SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1998
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________________ to _____________________
Commission File Number: 000-21261
VIATEL, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3787366
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
800 Third Avenue
New York, New York
(Address of principal executive offices)
10022
(Zip Code)
(212) 350-9200
(Registrant's telephone number, including area code)
--------------------------------------------------
(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. |X| Yes | | No
As of August 12, 1998, 23,171,305 shares of the registrant's Common Stock,
$.01 par value, were outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
VIATEL, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, 1998 December 31,
ASSETS (Unaudited) 1997
---------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 602,092,208 $ 21,095,635
Restricted marketable securities, current 47,709,560 --
Marketable securities, current -- 3,499,691
Trade accounts receivable, less allowance
for doubtful accounts of $1,950,000 and
$1,041,000, respectively 20,178,207 10,980,737
Other receivables 4,764,825 6,505,875
Prepaid expenses 1,001,335 1,347,814
-------------- -------------
Total current assets 675,746,135 43,429,752
-------------- -------------
Restricted marketable securities, non-current 109,430,796 --
Marketable securities, non-current -- 22,546,591
Property and equipment, net 92,486,515 54,093,748
Intangible assets, net 40,536,642 4,338,792
Other assets 2,444,347 2,400,315
-------------- -------------
$ 920,644,435 $ 126,809,198
============== =============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accrued telecommunications costs $ 10,743,472 $ 16,899,194
Accounts payable and other accrued
expenses 26,206,048 14,991,472
Accrued equipment purchases 27,606,626 500,000
Accrued interest 12,885,020 --
Current installments of notes payable and
obligations under capital leases 3,285,913 3,372,923
-------------- -------------
Total current liabilities 80,727,079 35,763,589
-------------- -------------
Long-term liabilities:
Long term debt 860,303,583 89,854,612
Notes payable and obligations under capital
leases, excluding current installments 6,771,681 8,254,682
Equipment purchase obligation 1,500,000 1,500,000
-------------- -------------
Total long-term liabilities 868,575,264 99,609,294
Series A Redeemable Convertible Preferred Stock,
$.01 par value; Authorized 718,402
Shares; issued and outstanding 448,303
and no shares, respectively 44,830,295 --
-------------- -------------
Commitments and contingencies
Stockholders' deficiency:
Preferred Stock, $.01 par value. Authorized
281,598 shares, no shares issued and
outstanding -- --
Common Stock, $.01 par value. Authorized
50,000,000 shares, issued and outstanding
23,114,595 and 22,635,267 shares,
respectively 231,146 226,353
Additional paid-in capital 128,032,392 125,661,323
Unearned compensation (32,520) (65,040)
Cumulative translation adjustment (5,221,423) (5,356,474)
Accumulated deficit (196,497,798) (129,029,847)
-------------- -------------
Total stockholders' deficiency (73,488,203) (8,563,685)
-------------- -------------
$ 920,644,435 $ 126,809,198
============== =============
</TABLE>
See accompanying notes to consolidated financial statements
2
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30 June 30
-------------------------------------- --------------------------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
----------------- ----------------- ----------------- -----------------
Telecommunications revenue $ 27,751,018 $ 18,448,295 $ 48,989,790 $ 33,000,629
----------------- ----------------- ----------------- -----------------
Operating Expenses:
Cost of telecommunications services 25,096,226 15,690,745 44,200,877 27,769,829
Selling, general and administrative expenses 10,432,759 9,644,560 19,387,561 18,367,560
Depreciation and amortization 4,126,041 1,458,440 7,036,953 2,720,602
----------------- ----------------- ----------------- -----------------
Total operating expenses 39,655,026 26,793,745 70,625,391 48,857,991
----------------- ----------------- ----------------- -----------------
Other income (expense):
Interest income 9,303,157 1,052,629 9,813,029 2,171,447
Interest expense (22,550,406) (2,978,212) (26,331,233) (5,987,478)
----------------- ----------------- ----------------- -----------------
Loss before extraordinary loss (25,151,257) (10,271,033) (38,153,805) (19,673,393)
Extraordinary loss on debt prepayment (28,303,850) - (28,303,850) --
----------------- ----------------- ----------------- -----------------
Net loss (53,455,107) (10,271,033) (66,457,655) (19,673,393)
Dividend on redeemable convertible
preferred stock (1,010,295) - (1,010,295) --
----------------- ----------------- ----------------- -----------------
Net loss applicable to common shareholders $(54,465,402) $ (10,271,033) $ (67,467,950) $ (19,673,393)
================= ================= ================= =================
Loss per common share before extraordinary
item, basic and diluted $ (1.13) $ (0.45) $ (1.71) $ (0.87)
Loss per common share from extraordinary item (1.23) - (1.23) --
----------------- ----------------- ----------------- -----------------
Net loss per common share applicable to
common shareholders $ (2.36) $ (0.45) $ (2.94) $ (0.87)
================= ================= ================= =================
Weighted average common shares outstanding 23,094,711 22,618,728 22,939,764 22,605,290
================= ================= ================= =================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
-------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (66,457,655) $(19,673,393)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 7,036,953 2,720,602
Accrued interest expense on long term debt 25,517,358 6,019,997
Accrued interest income on marketable
securities (4,494,883) (1,167,026)
Provision for losses on accounts receivable 1,955,181 1,042,505
Extraordinary loss on debt prepayment 28,303,850 --
Earned compensation 32,520 32,520
Changes in assets and liabilities:
Increase in accounts receivable (10,234,826) (2,393,558)
Decrease (increase) in prepaid expenses and
other receivables 3,502,411 (540,580)
Increase in other assets and intangible assets (439,862) (322,048)
Increase in accrued telecommunication costs,
accounts payable and other accrued expenses (7,471,342) 1,880,095
------------ -------------
Net cash used in operating
activities (7,807,611) (12,400,886)
------------ -------------
Cash flows from investing activities:
Purchase of property, equipment and software (12,720,585) (15,870,021)
Payment for business acquired excluding cash
of $364,000 (5,000,000) --
Purchase of marketable securities (159,264,445) (38,016,237)
Proceeds from maturity of marketable securities 30,085,143 8,028,667
------------ -------------
Net cash used in investing activities (146,899,887) (45,857,591)
------------ -------------
Cash flows from financing activities:
Proceeds from issuance of senior notes 496,008,630 --
Proceeds from issuance of senior discount notes 338,694,525 --
Proceeds from issuance of subordinated
convertible debentures 11,048,400 --
Proceeds from issuance of convertible preferred
stock 42,197,978 --
Repayment of senior discount notes (119,281,715) --
Deferred financing costs (31,547,345) --
Proceeds from issuance of Common Stock 622,884 400,043
Repayment of notes payable and bank credit
line (2,033,399) --
Payments under capital leases (136,612) (388,247)
------------ -------------
Net cash provided by financing activities 735,573,346 11,796
------------ -------------
Effects of exchange rate changes on cash 130,725 (34,941)
------------ -------------
Net increase (decrease) in cash equivalents 580,996,573 (58,281,622)
Cash and cash equivalents at beginning of period 21,095,635 75,796,102
------------ -------------
Cash and cash equivalents at end of period $602,092,208 $ 17,514,480
============ =============
Supplemental disclosures of cash flow
information:
Interest paid $ 673,413 $ 32,519
============ =============
Accrued equipment purchases $ 29,106,626 $ --
============ =============
Equipment acquired under capital
lease obligations $ -- $ 1,122,000
============ =============
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Information as of June 30, 1998 and for the periods
ended June 30, 1998 and 1997 is unaudited)
(1) INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements as of June 30, 1998 and for the three
and six month periods ended June 30, 1998 and 1997 have been prepared by
Viatel, Inc. and subsidiaries (collectively, the "Company"), without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of management, all adjustments (consisting of
only normal recurring adjustments) necessary for a fair presentation of the
consolidated financial position, results of operations and cash flows for
each period presented have been made on a consistent basis. Certain
information and footnote disclosures normally included in consolidated
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations although management believes that the disclosures herein
are adequate to make the information presented not misleading. It is
suggested that these financial statements be read in conjunction with the
Company's annual consolidated financial statements. Operating results for
the three and six months ended June 30, 1998 may not be indicative of the
results that may be expected for the full year. Certain reclassifications
have been made to the previous year's financial statements to conform to
the current year's presentation.
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" ("SFAS 128"), for year-end 1997.
SFAS 128, which supersedes APB Opinion No. 15, "Earnings Per Share" was
issued in February 1997. SFAS 128 requires dual presentation of basic and
diluted earnings per share ("EPS") for complex capital structures on the
face of the statement of operations. Basic EPS is computed by dividing
income or loss by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution from the
exercise or conversion of securities into common stock. Per share amounts
for the three and six months ended June 30, 1998 and 1997 have been
retroactively restated to give effect to SFAS 128 and were not different
from EPS measured under APB No. 15.
The Company had potentially dilutive common stock equivalents of 2,021,960
and 1,115,694 at June 30, 1998 and 1997, respectively, which were not
included in the computation of diluted net loss per common share because
they were antidilutive for the periods presented.
Statement of Financial Accounting Standards No. 130 ("SFAS 130"),
"Reporting Comprehensive Income," and Statement of Financial Accounting
Standards No. 131 ("SFAS 131"), "Disclosures about Segments of an
Enterprise and Related Information," were issued in June 1997. SFAS 130
establishes standards for reporting and display of comprehensive income and
its components in a full set of general purpose financial statements. This
statement requires that all items that are required to be recognized under
accounting standards as components of comprehensive income, such as foreign
currency fluctuations currently reported in stockholder's equity, be
reported in an annual financial statement that is displayed with the same
prominence as other financial statements. SFAS 131 establishes standards
for the way public companies report information about operating segments in
annual financial statements and requires that those companies report
selected information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major
customers. The Company adopted SFAS 130 in the first quarter of 1998 and
will adopt SFAS 131 for its annual reporting in 1998.
Statement of Financial Accounting Standards No. 133 ("SFAS 133"),
"Accounting for Derivative Instruments and Hedging Activities," was issued
in June 1998. SFAS 133 standardizes the accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts, by requiring recognition of those instruments as assets and
liabilities and to measure them at fair value. SFAS 133 will be effective
for the Company in 2000. The Company has not yet determined the effects of
the pronouncement.
5
<PAGE>
(2) INVESTMENTS IN DEBT SECURITIES
Management determines the appropriate classification of its investments in
debt securities at the time of purchase and classifies them as held to
maturity or available for sale. These investments are diversified among
high credit quality securities in accordance with the Company's investment
policy. Debt securities that the Company has both the intent and ability to
hold to maturity are carried at amortized cost. Debt securities for which
the Company does not have the intent or ability to hold to maturity are
classified as available for sale. Securities available for sale are carried
at fair value, with the unrealized gains and losses, net of tax, reported
in a separate component of stockholders' equity. The Company does not
invest in securities for the purpose of trading and as such does not
classify any securities as trading.
The amortized cost of debt securities classified as held to maturity are
adjusted for amortization of premiums and accretion of discounts to
maturity over the estimated life of the security. Such amortization and
interest are included in interest income. There were no securities
classified as available for sale as of June 30, 1998.
The following is a summary of the fair value of restricted securities held
to maturity at June 30, 1998:
U.S. Treasury obligations $125,571,555
German government obligations 31,568,801
------------
Total $157,140,356
============
The fair value of restricted securities held to maturity at June 30, 1998
by contractual maturity are shown below:
Due within one year $ 47,709,560
Due after one through two years 51,658,825
Due after two years 57,771,971
------------
Total $157,140,356
============
There were no changes in the classification of any securities held to
maturity or securities available for sale from the time of purchase to the
time of maturity or sale.
(3) PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of:
June 30, December 31,
1998 1997
------------ ------------
Communication system $ 49,408,145 $ 43,321,912
Construction in progress 38,785,696 10,093,614
Fiber optic cable systems 7,907,464 1,431,933
Leasehold improvements 3,485,817 3,254,515
Furniture, equipment and other 10,868,452 8,923,806
------------- -------------
110,455,574 67,025,780
Less accumulated depreciation and
amortization 17,969,059 12,932,032
------------- -------------
$ 92,486,515 $ 54,093,748
============= =============
At June 30, 1998, construction in progress represents the current
pan-European network construction. At December 31, 1997, construction in
progress represents a portion of the expansion of the European network.
6
<PAGE>
(4) INTANGIBLE ASSETS
Intangible assets consist of the following as of:
June 30, December 31,
1998 1997
----------- -------------
Deferred financing and registration
fees $31,547,345 $ 3,789,347
Goodwill 8,822,828 474,065
Acquired employee base and sales force
in place -- 1,607,225
Purchased software 1,848,559 1,493,546
Other 1,271,345 849,276
----------- -------------
43,490,077 8,213,459
Less accumulated amortization 2,953,435 3,874,667
----------- -------------
$40,536,642 $ 4,338,792
=========== =============
(5) LONG TERM DEBT
On April, 8, 1998, the Company completed an offering of units consisting of
senior notes or senior discount notes and shares of 10% Series A Redeemable
Convertible Preferred Stock, $.01 par value per share, of the Company and units
consisting of senior notes or senior discount notes and subordinated convertible
debentures (the "Units Offering") through which it raised approximately $889.6
million of gross proceeds ($856.6 million of net proceeds). A portion of the
proceeds from the Units Offering were utilized by the Company to retire its 15%
Senior Discount Notes due 2005 pursuant to a tender offer resulting in an
extraordinary loss of $28.3 million. Additionally, a portion of the proceeds
from the Units Offering were used to purchase approximately $122.8 million of
U.S. government securities which were pledged as security for the first six
interest payments on the U.S. dollar denominated senior notes and approximately
$30.6 million of German government obligations which were pledged as security
for the first six interest payments on the Deutschmark denominated senior notes
issued in the Units Offering.
Long term debt consists of the following as of:
June 30, December 31,
1998 1997
---------- ------------
Senior notes $ 498,560,354 $ --
1998 Senior discount notes, less
discount of $274,998,740 350,139,687 --
1994 Senior discount notes, less
discount of $30,845,388 -- 89,854,612
Subordinated convertible debentures 11,603,542 --
------------- ------------
$ 860,303,583 $ 89,854,612
============= ============
(6) STOCK INCENTIVE PLAN
The Amended Stock Incentive Plan (the "Stock Incentive Plan") provides for
the issuance of up to a maximum of 2,566,666 shares of the Company's common
stock, $.01 par value (the "Common Stock"). At June 30, 1998, the Company
had 67,177 shares available for future grants under the Stock Incentive
Plan.
Stock option activity for the six months ended June 30, 1998 under the
Stock Incentive Plan is shown below:
Weighted Average Number of
Exercise Prices Shares
---------------- ---------
Outstanding at January 1, 1998 $ 7.40 1,052,200
Granted 5.52 1,137,000
Expired 5.03 (13,511)
Forfeited 7.15 (62,842)
Exercised 6.30 (90,887)
------ ----------
Outstanding at June 30, 1998 $ 6.42 2,021,960
====== ==========
7
<PAGE>
As of June 30, 1998, 499,844 options were exercisable under the Stock
Incentive Plan.
(7) COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
--------------------------------- ------------------------------
1998 1997 1998 1997
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net loss applicable to common
shareholders $ (54,465,402) $(10,271,033) $(67,467,950) $(19,673,393)
Foreign currency translation adjustment 652,025 (1,705,627) 135,051 (3,871,076)
-------------- ------------- ------------- -------------
Comprehensive loss $ (53,813,377) $(11,976,660) $(67,332,899) $(23,544,469)
============== ============= ============= =============
</TABLE>
8
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
Since its inception in 1991, the Company has created an extensive
commercial telecommunications network for voice and voice band data in Western
Europe, which the Company believes is necessary to effectively render the
services it offers and intends to offer. The Company currently operates one of
the largest Pan-European networks, with international gateway switching centers
in New York and London, which are connected by Company-owned digital fiber optic
transmission facilities and has developed an integrated digital, switch-based
telecommunications network with thirty locations in Western Europe including ten
switches and twenty points of presence ("POPs") connected by leased, digital
fiber optic transmission facilities (together with the switches located at its
international gateway switching center in London, the "European Network"). The
European Network, together with the Company's switches located at its
international gateway switching center in New York and POPs located within the
United States is referred to as the "Viatel Network." The Company has invested
heavily in developing the ability to provide long distance telecommunications
services and in developing and expanding its market presence within Western
Europe and in certain other countries in Latin America and Asia. The Company has
also made substantial investments in software and back office operations and an
administrative infrastructure.
The Company believes that network ownership is critical to becoming a high
quality, low-cost provider and creates the necessary platform to provide a full
array of telecommunications products and services to customers. The Company has
recently initiated a program to own or control key elements of its network
infrastructure, including interests in fiber optic cable systems. By owning or
controlling key elements of its network, the Company will be better able to
control service offerings, quality and transmission and other operating costs.
Ownership of network facilities is an essential element in the Company's
expansion into new service offerings such as data products, including frame
relay, Internet services and asynchronous transfer mode services.
As part of the Company's strategy to own or control key elements of its
network, the Company recently completed an offering of units consisting of
senior notes or senior discount notes and shares of redeemable convertible
preferred stock of the Company and units consisting of senior notes or senior
discount notes and subordinated convertible debentures (the "Units Offering")
through which it raised approximately $889.6 million of gross proceeds, a
substantial portion of which are being used to construct a state-of-the-art
fiber optic ring which will connect five European countries and will include
London, Paris, Nancy, Strasbourg, Brussels, Rotterdam, Amsterdam, Stuttgart,
Frankfurt, Cologne, Dusseldorf, Antwerp and Essen (the "Circe Network"). The
Circe Network, when completed, will be a high quality, high capacity,
self-healing ring, utilizing advanced synchronous digital hierarchy and dense
wave division multiplexing technologies. The Circe Network is projected to
significantly expand the Company's revenue opportunities by enabling it to (i)
provide a broader range of products and services to retail customers, (ii)
provide wholesale services to the large base of resellers that the Company
expects will develop as deregulation continues in Western Europe and (iii)
capitalize on the growing demand for bandwidth intensive services in Europe.
THE CIRCE NETWORK
When constructed, the Circe Network is expected to have significant effects
on the Company's results of operations. The sale of indefeasible rights of use
or capacity on the Circe Network will vary substantially from period-to-period
and result in fluctuations in the Company's operating results. The Company will
capitalize substantially all of the costs associated with designing and building
the Circe Network, as well as the costs associated with placing the system in
service. These costs are expected to be approximately $530.0 million, although
there can be no assurance in this regard.
The Company will also incur selling, general and administrative expenses
with respect to the Circe Network that will not be capitalized and will affect
the Company's results of operations, particularly while the Circe Network is
being designed and built in 1998 and placed into service in 1999 and will incur
additional operating and maintenance expenses until capacity on the Circe
Network is sold. As a result of financing the Circe Network with debt, the
Company will capitalize the portion of the interest incurred that relates to the
Circe Network until it is placed in service and will incur substantial increases
in interest expense thereafter.
9
<PAGE>
RESULTS OF OPERATIONS
The following table summarizes the breakdown of the Company's results of
operations as a percentage of telecommunications revenue:
For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------------------------- ------------------------
1998 1997 1998 1997
---- ---- ---- ----
Telecommunications revenue 100.0% 100.0% 100.0% 100.0%
Cost of telecommunications
services 90.4% 85.1% 90.2% 84.1%
Selling, general and
administrative expenses 37.6% 52.3% 39.6% 55.7%
Depreciation and amortization 14.9% 7.9% 14.4% 8.2%
EBITDA loss (1) 28.0% 37.3% 29.8% 39.8%
- -------------------
(1) As used herein "EBITDA" consists of earnings before interest, income taxes,
extraordinary loss, dividends on convertible preferred stock and depreciation
and amortization. EBITDA is a measure commonly used in the telecommunications
industry to analyze companies on the basis of operating performance. EBITDA is
not a measure of financial performance under generally accepted accounting
principles, is not necessarily comparable to similarly titled measures of other
companies and should not be considered as an alternative to net income as a
measure of performance nor as an alternative to cash flow as a measure of
liquidity.
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
TELECOMMUNICATIONS REVENUE. Telecommunications revenue increased by 50.4%
to $27.8 million on 83.3 million billable minutes for the three months ended
June 30, 1998 from $18.4 million on 35.4 million billable minutes for the three
months ended June 30, 1997. Telecommunications revenue growth for the second
quarter of 1998 was generated primarily from increased European traffic and
growth in the Company's carrier business which was partially offset by decreased
revenue from the Company's Pacific Rim and Latin American operations.
The overall increase of 135.0% in billable minutes from the second quarter
of 1997 to the second quarter of 1998 was partially offset by declining revenue
per billable minute, as revenue per billable minute declined by 35.3% to $.33 in
the second quarter of 1998 from $.51 in the second quarter of 1997, primarily
because of (i) a higher percentage of lower-priced intra-European and national
long distance traffic from the European Network as compared to intercontinental
traffic, (ii) a higher percentage of lower-priced carrier traffic as compared to
retail traffic, (iii) reductions in certain rates charged to retail customers in
response to pricing reductions enacted by certain Incumbent Telecommunications
Operators ("ITOs") and other carriers in many of the Company's markets and (iv)
foreign currency fluctuations. See "- Cost of Telecommunications Services."
Telecommunications revenue per billable minute from the sale of services to
retail customers, which represented 44.2% of total telecommunications revenue
for the three months ended June 30, 1998, compared to 72.4% for the three months
ended June 30, 1997, decreased 37.0% to $.46 in the second quarter of 1998 from
$.73 in the second quarter of 1997. Telecommunications revenue per billable
minute from the sale of services to carriers and other resellers decreased to
$.27 in the second quarter of 1998 from $.30 in the second quarter of 1997. The
number of customers billed declined 27.8% to 15,981 (excluding dial-around
customers) at June 30, 1998 from 22,125 at June 30, 1997. This decline in
customers billed is primarily attributable to the Company's Pacific Rim
operations where the number of customers billed declined 87.9% to 799 at June
30, 1998 from 6,587 at June 30, 1997, representing a net loss of 5,788
customers.
During the second quarter of 1998, approximately 48.1% of the Company's
telecommunications revenue was generated in Western Europe as compared to
approximately 37.7% of the Company's telecommunications revenue during the
second quarter of 1997. Telecommunications revenue from Latin America
represented approximately 13.7% of the Company's telecommunications revenue
during the three months ended June 30, 1998 as compared to approximately 22.8%
of the Company's telecommunications revenue during the three months ended June
30, 1997. Telecommunications revenue from the Pacific Rim represented
approximately 1.5% of the Company's telecommunications revenue during the three
months ended June 30, 1998 as compared to approximately 12.5% of the Company's
telecommunications revenue during the three months ended June 30, 1997.
10
<PAGE>
During the second quarter of 1998 as compared to the second quarter of
1997, the Company has significantly increased its carrier business (through
which it sells switched minutes to carriers and other resellers at discounted
rates). The carrier business has enabled the Company to recover partially the
costs associated with increased capacity in advance of demand within retail
markets. Such economy of scale has allowed the Company to use its network more
profitably for network originations and terminations within Europe. The carrier
business represented approximately 55.7% of total telecommunications revenue and
approximately 67.8% of billable minutes for the three months ended June 30, 1998
as compared to approximately 26.9% of total telecommunications revenue and
approximately 48.3% of billable minutes for the three months ended June 30,
1997. The increase in telecommunications revenue derived from carriers and other
resellers represents an increase of approximately 202.9% over the corresponding
period in 1997 and is partially attributable to the acquisition of Flat Rate
Communications, Inc., a long distance telecommunications reseller, on February
27, 1998 (the "Flat Rate acquisition").
COST OF TELECOMMUNICATIONS SERVICES. Cost of telecommunications services
increased to $25.1 million in the second quarter of 1998 from $15.7 million in
the second quarter of 1997 and, as a percentage of telecommunications revenue,
increased to approximately 90.4% from approximately 85.1% for the three months
ended June 30, 1998 and 1997, respectively. The Company's gross margin
decreased, as a percentage of revenue, to 9.6% for the three months ended June
30, 1998 from 14.9% for the three months ended June 30, 1997. This decrease was
primarily due to (i) decreased revenue per minute (resulting from price
competition and foreign currency fluctuations) which was not offset by
corresponding decreases in infrastructure costs, (ii) increased sales to carrier
customers (which generate substantially lower margins), and (iii) an increase in
intra-European and national long distance traffic compared to higher margin
international traffic. This decrease in gross margin, as a percentage of
revenue, is one of the principal reasons the Company initiated a strategy to own
key elements of its network infrastructure. Although it did not decrease as fast
as revenues per minute, the Company's average cost per billable minute decreased
to $.30 during the three months ended June 30, 1998 from $.44 during the three
months ended June 30, 1997, a 31.8% decrease. This decrease, which partially
offset the effect of the decline in average revenue per billable minute, was
attributable primarily to increased traffic being routed through the European
Network and increased switched minutes generated by the Company's carrier
business, both of which increased the utilization of fixed cost leased lines.
Increased European Network utilization helped reduce costs on a per minute basis
with respect to European long distance telecommunications services.
Cost of telecommunications services increased in the three months ended
June 30, 1998 in part because of the relatively high cost of leased
infrastructure related to increasing the Viatel Network's transmission capacity.
These costs are expected to decrease as a percentage of telecommunications
revenue as the Company continues its efforts to convert from leased to owned
capacity. From June 30, 1997 to June 30, 1998, the Company increased its private
line circuits capacity, and, as a result, costs for private line circuits
increased to approximately $4.0 million for the three months ended June 30, 1998
(approximately 14.5% of telecommunications revenue) from approximately $2.3
million for the three months ended June 30, 1997 (approximately 12.3% of
telecommunications revenue).
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $10.4 million in the three months ended
June 30, 1998 from $9.6 million in the three months ended June 30, 1997 and, as
a percentage of telecommunications revenue, decreased to approximately 37.6% in
the three months ended June 30, 1998 from approximately 52.3% in the
corresponding period in 1997. Much of these expenses are attributable to
overhead costs associated with the Company's headquarters, back office and
network operations as well as maintaining a physical presence in seventeen
different jurisdictions. The Company expects to incur additional expenses as it
continues investing in operating infrastructure. Salaries and commissions, as a
percentage of total selling, general and administrative expenses, were
approximately 47.8% and 51.2% for the three months ended June 30, 1998 and 1997,
respectively.
11
<PAGE>
EBITDA LOSS. EBITDA loss increased to $7.8 million for the three months
ended June 30, 1998 from $6.9 million for the three months ended June 30, 1997.
As a percentage of telecommunications revenue, EBITDA loss decreased to
approximately 28.0% in the second quarter of 1998 from approximately 37.3% in
the second quarter of 1997. These losses resulted from lower gross margins as a
percentage of telecommunications revenue due to the relatively high cost of
intra-European leased lines which was compounded by price reductions implemented
by certain ITOs.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense, which
includes depreciation of the Viatel Network, increased to approximately $4.1
million in the three months ended June 30, 1998 from approximately $1.5 million
in the three months ended June 30, 1997. The increase was due primarily to (i)
the depreciation of equipment related to network expansion and fiber optic cable
systems placed in service during 1997 and the first six months of 1998 and (ii)
the amortization of goodwill associated with the Flat Rate acquisition.
Depreciation expense will increase substantially as a result of the further
expansion of the Viatel Network, particularly, in the near term, from the
construction of the Circe Network.
INTEREST. Interest expense increased to approximately $22.6 million in the
three months ended June 30, 1998 from approximately $3.0 million in the three
months ended June 30, 1997 primarily as a result of the Units Offering. Interest
income increased to approximately $9.3 million for the three months ended June
30, 1998 from approximately $1.1 million in the three months ended June 30, 1997
primarily as a result of the investment of the net proceeds from the Units
Offering.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
TELECOMMUNICATIONS REVENUE. Telecommunications revenue increased by 48.5%
to $49.0 million on 135.7 million billable minutes for the six months ended June
30, 1998 from $33.0 million on 58.9 million billable minutes for the six months
ended June 30, 1997. Telecommunications revenue growth for the first six months
of 1998 was generated primarily from increased European traffic and growth in
the Company's carrier business which was partially offset by decreased traffic
from the Company's Pacific Rim and Latin American operations.
The overall increase of 130.2% in billable minutes from the first six
months of 1997 to the first six months of 1998 was partially offset by declining
revenue per billable minute, as revenue per billable minute declined by 55.6% to
$.36 in the first six months of 1998 from $.56 in the first six months of 1997,
primarily because of (i) a higher percentage of lower-priced intra-European and
national long distance traffic from the European Network as compared to
intercontinental traffic, (ii) a higher percentage of lower-priced carrier
traffic as compared to retail traffic, (iii) reductions in certain rates charged
to retail customers in response to pricing reductions enacted by certain ITOs
and other carriers in many of the Company's markets and (iv) foreign currency
fluctuations. See "- Cost of Telecommunications Services."
Telecommunications revenue per billable minute from the sale of services to
retail customers, which represented 48.9% of total telecommunications revenue
for the six months ended June 30, 1998, compared to 77.7% for the six months
ended June 30, 1997, decreased 37.7% to $.48 in the first six months of 1998
from $.77 in the first six months of 1997. Telecommunications revenue per
billable minute from the sale of services to carriers and other resellers
remained constant at $.28 in the first six months of 1998 as compared to the
first six months of 1997.
During the first six months of 1998, approximately 50.2% of the Company's
telecommunications revenue was generated in Western Europe as compared to
approximately 39.6% of the Company's telecommunications revenue during the first
six months of 1997. Telecommunications revenue from Latin America represented
approximately 15.3% of the Company's telecommunications revenue during the six
months ended June 30, 1998 as compared to approximately 24.6% of the Company's
telecommunications revenue during the six months ended June 30, 1997.
Telecommunications revenue from the Pacific Rim represented approximately 2.1%
of the Company's telecommunications revenue during the six months ended June 30,
1998 as compared to approximately 13.4% of the Company's telecommunications
revenue during the six months ended June 30, 1997.
12
<PAGE>
The carrier business represented approximately 49.6% of total
telecommunications revenue and approximately 63.3% of billable minutes for the
six months ended June 30, 1998 as compared to approximately 22.3% of total
telecommunications revenue and approximately 44.1% of billable minutes for the
six months ended June 30, 1997. The increase in telecommunications revenue
derived from carriers and other resellers represents an increase of
approximately 218.8% over the corresponding period in 1997 and is partially
attributable to the Flat Rate acquisition.
COST OF TELECOMMUNICATIONS SERVICES. Cost of telecommunications services
increased to $44.2 million in the first six months of 1998 from $27.8 million in
the first six months of 1997 and, as a percentage of telecommunications revenue,
increased to approximately 90.2% from approximately 84.1% for the six months
ended June 30, 1998 and 1997, respectively. The Company's gross margin, as a
percentage of revenue, decreased to 9.8% for the six months ended June 30, 1998
from 15.9% for the six months ended June 30, 1997. This decrease was primarily
due to (i) decreased revenue per minute (resulting from price competition and
foreign currency fluctuations) which was not offset by corresponding decreases
in infrastructure costs, (ii) increased sales to carrier customers (which
generate substantially lower margins), and (iii) an increase in intra-European
and national long distance traffic compared to higher margin international
traffic. Although it did not decrease as fast as revenues per minute, the
Company's average cost per billable minute decreased to $.32 during the six
months ended June 30, 1998 from $.47 during the six months ended June 30, 1997,
a 31.9% decrease. This decrease, which partially offset the effect of the
decline in average revenue per billable minute, was attributable primarily to
increased traffic being routed through the European Network and increased
switched minutes generated by the Company's carrier business, both of which
increased the utilization of fixed cost leased lines. Increased European Network
utilization helped reduce costs on a per minute basis with respect to European
long distance telecommunications services.
Cost of telecommunications services increased in the six months ended June
30, 1998 in part because of the relatively high cost of leased infrastructure
related to increasing the Viatel Network's transmission capacity. Costs for
private line circuits increased to approximately $7.4 million for the six months
ended June 30, 1998 (approximately 15.2% of telecommunications revenue) from
approximately $4.2 million for the six months ended June 30, 1997 (approximately
12.7% of telecommunications revenue).
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $19.4 million in the six months ended June
30, 1998 from $18.4 million in the six months ended June 30, 1997 and, as a
percentage of telecommunications revenue, decreased to approximately 39.6% in
the six months ended June 30, 1998 from approximately 55.7% in the corresponding
period in 1997. Salaries and commissions, as a percentage of total selling,
general and administrative expenses, were approximately 49.9% and 51.9% for the
six months ended June 30, 1998 and 1997, respectively.
EBITDA LOSS. EBITDA loss increased to $14.6 million for the six months
ended June 30, 1998 from $13.1 million for the six months ended June 30, 1997.
As a percentage of telecommunications revenue, EBITDA loss decreased to
approximately 29.8% in the first six months of 1998 from approximately 39.8% in
the first six months of 1997. These losses resulted from lower gross margins as
a percentage of telecommunications revenue due to the relatively high cost of
intra-European leased lines which was compounded by price reductions implemented
by certain ITOs.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased to approximately $7.0 million in the six months ended June 30, 1998
from approximately $2.7 million in the six months ended June 30, 1997. The
increase was due primarily to (i) the depreciation of equipment related to
network expansion and fiber optic cable systems placed in service during 1997
and the first six months of 1998 and (ii) the amortization of goodwill
associated with the Flat Rate acquisition. Depreciation expense will increase
substantially as a result of the further expansion of the Viatel Network,
particularly, in the near term, from the construction of the Circe Network.
INTEREST. Interest expense increased to approximately $26.3 million in
the six months ended June 30, 1998 from approximately $6.0 million in the six
months ended June 30, 1997 primarily as a result of the Units Offering. Interest
income increased to approximately $9.8 million for the six months ended June 30,
1998 from approximately $2.2 million in the six months ended June 30, 1997
primarily as a result of the investment of the net proceeds from the Units
Offering.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred losses from operating activities in each year of
operations since its inception and expects to continue to incur operating and
net losses for the next several years. Since inception, the Company has utilized
cash provided by financing activities to fund operating losses and capital
expenditures. The sources of this cash have primarily been private equity
financing, the proceeds from the sale of the 15% Senior Discount Notes due 2005
(the "1994 Notes"), the proceeds from the Company's initial public offering of
Common Stock in October 1996, the proceeds from the Units Offering and, to a
lesser extent, equipment-based financing. As of June 30, 1998, the Company had
$602.1 million of cash, cash equivalents and other liquid investments and $157.1
million of restricted investments.
On April 8, 1998, the Company completed the Units Offering through which it
raised approximately $889.6 million of gross proceeds ($856.6 million of net
proceeds). The Company believes that the net proceeds from the Units Offering,
together with project financing, equipment financing and the sale of capacity on
the Circe Network will provide sufficient funds for the Company to expand its
business as planned and to fund operating losses for at least the next 18 to 24
months. The Company has used certain of the net proceeds from the Units Offering
to (i) finance a tender offer as described below and (ii) to purchase
approximately $122.8 million of U.S. government securities which were pledged as
security for the interest on the U.S. dollar denominated senior notes and
approximately $30.6 million of German government obligations which were pledged
as security for the interest on the Deutschmark denominated senior notes issued
in the Units Offering. The Company intends to use the remaining net proceeds to
fund a portion of the construction and operational start-up of the Circe
Network, to fund other capital expenditures and for general corporate and
working capital purposes.
The Company also completed a tender offer for the 1994 Notes on April 8,
1998 in which all $120.7 million aggregate principal amount at maturity of the
1994 Notes were tendered. In connection with the tender for the 1994 Notes, a
one-time charge of approximately $28.3 million was incurred and recorded in the
second quarter of 1998. This extraordinary charge relates to the early
extinguishment of debt and is comprised of the following: (i) a $24.7 million
premium paid in connection with the tender offer, (ii) a $0.3 million fee and
$0.7 million of other costs associated with the tender offer, and (iii) a
write-off of $2.6 million in unamortized deferred issuance and registration fees
associated with the 1994 Notes.
CAPITAL EXPENDITURES; COMMITMENTS. The development of the Company's
business has required substantial capital expenditures. During the six months
ended June 30, 1998, the Company had capital expenditures of approximately $41.8
million. The Company expects to spend approximately $530.0 million to construct
the Circe Network and place it in service, although there can be no assurance
that the Company will not spend substantially more to complete the Circe
Network. The Company has or intends to enter into certain agreements associated
with the Circe Network, purchase commitments for network expansion and other
items aggregating $200.0 to $400.0 million during 1998. In addition, the Company
has minimum volume commitments to purchase transmission capacity from various
domestic and foreign carriers aggregating approximately $13.8 million for 1998.
FOREIGN CURRENCY. The Company has exposure to fluctuations in foreign
currencies relative to the U.S. Dollar as a result of billing portions of its
telecommunications revenue in the local European currency in a country where the
local currency is relatively stable, while many of its obligations, including a
substantial portion of its transmission costs, are denominated in U.S. Dollars.
In countries with less stable currencies, such as Brazil, the Company bills in
U.S. Dollars. For the six months ended June 30, 1998, approximately 41.5% of the
Company's telecommunications revenue was billed in various European currencies.
Debt service on certain of the notes issued in the Units Offering are payable in
German Deutschmarks. Substantially all of the costs of acquisition and upgrade
of the Company's switches have been, and are expected to continue to be, U.S.
Dollar denominated transactions, however, a substantial portion of the costs to
construct the Circe Network will be denominated in various European currencies,
including German Deutschmarks. All of the European currencies in which the
Company does business are expected to converge as part of the European Monetary
Union, with the exception of the British Pound Sterling.
14
<PAGE>
With the continued expansion of the European Network, a substantial portion
of the costs associated with the European Network, such as local access and
termination charges and a portion of the leased line costs, as well as a
majority of local selling expenses and debt service related to the Deutschmark
denominated notes, will be charged to the Company in the same currencies as
revenue is billed. These developments create a natural hedge against a portion
of the Company's foreign exchange exposure. To date, much of the funding
necessary to establish the local direct sales organizations has been derived
from telecommunications revenue that was billed in local currencies.
Consequently, the Company's financial position as of June 30, 1998 and its
results of operations for the three and six months ended June 30, 1998 were not
significantly impacted by fluctuations in the U.S. Dollar in relationship to
foreign currencies.
YEAR 2000
In 1997, the Company conducted an evaluation of its computer systems and
network for Year 2000 compliance. Based on such evaluation, the Company believes
that its software and hardware systems are Year 2000 compliant. The Company does
not know whether the computer systems of ITOs and other carriers on whose
services the Company depends for transmission capacity are Year 2000 compliant.
If the computer systems of the ITOs and such other carriers are not Year 2000
compliant, it could have a material adverse effect on the Company's business,
financial condition and results of operations.
FORWARD LOOKING STATEMENTS
Certain statements contained herein which express "belief," "anticipation,"
"expectation," or "intention" or any other projection, including statements
concerning the design, configuration, feature and performance of the Company's
network and related services, the development and expansion of the Company's
business, the markets in which the Company's services are or will be offered,
capital expenditures and regulatory reform, insofar as they may apply
prospectively and are not historical facts, are "forward-looking" statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Because such statements include risks
and uncertainties, actual results may differ materially from those expressed or
implied by such forward-looking statements. Factors that could cause actual
results to differ materially from those expressed or implied by such
forward-looking statements include, but are not limited to, the factors set
forth in "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Certain Factors Which May Affect the Company's
Future Results," of the Company's Annual Report on Form 10-K for fiscal 1997.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not currently applicable to the Company.
15
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
None.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(a) Not Applicable.
(b) Not Applicable.
(c) On April 8, 1998, the Company completed the Units Offering which
included two units consisting of either senior notes or senior
discount notes and Series A Preferred. In total, 438,200 shares of
Series A Preferred were issued in the Units Offering for an
aggregate price of approximately $43.8 million. The underwriting
discounts and commissions associated with the Series A Preferred
was approximately $2.0 million. The initial purchasers of the
units sold in the Units Offering were Morgan Stanley & Co.
Incorporated, Morgan Stanley Bank AG, Salomon Brothers, Inc, ING
Baring (U.S.) Securities, Inc. and NationsBanc Montgomery
Securities LLC. The units which included the Series A Preferred
were sold in reliance upon Rule 144A under the Securities Act of
1933. The Series A Preferred are convertible, at the option of the
holders, at any time on or after April 8, 1999, at a conversion
price equal to $13.20 per share of Common Stock (the "Conversion
Price"), subject to certain adjustments. In addition, the Series A
Preferred is mandatorily convertible into shares of Common Stock
at the Conversion Price if the per share price of the Common Stock
for any 20 consecutive trading days during the twelve months
ending April 15, 1999, April 15, 2000, April 15, 2001, April 15,
2002 or April 15, 2003 exceeds $26.40, $32.30, $38.20, $44.10 or
$50.00, respectively, subject to certain limitations.
(d) Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
Item 5. OTHER INFORMATION.
In accordance with the advance notice provisions contained in the
Company's By-laws, the Company must receive notice of a stockholder's
intent to propose business or make a nomination at an annual meeting
not less than 120 days prior to the first anniversary of the preceding
year's annual meeting. In order for a proposal to be presented at the
1998 Annual Meeting of Stockholders, such proposal would have had to
been received by the Company by April 16, 1998. Any nomination or
proposal to be presented at the 1999 Annual Meeting of Stockholders
must be received by the Company on or before March 30, 1999.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
3(i)(b) Certificate of Designations, Preferences and Rights of 10%
Series A Redeemable Convertible Preferred Stock, $.01 par value
(incorporated herein by reference to Exhibit 3(i)(b) to the
Company's Registration Statement on Form S-4, filed on July 10,
1998, Registration Statement No. 333-58921 (the "Company's 1998
Form S-4").
4.1 Indenture, dated as of April 8, 1998, between Viatel, Inc. and
The Bank of New York, as Trustee, relating to the Company's
12.50% Senior Discount Notes Due 2008 (including form of 12.50%
Senior Discount Note) (incorporated herein by reference to
Exhibit 4.1 to the Company's 1998 Form S-4).
16
<PAGE>
4.2 Indenture, dated as of April 8, 1998, between Viatel, Inc.
and The Bank of New York, as Trustee, relating to the Company's
11.25% Senior Notes Due 2008 (including form of 11.25% Senior
Note) (incorporated herein by reference to Exhibit 4.2 to the
Company's 1998 Form S-4).
4.3 Indenture, dated as of April 8, 1998, among Viatel, Inc., The
Bank of New York, as Trustee, and Deutsche Bank,
Aktiengesellschaft, as German Paying Agent and Co-Registrar,
relating to the Company's 12.40% Senior Discount Notes Due 2008
(including form of 12.40% Senior Discount Note) (incorporated
herein by reference to Exhibit 4.3 to the Company's 1998 Form
S-4).
4.4 Indenture, dated as of April 8, 1998, among Viatel, Inc., The
Bank of New York, as Trustee, and Deutsche Bank,
Aktiengesellschaft, as German Paying Agent and Co-Registrar,
relating to the Company's 11.15% Senior Notes Due 2008 (including
form of 11.15% Senior Note) (incorporated herein by reference to
Exhibit 4.4 to the Company's 1998 Form S-4).
4.5 Indenture, dated as of April 8, 1998, among Viatel, Inc., The
Bank of New York, as Trustee, and Deutsche Bank,
Aktiengesellschaft, as German Paying Agent and Co-Registrar,
relating to the Company's 10% Subordinated Convertible Debentures
Due 2011 (including form of 10% Subordinated Convertible
Debentures) (incorporated herein by reference to Exhibit 4.5 to
the Company's 1998 S-4).
4.6 Registration Rights Agreement, dated April 3, 1998, among
Viatel, Inc., Morgan Stanley & Co., Incorporated, Morgan Stanley
Bank AG, Salomon Brothers Inc, ING Baring (U.S.) Securities, Inc.
and NationsBanc Montgomery Securities LLC (incorporated herein by
reference to Exhibit 4.6 to the Company's 1998 Form S-4).
4.7 Conversion Shares Registration Rights Agreement, dated April
3, 1998, among Viatel, Inc., Morgan Stanley & Co., Incorporated,
Morgan Stanley Bank AG, Salomon Brothers Inc, ING Baring (U.S.)
Securities, Inc. and NationsBanc Montgomery Securities LLC
(incorporated herein by reference to Exhibit 4.7 to the Company's
1998 Form S-4).
4.8 Purchase Agreement, dated April 3, 1998, among Viatel, Inc.,
Morgan Stanley & Co., Incorporated, Morgan Stanley Bank AG,
Salomon Brothers Inc, ING Baring (U.S.) Securities, Inc. and
NationsBanc Montgomery Securities LLC, as Initial Purchasers
(incorporated herein by reference to Exhibit 4.8 to the Company's
1998 Form S-4).
10.16 Equipment Purchase Agreement, dated June 29, 1998, between
Viatel, Inc. and Nortel PLC (incorporated herein by reference to
Exhibit 10.16 to the Company's 1998 Form S-4).**
10.17 Agreement of Lease, dated June 24, 1998, between 685 Acquisition
LLC and Viatel, Inc., as amended by a letter agreement,
dated July 27, 1998 (incorporated herein by reference to Exhibit
10.17 to the Company's 1998 Form S-4).
10.18 Lease, dated June 23, 1998, between VC Associates and Viatel
New Jersey, Inc. (incorporated herein by reference to Exhibit
10.18 to the Company's 1998 Form S-4).
27 Financial Data Schedule.
----------------
** Confidential treatment granted as to certain portions of this
exhibit.
(b) REPORTS ON FORM 8-K.
A report on Form 8-K was filed by the Company on June 8, 1998,
pursuant to Item 5 thereof announcing the execution of a Mutual
Cooperation Agreement with Martin Varsavsky and Jazz Telecom S.A.
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 by the
undersigned thereunto duly authorized.
VIATEL, INC.
By: /s/ Michael J. Mahoney
-----------------------------------
Michael J. Mahoney
President and Chief Executive Officer
By: /s/ Allan L. Shaw
-------------------------------------
Allan L. Shaw
Senior Vice President, Finance and
Chief Financial Officer
Date: August 12, 1998
18
<PAGE>
EXHIBIT INDEX
Sequentially
No. Description Numbered Page
- -- ----------- -------------
3(i)(b) Certificate of Designations, Preferences and Rights of
10% Series A Redeemable Convertible Preferred Stock,
$.01 par value (incorporated herein by reference to
Exhibit 3(i)(b) to the Company's Registration Statement
on Form S-4, filed on July 10, 1998, Registration
Statement No. 333-58921 (the "Company's 1998 Form
S-4").
4.1 Indenture, dated as of April 8, 1998, between Viatel,
Inc. and The Bank of New York, as Trustee, relating to
the Company's 12.50% Senior Discount Notes Due 2008
(including form of 12.50% Senior Discount Note)
(incorporated herein by reference to Exhibit 4.1 to the
Company's 1998 Form S-4).
4.2 Indenture, dated as of April 8, 1998, between Viatel,
Inc. and The Bank of New York, as Trustee, relating to
the Company's 11.25% Senior Notes Due 2008 (including
form of 11.25% Senior Note) (incorporated herein by
reference to Exhibit 4.2 to the Company's 1998 Form
S-4).
4.3 Indenture, dated as of April 8, 1998, among Viatel,
Inc., The Bank of New York, as Trustee, and Deutsche
Bank, Aktiengesellschaft, as German Paying Agent and
Co-Registrar, relating to the Company's 12.40% Senior
Discount Notes Due 2008 (including form of 12.40%
Senior Discount Note) (incorporated herein by reference
to Exhibit 4.3 to the Company's 1998 Form S-4).
4.4 Indenture, dated as of April 8, 1998, among Viatel,
Inc., The Bank of New York, as Trustee, and Deutsche
Bank, Aktiengesellschaft, as German Paying Agent and
Co-Registrar, relating to the Company's 11.15% Senior
Notes Due 2008 (including form of 11.15% Senior Note)
(incorporated herein by reference to Exhibit 4.4 to the
Company's 1998 Form S-4).
4.5 Indenture, dated as of April 8, 1998, among Viatel,
Inc., The Bank of New York, as Trustee, and Deutsche
Bank, Aktiengesellschaft, as German Paying Agent and
Co-Registrar, relating to the Company's 10%
Subordinated Convertible Debentures Due 2011 (including
form of 10% Subordinated Convertible Debentures)
(incorporated herein by reference to Exhibit 4.5 to the
Company's 1998 S-4).
4.6 Registration Rights Agreement, dated April 3, 1998,
among Viatel, Inc., Morgan Stanley & Co., Incorporated,
Morgan Stanley Bank AG, Salomon Brothers Inc, ING
Baring (U.S.) Securities, Inc. and NationsBanc
Montgomery Securities LLC (incorporated herein by
reference to Exhibit 4.6 to the Company's 1998 Form
S-4).
4.7 Conversion Shares Registration Rights Agreement, dated
April 3, 1998, among Viatel, Inc., Morgan Stanley &
Co., Incorporated, Morgan Stanley Bank AG, Salomon
Brothers Inc, ING Baring (U.S.) Securities, Inc. and
NationsBanc Montgomery Securities LLC (incorporated
herein by reference to Exhibit 4.7 to the Company's
1998 Form S-4).
4.8 Purchase Agreement, dated April 3, 1998, among Viatel,
Inc., Morgan Stanley & Co., Incorporated, Morgan
Stanley Bank AG, Salomon Brothers Inc, ING Baring
(U.S.) Securities, Inc. and NationsBanc Montgomery
Securities LLC, as Initial Purchasers (incorporated
herein by reference to Exhibit 4.8 to the Company's
1998 Form S-4).
10.16 Equipment Purchase Agreement, dated June 29, 1998,
between Viatel, Inc. and Nortel PLC (incorporated
herein by reference to Exhibit 10.16 to the Company's
1998 Form S-4).**
10.17 Agreement of Lease, dated June 24, 1998, between 685
Acquisition LLC and Viatel, Inc., as amended by a
letter agreement, dated July 27, 1998 (incorporated
herein by reference to Exhibit 10.17 to the Company's
1998 Form S-4).
10.18 Lease, dated June 23, 1998, between VC Associates and
Viatel New Jersey, Inc. (incorporated herein by
reference to Exhibit 10.18 to the Company's 1998 Form
S-4).
27 Financial Data Schedule.
- ----------------
** Confidential treatment granted as to certain portions of this exhibit.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited consolidated financial statements of the Company for the six months
ended June 30, 1998 and is qualified in its entirety by reference to such
unaudited consolidated financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 602,092,208
<SECURITIES> 47,709,560
<RECEIVABLES> 22,128,207
<ALLOWANCES> 1,950,000
<INVENTORY> 0
<CURRENT-ASSETS> 675,746,135
<PP&E> 110,455,574
<DEPRECIATION> 17,969,059
<TOTAL-ASSETS> 920,644,435
<CURRENT-LIABILITIES> 80,727,079
<BONDS> 860,303,583
44,830,295
0
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</TABLE>
