U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------------
FORM 8-K/A
Current Report Pursuant to Section 13 or 15(d) of
The Securities Act of 1934
-------------------------------------------
Date of Report (Date of earliest event reported) . . . . . . . June 25, 1998
WORLDPORT COMMUNICATIONS, INC.
(Exact name of small business registrant as specified in its charter)
Delaware 33-32341-D 84-1127336
- ------------------ ------------------- --------------------
(State or other (Commission File Number) (I.R.S. Employer
Jurisdiction Identification Number)
of incorporation)
1825 Barrett Lakes Blvd.
Suite 100
Kennesaw, GA 30144
--------------------------
(Address, including zip code of
principal executive offices)
(770) 792-8735
---------------------------
(Registrant's telephone number)
Item 2. Acquisition or Disposition of Assets
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired.
Audited Financial Statements of EnerTel N.V. for the years ended
December 31, 1997 and 1996 and the Unaudited Financial Statements of
EnerTel N.V. for the three months ended March 31, 1998.
(b) Pro Forma Financial Information
Unaudited Pro Forma Consolidated Financial Statements of the
Registrant for the year ended December 31, 1997 and the three months
ending March 31, 1998.
(c) Exhibits
Exhibit No. Description
99.1 Audited Financial Statements of EnerTel N.V. for the
years ended December 31, 1997 and 1996 and the
Unaudited Financial Statements of EnerTel N.V. for the
three months ended March 31, 1998
99.2 Unaudited Pro Forma Consolidated Financial Statements
of the Registrant for the year ended December 31, 1997
and the three months ending March 31, 1998
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.
WORLDPORT COMMUNICATIONS, INC.
Date: August 13, 1998
By: /s/ Phillip S. Magiera
Name: Phillip S. Magiera
Title: Chief Financial Officer
REPORT OF THE SUPERVISORY BOARD TO THE SHAREHOLDERS
Supervisory Board
The Supervisory Board met regularly during the year to discuss the Company's
performance with the Executive Board. In addition, it regularly consulted the
shareholders, particularly with regard to the talks on the Company's
relationship with the Regional Telecommunications Companies, its progress in
obtaining a mobile license and the advances made in the partnering talks held
in the light of the above.
Financial Statements
We hereby submit the Financial Statements as prepared by the Executive Board
and approved by the Supervisory Board. The Financial Statements are accompanied
by the Report of the Executive Board and the other information required by law.
The Financial Statements comprise the following documents, as signed by the
Executive Board and each member of the Supervisory Board:
1 the balance sheet as at December 31, 1997
2 the income statement for 1997
3 the notes to the balance sheet and the income statement.
On the basis of the Annual Report, we take pleasure in recommending that:
a the balance sheet as at December 31, 1997, the income statement for 1997
and the notes to the balance sheet and the income statement be adopted as
submitted;
b the Executive Board's conduct of the Company's affairs and the Supervisory
Board's supervision thereof be endorsed for the 1997 financial year.
Rotterdam, June 11, 1998
The Supervisory Board
A.H. Lundqvist, chairman
REPORT OF THE BOARD OF MANAGEMENT
General
1997 was the Company's first true year of operation: leased lines were
marketed as from the end of March and switched connection services were offered
as from July 1 (the commencement date for the liberalization of the
telecommunications market in the Netherlands). It was an eventful year in many
respects:
~ the organization had to be set up quickly in a very tight labor market,
particularly with regard to specialized skills;
~ the Company was the only one of the larger new suppliers to launch its market
introduction without the support of an affiliated operator;
~ continuous advances in the Company's insight and rapid changes in its
environment prompted a revision of the business plan as early as May, which
was approved by shareholders in the Annual General Shareholders Meeting of
June 18, 1997;
~ it was initially decided to bid for the DCS-1800/E-GSM mobile licenses with
Deutsche Telekom, Orange and ABN-AMRO, but following the break-up of the
consortium the decision was reversed;
~ the bid tendered to the Netherlands Government for Edunet gave EnerTel a
distinct position in the total CATV industry in the Netherlands;
~ differences of opinion, speed and commitment to the telecommunications market
between the shareholders and their Regional Telecommunications Companies
presented a continuous challenge to the Company.
Performance
Against this background, the loss incurred by the Company was higher than
budgeted in the revised business plan. This was due to a combination of lower
than budgeted revenue and higher than expected costs. The net loss for the year
was NLG 59.4 million. Indirect access revenue (the '1600 international
product') was depressed by the higher than expected cut in charges for
international traffic initiated by PTT Telecom. In addition, the organization's
necessarily fast and effective response to the dynamism of the market led to
teething troubles. Introduction of the Autodialler was postponed until the end
of January 1998, while the launching of national traffic and fixed wireline and
wireless traffic was also put back until this date. With regard to direct
access revenue, the completion time from winning an order to realizing a
connection took longer than anticipated. This was due to both limitations in
the availability of local networks and the organization of the Regional
Telecommunications Companies. One result of this is that greater use will be
made of 'PTT tails' in 1998. These factors had an adverse impact on revenue,
particularly on ISDN 30 and to a lesser degree on leased lines.
The vPOP Local/Central service for Internet Service Providers proved highly
successful. The order book for 1998 for this service is extremely promising.
During the year, a great deal of attention was devoted to the further
development of a complete portfolio of services, including end-to-end managed
international leased lines based on SDH transmission, single line '1600'
autodiallers, 800/900 services and vPOP Local*Central IP.
Through these services and extensive media campaigns, EnerTel established
itself as a serious alternative to PTT Telecom; this position has since been
confirmed by market research. In addition to establishing distribution channels
for the EnerTel group, investments were made to set up dealer channels. These
are expected to make a substantial contribution to revenue in 1998.
The interconnection fees charged by PTT Telecom are being further reduced, in
part because of OPTA's arbitration of the dispute between EnerTel and PTT
Telecom. As a result, future operating expenses will be lower, which will have
a positive impact on the Company's business case. Owing to its tightly-knit
infrastructure, the EnerTel group is excellently positioned to make the most of
the interconnection options at a PTT Telecom central-office level that have
been opened up by the aforementioned dispute. With regard to other Telecom
suppliers, this link-up at a low level in the PTT Telecom infrastructure may
generate lasting cost savings. 'Local loop unbundled' may also increase the
range of services offered.
Capital expenditure on property, plant and equipment amounted to NLG 41.1
million in the year under review, more than NLG 25 million below budget, mainly
on account of lower expenditure on physical infrastructure, access and network
management systems. Some of this expenditure has been postponed to 1998, when
capital expenditure will relate predominantly to the increased volume of
traffic and compliance with statutory requirements. Since the main variables
that will determine the volume of capital expenditure for 1998 are as yet
unknown, it is too early to forecast the total volume of expenditure.
In addition to approving the revised business plan in the financial year, the
shareholders also agreed to the proposal to increase shareholders' equity by
contributing NLG 50 million in December 1998 and NLG 41 million in the course
of 1998. On this basis, appropriate financing offers were received from banks.
In the light of the aforementioned partnering talks, the timing of the
contributions as well as the way in which shareholders could meet the financing
requirements were continuously under discussion. In the General Meeting of
Shareholders of 27th April 1998 it was decided to accept the take-over bid of
Worldport Communications Inc. Pending the finalisation of this transaction it
was decided by the shareholders to meet the Company's financing requirements by
providing guarantees to the Company's bank until 30th June 1998. The continuity
of the credit lines of the company thereby has become highly dependent upon
both the finalisation of the planned take-over as well as Worldport's ability
to meet EnerTel's financing requirements. It is noted in this respect that the
scope of activities to be undertaken by the Company may be influenced by the
planned take-over.
In view of these uncertainties, no statement can be made at present on how
the financing requirement will ultimately be satisfied.
A great deal of attention was devoted during the year to building up the
organization in a labor market characterized by an acute shortage of qualified
personnel with proper telecommunications experience. It is therefore satisfying
to note that the recruitment and selection activities have led to virtually all
contract consultants being replaced by permanent staff by the end of the year.
Campus recruitment at universities and higher education colleges was also
satisfactory. A great deal of effort was put into training and coaching.
Investment in personnel will continue to enjoy high priority in 1998. For more
senior positions in particular, a large proportion of the salary will consist
of performance-related variable elements. Since many new telecom suppliers are
being established, including three new mobile licensees, we expect the current
organization to feel the effects of the continuing scarcity on the labor
market.
At the end of the year, the Company had a staff of 201 permanent employees
and 25 temporary employees. Dependence on consultants fell sharply during the
year; as at year-end only some seven FTEs were still engaged on a project
basis.
The average age of permanent employees, which consisted of eight
nationalities, was 32 at year-end. Absence owing to illness in 1997 amounted to
2.4%. This rate should be seen against the background of the very high demands
made on staff dedication and flexibility, which are inevitably made during the
start-up phase of any business.
Continuous attention is needed to improve business processes. This will again
be systematically tackled in 1998. The need to do so is evident in view of the
constant pressure on margins. A start has been made on the implementation of
the integrated SAP management control system, which is currently limited to the
financial and materials management modules. The importance of reliable
information concerning the cost of the products and services offered and the
margins realized on them, broken down by any cross-section of clients, speaks
for itself. To this end, a start was made during the year on a costing and
pricing module that is to be operational by the beginning of the second quarter
of 1998. Data integrity is a constant area of attention. During the year, a
normative framework was established for a network of control totals to
safeguard the completeness of revenue accounts.
Both current and in particular also draft legislation presented by both
national and European authorities call for the establishment of tapping
facilities and an organization that satisfies the statutory requirements in
this respect. A start was made on the implementation of both during the year.
The euro and the millennium issue are also matters that affect a new
organization like EnerTel. Although all major suppliers of the main systems
have guaranteed that their systems are euro and millennium compliant, tests are
being developed, coordinated and conducted to determine that they really are.
Applications developed in-house are subject to the same tests. A start was made
during the year on setting up this project, which is expected to be completed
in 1999.
The order book and the number of clients connected as at year-end are cause
for confidence that the goals set for 1998 will be realized, but uncertainties
both inside and outside the EnerTel group are so great that the Executive Board
refrains from making a forecast of the result for the current year.
Rotterdam, June 11, 1998
A.A.C. Ketelaars
C.E.O.
<TABLE>
ENERTEL N.V., ROTTERDAM
BALANCE SHEET
(after profit appropriation)
<CAPTION>
December 31,
March 31, ------------------
1998 1997 1996
------------- --------- --------
(Unaudited)
(in thousands of Dutch guilders)
ASSETS
<S> <C> <C> <C>
FIXED ASSETS
Intangible fixed assets................ 29,176 29,434 30,855
Property, plant and equipment.......... 45,992 41,981 3,998
Financial fixed assets................. 1,921 1,966 -
------------- --------- --------
77,089 73,381 34,853
------------- --------- --------
CURRENT ASSETS
Amounts receivable from shareholders... 3,218 16,905 -
Other current assets................... 13,637 10,236 1,194
Cash and cash equivalents.............. - - 19,609
------------- --------- --------
16,855 27,141 20,803
------------- --------- --------
Total assets........................... 93,944 100,522 55,656
============= ========= ========
LIABILITIES
<S> <C> <C> <C>
Shareholders' equity
Issued and paid-up share capital... 74,498 74,498 53,500
Other reserves..................... (83,450) (67,580) (8,183)
--------- --------- --------
(8,952) 6,918 45,317
Subordinated loan.................. 50,002 50,002 -
--------- --------- --------
Capital base....................... 41,050 56,920 45,317
Long-term debt..................... 9,457 7,181 -
Amounts payable to shareholders.... 5,141 4,494 -
Current liabilities................ 38,296 31,927 10,339
--------- --------- --------
Total liabilities.................. 93,944 100,522 55,656
========= ========= ========
</TABLE>
<TABLE>
ENERTEL N.V., ROTTERDAM
INCOME STATEMENT
<CAPTION>
Three months ended
March 31, December 31,
------------------ ------------------
1998 1997 1997 1996
--------- -------- --------- --------
(Unaudited)
(in thousands of Dutch guilders)
<S> <C> <C> <C> <C>
Revenues........................................... 8,427 - 5,128 -
Cost of revenues................................... 6,228 - 3,758 -
--------- -------- --------- --------
Gross profit....................................... 2,199 - 1,370 -
Personnel costs.................................... 8,297 3,133 19,216 3,700
Amortization, depreciation and value adjustments... 3,340 517 4,757 597
Costs of third party services...................... 1,511 5,178 21,890 -
Other operating expenses........................... 4,584 1,256 27,321 5,798
Capitalized costs.................................. - (3,308) (12,682) (2,006)
--------- -------- --------- --------
(17,732) (6,776) (60,502) 8,089
--------- -------- --------- --------
Total operating expenses........................... (15,533) (6,776) (59,132) (8,089)
Financial income/(expenses)........................ (337) (118) (265) (94)
--------- -------- --------- --------
Loss on ordinary activities before tax............. (15,870) (6,894) (59,397) (8,183)
Taxes on loss on ordinary activities............... - - - -
--------- -------- --------- --------
Net loss........................................... (15,870) (6,894) (59,397) (8,183)
========= ======== ========= ========
</TABLE>
<TABLE>
ENERTEL N.V., ROTTERDAM
STATEMENT OF CASH FLOWS
<CAPTION>
Three months ended
March 31, December 31,
------------------ -------------------
1998 1997 1997 1996
--------- -------- --------- ---------
(Unaudited)
(in thousands of Dutch guilders)
<S> <C> <C> <C> <C>
Net loss......................................................... (15,868) (6,894) (59,397) (8,183)
Adjustments to reconcile net loss to net cash (used in)/ provided
by operating activities:
Amortization and depreciation.................................... 3,340 517 4,757 597
Changes in:
Accounts receivable.............................................. 10,288 (1,371) (28,026) (708)
Trade accounts payable........................................... 1,821 6,795 9,528 2,850
Taxes and social security charges................................ (1,343) 303 1,816 716
Pension contributions............................................ 625 - (514) 514
Other debts, accruals and deferred income........................ 999 (2,206) 4,419 5,494
--------- -------- --------- ---------
Net cash (used in)/provided by operating
activities....................................................... (138) (2,856) (67,417) 1,280
Investments in intangible fixed assets........................... (131) - (136) (18,040)
Investments in financial fixed assets............................ 45 - (1,966) -
Investments in property, plant and equipment..................... (6,962) (8,577) (41,184) (4,298)
--------- -------- --------- ---------
Net cash used in investing activities............................ (7,048) (8,577) (43,286) (22,338)
Long-term debts.................................................. 2,276 - 7,181 (12,789)
Increase in capital base......................................... - - 50,002 -
Increase in share capital........................................ - 19,498 20,998 52,720
--------- -------- --------- ---------
Net cash provided by financing activities........................ 2,276 19,498 78,181 39,931
--------- -------- --------- ---------
Net (decrease)/increase in cash and cash
equivalents...................................................... (4,910) 8,065 (32,522) 18,873
========= ======== ========= =========
</TABLE>
ENERTEL N.V., ROTTERDAM
ACCOUNTING POLICIES
The Ability for EnerTel NV to Continue as a Going Concern
On April 27, 1998 the majority of shareholders have agreed to sign a
memorandum of understanding with a potential buyer. The shareholders have
guaranteed a bridge loan credit facility by a bank issued to EnerTel NV for the
period up to the sale of the company on a pro rata basis related to the
shareholder's share in the company's equity. The shareholders' guarantee is
valid up to June 30, 1998 for an amount not exceeding NLG 50 million. The
auditors of the potential buyer, which is a publicly quoted company in the
United States of America., have expressed substantial doubt about the buyers
ability to continue as a going concern in their opinion on the 1997 financial
statements. The potential buyer will need to raise sufficient funds for the
potential acquisition of the shares and continued financing of EnerTel N.V. In
this regard the potential buyer will be dependent on the willingness of
investors to finance and eventually the successful issuance of a high yield
bond in the United States of America.
Furthermore, the potential buyer has the intention to split and sell certain
activities of the company. The split and sale may have material consequences
for the financial statements as a whole and certain material reorganization
expenses may need to be incurred by the company.
General
Legal structure
On 9 September 1996, a change was made to the legal structure of the
organization and EnerTel Ontwikkelingsmaatschappij B.V. was on that date
reincorporated as EnerTel N.V.
National infrastructure license
On 20 November 1996, the Dutch government granted EnerTel a national
infrastructure license for fixed wireline telecommunication. EnerTel commenced
its international telephone operations in July 1997.
Interim Results
The balance sheet as of March 31, 1998 and the income statements and
statements of cash flows for the three months ended March 31, 1998 and 1997 are
unaudited and have been prepared by management of the Company. In the opinion
of management, the statements contain all adjustments (consisting of only
normal recurring items) necessary for the fair presentation of the financial
position and results of operations for the interim period. The results of
operations for the three months ended March 31, 1998 are not necessarily
indicative of the results to be expected for the entire year.
Foreign Currency Translation
Assets and liabilities denominated in foreign currencies are translated at
the rates of exchange ruling at the balance sheet date or, if the currency risk
is hedged, at the contracted rate. Exchange differences are taken to the income
statement. Revenue, expenses and results in the income statement are translated
at the exchange rates ruling at the date of the transaction.
Assets and Liabilities
Intangible fixed assets
Concessions, licenses and intellectual property are capitalized at their
acquisition cost and amortized on a straight-line basis over their term or
expected useful economic lives. Acquisition cost includes all costs incurred in
the possible acquisition of licenses. If the concessions, licenses and
intellectual property are not acquired, the acquisition costs concerned are
taken to the income statement.
Property, plant and equipment
Other property, plant and equipment
Other property, plant and equipment is carried at the lower of cost less
straight-line depreciation based on the expected useful economic lives of the
assets concerned and service value. Cost includes the costs of own labor and
third party services. Other property, plant and equipment is depreciated in 2
to 5 years.
Assets under construction and development
Assets under construction and development are carried at the lower of
acquisition price plus the capitalized costs of own labor and third party
services and service value.
Accounts receivable
Accounts receivable are carried at nominal value, net of an allowance for
doubtful accounts where necessary.
Other assets and liabilities
Other balance sheet items are stated at the amounts at which they were
acquired or incurred.
Revenue and Expenses
The recognition of revenue and expenses depends, where applicable, on the
business process. Revenue and expenses are determined based on the above
accounting policies and recognized in the financial year to which they relate.
Profits are recognized in the year in which the services are rendered. Losses
are recognized in the year in which they are foreseen.
Amortization and depreciation is charged on a straight-line basis over the
expected useful economic lives of the assets concerned. Assets purchased during
the financial year are amortized or depreciated as from the date of
acquisition.
Taxation is calculated based upon the profit or loss as shown in the income
statement, taking account of tax-exempt items and non-deductible or partly
deductible expenses.
ENERTEL N.V., ROTTERDAM
ACCOUNTING POLICIES-(Continued)
<TABLE>
ENTERTEL N.V., ROTTERDAM
NOTES TO THE BALANCE SHEET
<CAPTION>
1997 1996
-------- -------
(in thousands of
Dutch guilders)
<S> <C> <C>
Intangible fixed assets
Concessions, licenses and intellectual property... 29,434 30,855
======== =======
Movements in this item were as follows:
1997 1996
-------- -------
(in thousands of
Dutch guilders)
Net book value at January 1....................... 30,855 -
Acquisition costs for licenses received........... 136 31,114
Amortization...................................... (1,556) (259)
-------- -------
Net book value at December 31..................... 29,434 30,855
-------- -------
Accumulated amortization.......................... 1,815 259
======== =======
1997 1996
-------- -------
(in thousands of
Dutch guilders)
Property, plant and equipment
Other property, plant and equipment............... 35,998 1,477
Assets under construction and development......... 5,983 2,521
-------- -------
41,981 3,998
======== =======
Movements in this item were as follows:
Assets
Other under
property, construction
plant and and
equipment development
--------- ------------
(in thousands of
Dutch guilders)
<S> <C> <C>
Net book value at January 1, 1997........ 1,477 2,521
Additions purchased from third parties... 25,040 5,983
Own costs capitalized.................... 12,682 -
Disposals................................ - 2,521
Depreciation............................. (3,201) -
--------- ------------
Net book value at December 31, 1997...... 35,998 5,983
========= ============
Accumulated depreciation................. 3,598 -
========= ============
1997 1996
--------- ------------
(in thousands of
Dutch guilders)
Financial fixed assets
Prepaid on telecommunications network.... 1,865 -
Participating interests.................. 101 -
--------- ------------
1,966 -
========= ============
</TABLE>
This item relates to the prepayment of user rights for a 20-year period for
the portion of the telecommunications network made available by Mega Limburg.
This prepayment is financed by Commerzbank (the Netherlands) N.V. by means of
discounted bearer promissory notes issued by EnerTel N.V. and guaranteed by
Mega Limburg. These promissory notes are included under long-term debts.
Amounts receivable from shareholders
This receivable was called up in 1997. An amount of NLG 9.7 million has been
received after the balance sheet date.
<TABLE>
<CAPTION>
1997 1996
-------- -------
(in thousands of
Dutch guilders)
<S> <C> <C>
Accounts receivable
Other accounts receivable................................. 6,096 1,194
Prepaid expenses and accrued income....................... 4,140 -
-------- -------
10,236 1,194
======== =======
Shareholders' equity
Issued share capital
Issued:
7,459,750 common stock of NLG 10 par value each Paid-up on
common stock.............................................. 74,498 53,500
======== =======
</TABLE>
The following movements took place in 1997:
Common
stock
----------------
(in thousands of
Dutch guilders)
Balance at January 1....... 53,500
Paid-up on share capital... 20,998
----------------
Balance at December 31..... 74,498
================
The payment on share capital in 1997 was made in cash.
<TABLE>
<CAPTION>
1997 1996
--------- --------
(in thousands of
Dutch guilders)
<S> <C> <C>
Additional paid-in capital
Balance at January 1................... - 195
Additional paid-in capital............. - -
Converted into paid-up share capital... - (195)
--------- --------
Balance at December 31................. - -
========= ========
Other reserves
Balance at January 1................... (8,183) -
Appropriation of result................ (59,397) (8,183)
--------- --------
Balance at December 31................. (67,580) (8,183)
========= ========
ENERTEL N.V., ROTTERDAM
NOTES TO THE BALANCE SHEET-(Continued)
1997 1996
--------- ------
(in thousands of
Dutch guilders)
<S> <C> <C>
Subordinated loan
0% subordinated loans from shareholders... 50,002 -
--------- ------
Movements in this item in 1997 were as follows:
Balance at January 1, 1997................ -
Loans issued.............................. 50,002
Repaid.................................... -
---------
Balance at December 31, 1997.............. 50,002
=========
1997 1996
--------- ------
(in thousands of
Dutch guilders)
Long-term debts
Financial lease commitments............... 5,316 -
Promissory notes.......................... 1,865 -
--------- ------
7,181 -
========= ======
</TABLE>
Long-term debts
The following table shows the movements in long-term debts. The loans have a
term of longer than five years.
<TABLE>
<CAPTION>
1997 1996
------ ---------
(in thousands of
Dutch guilders)
<S> <C> <C>
Balance at January 1........... - 12,789
Loans issued................... - 30,945
Financial lease commitments.... 5,316 -
Promissory notes............... 1,865 -
Interest accrued............... - 486
Converted into share capital... - (44,220)
------ ---------
Balance at December 31......... 7,181 -
====== =========
</TABLE>
The loans issued in 1996 were provided by the shareholders. These loans,
which incurred interest at a rate of 6.5%, were fully converted into share
capital in 1996.
The financial lease commitments have a term of 9.5 years and incur interest
at a rate of 7.25%.
The promissory notes (annuity loan) have a term of ten years and are repaid
in equal annual installments. They incur interest at a rate of 7.45% during the
complete term.
ENERTEL N.V., ROTTERDAM
NOTES TO THE BALANCE SHEET-(Continued)
<TABLE>
<CAPTION>
1997 1996
-------- -------
(in thousands of
Dutch guilders)
Current liabilities
<S> <C> <C>
Bank overdraft.............................. 12,913 -
Trade accounts payable...................... 13,143 3,615
Taxes and social security charges........... 2,532 716
Pension contributions....................... - 514
Other debts, accruals and deferred income... 3,339 5,494
-------- -------
31,927 10,339
======== =======
</TABLE>
Commitments not disclosed in the balance sheet
The Company has purchase commitments amounting to NLG 14 million. The Company
also has financial commitments arising from operational lease contracts of NLG
8.8 million and rental commitments amounting to approximately NLG 2 million per
year relating to the 'backbone' network for a period of 20 years.
ENERTEL N.V., ROTTERDAM
NOTES TO THE BALANCE SHEET-(Continued)
<TABLE>
ENERTEL N.V., ROTTERDAM
NOTES TO THE INCOME STATEMENT
<CAPTION>
1997 1996
-------- --------
(in thousands of
Dutch guilders)
<S> <C> <C>
Personnel costs
Wages, salaries and social security charges... 17,479 3,186
Pension contributions......................... 1,737 514
-------- --------
19,216 3,700
Capitalized costs............................. (6,609) (2,006)
-------- --------
12,608 1,694
======== ========
</TABLE>
The Company had an average of 148 permanent employees in 1997 (1996: 22).
<TABLE>
<CAPTION>
1997 1996
-------- -----
(in thousands o
Dutch guilders)
<S> <C> <C>
Costs of third party services
Third party services......... 21,890 -
Capitalized costs............ (6,073) -
-------- -----
15,817 -
======== =====
</TABLE>
Third party services consists of consultancy services and other contracted
temporary personnel.
<TABLE>
<CAPTION>
1997 1996
------- ------
(in thousands o
Dutch guilders)
<S> <C> <C>
Amortization, depreciation and value adjustments
Amortization and depreciation:
Intangible fixed assets......................... 1,556 259
Property, plant and equipment................... 3,201 338
------- ------
4,757 597
======= ======
1997 1996
------- ------
(in thousands o
Dutch guilders)
Financial income/(expenses)
Other interest income and similar income........ 294 392
Interest expense and similar expenses........... 559 486
------- ------
(265) (94)
======= ======
</TABLE>
Shareholders' Equity and Net Profit under U.S. GAAP
Emoluments of Supervisory Directors
The emoluments, including pension contributions, of the Supervisory Directors
amounted to NLG 74,588 (1996: NLG 23,333)
The Financial Statements of EnerTel NV are prepared in accordance with
accounting principles generally accepted in The Netherlands ("Dutch GAAP")
which vary in certain significant respects from accounting principles generally
accepted in the United States of America. ("US GAAP") Application of accounting
principles generally accepted in the United States of America would not have
affected shareholders' equity as of December 31, 1996 and 1997, and the net
profits for each of the two years in the period ended December 31, 1997.
The accounting for leases is strictly defined within US GAAP. Although the
accounting for leases under US GAAP does not materially affect shareholders'
equity and the net profit, certain leases would have been reflected as capital
leases under US GAAP instead of operational leases.
Rotterdam, June 11, 1998
Executive Board
A.A.C. Ketelaars
Supervisory Board
A.H. Lundqvist
J.C. Terlouw
J. van Rijn
ENERTEL N.V., ROTTERDAM
NOTES TO THE INCOME STATEMENT-(Continued)
AUDITORS' REPORT
We have audited the accompanying financial statements of EnerTel NV,
Rotterdam, The Netherlands for the years 1996 and 1997.
These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the Netherlands. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements give a true and fair view of the
financial position of the company as at December 31, 1996 and 1997 and of the
result for the years then ended in accordance with accounting principles
generally accepted in the Netherlands and comply with the financial reporting
requirements included in Part 9, Book 2 of the Netherlands Civil Code.
Without qualifying our opinion above we draw attention to the following
issues related to the financial statements which refers to the uncertainty as
to the company's ability to continue as a going concern.
~ The decision of the shareholders of EnerTel NV to limit their guarantee for
the company's credit facilities to the Bank up to June 30, 1998 for an amount
not exceeding NLG 50 million.
~ The uncertainty of acquiring sufficient funds for the potential acquisition
of the shares and continued financing of EnerTel NV by its potential buyer
who is dependent on the successful issuance of a high yield bond in the
United States of America.
It is not impossible, however, that in the long term the company will be able
to continue operating as a going concern. The financial statements have
therefore been prepared on a going-concern basis.
Accounting principles generally accepted in The Netherlands vary in certain
significant respects from accounting principles generally accepted in the
United States of America. Application of accounting principles generally
accepted in the United States of America would not have affected shareholders'
equity as of December 31, 1996 and 1997, and the net profits for each of the
two years in the period ended December 31, 1997.
Rotterdam, June 11, 1998
Moret Ernst & Young Accountants
OTHER INFORMATION
Post Balance Sheet Events
On April 27, 1998 the majority of shareholders have agreed to sign a
memorandum of understanding with a potential buyer. The potential buyer has the
intention to split and sell certain activities of the company. The split and
sale will have material consequences for the financial statements as a whole
and certain material reorganization expenses may need to be incurred by the
company. In this regard we also refer to our note related to the going concern
issue.
Articles of Association provisions governing the appropriation of profit
Profit is appropriated in accordance with Section 22 of the Articles of
Association, which stipulates that the Company may distribute its distributable
profit only in so far as its shareholders' equity exceeds the paid-up and
called-up portion of the share capital plus the reserves required to be held by
law. Profit shall be distributed only after adoption of the financial
statements showing that such a distribution is valid. The distributable profit
as shown by the adopted financial statements shall be at the disposal of the
Annual General Meeting.
Appropriation of 1997 result
The net loss for 1997, as shown in the 1997 income statement, amounts to NLG
59,397,000. The Executive Board proposes to deduct this loss from other
reserves. These financial statements have been drawn up in accordance with this
proposal.
UNAUDITED PRO FORMA FINANCIAL DATA
The following pro forma balance sheet reflects the acquisition of EnerTel
and the Bridge Loan facility, as if each had occurred on March 31, 1998. The
following pro forma statement of operations for the three months ended March 31,
1998 reflects the acquisition of EnerTel and the Bridge Loan as if each had
occurred on January 1, 1997. The following pro forma statement of operations
for the year ended December 31, 1997 reflects the acquisition, the Bridge Loan,
and the acquisitions of Telenational Communications Limited Partnership ("TNC")
and The Wallace Wade Company ("WWC") as if each had occurred on January 1, 1997.
The pro forma financial information does not purport to represent what the
Company's consolidated results of operations would have been if the acquisition
and the Bridge Loan had in fact occurred on these dates, nor does it purport to
indicate the future consolidated financial position or future consolidated
results of operations of the Company. The pro forma adjustments are based
on currently available information and certain assumptions that management
believes to be reasonable.
<TABLE>
UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(DOLLARS AND SHARES IN THOUSANDS)
<CAPTION>
TRANSACTIONS
PRO FORMA PRO
HISTORICAL ENTERTEL(H) SUBTOTAL ADJUSTMENTS FORMA
<S> <C> <C> <C> <C> <C>
REVENUES $ 948 $4,070 $ 5,018 $(1,288) (a) $ 3,730
COST OF SERVICES 891 3,004 3,895 (815) (a) 3,080
GROSS MARGIN 57 1,066 1,123 473 650
OPERATING EXPENSES:
SELLING, OPERATIONS, AND ADMINISTRATION 2,255 6,978 9,233 (898) (a) 8,111
(224) (b)
DEPRECIATION AND AMORTIZATION 631 1,599 2,230 (49) (a) 3,343
(96) (b)
(1,066) (c)
TOTAL OPERATING EXPENSES 2,886 8,577 11,463 (9) 11,454
OPERATING INCOME (LOSS) (2,829) (7,511) (10,340) (464) (10,804)
OTHER INCOME (EXPENSE):
INTEREST INCOME (EXPENSE), NET (176) (145) (321) (191) (b) (8,822)
(8,310) (d)
OTHER 0 0 0 0 0
TOTAL OTHER INCOME (EXPENSE) (176) (145) (321) (8,501) (8,822)
INCOME (LOSS) BEFORE MINORITY INTEREST (3,005) (7,656) (10,661) (8,965) (19,626)
MINORITY INTEREST 0 0 0 (1,148) (e) (1,148)
NET LOSS $ (3,005) $(7,656) $(10,661) $ (7,817) $(18,478)
PRO FORMA BASIC NET LOSS $ (0.18) $ (1.08)
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES 17,174 17,174
</TABLE>
<TABLE>
Unaudited Consolidated Pro Forma Statement of Operations
For the Year Ended December 31, 1997
(Dollars and Shares in Thousands)
<CAPTION>
TRANSACTIONS
PRO FORMA
HISTORICAL ENTERTEL(H) TNC WWC SUBTOTAL ADJUSTMENTS CONSOLIDATED
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 2,778 $ 2,594 $ 3,577 $ 0 $ 8,649 $ (1,175) (a) $ 7,774
Cost of services 2,606 1,893 3,629 0 8,128 (701) (a) 7,427
Gross margin 172 701 (52) 0 821 (474) 347
Operating expenses:
Selling, operations, and administration 2,724 28,523 1,562 13 32,822 (4,391) (a) 27,497
(897) (b)
(37) (f)
Depreciation and amortization 819 2,434 175 0 3,428 382 (b) 8,436
4,263 (c)
363 (f)
Total operating expenses 3,543 30,957 1,737 (13) 36,250 (317) 35,933
Operating income (loss) (3,371) (30,256) (1,789) (13) (35,429) (157) (35,586)
Other income (expense):
Interest income (expense), net (128) (136) (138) 0 (402) (764) (b) (34,404)
(33,238) (d)
Other 6 0 (178) 0 (172) 0 (172)
Total other income (expense) (122) (136) (316) 0 (574) (34,002) (34,576)
Income (loss) before minority interest (3,493) (30,392) (2,105) (13) (36,003) (34,159) (70,162)
Minority interest 0 0 0 0 0 (4,559)(e) (4,559)
Net loss $(3,493) $(30,392) $(2,105) $(13) $(36,003) $(29,600) $(65,603)
Pro forma basic net loss $ (0.26) $ (4.15)
Weighted average common and common 13,245 2,575 (g) 15,820
equivalent shares
(a) Reflects the elimination of revenues and expenses associated
with a segment of EnerTel's Bel 1600 business which the
Company anticipates selling in 1998.
(b) Reflects the adjustment of costs associated with the lease
of the EnerTel fiber network which was treated as an operating
lease by EnerTel, but which qualifies as a capital lease under
U.S. generally accepted accounting principles.
(c) Reflects additional depreciation and amortization based on
the preliminary purchase price allocations and the following
amortization periods:
Fiber network 20 years
Goodwill 20 years
The preliminary estimate of net assets acquired represents
management's best estimate based on currently available
information; however, such estimate may be revised up to one
year from the acquisition date.
(d) Reflects additional interest expense (including amortization
of debt issuance costs) associated with the interim loan used
to effect the acquisition including the accretion of the debt
discount associated with the warrants of $14 million.
(e) Reflects the anticipated 15% minority interest in EnerTel.
(f) Reflects the following adjustments related to the
acquisition of TNC and WWC (whose separate results are
presented for the period from January 1, 1997 until
acquisition): (i) elimination of TNC management charges and
(ii) amortization of acquired contracts and goodwill over 5
and 10 years, respectively.
(g) The year ended December 31, 1997 reflects the 3,750,000 and
1,400,000 shares issued in conjunction with the TNC and WWC
Acquisitions, respectively, as if they were outstanding from
January 1, 1997 to the acquisition date.
(h) EnerTel's revenues and expenses were translated into U.S.
dollars at the average exchange rate for the period, 1 Dutch
guilder = 0.5117 U.S. dollars and 1 Dutch guilder = 0.4846
U.S. dollars for the year ended December 31, 1997 and the
three months ended March 31, 1998, respectively.
</TABLE>
<TABLE>
Unaudited Consolidated Pro Forma Balance Sheet
as of March 31, 1998
(Dollars in Thousands)
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL ENTERTEL(F) SUBTOTAL ADJUSTMENTS AS ADJUSTED
<S> <C> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 6,488 $ 0 $ 6,488 $115,200(a) $ 22,464
(91,472)(b)
(8,502)(e)
Accounts receivable 472 1,543 2,015 13,500 (g) 15,515
Prepaid expenses and other current assets 190 4,463 4,653 0 4,653
Total current assets 7,150 6,006 13,156 26,476 42,632
Property and equipment, net 4,791 25,013 29,804 6,805 (c) 66,609
30,000 (d)
Customer base 0 0 0 0 0
Goodwill 6,126 0 6,126 55,259 (d) 61,385
Other assets 2,070 13,995 16,065 4,800 (a) 6,870
(13,995)(d)
Total assets $20,137 $45,014 $65,151 $112,345 $ 177,496
Liabilities and stockholder's equity:
Accounts payable and accrued expenses $ 2,386 $ 6,868 $9,254 $ 0 $ 9,254
Short-term note payable 500 0 500 0 500
Current portion of notes payable 175 0 175 0 175
Current portion of capital lease obligations 1,264 0 1,264 0 1,264
Bridge Loan 0 0 0 106,034 (a) 106,034
Other current liabilities 20 13,919 13,939 (8,502)(e) 5,437
Total current liabilities 4,345 20,787 25,132 97,532 122,664
Notes payable-long-term 0 23,985 23,985 (23,985)(d) 0
Long-term obligations under capital leases 2,643 4,536 7,179 7,038 (c) 14,217
Other long-term liabilities 44 0 44 0 44
Minority interest 0 0 0 13,500 (g) 13,500
Preferred stock 0 0 0 0 0
Common stock 2 0 2 0 2
Additional paid-in capital 21,150 35,736 56,886 (35,736)(d) 21,150
Warrants 0 0 0 13,966 (a) 13,966
Amounts due from shareholders (1,215) 0 (1,215) 0 (1,215)
Cumulative translation adjustment (4) 407 403 (407) (d) (4)
Retained earnings (accumulated deficit) (6,828) (40,437) (47,265) 40,437 (d) (6,828)
Total liabilities and stockholder's
equity $20,137 $45,014 $65,151 $112,345 $177,496
</TABLE>
Notes to Unaudited Consolidated Pro Forma Balance Sheet
(a) Reflects the Bridge Loan net of estimated fees and adjusted
for the fair market value of the 1,644,969, $0.01 warrants
associated with the loan as follows (in millions):
Face value $120.0
Estimated fees
(4.8)
Net cash proceeds to the
Company 115.2
Fair market value of warrants
(14.0)
Net carrying value of debt $101.2
(b) Reflects the $90,722 cash consideration to be paid to effect the
acquisition including estimated acquisition costs in an aggregate
approximate amount of $1.5 million. The cash purchase price for
EnerTel of 186 million Dutch guilders was translated into U.S.
dollars at an exchange rate on March 31, 1998 of 1 Dutch guilder
equals 0.4797 U.S. dollars, the closing exchange rate on March 31,
1998.
(c) Reflects the recognition of the lease of EnerTel's fiber network
as a capital lease in accordance with U.S. generally accepted
accounting principles.
(d) Reflects the allocation of the purchase price to assets acquired
in the acquisition. The following table summarizes the purchase
price, net assets acquired at historical cost, fair market
adjustments, identifiable intangibles and goodwill by acquisition:
Purchase price $ 90,722
Net assets at historical cost (4,294)
Less net liabilities at historical cost not assumed 9,757
Net assets acquired at historical cost 5,463
Fair market value adjustments 30,000
Identifiable intangibles:
Customer base/acquired contracts 0
Goodwill 55,259
(e) Reflects the repayment of EnerTel's line of credit facility
upon acquisition of EnerTel by the Company.
(f) EnerTel's functional currency is the Dutch guilder. Balance sheet
amounts (exclusive of accumulated deficit) are translated at the
average exchange rate for the three months ended March 31, 1998
of 1 Dutch guilder = 0.4797 U.S. dollars. Accumulated deficit was
translated at the average exchange rate for the three months ended
March 31, 1998 of 1 Dutch guilder = 0.4846 U.S. dollars.
(g) Reflects the anticipated sale of a 15% interest in EnerTel to
former EnerTel shareholders.
