part of the transaction, Patricio E. Northland, our President and Chief
Executive Officer, entered into a five-year employment agreement with AT&T Latin
America effective upon the closing of the Company's merger. This agreement
provides for an annual base salary of $510,000, a semi-annual retention bonus of
$500,000 payable over a period of three years and the opportunity to be paid an
additional bonus based upon the satisfaction of performance criteria to be
established by the compensation committee of the Board of Directors of AT&T
Latin America. Further, in connection with the planned merger transaction with
AT&T, we granted options to Mr. Northland to purchase 2,200,000 common shares at
an exercise price of $10.70 per share, and provided a full-recourse loan to Mr.
Northland in the amount of $8,560,000 which was used by Mr. Northland to
purchase 800,000 additional common shares. Mr. Northland also agreed that he
would not engage in any business which is competitive with AT&T Latin America
during the term of his employment agreement and for 24 months following the
termination of his employment agreement. As part of the merger transaction, we
also extended for an additional two years our employment agreement with Douglas
G. Geib II, our Executive Vice President and Chief Financial Officer, and
granted optiosn to Mr. Geib to purchase 100,000 common shares at an exercise
price of $10.70 per share.
OVERVIEW
The Company's strategy is to (i) build facilities based fiber optic and digital
switching intelligent networks; (ii) develop strategic relationships with
technology network vendors and developers of Internet-based software; and (iii)
provide end-to-end network solutions to business customers in key Latin American
business centers.
Today, the Company is operating state-of-the-art fiber optic ATM/IP
networks in Santiago, Chile and Lima, Peru, and as a result of the Company's
February 1999 acquisition of Teleductos, S.A. the Company currently has
operations in Bogota and Cali Colombia. ATM is an information transfer standard
that is one of a general class of packet technologies. ATM can be used by many
different information systems, including local area networks to deliver traffic
at varying rates, permitting a mix of voice, data, video and multimedia. The
fiber optic cable installed in (i) Santiago, runs through the downtown business
district and the outlying industrial and airport corridor, (ii) Lima, runs
through the major commercial and industrial districts of Lima, and the port city
of Callao and (iii) Bogota, runs through the major commercial and industrial
districts of Bogota. A summary of key metrics as of September 30, 1999 follows:
9
<PAGE>
AS OF SEPTEMBER 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
CHILE PERU COLOMBIA CORPORATE TOTAL
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
NETWORK INSTALLATION
Route Kilometers ...................... 237 763 666 1,666
------ ------ ------ ------
Fiber Kilometers ...................... 3,814 25,165 13,303 42,282
ATM Nodes Installed ................... 5 22 5 32
Buildings Wired ....................... 95 140 662 897
Long Distance Switches ................ 3 1 -- 4
Teleports ............................. 1 1 -- 2
OPERATING INDICATORS
Employees ............................. 249 209 127 11 596
Total Ports Installed ................. 690 187 1,690 2,567
Dedicated Internet .................. 248 167 3 418
Data ................................ 790 166 1,741 2,697
Customers:
Dedicated Internet Access Customers . 291 167 -- 458
Data Transmission Customers ......... 214 50 172 436
Dial-Up Internet Access Customers ..... 5,019 -- -- 5,019
</TABLE>
In Chile the Company operates through four wholly owned subsidiaries,
FirstCom Networks S.A., FirstCom Long Distance S.A., FirstCom Internet S.A.
("FirstCom Internet") (formerly known as Red de Computadores S.A.), which was
acquired by the Company during October 1998 and FirstCom Telephony S.A.
(FirstCom Networks S.A., FirstCom Long Distance S.A., FirstCom Internet and
FirstCom Telephony S.A. are collectively referred to herein as "FirstCom
Chile"). Although, separate legal entities, the Company operates its Chilean
subsidiaries as one functional entity, providing seamless service delivery of
integrated telecommunication solutions to its Chilean customers.
Through its Chilean subsidiaries the Company currently provides
commercial customers in Santiago with the following services: (i) high quality
voice and high-speed data communications services on a private line basis, LAN
interconnections, dedicated channels for access to local information warehouses
(i.e. credit bureaus, etc.), remote terminal access, PBX to PBX connections,
remote printing capabilities, local and wide area network design, engineering,
installation, systems' integration and support services, (ii) domestic and
international long distance services that are switched and transported, in part,
through its own gateway switch and satellite earth station, as well as through
interconnections with other Chilean long distance carriers, (iii) internet
access services on a dial-up and dedicated access basis, as well as value-added
services such as web-hosting and corporate e-mail.
In Peru, the Company operates through a wholly owned subsidiary,
FirstCom Peru S.A. ("FirstCom Peru") (formerly known as Resetel S.A.) Given the
substantial completion of its fiber optic network as of March 1999, FirstCom
Peru began providing multinational, national and local businesses a broad array
of high quality data, video and voice communication services, including LAN
interconnection, frame relay, remote terminal access and dedicated channels for
access to the Internet, on a private line basis. As a result of the accelerated
liberalization of Peru's telecommunications markets and expiration of Telefonica
de Peru's exclusive concession to provide public switched local and long
distance telephony services effective August 1, 1998, FirstCom Peru has been
granted concessions to provide international and domestic public switched long
distance voice services and public switched local voice services in Peru.
During August 1999, FirstCom Peru began terminating international long distance
traffic in Peru.
10
<PAGE>
In February 1999, the Company acquired 76% of FirstCom Colombia S.A.
("FirstCom Colombia) (formerly known Teleductos S.A.), a company then operating
in the Colombian cities of Bogota, Cali and Cartagena. FirstCom Colombia
provides over 160 multinational, national and local businesses a broad array of
high quality data communication services, including LAN to LAN interconnection,
frame relay, and dedicated channels for access to local information warehouses
(i.e. the Bogota stock exchange), on a private line basis.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1998
REVENUES. Consistent with 1998, during the first nine months of 1999
the majority of the Company's revenues were derived primarily from its
operations in Chile. However, as a result of the acquisitions of FirstCom
Internet, FirstCom Colombia and the substantial completion of the ATM/IP
networks in Chile and Peru, long distance revenues dropped from 92% of total
revenues for the nine months ended September 30, 1998 to 70% of total revenues
for the nine months ended September 30, 1999. The Company expects revenues to
increase over the next few years due to the expansion of its operations in Peru,
Chile and Colombia.
The Company's revenues were $31,410 for the nine months ended September
30, 1999 as compared to $10,651 for the nine months ended September 30, 1998.
Long distance revenues increased from $9,799 for the nine months ended September
30, 1998 to $21,934 for the nine months ended September 30, 1999. These revenues
were generated through the sale of approximately 80.3 million and 32.6 million
minutes for the nine months ending September 30, 1999 and 1998, respectively,
resulting in an average revenue per minute of approximately $0.27 and $0.30,
respectively. The increased long distance revenue was driven by the marketing
and promotional campaigns that started in mid-1998 and the initiation of long
distance services in Peru. The decrease in the revenue per minute is due to an
increased mix of domestic long distance traffic. Internet and data service
revenue of $9,476 earned during the nine months ended September 30, 1999 was
mostly generated by FirstCom Colombia, FirstCom Internet in Chile and as a
result of the initiation of internet and data services over the Company's ATM/IP
network in Peru and Chile.
COST OF REVENUES. Cost of revenues include both the cost of services
provided and the cost of equipment sold. For the nine months ended September 30,
1999 cost of revenues relate principally to long distance services and include
access charges paid to local exchange carriers and transmission payments to
other carriers. Cost of revenues also include payments for rights of way related
to the Company's fiber optic networks.
The Company's cost of revenues was $20,354 for the nine months ended
September 30, 1999 as compared to $8,491 for the nine months ended September 30,
1998. This increase was primarily attributable to increased long distance and
data revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses consist principally of salaries, wages and related
liabilities, advertising and marketing costs, professional fees related to
legal, recruiting and accounting, and travel. The Company expects selling,
general and administrative expenses to increase over time as it continues to
expand its operations.
The Company's selling, general and administrative expenses were $16,462
for the nine months ended September 30, 1999 as compared to $7,975 for the nine
months ended September 30, 1998. This increase was primarily attributable to the
hiring of additional personnel related to the growth of the Peruvian and Chilean
operations, the acquisition of FirstCom Colombia and FirstCom Internet and
increased marketing efforts in Chile and Peru. At September 30, 1999 the Company
had approximately 596 employees compared to 236 at September 30, 1998.
11
<PAGE>
DEPRECIATION AND AMORTIZATION. The Company depreciates its
telecommunications networks and intangible assets on a straight line basis over
their estimated useful lives. The Company believes that depreciation and
amortization expense will continue to increase with the expansion of its
operations.
The Company's depreciation and amortization was $4,768 for the nine
months ended September 30, 1999 as compared to $1,612 for the nine months ended
September 30, 1998. This increase was primarily attributable to continued
investment in the Company's telecommunications networks.
INTEREST EXPENSE. The Company currently incurs interest expense on the
outstanding Senior Notes (as defined below), bank debt, promissory notes, and
vendor financing. Interest expense has been reduced for amounts capitalized
related to the Company's construction of its fiber optic networks. Interest
costs reported with respect to the Company's Senior Notes include amortization
of (i) deferred financing costs and (ii) original issue discount related to
detachable warrants.
The Company's interest expense was $16,632 for the nine months ended
September 30, 1999 as compared to $15,284 for the nine months ended September
30, 1998. Capitalization of interest costs in connection with the Company's
construction of its fiber optic network in Lima, Peru decreased from $1,605 for
the nine months ended September 30, 1998 to $1,532 for the nine months ended
September 30, 1999 and were offset by increased interest expense related to bank
debt and promissory notes resulting from the acquisition of FirstCom Colombia.
INTEREST INCOME AND OTHER. The Company currently earns interest income
on cash and cash equivalents, restricted cash, and restricted investments.
The Company's interest income and other was $1,194 for the nine months
ended September 30, 1999 as compared to $4,287 for the nine months ended
September 30, 1998. This decrease was primarily attributable to a reduction in
restricted cash and investments.
INCOME TAXES. The Company is subject to federal, state and foreign
income taxes but has incurred no liability for such taxes due to net operating
losses incurred. Under certain circumstances, these net operating losses could
be used to offset future taxable income. The Company's net deferred tax assets,
which result primarily from the future benefit of these net operating losses,
are fully offset by a valuation allowance for the same amount because of the
uncertainty surrounding the future realization of these net operating loss
carryforwards. However, as the Company expands its fiber optic networks in Chile
,Peru and Colombia, the Company expects to generate taxable income. Certain tax
benefits could expire prior to the time the Company generates taxable income.
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1998
REVENUES. Consistent with 1998, during the third quarter of 1999 the
majority of the Company's revenues were derived primarily from its operations in
Chile. However, as a result of the acquisitions of FirstCom Internet, FirstCom
Colombia and the substantial completion of the ATM/IP networks in Chile and
Peru, long distance revenues dropped from 94% of total revenues for the three
months ended September 30, 1998 to 66% of total revenues for the three months
ended September 30, 1999.
The Company's revenues were $10,433 for the three months ended
September 30, 1999 as compared to $3,836 for the three months ended September
30, 1998. Long distance revenues increased from $3,600 for the three months
ended September 30, 1998 to $6,929 for the three months ended September 30,
1999. These revenues were generated through the sale of approximately 26.8
million and 12.7 million minutes for the three months ending September 30, 1999
and 1998, respectively, resulting in an average revenue per minute of
approximately $0.26 and $0.28, respectively. The increased long distance revenue
was driven by the marketing and promotional campaigns that started in mid-1998
and the initiation of long distance services in Peru. Internet and data service
revenue of $3,504 earned during the three months ended September 30, 1999 was
mostly generated by FirstCom Colombia, FirstCom Internet in Chile and as a
result of the initiation of internet and data services over the Company's ATM/IP
network in Peru and Chile. .
COST OF REVENUES. Cost of revenues include both the cost of services
provided and the cost of equipment sold. For the three months ended September
30, 1999 cost of revenues relate principally to long distance services and
include access charges paid to local exchange carriers and transmission payments
to other carriers. Cost of revenues also include payments for rights of way
related to the Company's fiber optic networks.
The Company's cost of revenues was $5,606 for the three months ended
September 30, 1999 as compared to $2,984 for the three months ended September
30, 1998. This increase was primarily attributable to increased long distance
and data revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses consist principally of salaries, wages and related
liabilities, advertising and marketing costs, professional fees related to
legal, recruiting and accounting, and travel. The Company expects selling,
general and administrative expenses to increase over time as it continues to
expand its operations.
The Company's selling, general and administrative expenses were $5,925
for the three months ended September 30, 1999 as compared to $3,435 for the
three months ended September 30, 1998. This increase was primarily attributable
to the hiring of additional personnel related to the growth of the Peruvian and
Chilean operations, the acquisition of FirstCom Colombia and FirstCom Internet
and increased marketing efforts in Chile and Peru.
11
<PAGE>
DEPRECIATION AND AMORTIZATION. The Company depreciates its
telecommunications networks and intangible assets on a straight line basis over
their estimated useful lives. The Company believes that depreciation and
amortization expense will continue to increase with the expansion of its
operations.
The Company's depreciation and amortization was $2,065 for the three
months ended September 30, 1999 as compared to $512 for the three months ended
September
30, 1998. This increase was primarily attributable to continued investment in
the Company's telecommunications networks.
INTEREST EXPENSE. The Company currently incurs interest expense on the
outstanding Senior Notes (as defined below), bank debt, promissory notes, and
vendor financing. Interest expense has been reduced for amounts capitalized
related to the Company's construction of its fiber optic networks. Interest
costs reported with respect to the Company's Senior Notes include amortization
of (i) deferred financing costs and (ii) original issue discount related to
detachable warrants
The Company's interest expense was $5,912 for the three months ended
September 30, 1999 as compared to $4,632 for the three months ended September
30, 1998.
This increase was primarily due to decreased capitalization of interest costs in
connection with the Company's construction of its fiber optic network in Lima,
Peru and increased interest expense related to bank debt and promissory notes
resulting from the acquisition of FirstCom Colombia.
INTEREST INCOME AND OTHER. The Company currently earns interest income
on cash and cash equivalents, restricted cash, and restricted investments.
The Company's interest income and other was $575 for the three months
ended September 30, 1999 as compared to $1,028 for the three months ended
September 30,
1998. This decrease was primarily attributable to a reduction in restricted cash
and investments.
INCOME TAXES. The Company is subject to federal, state and foreign
income taxes but has incurred no liability for such taxes due to net operating
losses incurred. Under certain circumstances, these net operating losses could
be used to offset future taxable income. The Company's net deferred tax assets,
which result primarily from the future benefit of these net operating losses,
are fully offset by a valuation allowance for the same amount because of the
uncertainty surrounding the future realization of these net operating loss
carryforwards. However, as the Company expands its fiber optic networks in Chile
,Peru and Colombia, the Company expects to generate taxable income. Certain tax
benefits could expire prior to the time the Company generates taxable income
LIQUIDITY AND CAPITAL RESOURCES
On October 27, 1997, the Company consummated a private offering (the
"Senior Note Offering") of 150,000 Units (the "Units")consisting of an aggregate
of $150,000 aggregate principal amount of 14% Senior Notes due October 27, 2007
(the "Senior Notes") and 5,250,000 Unit Warrants to purchase 5,250,000 shares of
common stock of the Company at an exercise price of $4.40 per share. In
addition, UBS Securities LLC, the initial purchaser of the Units in the Senior
Note Offering, was granted 2,250,000 warrants to acquire 2,250,000 shares of
common stock of the Company at an exercise price of $4.40 per share.
Approximately $57 million of the proceeds were invested in an escrow
fund (referred to herein on the Company's balance sheet as "Restricted
Investments") for payment of interest on the Senior Notes through October 27,
2000. Under certain circumstances, Restricted Investments may be used for
repayment of principal of the Senior Notes. Restricted investments will be
reduced by $10.5 million on each of April 27 and October 27 during 1998, 1999
and 2000 to pay interest on the Senior Notes. Approximately $62,000 of the
proceeds were deposited in an account controlled by a trustee (referred to on
the 12
<PAGE>
Company's balance sheet as "Restricted Cash") for payment of Permitted
Expenditures, as defined in the Indenture Agreement between the Company and
State Street Bank, as Trustee (the "Indenture").
The ability of the Company to make scheduled payments with respect to
its indebtedness, including interest on the Senior Notes after October 27, 2000,
will depend upon, among other things, (i) its ability to implement its business
plan, and to expand its operations and to successfully develop its customer base
in its target markets, (ii) the ability of the Company's subsidiaries to remit
cash to the Company in a timely manner and (iii) the future operating
performance of the Company and its subsidiaries. Each of these factors is, to a
large extent, subject to economic, financial, competitive, regulatory and other
factors, many of which are beyond the Company's control. The Company expects
that it will continue to generate cash losses for the foreseeable future. The
Company has deposited cash in escrow funds representing interest payments with
respect to the Senior Notes through October 2000. However, no assurance can be
given that the Company will be successful in developing and maintaining a level
of cash flow from operations sufficient to permit it to pay the principal of,
and the interest on the Senior Notes after such time, or with respect to its
other indebtedness. If the Company is unable to generate sufficient cash flow
from operations to service its indebtedness, including the Senior Notes, it may
have to modify its growth plans, restructure or refinance its indebtedness or
seek additional capital. There can be no assurance that (i) any of these
strategies can be effected on satisfactory terms, if at all, in light of the
Company's high leverage or (ii) any such strategy would yield sufficient
proceeds to service the Company's indebtedness, including the Senior Notes. Any
failure by the Company to satisfy its obligations with respect to the Senior
Notes at maturity or prior thereto would constitute a default under the
indenture and could cause a default under other agreements governing current or
future indebtedness of the Company.
Substantially all of the Company's assets are held by its subsidiaries
and substantially all of the Company's sales are derived from operations of such
subsidiaries. Future acquisitions may be made through present or future
subsidiaries of the Company. Accordingly, the Company's ability to pay the
principal of, and interest and liquidated damages, if any, when due, on the
Senior Notes is dependent upon the earnings of its subsidiaries and the
distribution of sufficient funds from its subsidiaries. The Company's
subsidiaries will have no obligation, contingent or otherwise, to make funds
available to the Company for payment of the principal of, and interest and
liquidated damages on, if any, the Senior Notes. In addition, the ability of the
Company's subsidiaries to make such funds available to the Company may be
restricted by the terms of such subsidiaries' current and future indebtedness,
the availability of such funds and the applicable laws of the jurisdictions
under which such subsidiaries are organized. Furthermore, the Company's
subsidiaries will be permitted under the terms of the Indenture to incur
indebtedness that may severely restrict or prohibit the making of distributions,
the payment of dividends or the making of loans by such subsidiaries to the
Company. The failure of the Company's subsidiaries to pay dividends or otherwise
make funds available to the Company could have a material adverse effect upon
the Company's ability to satisfy its debt service requirements including its
ability to make payments on the Senior Notes.
On November 11, 1998 a subsidiary of the Company entered into a
financing arrangement (the "First Vendor Financing") with one of the Company's
significant equipment vendors. The terms of the First Vendor Financing are as
follows: (i) maximum amount available $10,000 (ii) interest rate of LIBOR plus
5.5%, (iii) the Company may draw on the facility until December 31, 2000, (iv)
draws under the facility shall be repaid in 20 consecutive quarterly principal
and interest payments, (v) the First Vendor Financing is collateralized by the
equipment being financed. On July 28, 1999 the Company increased the maximum
amount available under the First Vendor Financing from $10,000 to $29,500. As of
September 30, 1999 the Company had $2,998 outstanding under the First Vendor
Financing.
On December 24, 1998 a subsidiary of the Company entered into a
financing arrangement (the "Second Vendor Finanacing") with another one of the
Company's significant equipment vendors. The terms of the Second Vendor
Financing are as follows: (i) maximum amount available $10,000 (ii) interest
rate of Libor plus 4%, (iii) the Company may draw on the facility until December
31, 2000, (iv) draws under the facility shall be repaid in 20 consecutive
quarterly principal and interest payments beginning on March 31, 2001, (v)
interest only quarterly payments shall be made for each draw from the respective
date of funding through December 31, 2000, (vi) the Second Vendor Financing will
be
13
<PAGE>
collateralized by the equipment being financed. As of September 30, 1999 the
Company had no amounts outstanding under the Second Vendor Financing.
On June 30, 1999, the Company issued 1,250,000 shares of 15%
Convertible Redeemable Preferred Stock (the "Preferred Stock") for an aggregate
amount of $10 million. The Preferred Stock is convertible at any time at the
option of the holders into the Company's common stock on a one for one basis,
subject to adjustment. Beginning June 30, 2001, if the closing price of the
Company's common stock ,as quoted on the NASDAQ Stock Market, exceeds $15 per
share for 30 consecutive trading days, the Preferred Stock must be converted
into the Company's common stock. The holders of the Preferred Stock also have
certain preemptive, redemption, anti-dilution, tag along and registration
rights.
On August 4, 1999, the Company converted $5,000 of outstanding promissory
notes into 500,000 shares of the Company's common stock.
To accelerate its growth rate and to finance the launch or build-out of
additional markets, the Company will consider obtaining financing from various
sources, including additional vendor financing provided by equipment suppliers,
project financing from commercial banks and international agencies, bank lines
of credit and the sale of equity and debt securities. To the extent that the
Company or any of its subsidiaries issues debt, its leverage and debt service
obligations will increase. There can be no assurance that the Company will be
able to raise such capital on satisfactory terms, if at all. In addition, the
Indenture related to the Senior Notes limits the ability of the Company and its
subsidiaries to incur additional indebtedness.
As part of its business strategy, the Company intends to continue to
evaluate potential acquisitions, joint ventures and strategic alliances in
companies that own existing networks or companies that provide services that
complement the Company's existing businesses. The Company continues to consider
potential acquisitions from time to time. New sources of capital such as credit
facilities and other borrowings, and additional debt and equity issuances, will
be necessary to fund any material acquisitions and similar strategic
investments.
Net cash used in operating activities for the nine months ended
September 30, 1999 was $18,887. This amount represented cash used to fund the
Company's net loss for the period and increase in accounts receivables offset by
an increase in accrued interest payable.
Net cash used in investing activities for the nine months ended
September 30, 1999 was $8,098. This amount primarily represented the Company's
continued build-out of its fiber-optic network in Peru and the February 1999
acquisition of FirstCom Colombia offset by the use of restricted cash to fund
such items. The growth of the Company's fiber networks was evidenced as route
kilometers and fiber kilometers increased from approximately 820km and 25,500km,
respectively, as of December 31, 1998 to approximately 1,666km and 42,282km,
respectively, as of September 30, 1999.
Net cash provided by financing activities for the nine months ended
September 30, 1999 was $25,830. This amount represented proceeds from (1) the
issuance of Preferred Stock (2) the exercise of outstanding stock options and
warrants, (3) the use of restricted investments to fund an interest payment on
the Senior Notes and (4) the Company's credit facilities with equipment vendors.
As of September 30, 1999, the Company had approximately $37,000 available under
credit facilities with equipment vendors.
IMPACT OF YEAR 2000
The Year 2000 issue is the result of computer controlled systems using
two digits rather than four to define the applicable year. This could result in
system failure or miscalculations causing disruptions in the Company's
operations including, among other things, temporary inability to process
transactions, send invoices or engage in similar normal business activities. To
ensure that its computer based systems and applications will function properly
beyond 1999, the Company has implemented a Year 2000 program.
The Company's Year 2000 Program (the "Program") consists of the
following phases:
(i) Preliminary Assessment - During this phase the Company will inventory
all existing hardware and software and assess Year 2000 compliance.
This assessment is based on documented representations from vendors and
Company personnel and third party consultants for Company developed
software. As of September 30, 1999 approximately 100% of this phase was
completed.
(ii) Action Definition - For items identified as requiring an upgrade,
replacement or other action to achieve Year 2000 compliance, a detailed
action plan, including estimated completion times and corrective steps,
is developed. As of September 30, 1999, approximately 99% of this phase
was completed.
14
<PAGE>
(iii) Execution - During this phase the action steps as defined in phase (ii)
are performed. Any additional action items identified are prioritized
and added to the action plan. As of September 30, 1999, approximately
95% of this phase was completed.
(iv) Operational Compliance - The Company anticipates completing phases (i)
through (iii) by November 30, 1999, prior to any anticipated impact on
its operating systems.
Given that the majority of the Company's telecommunications network
infrastructure and critical back office systems have been purchased since 1997,
Year 2000 compliance was substantially ensured at the time of purchase. The
Company does not anticipate total Year 2000 compliance costs to exceed $500.
These estimated costs and the date the Company anticipates to complete the Year
2000 modifications are based on management's estimates, which are derived
utilizing assumptions of future events, including the continued availability of
certain resources, third party assistance and other factors. However, there can
be no guarantee that these estimates will be achieved and actual results could
differ from those anticipated.
While the Company is working to test its own mission-critical systems
for Year 2000 compliance, the Company does not control the systems of its
suppliers. The company is currently seeking assurance from its suppliers and
strategic business partners regarding the Year 2000 readiness of their systems.
The Company is developing interoperability tests to ensure that its suppliers'
and business partners' systems will accurately interact with the Company's
systems into and beyond the Year 2000. Notwithstanding these measures there is
some risk that the interaction of the Company's systems and those of its
suppliers or business partners may be impacted by the Year 2000 date change. In
addition, in light of the vast interconnection and interoperability of
telecommunications networks worldwide, the ability of any telecommunications
provider, including the Company, to provide services to its customers (e.g., to
complete calls and transport data and to bill for such services) is dependent,
to some extent, on the networks and systems of other carriers. To the extent the
networks and systems of those carriers are adversely impacted by the Year 2000
problems, the ability of the Company to service its customers may be adversely
impacted as well. Any such impact could have a material adverse effect on the
Company's operations.
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the company's
results of operations, liquidity and financial conditions. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third-party suppliers and customers,
the Company is unable to determine at this time whether the consequences of Year
2000 failures will have a material impact on the Company's results of
operations, liquidity or financial condition. The Program is expected to
significantly reduce the Company's level of uncertainty about the Year 2000
problem and, in particular, about the Year 2000 compliance and readiness of its
material suppliers and business partners. The Company believes that, with the
completion of the Program as scheduled, the possibility of significant
interruptions of normal operations should be reduced.
In a recent Securities and Exchange Commission release regarding Year
2000 disclosure, the Securities and Exchange Commission stated that public
companies must disclose the most reasonably likely worst case Year 2000
scenario. Although it is not possible to assess the likelihood of any of the
following events, each must be included in a consideration of worst case
scenarios: widespread failure of electrical, gas, and similar supplies serving
the Company; widespread disruption of the services provided by common
communications carriers; similar disruption to the means and modes of
transportation for the Company and its employees, contractors, supplier, and
customers; significant disruption to the Company's ability to gain access to,
and remain working in, office buildings and other facilities; the failure of
substantial numbers of the Company's critical computer hardware and software
systems, including both internal business systems and systems controlling
operational facilities such as electrical generation, transmission, and
distribution systems; and the failure of outside entities' systems, including
systems related to banking and finance.
If the Company cannot operate effectively after December 31, 1999, the
Company could, among other things, face substantial claims by customers or loss
of revenue due to service interruptions, inability to fulfill contractual
obligations or to bill customers accurately and on a timely basis, and increased
15
<PAGE>
expenses associated with litigation, stabilization of operations following
critical system failures, and the execution of contingency plans. The Company
could also experience an inability by customers and others to pay, on a timely
basis or at all, obligations owned to the Company. Under these circumstances,
the adverse effects, although not quantifiable at this time, would be material.
The Company believes that its critical systems should be Year 2000
compliant before January 1, 2000. Having identified the mission-critical systems
of the Company and its key suppliers, and the associated risks of failure to
ensure that those systems are Year 2000 ready, the Company is in the process of
devising contingency plans which will be implemented in the event any such
systems is not be Year 2000 compliant in a timely manner. Additionally, to the
extent the networks and systems of other carriers are adversely impacted by the
Year 2000 problem, the ability of the Company to service its customers may be
adversely impacted.
INFLATION AND EXCHANGE RATES
Inflation and exchange rate variations may have substantial effects on
the Company's results of operations and financial condition. Generally, the
effects of inflation in many Latin American countries, including Chile, Peru and
Colombia, have been offset in part by a devaluation of the local countries'
currencies relative to the U.S. dollar. Nevertheless, the devaluation of each
country's currency may have an adverse effect on the Company.
A substantial portion of the Company's purchases of capital equipment
and interest on the Senior Notes is payable in U.S. dollars. To date, the
Company has not had significant foreign currency exposure with third parties and
generally intends to be paid for its services in U.S. dollars or in local
currencies with a pricing adjustment that is structured to protect the Company
against the risk of fluctuations in exchange rates. As a result, the Company has
not entered into foreign currency hedging transactions. In the future, if third
party foreign currency exposure increases, the Company may enter into hedging
transactions in order to mitigate any related financial exposure. However, a
portion of sales to customers of the Company will be denominated in local
currencies, and substantial or continued devaluations in such currencies
relative to the U.S. dollar could have a negative effect on the ability of
customers of the Company to absorb the costs of devaluation. This could result
in the Company's customers seeking to renegotiate their contracts with the
Company or, failing satisfactory renegotiation, defaulting on such contracts.
In addition, from time to time, Latin American countries have
experienced shortages in foreign currency reserves and restrictions on the
ability to expatriate local earnings and convert local currencies into U.S.
dollars. Also, currency devaluations in one country may have adverse effects in
another country, as in late 1994 and 1995, when several Latin American countries
were adversely impacted by the devaluation of the Mexican peso. Any devaluation
of local currencies in the country where the Company operates, or restrictions
on the expatriation of earnings or capital from such countries, could have a
material adverse effect on the business, results of operations and financial
condition of the Company.
NET OPERATING LOSS CARRYFORWARDS
At December 31, 1998, the Company had net tax operating loss
carryforwards of approximately $32,000 for U.S. income tax purposes and
approximately $28,700 for foreign income tax purposes. These carryforwards are
available to offset future taxable income, if any, and expire for U.S. income
tax purposes in the years 2007 through 2018. The foreign net operating loss
carryforwards related (1) to Peru, $4,400 expire in the years 2000 through 2002
and (2) to Chile, $24,300, do not expire.
EFFECTS OF NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement
of Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES (the "Statement"). The Company expects to adopt the Statement
effective January 1, 2000. The Statement will require the recognition of all
derivatives on the Company's consolidated balance sheet at fair value. The
Company does not anticipate that the adoption of this Statement will have a
significant effect on its results of operations or financial position.
16
<PAGE>
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits listed below are filed as part of this Report.
EXHIBIT DESCRIPTION
------- -----------
27 Financial Data Schedule for the nine months
ended September 30, 1999
(b) Reports on Form 8-K
(i) November 4, 1999, disclosure of merger agreement with AT&T
Corp.
(ii) August 6, 1999, disclosure of issuance of 500,000 shares of
common stock to convert $5,000,000 of promissory notes
(iii) August 2, 1999, disclosure of amendment to financing agreement
with Cisco Systems Capital Corporation.
17
<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 be the
undersigned, thereunto duly authorized.
FIRSTCOM CORPORATION
/s/ PATRICIO E. NORTHLAND 11/15/99
- ----------------------------- --------
Patricio E. Northland Date
Chairman of the Board,
President, and Chief Executive Officer
(Principal Executive Officer)
/s/ DOUGLAS G. GEIB II 11/15/99
- ----------------------------- --------
Douglas G. Geib II Date
Chief Financial Officer
(Principal Financial Officer)
18
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
------- -----------
27 Financial Data Schedule for the nine months
ended September 30, 1999
19
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<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 7,737
<SECURITIES> 19,180
<RECEIVABLES> 10,010
<ALLOWANCES> (2,307)
<INVENTORY> 0
<CURRENT-ASSETS> 37,328
<PP&E> 95,038
<DEPRECIATION> (6,900)
<TOTAL-ASSETS> 167,310
<CURRENT-LIABILITIES> 23,710
<BONDS> 132,967
0
1
<COMMON> 24
<OTHER-SE> 4,252
<TOTAL-LIABILITY-AND-EQUITY> 167,310
<SALES> 31,410
<TOTAL-REVENUES> 31,410
<CGS> 20,354
<TOTAL-COSTS> 21,230
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,632
<INCOME-PRETAX> (25,613)
<INCOME-TAX> 0
<INCOME-CONTINUING> (25,613)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (25,613)
<EPS-BASIC> (1.31)
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