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, 1999
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)
685 Third Avenue
New York, New York
(Address of principal executive offices)
10017
(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 2, 1999, 32,596,944 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
( in thousands, except share data)
<TABLE>
<CAPTION>
June 30, 1999 December 31,
ASSETS (Unaudited) 1998
---------------- ----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 536,659 $ 329,511
Restricted cash equivalents 11,987 10,310
Restricted marketable securities, current 90,308 50,870
Marketable securities, current - 171,771
Trade accounts receivable, net of allowance for doubtful accounts of
$2,983 and $3,093, respectively 44,520 28,517
Other receivables 28,354 13,404
Prepaid expenses 7,999 2,417
---------------- ----------------
Total current assets 719,827 606,800
---------------- ----------------
Restricted marketable securities, non-current 94,285 83,343
Property and equipment, net 587,903 266,256
Cash securing letters of credit for network construction 112,404 -
Intangible assets, net 68,349 46,968
Other assets 11,744 5,744
---------------- ----------------
$1,594,512 $1,009,111
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accrued telecommunications costs $ 46,563 $ 26,518
Accounts payable and other accrued expenses 21,910 23,656
Property and equipment purchases payable 202,282 97,288
Accrued interest 23,368 12,240
Liability under joint construction agreement 3,266 9,523
Current installments of notes payable and obligations under capital
leases 11,101 8,918
---------------- ----------------
Total current liabilities 308,490 178,143
---------------- ----------------
Long-term liabilities:
Long- term debt 1,240,487 896,503
Notes payable and obligations under capital leases, excluding
current installments 32,929 24,636
---------------- ----------------
Total long-term liabilities 1,273,416 921,139
Series A Redeemable Convertible Preferred Stock, $.01 par value;
Authorized 718,042 Shares; issued and outstanding none and
461,258 shares, respectively - 47,121
---------------- ----------------
Commitments and contingencies Stockholders' equity (deficiency):
Preferred Stock, $.01 par value. Authorized 1,281,958 shares, no shares issued
and outstanding. -- --
Common Stock, $.01 par value. Authorized 50,000,000 shares, issued and
outstanding 32,586,190 and 23,184,465 shares, respectively 326 232
Additional paid-in capital 389,754 128,357
Unearned compensation (6,442) -
Accumulated other comprehensive loss (27,461) (6,246)
Accumulated deficit (343,571) (259,635)
---------------- ----------------
Total stockholders' equity (deficiency) 12,606 (137,292)
---------------- ----------------
$1,594,512 $1,009,111
================ ================
See accompanying notes to consolidated financial statements.
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
VIATEL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
(in thousands, except per share data)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
------------------------------------ --------------------------------------
1999 1998 1999 1998
----------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Revenue:
Communication services revenue $ 47,849 $ 27,751 $ 96,243 $ 48,990
Capacity sales 20,855 - 34,102 -
----------------- ---------------- ---------------- -----------------
Total revenue 68,704 27,751 130,345 48,990
----------------- ---------------- ---------------- -----------------
Operating expenses:
Cost of services and sales 52,559 25,096 103,607 44,201
Selling, general and administrative 21,090 10,433 39,853 19,388
Depreciation and amortization 11,978 4,126 21,582 7,037
----------------- ---------------- ---------------- -----------------
Total operating expenses 85,627 39,655 165,042 70,626
----------------- ---------------- ---------------- -----------------
Other income (expense):
Interest income 6,937 9,303 13,766 9,813
Interest expense (35,498) (22,550) (61,665) (26,331)
----------------- ---------------- ---------------- -----------------
Loss before extraordinary loss (45,484) (25,151) (82,596) (38,154)
Extraordinary loss on debt prepayment - (28,304) - (28,304)
----------------- ---------------- ---------------- -----------------
Net loss (45,484) (53,455) (82,596) (66,458)
Dividend on redeemable convertible
preferred stock (164) (1,010) (1,341) (1,010)
----------------- ---------------- ---------------- -----------------
Net loss attributable to common stockholders $ (45,648) $ (54,465) $ (83,937) $ (67,468)
================= ================ ================ =================
Loss per common share, basic and diluted:
Before extraordinary item $ (1.77) $ (1.13) $ (3.42) $ (1.71)
From extraordinary item - (1.23) - (1.23)
================= ================ ================ =================
Net loss attributable to
common stockholders $ (1.77) $ (2.36) $ (3.42) $ (2.94)
================= ================ ================ =================
Weighted average common shares outstanding,
basic and diluted 25,846 23,095 24,524 22,940
================= ================ ================ =================
See accompanying notes to consolidated financial statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
VIATEL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
For the Six Months Ended
June 30,
-----------------------------------
1999 1998
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (82,596) $ (66,458)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 21,582 7,037
Accreted interest expense on long term debt 20,935 25,517
Provision for losses on accounts receivable 4,036 1,955
Extraordinary loss on debt prepayment - 28,305
Earned compensation 108 33
Changes in assets and liabilities:
Increase in accounts receivable and accrued interest (16,588) (14,730)
Increase in accrued interest expense on Senior Notes 11,129 -
(Increase) decrease in prepaid expenses and other receivables (25,478) 3,502
Increase in other assets and intangible assets (901) (440)
Increase in accrued telecommunication costs, accounts
payable and other accrued expenses 12,842 7,471
---------------- ----------------
Net cash used in operating activities (54,931) (7,808)
---------------- ----------------
Cash flows from investing activities:
Purchase of property, equipment and software (225,864) (12,721)
Payment for business acquired, net of cash acquired (12,000) (5,000)
Purchase of marketable securities (219,725) (159,264)
Proceeds from maturity of marketable securities 299,049 30,085
Cash securing letters of credit (112,404) -
Issuance of notes receivable (4,498) -
---------------- ----------------
Net cash used in investing activities (275,442) (146,900)
---------------- ----------------
Cash flows from financing activities:
Proceeds from issuance of senior notes and senior discount notes 365,471 834,703
Proceeds from issuance of convertible debentures and convertible
preferred stock - 53,246
Repayment of senior discount notes - (119,282)
Deferred financing costs (12,880) (31,547)
Proceeds from issuance of Common Stock 194,150 623
Repayment of notes payable and bank credit line (1,615) (2,033)
Payments under capital leases (2,241) (137)
---------------- ----------------
Net cash provided by financing activities 542,885 735,573
---------------- ----------------
Effects of exchange rate changes on cash (3,688) 131
---------------- ----------------
Net increase in cash and cash equivalents 208,824 580,996
Cash and cash equivalents at beginning of period 339,822 21,096
---------------- ----------------
Cash and cash equivalents at end of period $ 548,646 $ 602,092
================ ================
Supplemental disclosures of cash flow information:
Interest paid $ 28,651 $ 673
================ ================
Assets acquired under capital lease obligations $ 13,550 -
================ ================
Conversion of preferred stock and convertible debentures $ 60,791 -
================ ================
See accompanying notes to consolidated financial statements.
</TABLE>
3
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Information as of June 30, 1999 and for the periods
ended June 30, 1999 and 1998 is unaudited)
(1) DESCRIPTION OF BUSINESS
Viatel Inc. and subsidiaries (collectively, the "Company") is a global
integrated services provider of long distance communication and data
services to end users, carriers and resellers. The Company operates a
pan-European network with points of presence in 45 cities, direct sales
forces in twelve Western European cities and an indirect sales force in more
than 180 locations in Western Europe. The Company is currently constructing
a series of interconnected state-of-the-art, high quality, high capacity,
self-healing fiber optic rings utilizing the synchronous digital hierarchy
standard for digital transmission which will connect major cities in six
European countries (the "Circe Network").
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements as of June 30, 1999 and for the three
and six month periods ended June 30, 1999 and 1998, respectively, have been
prepared by 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.
Certain reclassifications have been made to the prior years' condensed
consolidated financial statements to conform to the current year's
presentation. Operating results for the three and six months ended June 30,
1999 may not be indicative of the results that may be expected for the full
year.
CAPACITY SALES
Customers of the Company can purchase capacity on the Company's network.
Revenues from the sale of network capacity are recognized in the period that
the rights and obligations of ownership transfer to the purchaser.
Cost of capacity sales in any period is determined based upon the ratio of
total capacity sold and total anticipated capacity to be utilized multiplied
by the related total costs of the relevant portion of the Company's network.
NEW PRONOUNCEMENTS
On January 1, 1999, the Company adopted Statement of Position 98-5 (SOP
98-5), "Reporting on the Costs of Start-Up Activities," issued by the
American Institute of Certified Public Accountants. SOP 98-5 requires that
certain start-up expenditures and organization costs previously capitalized
must now be expensed. The adoption of this statement did not have a material
effect on our consolidated financial statements.
4
<PAGE>
(3) 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 therefore does not
classify any securities as trading.
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, 1999.
The following is a summary of the amortized cost, which approximates fair
value, of restricted securities held to maturity at June 30, 1999 (in
thousands) :
U.S. Treasury obligations $129,351
German corporate obligations 55,242
-----------------
Total $184,593
=================
The amortized cost, which approximates fair value, of restricted
securities held to maturity at June 30, 1999 are shown below (in
thousands) :
Due within one year $ 90,308
Due after one through two years 94,285
-----------------
Total $ 184,593
=================
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.
(4) PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of (in thousands) :
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------------ ------------------
<S> <C> <C>
Communication system $385,621 $ 96,193
Construction in progress 212,179 172,630
Furniture, equipment and other 20,106 16,450
Leasehold improvements 8,611 6,651
------------------ ------------------
626,517 291,924
Less accumulated depreciation and amortization 38,614 25,668
================== ==================
$587,903 $266,256
================== ==================
</TABLE>
At June 30, 1999, construction in progress primarily represents
construction of the Circe Network. For the six month periods ended June
30, 1999 and 1998, $4.6 million and $0.9 million, respectively, of
interest was capitalized.
In connection with the Company's joint construction of the civil works
associated with a national communications network being constructed in
Germany during 1999, the Company was required to obtain a letter of credit
in support of its obligation. At June 30, 1999, the total amount
outstanding relating to this letter of credit was approximately $112.4
million (DM212.8 million).
5
<PAGE>
(5) INTANGIBLE ASSETS
Intangible assets consist of the following as of (in thousands) :
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------------ ------------------
<S> <C> <C>
Deferred financing and registration fees $44,427 $31,547
Licenses, trademarks, and servicemarks 9,347 10,031
Goodwill 20,270 8,744
Purchased software 3,524 1,859
Other - 206
------------------ ------------------
77,568 52,387
Less accumulated amortization 9,219 5,419
================== ==================
$68,349 $46,968
================== ==================
</TABLE>
During the first half of 1999, the Company recognized and paid its
obligation for contingent consideration for its 1998 acquisition of Flat
Rate based upon key operating performance targets being met during the
period ended March 31, 1999. Such contingent consideration has been
recorded as goodwill.
(6) LONG TERM DEBT AND CONVERTIBLE SECURITIES
On March 19, 1999, the Company completed a high yield offering through
which it raised $365.5 million of gross proceeds ($352.6 million of net
proceeds).
At June 30, 1999, the Company has aggregate long term debt consisting of
senior notes and senior discount notes due 2008 and 2009 which totals $1.3
billion. A portion of the proceeds from the senior notes were used to
purchase U.S. and German government securities which were pledged as
security for the first six and four interest payments on the senior notes
due 2008 and 2009, respectively. The amount of restricted securities
remaining pledged as security for these notes is currently $184.6 million.
The senior discount notes accrete through April 15, 2003 and interest
becomes payable in cash in semi-annual installments thereafter. The
interest on the senior notes is payable in semi-annual installments. The
indentures pursuant to which the senior notes and the senior discount
notes were issued contain certain covenants that, among other things,
limit the ability of the Company to incur additional indebtedness, pay
dividends or make certain other distributions, enter into transactions
with stockholders and affiliates and create liens on its assets. In
addition, upon a change of control, the Company is required to make an
offer to purchase the senior notes and the senior discount notes at a
purchase price equal to 101% of the principal amount, in the case of the
senior notes, and 101% of the accreted value of the notes, in the case of
the senior discount notes.
Long term debt consists of the following as of (in thousands) :
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------------- -----------------
<S> <C> <C>
11.25% Senior Notes $400,000 $400,000
11.15% Senior Notes (E91,010) 94,009 106,015
11.50% Senior Notes 200,000 -
11.50% Senior Notes (E150,000) 154,943 -
12.50% Senior Discount Notes, less discount of $184,136 315,864 297,284
12.40% Senior Discount Notes, (E115,552), less discount of 75,671 80,355
$43,688 (E42,294)
10% Subordinated Convertible Debentures - 12,849
================= =================
$1,240,487 $896,503
================= =================
</TABLE>
6
<PAGE>
The Company's 10% Series A Preferred Stock and the 10% Subordinated
Convertible Debentures issued in connection with the Company's 1998 high
yield offering were mandatorily convertible in the event the closing price
of the Company's common stock exceeded certain predetermined annual price
targets. On May 13, 1999, the conditions for mandatory conversion were met
for both the Series A Preferred Stock and the Subordinated Convertible
Debentures. The conversion rates for the Series A Preferred Stock and
Subordinated Convertible Debentures were $13.20 and DM24.473, at the then
applicable exchange rates, respectively. Accordingly, the Company issued
approximately 4.6 million shares of its common stock and paid cash for any
fractional shares due upon conversion.
During 1997, the Company entered into Loan and Security Agreements pursuant
to which the Company borrowed an aggregate of $11.1 million. Under the
terms of these agreements, the Company is required to satisfy certain
covenants and restrictions. As of June 30, 1999, the Company was either in
compliance with, or had received waivers to, these covenants. Obligations
under these Loan and Security Agreements are secured by the grant of a
security interest in certain telecommunications equipment as well as a
portion of the payment obligations also being secured by letters of credit.
(7) STOCK INCENTIVE PLAN
The Amended Stock Incentive Plan (the "Stock Incentive Plan") allows for
the issuance of approximately 3.6 million shares of the Company's common
stock, of which approximately 0.2 million shares are available for future
grants as of June 30, 1999.
Stock option activity for the six months ended June 30, 1999 under the
Stock Incentive Plan is shown below (in thousands) :
<TABLE>
<CAPTION>
WEIGHTED AVERAGE NUMBER OF
EXERCISE PRICES SHARES
---------------- ----------
<S> <C> <C>
Outstanding at December 31, 1998 $ 7.41 2,594
Granted 26.57 703
Exercised 6.01 (329)
Forfeited 5.85 (1)
------ ------
Outstanding at June 30, 1999 $ 12.10 2,967
======= ======
</TABLE>
As of June 30, 1999, approximately 1.4 million options were exercisable
under the Stock Incentive Plan.
(8) COMPREHENSIVE LOSS
The Company's comprehensive loss is as follows (in thousands) :
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
---------------------------------- ----------------------------------
1999 1998 1999 1998
-------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net loss $(45,484) $(53,455) $ (82,596) $(66,458)
Foreign currency translation adjustment (12,379) 652 (21,215) 135
-------------- ---------------- --------------- ---------------
Comprehensive loss $(57,863) $(52,803) $(103,811) $(66,323)
============== ================ =============== ===============
</TABLE>
7
<PAGE>
(9) SEGMENT AND GEOGRAPHIC DATA
While the Company's chief decision maker monitors revenue streams of the
various products and geographic locations, operations are managed and
financial performance is evaluated based on the delivery of multiple,
integrated services to customers over a single network. As a result, there
are many shared expenses generated by the various revenue streams and
management believes that any allocation of the expenses incurred to
multiple revenue streams or geographic locations would be impractical and
arbitrary. Management does not currently make such allocations internally.
The Company groups its products and services by wholesale, retail, and
capacity. The information below summarizes revenue by customer type for the
three and six months ended June 30, 1999 and 1998, respectively (in
thousands):
<TABLE>
<CAPTION>
For the three months For the six months
ended ended
June 30, June 30,
----------------------- ----------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Retail................................................. $27,354 $12,304 $54,688 $ 24,066
Wholesale.............................................. 20,495 15,447 41,555 24,924
Capacity............................................... 20,855 - 34,102 -
------- ------- -------- --------
Consolidated.......................................... $68,704 $27,751 $130,345 $ 48,990
======= ======= ======== ========
</TABLE>
The information below summarizes revenue by geographic area for the three
months and the six months ended June 30, 1999 and 1998, respectively (in
thousands):
<TABLE>
<CAPTION>
For the three months For the six months
ended ended
June 30, June 30,
---------- ---------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Western Europe......................................... $54,109 $13,349 $95,558 $24,577
North America.......................................... 12,272 10,178 29,524 15,885
Latin America.......................................... 2,287 3,812 5,184 7,500
Asia/Pacific Rim and other............................. 36 412 79 1,028
------- ------- -------- -------
Consolidated........................................... $68,704 $27,751 $130,345 $48,990
======= ======= ======== =======
</TABLE>
The information below summarizes long lived assets by geographic area as
of June 30, 1999 and December 31, 1998, respectively (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Western Europe.......................................... $544,703 $237,443
North America........................................... 71,817 46,837
Latin America........................................... 205 289
--------------- ---------------
Consolidated............................................ $616,725 $284,569
=============== ===============
</TABLE>
(10) EQUITY OFFERING
On June 29, 1999, the Company completed an offering of 4,315,000 shares of
its common stock at $47 per share. The net proceeds of the offering were
approximately $192.2 million and will be used primarily to fund the further
development of the newwork as well as for working capital and general
corporate purposes.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
We are a rapidly growing international communications company providing
high quality, competitively priced, long distance communication and data
services to end users, carriers and resellers. We maintain direct sales forces
in twelve Western European cities and an indirect sales force in more than 180
locations throughout Western Europe.
To capitalize on the opportunities presented by deregulation of the
telecommunication industry in Western Europe, we established an early presence
and acquired licenses, interconnection and infrastructure. Today, we hold
licenses in Belgium, France, Germany, The Netherlands, Italy and the United
Kingdom and interconnection agreements with each incumbent telecommunications
operator in these countries. We also have licenses in Spain and Switzerland and
expect to obtain interconnection in these countries.
We currently operate one of Europe's largest pan-European networks, with
points of presence in 45 cities. We believe that control of network
infrastructure is critical to becoming a high quality, low cost provider of
communications services. We also believe that network ownership will enable us
to better manage service offerings. Accordingly, we are in the process of
migrating from a network comprised of international and domestic leased
infrastructure to a network comprised primarily of owned infrastructure.
THE CIRCE NETWORK
The Company is currently constructing five interconnected, bi-directional,
state-of-the-art, fiber optic rings, which, when completed will encompass
approximately 8,700 route kilometers of fiber optic cable (the "Circe Network").
The first phase of the Circe Network, consisting of approximately 1,850 route
kilometers was completed in March 1999 and connects, among other cities, London,
Paris, Amiens, Brussels, Antwerp, Rotterdam, and Amsterdam. The second phase of
the Circe Network became operational in July 1999 and now carries commercial
traffic to London, Paris, Amiens, Nancy, Strasbourg, Dusseldorf, Frankfurt,
Mannheim, Antwerp, Brussels, Rotterdam and Amsterdam. Construction on a third
phase, which will connect Essen, Hamburg, Berlin, Dresden, Bremen, Leipzig,
Nurnberg, Munich, Stuttgart, Frankfurt and Koln, has commenced and is expected
to be available during the first quarter of 2000. We anticipate that the fourth
and fifth phases of the Circe Network, which will extend into southern France
and Switzerland, will be completed during the second quarter of 2000.
We began selling capacity on the Circe Network during the first quarter of
1999. Revenue from capacity sales that qualify under generally accepted
accounting principles to be treated as sales are recognized under a line item
titled "Capacity sales". Capacity sales are recognized as revenue when the
purchaser obtains the right to use the capacity. The related cost of capacity is
reported in the same period. With respect to each sale of capacity, the related
cost of capacity sales is equal to a proportionate amount of the total
capitalized cost of the related network. Revenue from operating leases of
private line circuits will be included in communication services revenue and
will be recognized on a straight line basis over the life of the lease. The
portion of the total capitalized cost of the Circe Network used to provide
communication services is included in property and equipment and is being
charged to depreciation and amortization over its useful life. The sale of
capacity on the Circe Network will vary substantially from period to period and,
as a result, may result in fluctuations in our operating results.
We expect to trade capacity on the Circe Network for capacity on other
cable systems. Depending on structure, these trades of capacity may be
considered to be non-monetary exchanges and may have a material effect on our
statement of operations. We will continue to incur sales and marketing and
related expenses that will not be capitalized and will affect our results of
operations, particularly while the Circe Network is being designed, built and
placed into service. In addition, we will continue to incur additional operating
and maintenance expense as the remaining Circe phases become operational. As a
result of financing the Circe Network with debt, we are capitalizing a portion
of the interest incurred that relates to the construction of the Circe Network
until it is placed in service and will incur substantial increases in interest
expense thereafter.
9
<PAGE>
The Circe Network will have a beneficial effect on our costs of services
and sales as well as net income (loss). This will occur as we bring traffic
"on-net," to facilities we own, as opposed to facilities that we lease from
other carriers. A large portion of the expenses associated with facilities we
own is accounted for as depreciation and amortization, while leased capacity is
accounted for as a cost of services and sales. As a result, we expect that our
gross margins and profit will be improved as we bring traffic "on-net". However,
our net income (loss) will not improve to the same extent. The effect of
bringing traffic "on-net" will be somewhat delayed, because our leased line
agreements require minimum notification to terminate our obligations.
RESULTS OF OPERATIONS
The following table summarizes the breakdown of our results of operations
as a percentage of revenue. Our revenue, and therefore these percentages, could
fluctuate substantially from period to period due to capacity sales, which have
a substantially different impact on margins than communications services.
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------------- -------------------------------
1999 1998 1999 1998
-------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenue 100.0% 100.0% 100.0% 100.0%
Cost of services and sales 76.5% 90.4% 79.5% 90.2%
Selling, general and administrative expenses 30.7% 37.6% 30.6% 39.6%
Depreciation and amortization 17.4% 14.9% 16.6% 14.4%
EBITDA loss (1) 7.2% 28.0% 10.1% 29.8%
</TABLE>
- ---------------------------------
(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, 1999 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1998
REVENUE. Revenue is derived from communication service and capacity sales.
Revenue increased by 147.1% to $68.7 million for the three months ended June 30,
1999 from $27.8 million for the three months ended June 30, 1998. This growth
was attributable to a 71.9% increase in communication services revenue which
increased to $47.8 million on 278.5 million billable minutes for the second
quarter of 1999 from $27.8 million on 83.3 million billable minutes for the
second quarter of 1998. Capacity sales were $20.9 million for the second quarter
of 1999. We had no capacity sales during the second quarter of 1998. Revenue
growth for the second quarter of 1999 continues to be generated primarily by
growth from European revenues and capacity sales.
Although there was a substantial increase in billable minutes from the
second quarter of 1998 to the second quarter of 1999, the effects of such growth
were partially offset by a decline in revenue per billable minute, as revenue
per billable minute declined by 48.5% to $.17 in the second quarter of 1999 from
$.33 in the second quarter of 1998, primarily because of (i) a higher percentage
of lower-priced intra-European and national long distance traffic on our network
and (ii) reductions in prices in response to price reductions by incumbent
telecommunications operators and other carriers in many of our markets.
Communication services revenue per billable minute from the sale of
services to retail customers, which represented 39.8% of revenue for the three
months ended June 30, 1999 compared to 44.3% for the three months ended June 30,
1998, decreased 69.6% to $.14 in the second quarter of 1999 from $.46 in the
second quarter of 1998. Communication services revenue per billable minute from
the sale of services to carriers and other resellers decreased 7.4% to $.25 in
the second quarter of 1999 from $.27 in the second quarter of 1998.
10
<PAGE>
During the second quarter of 1999 as compared to the second quarter of
1998, our carrier business (through which we provide switched minutes, private
lines and ports to carriers, Internet Service Providers and other resellers)
decreased as a percentage of revenue, but grew on an absolute basis because our
other services grew at a faster rate. The carrier business represented
approximately 29.8% of total revenue and approximately 29.8% of billable minutes
for the three months ended June 30, 1999 as compared to approximately 55.7% of
total revenue and approximately 67.8% of billable minutes for the three months
ended June 30, 1998.
COST OF SERVICES AND SALES. Cost of services and sales increased to $52.6
million in the second quarter of 1999 from $25.1 million in the second quarter
of 1998. As a percentage of revenue, however, cost of services and sales
decreased to approximately 76.5% for the three months ended June 30, 1999 from
approximately 90.4% for the three months ended June 30, 1998. Cost of services
and sales for the three months ended June 30, 1999 includes costs associated
with the sale of capacity on the network. The cost of the sold capacity
represented non-cash charges of the pro rata cost of the network asset and is
determined based upon the ratio of total capacity sold to total estimated
capacity multiplied by the total capitalized costs of the related network.
Cost of services and sales continued to increase in the three months ended
June 30, 1999 in part because of the relatively high cost of leased
infrastructure associated with the increase in minutes. These costs are expected
to decrease as a percentage of revenue as we migrate from leased infrastructure
to the Circe Network and other owned capacity. The effect of bringing traffic
"on-net" will be somewhat delayed because our leased line agreements require
minimum notification to terminate our obligations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $21.1 million in the three months ended
June 30, 1999 from $10.4 million in the three months ended June 30, 1998 and, as
a percentage of revenue, decreased to approximately 30.7% in the three months
ended June 30, 1999 from approximately 37.6% in the same period in 1998. Much of
these expenses are attributable to overhead costs associated with our
headquarters, back office and operations as well as maintaining a physical
presence in multiple jurisdictions. We expect to incur additional expenses as we
continue to invest in operating infrastructure and actively market our products
and services. Salaries and commissions, as a percentage of total selling,
general and administrative expenses, were approximately 43.1% and 47.8% for the
three months ended June 30, 1999 and 1998, respectively. Advertising and
promotion expenses, as a percentage of total selling, general and administrative
expenses, were approximately 4.1% and 3.3% for the three months ended June 30,
1999 and 1998, respectively.
EBITDA LOSS. EBITDA loss decreased to $4.9 million for the three months
ended June 30, 1999 from $7.8 million for the three months ended June 30, 1998.
As a percentage of revenue, EBITDA loss decreased to approximately 7.2% in the
second quarter of 1999 from approximately 28.0% in the same quarter of 1998. We
expect this trend to continue as we migrate traffic from leased lines to our own
network.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense,
which includes depreciation of the network, increased to approximately $12.0
million in the quarter ended June 30, 1999 from approximately $4.1 million in
the quarter ended June 30, 1998. The increase was due primarily to the $516.0
million increase in gross property and equipment from $110.5 million at June 30,
1998 to $626.5 million at June 30, 1999. Depreciation expense will increase
substantially as each additional ring of the Circe Network becomes operational.
INTEREST. Interest expense increased from approximately $22.6 million in
the three months ended June 30, 1998 to approximately $35.5 million in the three
months ended June 30, 1999, primarily as a result of increases in outstanding
indebtedness, which includes notes and capital lease obligations, which
increased from $870.4 million at June 30, 1998 to $1.3 billion at June 30, 1999.
During the three months ended June 30, 1999, we capitalized $2.3 million of
interest costs. Interest income decreased from approximately $9.3 million during
the three months ended June 30, 1998 to approximately $6.9 million in the three
months ended June 30, 1999, primarily as a result of our investment in capital
expenditures relating to the development of the Circe Network.
11
<PAGE>
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1998
REVENUE. Revenue increased by 165.9% to $130.3 million for the six months
ended June 30, 1999 from $49.0 million for the six months ended June 30, 1998.
This growth was attributable to a 96.3% increase in communication services
revenue to $96.2 million on 549.3 million billable minutes for the first half of
1999 from $49.0 million on 135.7 million billable minutes for the first half of
1998. Capacity sales represented $34.1 million for the first half of 1999. We
had no capacity sales during the first half of 1998. Revenue growth for the
first six months of 1999 continues to be generated primarily by growth from
European revenues and capacity sales.
Although there was a substantial increase in billable minutes from the
first six months of 1998 to the first six months of 1999, the effects of such
growth were partially offset by a decline in revenue per billable minute, as
revenue per billable minute declined by 64.9% to $.13 in the first half of 1999
from $.36 in the first half of 1998, primarily because of (i) a higher
percentage of lower-priced intra-European and national long distance traffic on
our network and (ii) reductions in prices in response to price reductions by
incumbent telecommunications operators and other carriers in many of our
markets.
Communication services revenue per billable minute from the sale of
services to retail customers, which represented 42.0% of revenue for the six
months ended June 30, 1999 compared to 48.9% for the six months ended June 30,
1998, decreased 70.8% to $.14 in the first half of 1999 from $.48 in the first
half of 1998. Communication services revenue per billable minute from the sale
of services to carriers and other resellers decreased to $.27 in the first six
months of 1999 from $.28 in the first six months of 1998.
During the first half of 1999 as compared to the first half of 1998, our
carrier business has declined as a percentage of communications service revenue
(through which we provide switched minutes, private lines and ports to carriers,
Internet Service Providers and other resellers), but has grown on an absolute
basis because our retail services grew at a faster rate. The carrier business
represented approximately 31.9% of revenue and approximately 28.5% of billable
minutes for the six months ended June 30, 1999 as compared to approximately
49.6% of revenue and approximately 63.3% of billable minutes for the six months
ended June 30, 1998.
COST OF SERVICES AND SALES. Cost of services and sales increased to $103.6
million in the first half of 1999 from $44.2 million in the first half of 1998.
As a percentage of revenue, however, cost of services and sales decreased to
approximately 79.5% for the six months ended June 30, 1999 from approximately
90.2% for the six months ended June 30, 1998. Cost of services and sales for the
six months ended June 30, 1999 includes costs associated with the sale of
capacity on the network. The cost of the sold capacity represented non-cash
charges of the pro rata cost of the network asset and is determined based upon
the ratio of total capacity sold to total estimated capacity multiplied by the
total capitalized costs of the related network.
Cost of services and sales continued to increase in the six months ended
June 30, 1999 in part because of the relatively high cost of leased
infrastructure associated with the increase in minutes. These costs are expected
to decrease as a percentage of revenue as we migrate from leased infrastructure
to the Circe Network and other owned capacity. The effect of bringing traffic
"on-net" will be somewhat delayed because our leased line agreements require
minimum notification to terminate our obligations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $39.9 million for the six months ended June
30, 1999 from $19.4 million for the six months ended June 30, 1998 and, as a
percentage of revenue, decreased to approximately 30.6% for the six months ended
June 30, 1999 from approximately 39.6% for the corresponding period in 1998.
Much of these expenses are attributable to overhead costs associated with our
headquarters, back office and operations as well as maintaining a physical
presence in multiple jurisdictions. We expect to incur additional expenses as we
continue to invest in operating infrastructure and actively market our products
and services. Salaries and commissions, as a percentage of total selling,
general and administrative expenses, were approximately 45.2% and 49.9% for the
six months ended June 30, 1999 and 1998, respectively. Advertising and promotion
expenses, as a percentage of total selling, general and administrative expenses,
were approximately 4.6% and 2.3% for the six months ended June 30, 1999 and
1998, respectively.
12
<PAGE>
EBITDA LOSS. EBITDA loss decreased to $13.1 million for the six months
ended June 30, 1999 from $14.6 million for the six months ended June 30, 1998.
As a percentage of revenue, EBITDA loss decreased to approximately 10.1% in the
first half of 1999 from approximately 29.8% in the first half of 1998.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense,
which includes depreciation of the network, increased to approximately $21.6
million for the six months ended June 30, 1999 from approximately $7.0 million
for the six months ended June 30, 1998. The increase was due primarily to the
$516.0 million increase in gross property and equipment from $110.5 million at
June 30, 1998 to $626.5 million at June 30, 1999.
INTEREST. Interest expense increased from approximately $26.3 million in
the six months ended June 30, 1998 to approximately $61.7 million in the six
months ended June 30, 1999, primarily as a result of increases in our
outstanding indebtedness, which includes notes and capital lease obligations,
which increased from $870.4 million at June 30, 1998 to $1.3 billion at June
30, 1999. During the six months ended June 30, 1999, we capitalized
approximately $4.6 million of interest costs. Interest income increased from
approximately $9.8 million in the six months ended June 30, 1998 to
approximately $13.8 million in the six months ended June 30, 1999 primarily as a
result of the interim investment of the net proceeds from our debt and equity
financings.
LIQUIDITY AND CAPITAL RESOURCES
We have incurred losses from operating activities in each year of
operations since our inception and expect to continue to incur operating and net
losses for the next several years. Since inception, we have utilized cash
provided by financing activities to fund operating losses, interest expense and
capital expenditures. The sources of this cash have primarily been through
private and public equity and debt financings and, to a lesser extent,
equipment-based financing. As of June 30, 1999, we had $649.1 million of cash,
cash equivalents, cash securing letters of credit for network construction and
marketable securities and $196.6 million of restricted cash equivalents and
other restricted marketable securities, which primarily secure interest payments
on our notes through April 2001.
On June 29, 1999, the Company completed an offering of 4,315,000 shares of
its common stock at $47 per share. The net proceeds of the offering were
approximately $192.2 million and will be used primarily to fund the further
development of our network as well as for working capital and general corporate
purposes.
On May 13, 1999, our Series A Preferred Stock and Subordinated Convertible
Debentures converted into shares of our common stock. The conversion was based
upon maintenance of our common stock above a certain per share price for a
specified time period. The Series A Preferred Stock and the Subordinated
Convertible Debentures converted at a conversion price equal to $13.20 and
DM24.473, at the then applicable exchange rate, respectively. Accordingly, we
issued approximately 4.6 million shares of our common stock and paid cash for
any fractional shares due upon conversion. These transactions, and their
extinguishment of our related commitments, significantly strengthen the
Company's financial position.
On March 19, 1999, we completed a high yield offering through which we
raised approximately $352.6 million of net proceeds in a combination of senior
dollar notes and senior Euro notes.
On April 8, 1998, we completed a high yield offering through which we
raised approximately $356.6 million of net proceeds. A portion of the proceeds
from this high yield offering were utilized by us to retire our 15% senior
discount notes due 2005 pursuant to a tender offer.
The proceeds of the 1999 and 1998 high yield offerings are being used to
construct the Circe Network. The Circe Network, when completed, will be one of
the largest cross-border fiber optic networks in the largest telecommunications
market in Western Europe. This five-ring system is expected to encompass
approximately 8,700 route kilometers.
13
<PAGE>
We believe that the net proceeds from the offerings discussed above,
together with cash and marketable securities on hand and future sales of the
capacity on the Circe Network, will provide sufficient funds for us to expand
our business as planned and to fund operating losses for at least the next 12 to
18 months. However, the amount of future capital requirements will depend on a
number of factors, including the success of our business, the start-up dates of
each ring of the Circe Network, the dates at which we further expand our
network, the types of services we offer, staffing levels, acquisitions and
customer growth, as well as other factors that are not within our control,
including competitive conditions, government regulatory developments and capital
costs. In the event our plan or assumptions change or prove to be inaccurate, we
are unable to convert from leased to owned infrastructure or obtain
interconnection in accordance with our current plans or the net proceeds of our
offerings, cash and investments on hand, equity offerings and the proceeds from
the sale of capacity on the Circe Network prove to be insufficient to fund our
growth in the manner and at the rate currently anticipated, we may be required
to delay or abandon some or all of our development and expansion plans or we may
be required to seek additional sources of financing earlier than currently
anticipated. In the event we are required to seek additional financing, there
can be no assurance that such financing will be available on acceptable terms at
all.
CAPITAL ADDITIONS; COMMITMENTS. The development of our business has
required substantial capital. Capital additions consist of capital expenditures,
the net increase in property and equipment purchases payable, assets acquired
under capital lease obligations and capitalized interest during the period. For
the six months ended June 30, 1999, we had capital additions of approximately
$349.1 million, which consisted of capital expenditures of approximately $225.9
million, a net increase of $105.0 million in property and equipment payable,
$13.6 million of assets acquired under capital lease obligations and capitalized
interest of approximately $4.6 million. We have also entered into certain
agreements associated with the Circe Network, purchase commitments for network
expansion and other items aggregating in excess of $288.6 million at June 30,
1999. Additionally, we have minimum volume commitments to purchase transmission
capacity from various domestic and foreign carriers aggregating approximately
$13.2 million for all of 1999.
FOREIGN CURRENCY. We have exposure to fluctuations in foreign currencies
relative to the U.S. Dollar as a result of billing portions of our
communications services revenue in the local European currency in countries
where the local currency is relatively stable while many of our obligations,
including a substantial portion of our transmission costs, are denominated in
U.S. Dollars. In countries with less stable currencies, such as Brazil, we bill
in U.S. Dollars. Debt service on certain of the notes issued by us are currently
payable in Euros. A substantial portion of capital expenditures are and will
continue to be denominated in various European currencies, including the Euro.
Most of the European currencies in which we do business converged effective
January 1, 1999, with the exception of the British Pound Sterling.
With the continued expansion of our network, a substantial portion of the
costs associated with the 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 Euro denominated notes, will be charged
to us in the same currencies as revenue is billed. These developments create a
natural hedge against a portion of our foreign exchange exposure. To date, much
of the funding necessary to establish the local direct sales organizations has
been derived from communications services revenue that was billed in local
currencies. Consequently, our financial position as of June 30, 1999 and our
results of operations for the six months ended June 30, 1999 were not
significantly impacted by fluctuations in the U.S. Dollar in relationship to
foreign currencies.
YEAR 2000
The Year 2000 problem is the result of computer programs, microprocessors
and embedded date reliant systems using two digits rather than four to define
the applicable year. If these programs are not corrected, such date sensitive
computer programs, microprocessors and embedded systems may recognize a date
using "00" as the year 1900 rather than the year 2000. This could result in a
system failure or miscalculation causing disruptions in operations.
In an effort to assess our Year 2000 state of readiness, during 1997 we
began performing a complete inventory assessment of all of our internal systems,
which we have divided into two categories, business essential, or mission
critical, and support systems, or non-mission critical. As part of our Year 2000
program and as part of our overall procurement plan, we have sought to ensure
14
<PAGE>
that fixed assets acquired were Year 2000 compliant. At December 31, 1997, gross
property and equipment was $67.0 million compared to $626.5 million at June 30,
1999, an increase of 835.1 percent. As part of this process, we have
inventoried, tested, and ensured Year 2000 compliance of our mission critical
systems. The inventory and testing of these mission critical systems is
complete. The backbone of our communications network is primarily composed of
Nortel switches which are Year 2000 compliant. Our message processing and
billing systems, which are used to record and process millions of call detail
records, and our transmission equipment, which are our only mission critical
systems, are also Year 2000 compliant. The majority of our non-mission critical
systems are Year 2000 compliant. We anticipate our non-mission critical systems
being Year 2000 compliant during the third quarter of 1999. The total estimated
cost of ensuring our preparation for Year 2000 is approximately $200,000, a
portion of which has already been incurred and expensed.
We continue to communicate formally with the key carriers and other
vendors on which our operations and infrastructure are dependent to determine
the extent to which we are susceptible to a failure resulting from such third
parties' inability to remediate their own Year 2000 problems. Accordingly,
during the procurement process, we have taken steps to ensure that our vendors,
carriers, and products purchased are Year 2000 compliant or are adequately
addressing the Year 2000 issues. We can provide no assurance that the carriers
and other vendors on which our operations and infrastructure rely are or will be
Year 2000 compliant in a timely manner. Interruptions in the services provided
to us by these third parties could result in disruptions in our services.
Depending upon the extent and duration of any such disruptions and the specific
services affected, such disruptions could have a material adverse affect on our
business, financial condition and results of operations. As a contingency
against any possible disruptions in services provided by vendors, we have sought
to diversify our vendor base. We believe that the diversity of our vendor base
is sufficient to mitigate Year 2000 related disruptions in service to customers.
In addition, we believe that the fact we conduct business in, and derive revenue
from, multiple Western European countries helps to mitigate the potential impact
of Year 2000 related disruptions
In addition, disruptions in the economy generally resulting from the Year
2000 issue could also have a material adverse affect on us. We could be subject
to litigation resulting from any disruption in our services. The amount of
potential liability or lost revenue which would result from these disruptions in
service could have a material adverse effect on our business, financial
condition and results of operations.
EURO
On January 1, 1999, eleven of the fifteen member countries of the European
Union established irrevocable fixed conversion rates between their existing
sovereign currencies and a single currency called the Euro. The sovereign
currencies are scheduled to remain legal tender as denominations of the Euro
during a transition period from January 1, 1999 to January 1, 2002.
We have completed an internal analysis regarding business and systems
issues related to the Euro conversion and, as a result, made necessary
modifications to our business processes and software applications. We are now
able to conduct business in both Euro and sovereign currencies on a parallel
basis, as required by the European Union.
We believe that the Euro conversion has not and will not have a
significant impact on our business strategy in Europe. The costs to convert all
systems to be Euro compliant did not have a significant impact on our results of
operations.
INFLATION
We do not believe that inflation has had a significant effect on our
operations to date.
15
<PAGE>
PROSPECTIVE ACCOUNTING PRONOUNCEMENTS
SFAS NO. 133
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. We have not completed our
analysis of the impact of this statement on our financial statements.
SFAS NO. 137
In June 1999, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of SFAS No. 133", which amends SFAS No. 133 to delay the date by
which companies must comply with SFAS 133. Companies must comply with SFAS
133 for all fiscal years beginning after June 15, 2000. We have not
completed our analysis of the impact of this statement on our financial
statements.
FASB INTERPRETATION NO. 43
FASB Interpretation No. 43, "Real Estate Sales - an interpretation of FASB
Statement No. 66", was issued in June 1999. It clarifies the standards
for recognition of profit on all real estate sales transactions including
sales of real estate with property improvements or integral equipment that
cannot be removed and used separately from the real estate without
incurring significant costs. This interpretation is effective for all
applicable real estate sales after June 30, 1999. We have not completed
our analysis of the impact of this statement on our financial statements.
16
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are subject to foreign currency exchange rate risk relating to receipts
from customers, payments to suppliers and interest and principal payments on the
outstanding Euro denominated senior notes and senior discount notes in foreign
currencies. We do not consider the market risk exposure relating to foreign
currency exchange to be material. See "Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources - Foreign Currency."
We have financial instruments which are subject to interest rate risk,
principally short-term investments and debt obligations issued at a fixed rate.
Historically, we have not experienced material gains or losses due to interest
rate changes when selling short-term investments and typically holding these
securities until maturity. Based on current holdings of short-term investments,
our exposure to interest rate risk is not material. Fixed-rate debt obligations
issued by us are generally not callable until maturity.
17
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
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.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) Exhibits.
27 Financial Data Schedule
(B) Reports on Form 8-K.
No current reports on Form 8-K were filed by the Company
during the quarter ended June 30, 1999.
18
<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 16, 1999
19
<PAGE>
EXHIBIT INDEX
NO. DESCRIPTION
- --- -----------
27 Financial Data Schedule
20
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information in thousands
extracted from the unaudited consolidated financial statements of the company
for the six months ended June 30, 1999 and is qualified in its entirety by
reference to such unaudited consolidated financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 548,646
<SECURITIES> 184,593
<RECEIVABLES> 47,503
<ALLOWANCES> 2,983
<INVENTORY> 0
<CURRENT-ASSETS> 719,827
<PP&E> 587,903
<DEPRECIATION> 12,946
<TOTAL-ASSETS> 1,594,512
<CURRENT-LIABILITIES> 308,490
<BONDS> 1,240,487
0
0
<COMMON> 326
<OTHER-SE> 12,280
<TOTAL-LIABILITY-AND-EQUITY> 1,594,512
<SALES> 0
<TOTAL-REVENUES> 130,345
<CGS> 0
<TOTAL-COSTS> 103,607
<OTHER-EXPENSES> 61,535
<LOSS-PROVISION> 4,030
<INTEREST-EXPENSE> 47,899
<INCOME-PRETAX> (82,596)
<INCOME-TAX> 0
<INCOME-CONTINUING> (82,596)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (83,937)
<EPS-BASIC> (1.77)
<EPS-DILUTED> (1.77)
</TABLE>
