SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------------------
FORM 8-K/A
AMENDMENT TO CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of
earliest event reported): February 29, 2000
VIATEL, INC.
(Exact Name of Registrant as Specified in Charter)
Delaware 000-21261 13-3787366
(State or Other (Commission (I.R.S. Employer
Jurisdiction File Number) Identification No.)
of Incorporation)
Viatel, Inc.
685 Third Avenue
New York, New York 10017
(Address of Principal Executive Offices, Including Zip Code)
Registrant's telephone number, including area code: 212-350-9200
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
Viatel, Inc., a Delaware corporation (the "Company), hereby amends and
restates Item 7 of its Current Report on Form 8-K dated February 29, 2000.
Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits.
(a) Financial Statements of Businesses Acquired.
The audited financial statements of New Comms.UK (formerly AT&T
Communications (UK) Limited), as of and for the years ended
December 31, 1999 and 1998, required by this item are filed
herewith as Exhibit 99.1.
(b) Pro Forma Financial Information.
The pro forma financial information required by this item is
filed herewith as Exhibit 99.2.
(c) Exhibits.
The following exhibits are filed with this Report.
Exhibit No. Description.
99.1 The audited financial statements of New Comms.UK (formerly
AT&T Communications (UK) Limited), as of and for the years
ended December 31, 1999 and 1998, and the notes thereto.
99.2 Unaudited Pro Forma Combining Financial Information of
Viatel, Inc. and the notes thereto.
<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 hereunto duly authorized.
VIATEL, INC.
Date: May 11, 2000 By: /S/ JAMES P. PRENETTA
--------------------------------
Name: James P. Prenetta
Title: Senior Vice President and
General Counsel
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION.
99.1 The audited financial statements of New Comms.UK (formerly
AT&T Communications (UK) Limited), as of and for the years
ended December 31, 1999 and 1998, and the notes thereto.
99.2 Unaudited Pro Forma Combining Financial Information of
Viatel, Inc. and the notes thereto.
NEW COMMS.UK
(A FULLY INTEGRATED BUSINESS OF AT&T CORP.)
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998 AND FOR THE
YEARS ENDED DECEMBER 31, 1999 AND 1998
<PAGE>
NEW COMMS.UK
(A FULLY INTEGRATED BUSINESS OF AT&T CORP.)
INDEX TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998 AND
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
PAGE(S)
Report of Independent Accountants 1
Financial Statements:
Balance Sheets as of December 31, 1999 and 1998 2
Statements of Operations, Comprehensive Loss and
Changes in Accumulated Deficit for the
Years Ended December 31, 1999 and 1998 3
Statements of Cash Flows for the
Years Ended December 31, 1999 and 1998 4
Notes to Financial Statements 5 - 15
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of AT&T (UK) LTD
In our opinion, the accompanying balance sheets and the related statements of
operations, comprehensive loss and changes in accumulated deficit, and of cash
flows present fairly, in all material respects, the financial position of New
Comms.UK (a fully integrated business of AT&T Corp.) at December 31, 1999 and
1998, and the results of its operations and its cash flows for the years ended
December 31, 1999 and 1998, in conformity with generally accepted accounting
principles in the United States of America. These financial statements are the
responsibility of New Comms.UK management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards in the United States of America, which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
As described in Note 1 to these financial statements, during the periods
presented New Comms.UK (a fully integrated business of AT&T Corp.) had
significant transactions and relationships with AT&T Corp. and its affiliates.
Because of these relationships, it is possible that the terms of these
transactions were not the same as those that would have resulted from
transactions among wholly unrelated parties.
PricewaterhouseCoopers
London, United Kingdom
April 19, 2000
<PAGE>
<TABLE>
<CAPTION>
NEW COMMS.UK
(A FULLY INTEGRATED BUSINESS OF AT&T CORP.)
BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND 1998
(POUNDS STERLING, IN THOUSANDS)
================================================================================
DECEMBER, 31
1999 1998
<S> <C> <C>
ASSETS
Current
Cash and cash equivalents (pounds) 14,360 68,235
Accounts receivable, net of allowance of (pound)1,003
and (pound)883 at December 31, 1999 and 1998,
respectively 15,888 12,476
Accounts receivable from AUCS 8,099 17,554
Accrued income 8,298 10,310
Non-income taxes recoverable - 8,618
Other current assets 2,966 2,209
------- -------
Total current assets 49,611 119,402
Non-current
Property, plant and equipment, net of
accumulated depreciation
of (pound)61,306 and(pound)44,226 at
December 31, 1999 and 1998, respectively 90,911 93,471
Other non-current assets (prepaid leases) 9,391 10,542
------- -------
Total assets (pounds) 149,913 223,415
======= =======
LIABILITIES
Current
Accounts payable and accrued expenses 40,635 45,558
Amounts payable to AUCS 424 243
Current portion of notes payable to AT&T Corp.
and affiliates - 69,900
------ -------
Total liabilities (pounds) 41,059 115,701
------ ------
Commitments and contingencies (Note 7) - -
DIVISION EQUITY
Advances from AT&T Corp. and affiliates 348,917 305,807
Accumulated deficit (240,063) (198,093)
-------- --------
Total division equity 108,854 107,714
-------- -------
Total liabilities and division equity (pounds) 149,913 223,415
======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
NEW COMMS.UK
(A FULLY INTEGRATED BUSINESS OF AT&T CORP.)
STATEMENTS OF OPERATIONS, COMPREHENSIVE LOSS AND
CHANGES IN ACCUMULATED DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(POUNDS STERLING, IN THOUSANDS)
================================================================================
FOR THE
YEARS ENDED
DECEMBER 31,
1999 1998
<S> <C> <C>
REVENUES
Service revenues from third parties (pounds) 82,966 58,929
Service revenues from AT&T Corp. and affiliates
and AUCS 28,001 19,439
------- ------
Total revenues 110,967 78,368
OPERATING EXPENSES
Network expenses including depreciation and
other communications charges from third parties 92,600 72,859
Network expenses and other communications
charges from AT&T Corp. and affiliates and AUCS 9,168 12,763
Selling, general and administrative charges from
third parties 41,079 37,711
Selling, general and administrative charges from
AT&T Corp. and affiliates 7,290 5,544
Corporate overheads 1,850 2,010
------- --------
Total operating expenses 151,987 130,887
------- --------
Operating loss (41,020) (52,519)
------- --------
Interest expense, net (950) (3,004)
------- --------
Loss before income taxes (41,970) (55,523)
Provision for income taxes - -
------- --------
Net loss and comprehensive loss (pounds) (41,970) (55,523)
======= ========
Accumulated deficit, beginning of period (198,093) (142,570)
Net loss for period (pounds) (41,970) (55,523)
-------- --------
Accumulated deficit, end of period (pounds) (240,063) (198,093)
======== ========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
3
<PAGE>
<TABLE>
<CAPTION>
NEW COMMS.UK
(A FULLY INTEGRATED BUSINESS OF AT&T CORP.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(POUNDS STERLING, IN THOUSANDS)
================================================================================
FOR THE YEARS ENDED
DECEMBER 31,
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (pounds) (41,970) (55,523)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation expense 19,720 21,653
Amortization of prepaid lease 1,151 958
Provision for doubtful accounts receivable 873 625
Profit on disposal of property, plant and equipment (10) (103)
Changes in operating assets and liabilities
Accounts receivable (4,285) (7,842)
Accounts receivable from AUCS 9,455 (17,554)
Accrued income 2,012 692
Non-income taxes recoverable 8,618 (8,592)
Other current assets (757) 803
Accounts payable and accrued expenses (66) 18,610
Amounts payable to AUCS 424 243
-------- -------
Net cash used in operating activities (4,835) (46,030)
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (22,861) (25,957)
Purchase of business - (3,453)
Proceeds from disposal of property, plant and
equipment 611 1,862
-------- -------
Net cash used in investing activities (pounds) (22,250) (27,548)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable to AT&T Corp. and 50,000 69,900
affiliates
Repayments of notes payable to AT&T Corp. and (119,900) -
affiliates
Advances from AT&T Corp. and affiliates, net 43,110 51,449
-------- -------
Net cash (used in)/provided by financing activities (26,790) 121,349
-------- -------
Net (decrease)/increase in cash and cash
equivalents (53,875) 47,771
Cash and cash equivalents, beginning of period 68,235 20,464
-------- -------
Cash and cash equivalents, end of period (pounds) 14,360 68,235
======== =======
SUPPLEMENTAL DISCLOSURES
Cash paid for interest (pounds) 63 791
NON-CASH FINANCING ACTIVITIES
Relief of interest expense on notes payable to
AT&T Corp. (pounds) 1,944 3,281
NON-CASH INVESTING ACTIVITIES
</TABLE>
The accompanying notes are an integral part of these financial
statements.
The business made purchases on credit of property, plant and equipment of
(pound)5,414,000 in the year ended December 31, 1998.
4
<PAGE>
NEW COMMS.UK
(a fully integrated business of AT&T CORP.)
Notes to Financial Statements
================================================================================
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
During the period presented, New Comms.UK (the "Business") was a fully
integrated business of AT&T Corp. ("AT&T"), held by its wholly owned
subsidiary company, AT&T Communications (UK) LTD. The Business's principal
activity is the supply of telecommunication and related services in the
United Kingdom to corporate and other customers through its network which
is located entirely in the United Kingdom.
Between January 1, 1998 and July 1, 1999, AT&T transferred and divested
certain assets and liabilities and results of operations from AT&T
Communications (UK) LTD with the residual amounts representing the basis
for the Business's financial statements. The financial statements
represent the assets, liabilities, revenues and expenses of the current
Business as if it had existed as a discrete fully integrated business of
AT&T independent of the net assets and results of operations that were
either divested or transferred by AT&T from the legal entity of AT&T
Communications (UK) LTD.
As a part of the divestment or transfer, the Business has entered into
certain agreements with third parties or other AT&T affiliates to make
available network capacity and to provide other services to these
entities. In respect of these agreements, only actual revenues and
expenses in the periods have been reflected in these financial statements.
During the periods presented, the Business's day to day funding
requirements were met by loans and other advances provided by AT&T. AT&T
continued to provide funding to the Business to enable it to meet its
funding requirements through February 29, 2000 at which point the Business
was sold to a third party. See Note 12, "Subsequent events", to these
financial statements relating to the funding of the business subsequent to
the sale by AT&T.
As an integrated business of AT&T, the Business did not prepare separate
financial statements in accordance with generally accepted accounting
principles in the United States of America ("U.S. GAAP") in the normal
course of operations. Accordingly, the accompanying financial statements
have been derived by extracting the assets, liabilities and revenues and
expenses of the Business from the accounting records of AT&T and other
affiliates (mainly AT&T Communications (UK) LTD).
Additionally, as an integrated business of AT&T, the Business relied on
AT&T and other AT&T affiliates to provide administration, management and
other services including, but not limited to, management information
systems, accounting and financial reporting, treasury, cash management,
human resources, employee benefit administration, management, payroll and
legal and professional services. The Business was allocated or charged
costs from AT&T and its affiliates for these services ("Corporate
overheads").
The accompanying financial statements reflect assets, liabilities, revenue
and expenses directly attributable to the Business as well as allocations
deemed reasonable by management to present the financial position, results
of operations, and cash flows of the Business on a stand alone basis.
Although management is unable to estimate the actual costs that would have
been incurred if the services performed by AT&T and its affiliates had
been purchased from independent third parties, the allocation
methodologies have been described within the respective footnotes, where
5
<PAGE>
NEW COMMS.UK
(a fully integrated business of AT&T CORP.)
Notes to Financial Statements
================================================================================
appropriate, and management considers the allocations to be reasonable.
However, the financial position, results of operations, and cash flows of
the Business may not be representative of those which would have been
achieved had the Business operated autonomously or as an entity
independent of AT&T.
All amounts contained in these financial statements are denominated in
Pounds Sterling ((pound)) unless otherwise indicated.
2. SIGNIFICANT ACCOUNTING POLICIES
MANAGEMENT ESTIMATES - The preparation of financial statements in
conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements, and revenues and expenses during the periods
reported. Such estimates include accounting for doubtful accounts, the
recoverability of long-lived assets, depreciation, taxes, commitments and
contingencies. Actual results could differ from those estimates.
REVENUE RECOGNITION - Revenue is recognized on an accruals basis from
telephony services based upon minutes of customer traffic carried and
contracted fees for access to the Business's network in the accounting
period.
CASH AND CASH EQUIVALENTS - All highly liquid investments with original
maturities of three months or less are considered to be cash equivalents.
PROPERTY, PLANT AND EQUIPMENT - Investments in property, plant and
equipment are recorded at historical cost. Depreciation has been
calculated on the straight-line method using estimated useful lives as
follows:
Telecommunication equipment and associated software:
International access 15 years
Digital telephone exchanges and related equipment 3 to 10 years
Computer equipment and software 1 to 5 years
Other plant and machinery 3 to 5 years
Leasehold improvements are amortized over the shorter of the useful
life or the period of the lease.
Upon sale or other dispositions of property, plant and equipment, the cost
and related accumulated depreciation are removed from the Business's
accounts and any gain or loss is recorded in results of operations.
Long-lived assets are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount may not be recoverable.
If the sum of the expected future undiscounted cash flows is less than the
carrying amount of the asset, a loss is recognized for the difference
between the fair value and the carrying value of the asset.
6
<PAGE>
NEW COMMS.UK
(a fully integrated business of AT&T CORP.)
Notes to Financial Statements
================================================================================
PREPAID LEASES - prepaid leases are amortized over the terms of the leases
on a straight-line basis.
ACCOUNTS RECEIVABLE AND ACCRUED INCOME - Accounts receivable are directly
related to billings for telephony services to third parties and related
parties and recorded at their net realizable value. Accrued income relates
to revenue that has been earned but unbilled at the balance sheet dates.
ACCOUNTS PAYABLE AND ACCRUED EXPENSES - Accounts payable and accrued
expenses have been recorded to reflect amounts owed to third parties and
to AT&T and affiliates as of the balance sheet dates.
ADVERTISING EXPENSE - The cost of advertising and promotions is expensed
during the period in which the services are received. Advertising expense
for the years ended December 31, 1999 and 1998 was approximately
(pound)582,000 and (pound)78,000, respectively.
CORPORATE OVERHEAD - Corporate overhead is an allocation of certain AT&T
and affiliates' operating expenses as described in Note 1.
INCOME TAXES - The Business is not a separate taxable entity for income
tax purposes and the results of the Business's operations are included in
the U.K. Corporation tax returns of AT&T Communications (UK) LTD. In these
financial statements, the Business has provided for income taxes as if it
were a separate taxpayer in the United Kingdom.
Deferred income taxes have been accounted for under the liability method,
whereby deferred tax assets and liabilities are established for the
differences between the financial reporting and income tax basis of assets
and liabilities, as well as net operating losses and tax credit
carry-forwards. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Deferred
tax assets and liabilities are adjusted for the effects of changes in tax
laws and rates on the date of enactment.
RECLASSIFICATION
Certain December 31, 1998 amounts have been reclassified to conform to the
December 31, 1999 presentation.
7
<PAGE>
NEW COMMS.UK
(a fully integrated business of AT&T CORP.)
Notes to Financial Statements
================================================================================
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
(in 000s)
<S> <C> <C>
Long term leasehold improvements (pounds) 17,923 17,089
Telecoms equipment 98,016 72,667
Other 22,492 24,706
Less: Accumulated depreciation (61,306) (44,226)
Construction in progress 13,786 23,235
------- -------
(pounds) 90,911 93,471
======= =======
</TABLE>
Depreciation expense amounted to approximately (pound)19,720,000 and
(pound)21,653,000 for the years ended December 31, 1999 and 1998,
respectively.
Construction in progress balances at December 31,1999 and 1998 represent
capital expenditure associated with the network that are not ready for
service as of the balance sheet dates. No depreciation is charged against
such assets until they are placed into service.
4. EMPLOYEE BENEFIT PLANS
A majority of the employees participate in a defined contribution scheme
operated by an AT&T affiliate and certain eligible employees participate
in two defined benefit pension plans of another AT&T affiliate. Costs of
these plans have been allocated to the Business as described in Note 1,
"Description of business and basis of presentation". AT&T does not
maintain plan data, including funding, on a business unit basis and
accordingly, such information is not available for the Business on a stand
alone basis and therefore is not presented. The total pension cost
allocated to the Business for the years ended December 31, 1999 and 1998
was approximately (pound)774,000 and (pound)800,000, respectively.
5. STOCK-BASED COMPENSATION PLANS
Certain employees of the Business participate in AT&T's 1987 and 1997
long-term incentive programs. Under these plans, employees of the Business
were granted stock option awards and performance share units. The exercise
price of any stock option is equal to the stock price when the option is
granted and as such no compensation expense has been recorded in
accordance with Accounting Principles Board Opinion ("APB") No. 25.
Generally, the options vest over three years and are exercisable up to ten
years from the date of grant.
8
<PAGE>
NEW COMMS.UK
(a fully integrated business of AT&T CORP.)
Notes to Financial Statements
================================================================================
Under the Executive Share Option Plan performance share units are awarded
to key employees in the form of either common stock or cash at the end of
a three year period based on AT&T's performance compared with a target.
As of January 1, 1998, employees assigned to the Business held 104,745
options at a weighted average exercise price of $25.52 (approximately
(pound)15.51). During 1998, employees assigned to the Business received
grants of 113,250 options at a weighted average exercise price of $41.02
(approximately (pound)24.74). During 1998, 1,398 were exercised and no
options lapsed.
As of December 31, 1998 employees assigned to the Business held 216,597
options under the Executive Share Option Plan at a weighted average
exercise price of $33.62 (approximately (pound)20.21). As of December 31,
1998, 46,446 of these outstanding options were exercisable at a weighted
average price of $25.46 (approximately (pound)15.30).
During 1999, employees under the Executive Share Option Plan assigned to
the Business received new grants of 42,750 options with an exercise price
of $59.88 (approximately (pound)36.86), and exercised 1,398 options. As of
December 31, 1999 employees assigned to the Business held 258,699 options
at a weighted average exercise price of $37.85 (approximately
(pound)23.29). As of December 31, 1999, 113,749 of these outstanding
options were exercisable at a weighted average price of $30.57
(approximately (pound)18.81).
In addition to the Executive Share Option Plan, on August 1, 1997 all of
the employees assigned to the Business were granted a stock option award
to purchase 100 shares of AT&T's common stock. The options vest after
three years and are exercisable up to ten years from the grant date. Total
options granted to the employees of the Business were 40,200 with an
exercise price of $24.50 (approximately (pound)14.72 at December 31, 1998
and (pound)15.08 at December 31, 1999).
The Business has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). The pro forma impact of recognizing
compensation expense in accordance with SFAS No. 123 would have been an
increase to net loss of (pound)705,000 for the year ended December 31,
1999 and an increase to net loss of (pound)481,000 for the year ended
December 31, 1998.
The weighted average fair value at grant date for options granted during
the year ended December 31, 1998 was $15.24 (approximately (pound)9.47),
and for the year ended December 31, 1999 was $15.00 (approximately
(pound)9.23) and was estimated using the Black-Scholes option pricing
model. The assumptions used to calculate the fair value of the stock
options were as follows:
Risk free interest rate 5.33%
Expected dividend yield 2.10%
Expected volatility 23.80%
Expected lives 4.5 years
9
<PAGE>
NEW COMMS.UK
(a fully integrated business of AT&T CORP.)
Notes to Financial Statements
================================================================================
6. INCOME TAXES
As of December 31, 1999 and 1998, the components of deferred tax assets
are as follows:
<TABLE>
<CAPTION>
1999 1998
(in 000s)
<S> <C> <C>
Deferred tax assets
Allowance for doubtful accounts (pounds) 301 264
------- ------
Deferred tax assets - current 301 264
Valuation allowance (301) (264)
------- ------
Net deferred tax asset - current (pounds) - -
======= ======
1999 1998
(in 000s)
Deferred tax asset/(liability) non-current
Property, plant and equipment (pounds) (7,211) (6,443)
Net operating losses 32,120 31,200
------- -------
Deferred tax asset - non current 24,909 24,757
Valuation allowance (24,909) (24,757)
------- -------
Net deferred tax asset - non-current - -
------- ------
Net deferred tax asset (pounds) - -
======= ======
</TABLE>
The following table shows effective tax rate reconciliations for the years
ended December 31, 1999 and 1998.
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Effective tax rate reconciliation
Statutory tax rate (30)% (30)%
Permanent differences 1% - %
Effect of valuation allowance 29% 30%
------- -----
Provision for income taxes - % - %
======= =====
</TABLE>
10
<PAGE>
NEW COMMS.UK
(a fully integrated business of AT&T CORP.)
Notes to Financial Statements
================================================================================
AT&T Communications (UK) LTD had available tax losses of approximately
(pound)107 million and (pound)104 million at December 31, 1999 and
December 31, 1998 respectively. These tax losses can be carried forward
indefinitely under UK tax law unless a significant change in the nature of
the operations occurs. A valuation allowance has been made to reflect the
estimated amount of deferred taxes which, in the opinion of management,
more likely than not, would not be realized in the foreseeable future.
The amount of these losses has not been agreed by the Inland Revenue and
may be subject to adjustment. It is also affected by payments of capital
contributions by AT&T and its affiliates. See Note 12, "Subsequent events"
Subsequent to the sale of the Business referred to in Note 12, "Subsequent
events", the available tax losses on that date remained with the Business.
7. COMMITMENTS AND CONTINGENCIES
The Business receives an allocation from an AT&T affiliate relating to
operating leases for the land and buildings used by the Business. For the
years ended December 31, 1999 and 1998, the rental expense allocated to
the Business amounted to approximately (pound)7,290,000 and
(pound)5,544,000, respectively.
The Business has entered into specific operating leases for land,
buildings and leased circuits, including those mentioned above. The
expected fixed minimum payments under these non-cancelable leases for
future periods is as follows:
(in 000s)
Period ended December 31,
2000 (pound) 13,361
2001 11,598
2002 11,154
2003 8,264
2004 2,710
Thereafter 21,268
------
Total (pound) 68,355
======
At December 31, 1999 commitments to purchase capital equipment amounted to
approximately (pound)1 million.
The Business is involved in various legal and administrative matters
arising in the normal course of business. Management believes that that
all such matters will not have a material impact on the financial
position, the results of operations or cash flows.
8. RELATED PARTY TRANSACTIONS
As a member of the AT&T group, the business relied on AT&T and other group
companies to provide interconnection, accommodation, administration,
11
<PAGE>
NEW COMMS.UK
(a fully integrated business of AT&T CORP.)
Notes to Financial Statements
================================================================================
management and other services including, but not limited to, management
information systems, accounting and financial reporting, treasury, cash
management, human resources, management, payroll and legal and
professional services. The business was allocated costs from other group
companies for these services which are presented in the Statements of
Operations, Comprehensive Loss and Changes in Accumulated Deficit.
Although these allocations were intended to reflect the costs that would
apply on an arms-length basis, it is possible that the terms of the
relevant transactions would have been different if the transacting parties
had not been connected with the Business.
ACQUISITION OF AT&T BCSE
On January 1, 1998, the Business purchased certain net assets and
operations of AT&T BCSE from AT&T ISTEL, another indirect subsidiary of
AT&T Corp., for approximately (pound)3.5 million cash consideration. The
Business recorded the purchase at cost.
AUCS
During the periods presented, AUCS (formerly AT&T Unisource Communications
BV), was a joint venture between AT&T and certain European
telecommunications operators. On April 1, 1999 AT&T Corp.'s interest was
terminated. From this date, the Business continued to trade with AUCS on
an arms-length basis.
REVENUES
The Business has entered into transactions with subsidiaries and
affiliates of AT&T. All transactions were entered into in the ordinary
course of business.
The Business offers its network for the use of AUCS, terminates traffic in
the UK for AT&T, and offers its data network for the use of AT&T ISTEL
customers.
Revenues generated from these parties and the related receivables at the
period ends and for the periods presented were as follows:
REVENUE
1999 1998
(in 000s)
AUCS (pound) 17,830 (pound) 15,600
AT&T Corp. 8,521 3,183
AT&T ISTEL 1,650 656
------ ------
Total (pound) 28,001 (pound) 19,439
====== ======
RECEIVABLES
RECEIVABLES
1999 1998
(in 000s)
AUCS (pound) 8,099 (pound) 17,554
====== ======
12
<PAGE>
NEW COMMS.UK
(a fully integrated business of AT&T CORP.)
Notes to Financial Statements
================================================================================
OPERATING EXPENSES
The Business uses the network of AT&T and its affiliates for the
termination of traffic in the United States, and the rest of the world,
and that of AUCS for the termination of traffic, primarily in Europe.
The Business leases premises from an AT&T affiliate (see Note 7).
Operating expenses incurred for such services during the periods presented
were as follows:
EXPENSE
1999 1998
(in 000s)
AT&T Corp. (pound) 8,977 (pound) 12,520
AUCS 191 243
AT&T Corp. Real Estate 7,290 5,544
------- ------
Total (pound) 16,458 (pound) 18,307
======= ======
PAYABLES
PAYABLES
1999 1998
(in 000s)
AUCS (pound) 424 (pound) 243
======= ======
9. NOTES PAYABLE TO AT&T CORP. AND AFFILIATES
The Business received loans from AT&T and affiliates during the years
ended December 31, 1999 and 1998. All loans carry interest at fixed
interest rates as determined on the date of issuance based on LIBOR plus
1/8th percent. Interest charges of (pound)1,944,000 and (pound)3,281,000
on the loans for the years ended December 31, 1999 and 1998 respectively
were waived by AT&T and affiliates. The waived interest charges have been
included in the interest expense caption on the Statement of Operations,
Comprehensive Income and Changes in Accumulated Deficit, with the waived
interest representing a capital contribution in the Advances from AT&T
Corp. and affiliates caption on the balance sheet. The weighted average
interest rate for notes outstanding for the year ended December 31, 1999
was 6.99% and for the year ended December 31, 1998 was 7.80%.
13
<PAGE>
NEW COMMS.UK
(a fully integrated business of AT&T CORP.)
Notes to Financial Statements
================================================================================
A summary of the loan activity with AT&T and affiliates is as follows:
1999 1998
(in 000s)
Balance at beginning of period (pound) 69,900 (pound) -
Loans proceeds received from AT&T and 50,000 69,900
affiliates
Loans repaid to AT&T and affiliates (119,900) -
------- ------
Balance at end of period (pound) - (pound) 69,900
======= ======
The loans received from AT&T and affiliates were comprised of the
following:
1999 1998
(in 000s)
Promissory note due December 31, 1999 (pound) - (pound) 19,900
Promissory note due April 30, 1999 - 25,000
Promissory note due August 3, 1999 - 25,000
Promissory note due December 31, 1999 30,000 -
Promissory note due October 7, 1999 20,000 -
The promissory notes due October 7, 1999 and December 31, 1999 were repaid
in full by October and November, 1999 respectively. No gain or loss was
recognized by the Business on the early extinguishment of debt.
10. ADVANCES FROM AT&T CORP. AND AFFILIATES
In addition to the notes payable, AT&T and its affiliates in the normal
course of operations have provided various types of equity financing to
the Business. The following is a summary of AT&T's advances to the
Business:
1999 1998
(in 000s)
Balance at beginning of period (pound) 305,807 (pound)254,358
Additions 39,944 65,291
Funding received from/(paid to) other AT&T
affiliates 3,166 (13,842)
------- -------
Balance at end of period (pound) 348,917 (pound)305,807
======= =======
14
<PAGE>
NEW COMMS.UK
(a fully integrated business of AT&T CORP.)
Notes to Financial Statements
================================================================================
Additions represent contributions made by AT&T Corp. and affiliates to the
Business. Of these amounts, (pound)1,944,000 and (pound)3,281,000 in the
year ended December 31, 1999 and 1998 respectively, represent permanently
waived interest expense charged to the Business on the notes payable to
AT&T Corp. and affiliates.
Funding received from/(paid to) other AT&T affiliates represents the net
effect of the routine daily operations that the Business conducts with
AT&T Corp. and affiliates.
11. SIGNIFICANT CUSTOMERS
During the years ended December 31, 1999 and 1998 sales with AT&T Corp.
and its affiliates accounted for approximately 25.2% and 24.8% of total
revenues, respectively. The loss of this customer would have a material
adverse affect on the Business's financial position, results of operations
and cash flows.
12. SUBSEQUENT EVENTS
On February 24, 2000, AT&T and its affiliates made a capital contribution
of (pound)7.5 million to the Business to fund operations. The capital
contribution represents a permanent contribution by AT&T and its
affiliates in the business. The receipt reduces the available tax losses
described in Note 6.
On February 29, 2000, AT&T entered into an agreement to sell its 100%
interest in the Business to a subsidiary of Viatel Inc ("Viatel") for $125
million together with a payment for working capital. Management believes
Viatel will continue to fund the day to day operations of the Business to
enable it to meet its funding requirements. Under the sale and purchase
agreement the Business cannot compete with AT&T in the provision of
specific services to specific customers using the AUCS network. Management
does not believe that this will have a material adverse effect on the
Business. It is expected that the relationship and transactions with AT&T
Corp. and affiliates as described in Note 8 to these financial statements
will continue in the ordinary course of business for the foreseeable
future.
Following the sale, the Business operates under the name of Viatel Global
Communications Limited.
15
UNAUDITED PRO FORMA COMBINING FINANCIAL INFORMATION
The following Unaudited Pro Forma Combining Balance Sheet of Viatel as of
December 31, 1999 and Unaudited Pro Forma Combining Statement of Operations of
Viatel for the year ended December 31, 1999 illustrate the effect of our
acquisition of New Comms.UK (formerly AT&T Communications (UK) Limited) on
February 29, 2000. Following the acquisition, the acquired business operates
under the name of Viatel Global Communications Limited. The Unaudited Pro Forma
Combining Balance Sheet assumes that the acquisition of New Comms.UK had been
completed as of December 31, 1999 and the Unaudited Pro Forma Combining
Statements of Operations assumes that the acquisition of New Comms.UK had been
completed as of January 1, 1999. Certain reclassifications have been made to New
Comms.UK's historical financial statements to conform with our presentation. New
Comms.UK historical financial statements have been converted into U.S. dollars
using a rate of $1.62 per Pound Sterling at December 31, 1999 and the year then
ended.
ACCOUNTING TREATMENT
We have acquired all of the issued and outstanding share capital of New
Comms.UK, and have recorded the acquisition as a purchase transaction. The
preliminary purchase price for New Comms.UK is $117.3 million, net of cash
acquired of $24.1 million, and is comprised of a $125 million cash payment at
the time of closing, certain post-closing payments in connection with
preliminary acquired working capital, and estimated transaction costs. The
acquisition has been accounted for under the purchase method of accounting. The
purchase price has been preliminarily allocated based on estimated fair values
at the date of acquisition, pending final determination of certain acquired
balances.
The Unaudited Pro Forma Combining Financial Information is not necessarily
indicative of either future results of operations or results that might have
been achieved if our acquisition of New Comms.UK had been consummated as of
January 1, 1999. The Unaudited Pro Forma Combining Financial Information should
be read in conjunction with our historical financial statements and the
historical financial statements of New Comms.UK together with the related notes
thereto.
As described in Note 1 of the New Comms.UK (formerly AT&T Communications
(UK) Limited) audited financial statements as of and for the years ended
December 31, 1999 and 1998, which are included elswhere in this filing, New
Comms.UK had significant transactions and relationships with AT&T Corp. and its
affiliates. As a result of these relationships, it is possible that the terms of
these transactions were not the same as those that would have resulted from
transactions among wholly unrelated parties.
<PAGE>
Viatel, Inc.
Unaudited Pro Froma Combining Balance Sheet
<TABLE>
As of December 31, 1999
(in thousands)
Viatel
Viatel New Comms.UK Pro Forma Merger Pro Forma
Historical Historical Adjustments Combined
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 373,044 $ 23,263 $ (136,439)(1) $ 259,868
Restricted cash equivalents 9,632 - 9,632
Restricted marketable securities 125,581 - 125,581
Trade accounts receivable, less allowance for
doubtful accounts 115,103 38,859 153,962
VAT receivables, net 37,867 13,443 51,310
Prepaid expenses and other current assets 16,789 4,805 21,594
----------------------------------------------------------------------
Total current assets 678,016 80,370 (136,439) 621,947
Restricted marketable securities, non-current 62,547 - 62,547
Property and equipment, net 884,328 147,276 (34,905)(2) 996,699
Cash securing letters of credit for network construction 50,165 - 50,165
Intangible assets, net $1,011,659 - 1,011,659
Other assets 17,382 15,213 32,595
----------------------------------------------------------------------
TOTAL ASSETS $2,704,097 $242,859 $ (171,344) $2,775,612
----------------------------------------------------------------------
Liabilities and stockholders' equity
Current liabilities:
Accrued telecommunications costs $ 77,333 $ 36,051 $ 113,384
Accounts payable and other accrued expenses 156,218 19,643 $ 4,999(3) 180,860
Property and equipment purchases payable 87,810 10,822 98,632
Accrued interest 37,545 - 37,545
Liability under joint construction agreement 4,918 - 4,918
Current installments of notes payable 24,997 - 24,997
Current installments of obligations under
capital leases 10,337 - 10,337
----------------------------------------------------------------------
Total current liabilities 399,158 66,516 4,999 470,673
Long-term liabilities:
Long term debt, excluding current installments 1,680,885 - 1,680,885
Notes payable and obligations under capital
leases, excluding current installments 86,663 - 86,663
----------------------------------------------------------------------
Total long-term liabilities 1,767,548 - - 1,767,548
Commitments and contingencies
Stockholders' equity
Common Stock 471 - 471
Additional paid-in capital 1,066,964 565,245 (565,245)(4) 1,066,964
Unearned Compensation (5,768) - (5,768)
Accumulated other comprehensive loss (45,464) - (45,464)
Accumulated deficit (478,812) (388,902) 388,902(4) (478,812)
----------------------------------------------------------------------
Total stockholders' equity 537,391 176,343 (176,343) 537,391
----------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,704,097 $242,859 $ (171,344) $2,775,612
----------------------------------------------------------------------
See notes to unaudited pro forma combining financial information
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Viatel, Inc.
Unaudited Pro Forma Combining Statement of Operations
For the Year Ended December 31, 1999
Pro Viatel
Forma Pro
Viatel New Comms.UK Merger Forma
Historical Historical Adjustments Combined
---------- ----------- ----------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenue
Communication services revenue $ 248,600 $ 179,767 $(45,362) (5) $ 383,005
Capacity sales 84,501 -- -- 84,501
---------- --------- -------- ----------
Total revenue 333,101 179,767 (45,362) 467,506
---------- --------- -------- ----------
Operating expenses
Cost of services and sales 250,574 131,053 (33,069) (5) 348,558
Selling, general and administrative 100,559 81,355 (2,349) (6) 179,565
Depreciation and amortization 75,911 33,811 (3,544) (2) 106,178
Restrucuring and impairment 13,206 -- -- 13,206
---------- --------- -------- ----------
Total operating expenses 440,250 246,219 (38,962) 647,507
---------- --------- -------- ----------
Operating Loss (107,149) (66,452) (6,400) (180,001)
Interest income 26,722 1,717 (1,717) (7) 20,582
(6,140) (1)
Interest expense (137,409) (3,256) 3,256 (7) (137,409)
---------- --------- -------- ----------
Net loss (217,836) (67,991) (11,001) (296,828)
Dividends on redeemable convertible
preferred stock (1,341) (1,341)
Net loss attributable to common
stockholders $(219,177) $(67,991) $(11,001) $(298,169)
========== ========= ========= ==========
Net loss per common share attributable
to common stockholders, basic and
diluted $ (7.43) $ (10.10)
========= ==========
Weighted average common shares
outstanding, basic and diluted 29,518 29,518
========= =========
See notes to unaudited pro forma combining financial information.
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINING FINANCIAL INFORMATION
(1) Reflects the cash payment of $125.0 million to acquire New Comms.UK,
certain post-closing payments in connection with preliminary acquired
working capital, and the consequent effect to interest income resulting
from the lower balances in cash.
(2) Adjustments to property and equipment and to depreciation expense
resulting from the preliminary fair valuation of property and equipment
at the date of acquisition.
(3) Estimated transaction costs for Viatel of $5.0 million relating to the
acquisition.
(4) Elimination of historical net assets acquired, comprised of New Comms.UK
historical stockholders'equity.
(5) Elimination of New Comms.UK's communication services revenue and related
cost of services and sales from AT&T and affiliates that are not
expected to continue post acquisition.
(6) Elimination of New Comms.UK's general and administrative costs relating
to shared services that are not expected to continue post acquisition.
(7) Elimination of New Comms.UK's historical allocated interest income and
interest expense.
