<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of
earliest event reported): March 31, 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>
Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits.
(a) Financial Statements of Businesses Acquired.
Not applicable.
(b) Pro Forma Financial Information.
Unaudited Pro Forma Combining Financial Information, and notes
thereto, for the year ended December 31, 1999, are filed herewith
as Exhibit 99.2.
(c) Exhibits.
The following exhibits are filed with this Report.
Exhibit No. Description.
27 Financial Data Schedule.
99.1 Audited financial statements of Viatel, Inc., and the notes
thereto, for the fiscal year ended December 31, 1999.
99.2 Unaudited Pro Forma Combining Financial Information, and notes
thereto, for the year ended December 31, 1999.
<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: March 31, 2000 By: /s/ JAMES P. PRENETTA
---------------------
Name: James P. Prenetta
Title: Senior Vice President and
General Counsel
<PAGE>
EXHIBIT INDEX
Exhibit No. Description.
- ----------- ------------
27 Financial Data Schedule.
99.1 Audited financial statements of Viatel, Inc., and the notes
thereto, for the fiscal year ended December 31, 1999.
99.2 Unaudited Pro Forma Combining Financial Information, and notes
thereto, for the year ended December 31, 1999.
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------------------
<S> <C>
VIATEL, INC. AND SUBSIDIARIES
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of December 31, 1998 and
1999...................................................... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1998 and 1999.......................... F-4
Consolidated Statements of Comprehensive Loss for the Years
Ended
December 31, 1997, 1998 and 1999.......................... F-5
Consolidated Statements of Stockholders' Equity (Deficiency)
for the
Years Ended December 31, 1997, 1998 and 1999.............. F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1998 and 1999.......................... F-7
Notes to Consolidated Financial Statements for the Years
Ended December 31, 1997, 1998 and 1999.................... F-8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Viatel, Inc.:
We have audited the accompanying consolidated balance sheets of Viatel, Inc.
and subsidiaries as of December 31, 1998 and 1999, and the related consolidated
statements of operations, comprehensive loss, stockholders' equity (deficiency),
and cash flows for each of the years in the three-year period ended
December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Viatel, Inc. and subsidiaries as of December 31, 1998 and 1999, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999 in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
New York, New York
March 1, 2000
F-2
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 329,511 $ 373,044
Restricted cash equivalents............................... 10,310 9,632
Restricted marketable securities.......................... 50,870 125,581
Marketable securities..................................... 171,771 --
Trade accounts receivable, net of allowance for doubtful
accounts of $4,722 and $10,034, respectively............ 28,517 115,103
VAT receivables, net...................................... 12,561 37,867
Prepaid expenses and other current assets................. 3,260 16,789
---------- ----------
Total current assets.................................... 606,800 678,016
Restricted marketable securities, non-current............... 83,343 62,547
Property and equipment, net................................. 267,316 884,328
Cash securing letters of credit for network construction.... -- 50,165
Intangible assets, net...................................... 45,908 1,011,659
Other assets................................................ 5,744 17,382
---------- ----------
Total assets.............................................. $1,009,111 $2,704,097
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities:
Accrued telecommunications costs.......................... $ 26,518 $ 77,333
Accounts payable and other accrued expenses............... 23,656 156,218
Property and equipment purchases payable.................. 97,288 87,810
Accrued interest.......................................... 12,240 37,545
Liability under joint construction agreement.............. 9,523 4,918
Current installments of notes payable..................... 3,199 24,997
Current installments of obligations under capital
leases.................................................. 5,719 10,337
---------- ----------
Total current liabilities............................... 178,143 399,158
---------- ----------
Long-term liabilities:
Long-term debt, excluding current installments............ 896,503 1,680,885
Notes payable and obligations under capital leases,
excluding current installments.......................... 24,636 86,663
---------- ----------
Total long-term liabilities............................. 921,139 1,767,548
---------- ----------
Series A Redeemable Convertible Preferred Stock, $.01 par
value; Authorized 718,042 Shares; issued and outstanding
461,258 shares and none, 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 150,000,000
shares; issued and outstanding 23,184,465 and 47,093,361
shares, respectively.................................... 232 471
Additional paid-in capital................................ 128,357 1,066,964
Unearned compensation..................................... -- (5,768)
Accumulated other comprehensive loss...................... (6,246) (45,464)
Accumulated deficit....................................... (259,635) (478,812)
---------- ----------
Total stockholders' equity (deficiency)................. (137,292) 537,391
---------- ----------
Total liabilities and stockholders' equity
(deficiency).......................................... $1,009,111 $2,704,097
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1998 1999
-------- --------- ---------
<S> <C> <C> <C>
Revenue:
Communication services revenue............................ $ 73,018 $ 131,938 $ 248,600
Capacity sales............................................ -- 3,250 84,501
-------- --------- ---------
Total revenue........................................... 73,018 135,188 333,101
-------- --------- ---------
Operating expenses:
Cost of services and sales................................ 63,504 122,109 250,574
Selling, general and administrative....................... 36,077 44,893 100,559
Depreciation and amortization............................. 7,717 16,268 75,911
Restructuring and impairment.............................. -- -- 13,206
-------- --------- ---------
Total operating expenses................................ 107,298 183,270 440,250
-------- --------- ---------
Other income (expense):
Interest income........................................... 3,686 28,259 26,722
Interest expense.......................................... (12,450) (79,177) (137,409)
-------- --------- ---------
Loss before extraordinary loss.............................. (43,044) (99,000) (217,836)
Extraordinary loss on debt prepayment..................... -- (28,304) --
-------- --------- ---------
Net loss.................................................... (43,044) (127,304) (217,836)
Dividends on redeemable convertible preferred stock....... -- (3,301) (1,341)
-------- --------- ---------
Net loss attributable to common stockholders................ $(43,044) $(130,605) $(219,177)
======== ========= =========
Loss per common share, basic and diluted:
Before extraordinary item............................... $ (1.90) $ (4.44) $ (7.43)
From extraordinary item................................. $ -- $ (1.23) $ --
-------- --------- ---------
Net loss per common share attributable to common
stockholders.......................................... $ (1.90) $ (5.67) $ (7.43)
======== ========= =========
Weighted average common shares outstanding,
basic and diluted....................................... 22,620 23,054 29,518
======== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1998 1999
-------- --------- ---------
<S> <C> <C> <C>
Net loss.................................................... $(43,044) $(127,304) $(217,836)
Foreign currency translation adjustments.................. (4,494) (890) (39,218)
-------- --------- ---------
Comprehensive loss.......................................... $(47,538) $(128,194) $(257,054)
======== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NUMBER OF ACCUMULATED
COMMON ADDITIONAL OTHER
STOCK COMMON PAID-IN UNEARNED COMPREHENSIVE ACCUMULATED
SHARES STOCK CAPITAL COMPENSATION LOSS DEFICIT TOTAL
---------- -------- ---------- ------------ ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1997.......... 22,513,226 $225 $ 125,236 $ (130) $ (862) $ (85,986) $ 38,483
Stock options exercised............. 122,041 1 425 -- -- -- 426
Earned compensation................. -- -- -- 65 -- -- 65
Foreign currency translation
adjustment........................ -- -- -- -- (4,494) -- (4,494)
Net loss............................ -- -- -- -- -- (43,044) (43,044)
---------- ---- ---------- ------- -------- --------- ---------
BALANCE AT DECEMBER 31, 1997........ 22,635,267 226 125,661 (65) (5,356) (129,030) (8,564)
Stock options exercised............. 174,198 2 945 -- -- -- 947
Issuance costs of Series A
Redeemable Convertible Preferred
Stock............................. -- -- (1,620) -- -- -- (1,620)
Issuance of common stock related to
business purchase................. 375,000 4 3,371 -- -- -- 3,375
Earned compensation................. -- -- -- 65 -- -- 65
Foreign currency translation
adjustment........................ -- -- -- -- (890) -- (890)
Dividends on Series A Redeemable
Convertible Preferred Stock....... -- -- -- -- -- (3,301) (3,301)
Net loss............................ -- -- -- -- -- (127,304) (127,304)
---------- ---- ---------- ------- -------- --------- ---------
BALANCE AT DECEMBER 31, 1998........ 23,184,465 232 128,357 -- (6,246) (259,635) (137,292)
Conversion of Series A Redeemable
Convertible Preferred Stock....... 3,671,316 37 48,425 -- -- -- 48,462
Conversion of subordinated debt..... 943,916 9 12,320 -- -- -- 12,329
Stock options exercised............. 436,344 4 2,850 -- -- -- 2,854
Issuance of common stock for
acquisition....................... 14,299,969 143 560,559 -- -- -- 560,702
Options and warrants issued for
acquisition....................... -- -- 111,573 -- -- -- 111,573
Restricted shares issued............ 152,351 2 6,550 (6,552) -- -- --
Earned compensation................. -- -- -- 784 -- -- 784
Issuance of common stock for
services.......................... 90,000 1 4,499 -- -- -- 4,500
Common stock offering............... 4,315,000 43 191,831 -- -- -- 191,874
Foreign currency translation
adjustment........................ -- -- -- -- (39,218) -- (39,218)
Dividends on Series A Redeemable
Convertible Preferred Stock....... -- -- -- -- -- (1,341) (1,341)
Net loss............................ -- -- -- -- -- (217,836) (217,836)
---------- ---- ---------- ------- -------- --------- ---------
BALANCE AT DECEMBER 31, 1999........ 47,093,361 $471 $1,066,964 $(5,768) $(45,464) $(478,812) $ 537,391
========== ==== ========== ======= ======== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (43,044) $(127,304) $(217,836)
Adjustments to reconcile net loss to net cash used in
operating
activities:
Depreciation and amortization........................... 7,717 16,268 75,911
Accreted interest expense on long term debt............. 12,479 35,417 38,047
Provision for losses on accounts receivable............. 2,733 4,225 11,511
Asset impairments....................................... -- -- 9,098
Restructuring accrual................................... -- -- 3,905
Extraordinary loss on debt prepayment................... -- 28,304 --
Earned stock compensation............................... 65 65 784
Changes in operating assets and liabilities, net of effect
of
acquisitions:
Increase in accounts receivable and accrued interest.... (6,221) (20,302) (27,292)
Increase in notes receivable............................ -- -- (7,862)
Increase in accrued interest expense on Senior Notes.... -- 11,969 15,715
Increase in prepaid expenses and other receivables...... (3,482) (8,291) (36,071)
Increase in other assets and intangible assets.......... (1,022) (12,625) (1,303)
Increase in accrued telecommunications costs, accounts
payable, and other accrued expenses................... 8,250 11,956 568
--------- --------- ---------
Net cash used in operating activities................. (22,525) (60,318) (134,825)
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures.................................... (34,190) (94,674) (527,327)
Cash paid for acquisitions, net of cash acquired........ -- (5,000) 39,998
Purchase of marketable securities....................... (49,098) (310,625) (217,519)
Proceeds from maturity of marketable securities......... 40,124 60,307 349,042
Cash securing letters of credit for network
construction.......................................... -- -- (50,165)
--------- --------- ---------
Net cash used in investing activities................. (43,164) (349,992) (405,971)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of senior notes,
senior discount notes and convertible debentures...... -- 845,752 425,635
Proceeds from issuance of subordinated
convertible preferred stock........................... -- 42,198 --
Repayment of senior discount notes...................... -- (119,282) --
Deferred financing costs................................ -- (31,547) (22,166)
Proceeds from exercise of stock options................. 426 947 2,854
Proceeds from common stock offering..................... -- -- 191,874
Borrowings on notes payable............................. 11,121 -- --
Payments under capital leases........................... (525) (5,480) (4,322)
Repayment of notes payable and bank credit line......... (336) (3,553) (4,484)
Borrowings under bank credit line....................... 600 -- --
--------- --------- ---------
Net cash provided by financing activities............. 11,286 729,035 589,391
--------- --------- ---------
Effects of exchange rate changes on cash.................... (297) -- (5,740)
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents........ (54,700) 318,725 42,855
Cash and cash equivalents at beginning of year.............. 75,796 21,096 339,821
--------- --------- ---------
Cash and cash equivalents at end of year.................... $ 21,096 $ 339,821 $ 382,676
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 AND 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) DESCRIPTION OF BUSINESS
Viatel, Inc. and subsidiaries (collectively, the "Company") is a provider of
ALL DISTANCE communication services to individuals, corporations, internet
service providers and other communications carriers in Europe and North America.
The Company is a licensed provider of telecommunications services in ten
European countries and the United States. The Company owns and operates
international telecommunications networks and is also the owner, operator and
builder of a Western European fiber optic network.
(B) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its majority-owned and controlled subsidiaries from their respective dates
of acquisition. All significant inter-company balances and transactions have
been eliminated in consolidation.
(C) CASH AND CASH EQUIVALENTS
The Company's policy is to maintain its uninvested cash at minimum levels.
Unrestricted cash equivalents include highly liquid debt instruments purchased
with an original maturity of three months or less.
(D) REVENUE AND COST OF SERVICES AND SALES
The Company records communication services revenue as earned at the time
services are provided. The related cost of communication services is reported in
the same period.
Revenue from capacity sales mainly represents indefeasible-rights-of-use
("IRUs") for portions of the network that qualify for sales-type lease
accounting. Transactions that do not meet the criteria for sales-type lease
accounting are accounted for as operating leases and revenue is recognized over
the term of the lease.
Cost of capacity 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.
In June 1999, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 43, "Real Estate Sales, an interpretation of FASB Statement
No. 66" ("FIN 43") which is applicable for all contracts entered into after
June 30, 1999. FIN 43 requires that a lease of property improvements or integral
equipment include a provision allowing title to transfer to the lessee in order
for that lease to be accounted for as a sales-type lease.
The Company recognizes revenue in accordance with FIN 43 and the Securities
and Exchange Commission Staff Accounting Bulletin No. 101, "Revenue Recognition
in Financial Statements". However, accounting practices and guidance for sales
of IRUs is evolving. Standard setting bodies are currently reviewing a number of
issues related to FIN 43 and other related issues will probably be referred to
these bodies. Changes in the accounting treatment as a result of the foregoing
could affect the way that the Company recognizes revenue and costs associated
with these capacity sales in the future.
(E) PROPERTY AND EQUIPMENT
Property and equipment consists principally of telecommunications related
equipment such as switches, fiber optic cable systems, remote nodes and related
computer software and is stated at cost. Assets acquired under capital leases
are stated at the present value of the future minimum lease payments. The
Company also capitalizes certain software development costs for internal use.
Maintenance and repairs are expensed as incurred.
F-8
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Depreciation is provided using the straight-line method over the estimated
useful lives of the related assets. Leasehold improvements are amortized over
the life of the lease or useful life of the improvement, whichever is shorter.
The estimated useful lives are as follows:
<TABLE>
<S> <C>
Communications systems...................................... 5 to 7 years
Fiber optic cable systems................................... 10 to 20 years
Leasehold improvements...................................... 2 to 5 years
Furniture, office and computer equipment and other.......... 2 to 5 years
</TABLE>
(F) INTANGIBLE ASSETS
Deferred financing and registration fees represent costs incurred to issue
and register debt and are being amortized over the term of the related debt.
Costs of licenses issued by governing bodies are being amortized on a
straight-line basis over the lesser of 25 years or the term of the license.
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over the expected
periods to be benefitted, which is five to seven years.
Acquired customer base and acquired employee base represent intangible
assets associated with acquisitions and are being amortized on a straight-line
basis over three to seven years.
(G) INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income or expense in the period it occurs.
(H) FOREIGN CURRENCY TRANSLATION
A significant portion of the Company's assets are foreign currency
denominated and as such are subject to fluctuations in value due to movements in
foreign exchange rates. Foreign currency assets and liabilities are translated
using the exchange rates in effect at the balance sheet date. Results of
operations are translated using the average exchange rates prevailing throughout
the year. The effects of exchange rate fluctuations on translating foreign
currency assets and liabilities into U.S. dollars are accumulated as part of the
foreign currency translation adjustment in stockholders' equity. Gains and
losses from foreign currency transactions are included in selling, general and
administrative expenses in the period in which they occur. For the years ending
December 31, 1997, 1998 and 1999, the Company experienced no material exchange
transaction gains or losses.
(I) NET LOSS PER SHARE
Basic earnings per share ("EPS") is computed by dividing income or loss
attributable to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
from the exercise or conversion of securities into common stock.
Net loss and weighted average shares outstanding used for computing diluted
loss per common share were the same as that used for computing basic loss per
common share for each of the years ended December 31, 1997, 1998 and 1999.
F-9
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company had potentially dilutive securities of 1.1 million (consists of
stock options), 7.2 million (consists of 2.6 million of stock options;
3.7 million of convertible preferred stock on an "as if" converted basis; and
.9 million subordinated convertible debt on an "as if" converted basis) and 6.0
million (consists of 5.7 million of stock options and .3 million of warrants)
for the years ended December 31, 1997, 1998 and 1999, respectively. These
potentially dilutive securities were not included in the computation of diluted
net loss per common share because they were antidilutive for the periods
presented.
(J) FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
At December 31, 1998 and 1999, the company's financial instruments included
cash, cash equivalents, investments, receivables, accounts payable, accrued
interest and borrowings. The fair values, at December 31, 1998 and 1999, of cash
and cash equivalents, receivables, accounts payable and accrued interest
approximated their carrying values because of the short-term nature of these
instruments. The estimated fair values of other financial instruments subject to
fair value disclosures, determined based on broker quotes or quoted market
prices or rates for the same or similar instruments and the related carrying
costs are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1999
------------------- -----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Investments (see Note 2)......... $305,984 $305,984 $ 188,128 $ 188,128
Borrowings (see Note 8).......... $896,503 $868,017 $1,680,885 $1,665,462
</TABLE>
Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of temporary cash investments and trade
receivables. The Company restricts investment of temporary cash investments to
financial institutions with high credit standing. The Company does not believe
there is any concentration of credit risk on trade receivables as a result of
the large and diverse nature of the Company's worldwide customer base.
During 1998, one customer, LD Exchange.com, accounted for 10.6% of the
Company's revenues. No one customer represented more than 10% of the Company's
total revenues for 1999 and 1997.
(K) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles 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 the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
(L) STOCK OPTION PLAN
The Company accounts for its stock option plans in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 123 which allows entities to
continue to apply the provisions of Accounting Principles Board ("APB") Opinion
No. 25 and provide pro forma net income and pro forma earnings per share
disclosures for employee stock option grants made in 1995 and future years as if
the fair-value-based method, as defined in SFAS No. 123, had been applied. The
Company has elected to apply the provisions of APB Opinion No. 25 and provide
the pro forma disclosure required by SFAS No. 123. See Note 13.
F-10
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(M) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
(N) ADDITIONAL ACCOUNTING POLICIES
Additional accounting policies are incorporated into the notes herein.
(O) RECLASSIFICATIONS
Certain reclassifications have been made to the prior years' financial
statements to conform to the current year's presentation.
(2) INVESTMENTS IN DEBT SECURITIES
Management determines the appropriate classification of its investments in
debt securities at the time of purchase and classifies them as held to maturity
or available for sale. These investments are diversified among high credit
quality securities in accordance with the Company's investment policy. Debt
securities that the Company has both the intent and ability to hold to maturity
are carried at amortized cost. Debt securities for which the Company does not
have the intent or ability to hold to maturity are classified as
available-for-sale. Securities available for sale are carried at fair value,
with the unrealized gains and losses, net of tax, reported in a separate
component of stockholders' equity. The Company does not invest in securities for
trading purposes and as such does not classify any securities as trading.
The cost of debt securities classified as held to maturity is adjusted for
amortization of premiums and accretion of discounts to maturity over the
estimated life of the security. Such amortization and accretion are included in
interest income. There were no securities classified as available-for-sale as of
December 31, 1998 and 1999.
The following is a summary of the amortized cost, which approximates fair
value, of securities held to maturity at December 31 (in thousands):
<TABLE>
1998 1999
-------- --------
European corporate debt securities...................... $122,299 $ --
<S> <C> <C>
U.S. corporate debt securities.......................... 49,472 --
-------- --------
Total............................................... $171,771 $ --
======== ========
</TABLE>
The following is a summary of the amortized cost, which approximates fair
value, of restricted securities held to maturity at December 31 (in thousands):
<TABLE>
1998 1999
-------- --------
U.S. Treasury obligations............................... $105,508 $147,586
<S> <C> <C>
German government obligations........................... 28,705 40,542
-------- --------
Total............................................... $134,213 $188,128
======== ========
</TABLE>
F-11
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
(2) INVESTMENTS IN DEBT SECURITIES (CONTINUED)
The amortized cost, which approximates fair value, of restricted securities
held to maturity at December 31, are shown below (in thousands):
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Due within one year......................................... $ 50,870 $125,581
Due after one year through two years........................ 54,328 62,547
Due after two years......................................... 29,015 --
-------- --------
Total................................................... $134,213 $188,128
======== ========
</TABLE>
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. Restricted marketable securities are restricted for use in
semi-annual interest payments of certain long term debt and are invested in U.S.
and German government securities maturing on a schedule which approximates the
required interest payments.
(3) PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of December 31 (in
thousands):
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Communications systems...................................... $ 96,193 $698,483
Construction in progress.................................... 172,630 210,671
Furniture, office and computer equipment and other.......... 16,450 25,707
Software.................................................... 1,859 13,481
Leasehold improvements...................................... 6,651 11,926
-------- --------
293,783 960,268
Less accumulated depreciation and amortization.............. 26,467 75,940
-------- --------
$267,316 $884,328
======== ========
</TABLE>
At December 31, 1998 and 1999, construction in progress primarily represents
construction of the Western European fiber optic network. For the years ended
December 31, 1997, 1998 and 1999, $0.2 million, $3.3 million and $10.1 million,
respectively, of interest was capitalized.
(4) INTANGIBLE ASSETS
Intangible assets consist of the following as of December 31 (in thousands):
<TABLE>
<CAPTION>
1998 1999
-------- ----------
<S> <C> <C>
Goodwill.................................................... $ 8,744 $ 842,555
Acquired customer base and employee base.................... -- 130,956
Deferred financing.......................................... 31,547 53,714
Licenses, trademarks and servicemarks....................... 10,237 9,495
------- ----------
50,528 1,036,720
Less accumulated amortization............................... 4,620 25,061
------- ----------
$45,908 $1,011,659
======= ==========
</TABLE>
F-12
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
(4) INTANGIBLE ASSETS (CONTINUED)
During 1999, the Company recognized and paid its obligation for contingent
consideration for its 1998 acquisition of Flat Rate Communications, Inc. ("Flat
Rate") based upon key operating performance targets met during the period ended
March 31, 1999. Such contingent consideration has been recorded as goodwill and
is being amortized over the remaining useful life.
(5) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consists of the following as of
December 31 (in thousands):
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Accounts payable............................................ $ 5,566 $ 78,677
Accrued expenses............................................ 18,090 77,541
------- --------
$23,656 $156,218
======= ========
</TABLE>
(6) ACQUISITIONS
FLAT RATE COMMUNICATIONS, INC.
On February 27, 1998, the Company acquired Flat Rate Communications, Inc., a
long distance telecommunications reseller, for $5.0 million of cash, 375,000
shares of the Company's common stock and a $12.0 million cash contingent payment
paid in 1999 based upon key operating performance targets achieved. The Company
recorded the acquisition under the purchase method of accounting. The purchase
price was allocated to the assets acquired and liabilities assumed, based upon
the estimated fair values at the date of acquisition. The excess purchase price
was approximately $20.4 million and is being amortized on a straight-line basis
over its estimated useful life which is five years.
DESTIA COMMUNICATIONS, INC.
On August 27, 1999, the Company agreed to acquire Destia Communications,
Inc. ("Destia") through a merger of Destia with one of the Company's
subsidiaries. On December 8, 1999, the Company completed the merger and Destia
became a wholly-owned subsidiary of the Company. Destia is a facilities-based
provider of domestic and international long distance telecommunications services
in Europe and North America. Its customer base consists of residential
customers, commercial customers, ethnic groups and other telecommunications
carriers. Destia offers a variety of retail telecommunications services,
including international and domestic long distance, Internet access and wireless
services.
Holders of Destia common stock received 0.445 shares (the exchange ratio) of
the Company's common stock for each share of Destia common stock. In connection
with the acquisition, the Company issued 14,299,969 shares of its common stock
valued at $39.21 per share (total value of $560.7 million). Each outstanding
option and warrant to acquire shares of Destia common stock was converted into
an option or warrant to acquire shares of the Company on the basis of the
exchange ratio described above.
The purchase price for Destia was $901.9 million and was comprised of the
issuance of common stock, the fair value of existing Destia options and warrants
exchanged, issuance of 11.5% senior notes, the cash portion of the debt exchange
offer and transaction costs. The options and warrants have been valued at their
fair value using the Black-Scholes option pricing model. 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. This
preliminary allocation has resulted in intangible assets and goodwill of
approximately $131.0 million
F-13
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
(6) ACQUISITIONS (CONTINUED)
and $822.3 million, respectively, which are being amortized on a straight-line
basis over their estimated useful lives which are four to seven years and seven
years, respectively. In connection with the Company's integration plan, the
Company recorded liabilities related to the closing and termination of Destia
facilities and lease and other contract costs of $9.6 million and severance
related to Destia employees, of $2.2 million. The results of operations of
Destia for December 1999 were included in the consolidated financial statements.
The preliminary allocation of the purchase price is as follows (in
thousands):
<TABLE>
<S> <C>
Current assets.............................................. $ 147,083
Property, equipment and leasehold improvements.............. 163,389
Identifiable intangibles.................................... 130,956
Other non-current assets.................................... 15,982
Accounts payable and accrued expenses....................... (139,153)
Debt........................................................ (238,629)
---------
Fair value of net assets acquired........................... 79,628
Purchase price.............................................. 901,898
---------
Goodwill.................................................... $ 822,270
=========
</TABLE>
The following unaudited pro forma financial information presents the
combined results of operations of Viatel, Destia, and Flat Rate, as if the
acquisitions had occurred as of the beginning of 1998 and 1999, after giving
effect to certain adjustments, including amortization of goodwill, depreciation
expense, and increased interest expense on debt related to the acquisition. The
unaudited pro forma financial information does not necessarily reflect the
results of operations that would have occurred had Viatel, Destia, and Flat Rate
constituted a single entity during such periods.
(in thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------
1998 1999
---------- ----------
(UNAUDITED)
<S> <C> <C>
Revenue........................................... $ 333,225 $ 618,915
Loss before extraordinary loss.................... (319,942) (465,032)
Net loss attributable to common stockholders...... (351,547) (466,373)
Net loss per common share attributable to common
stockholders.................................... $ (9.41) $ (10.87)
</TABLE>
F-14
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
(7) NOTES PAYABLE AND OBLIGATIONS UNDER CAPITAL LEASES
The Company was obligated under the following debt arrangements primarily in
connection with equipment and capacity acquisitions:
(in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-------------------------------
CURRENT LONG-TERM TOTAL
-------- --------- --------
<S> <C> <C> <C>
Obligations under capital leases (a)................... $10,337 $37,164 $ 47,501
Notes payable (b)...................................... 16,954 25,211 42,165
NTFC note (c).......................................... 8,043 24,288 32,331
------- ------- --------
$35,334 $86,663 $121,997
======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------------------
CURRENT LONG-TERM TOTAL
-------- --------- --------
<S> <C> <C> <C>
Obligations under capital leases (a).................... $5,719 $20,004 $25,723
Notes payable (b)....................................... 3,199 4,632 7,831
------ ------- -------
$8,918 $24,636 $33,554
====== ======= =======
</TABLE>
(a) The Company has various lease agreements for IRUs, buildings housing
switch sites, rights of way and other property.
(b) The Company has assumed the obligations of six notes payable related to
the purchase of cable lines and acquisitions entered into by Destia prior to its
acquisition by the Company. These notes with an aggregate value of
$37.9 million at December 31, 1999 bear interest at rates ranging from 5% to 12%
and have final maturity dates from May 2001 to November 2008.
F-15
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
(7) NOTES PAYABLE AND OBLIGATIONS UNDER CAPITAL LEASES (CONTINUED)
The Company has entered into Loan and Security Agreements pursuant to which
the Company had outstanding borrowings of $7.8 million and $4.3 million at
December 31, 1998 and 1999, respectively. Under the terms of these agreements,
the Company is required to satisfy certain covenants and restrictions. As of
December 31, 1999, the Company had received waivers to these convants.
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.
(c) The Company has assumed the obligations of a credit facility with NTFC
previously entered into by Destia prior to its acquisition by the Company. This
credit facility provides for borrowings to fund certain equipment acquisition
costs and related expenses. The facility provides for an aggregate commitment of
NTFC of $49.0 million. Loans under the NTFC facility accrue interest at a rate
equal to the 90-day commercial paper rate plus 395 basis points, subject to
certain quarterly adjustments depending on financial performance. The loans have
final maturity dates from July 2001 to November 2004. All of the equipment
purchased with the proceeds of the NTFC note has been pledged to NTFC. The terms
of the NTFC facility require the company to maintain certain Debt Service
Coverage Ratios, EBITDA (both as defined in the terms of the NTFC facility), and
minimum cash balances. A waiver of these covenants was obtained until May 8,
2000. Before May 8, 2000, the Company will be required to either (i) obtain a
further waiver or (ii) prepay the outstanding amounts owed at a premium of not
more than 102% of the amount outstanding or (iii) negotiate a new facility.
Maturities of notes payable and obligations under capital lease arrangements
over the next five years are as follows (in thousands):
<TABLE>
<S> <C>
2000...................................................... $ 35,334
2001...................................................... 38,472
2002...................................................... 9,095
2003...................................................... 6,811
2004...................................................... 7,092
Thereafter................................................ 25,193
--------
Total..................................................... $121,997
========
</TABLE>
F-16
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
(8) LONG-TERM DEBT AND CONVERTIBLE SECURITIES
Long-term debt consists of the following as of December 31 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1999
---------- ----------
<S> <C> <C>
11.25% Senior Notes(a)...................................... $400,000 $ 400,000
12.50% Senior Discount Notes, less discount of $202,716 and
$164,393, respectively(a)................................. 297,284 335,607
11.50% Senior Notes, less discount of $3,486(a)(c).......... -- 265,986
11.50% Senior Notes(a)...................................... -- 200,000
13.50% Senior Notes(b)...................................... -- 158,300
11.50% Senior Notes (E150,000).............................. -- 151,027
11.15% Senior Notes (DM178,000) and (E91,010),
respectively(a)........................................... 106,015 91,633
12.40% Senior Discount Notes (DM134,916) and (E115,552),
less discount of $54,249 (DM91,084) and $38,011,
(E37,752), respectively(a)................................ 80,355 78,332
10% Subordinated Convertible Debentures (DM21,573)(a)....... 12,849 --
-------- ----------
$896,503 $1,680,885
======== ==========
</TABLE>
(a) On March 19, 1999, the Company 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 due 2009.
On April 8, 1998, the Company completed an offering of units (the "Units
Offering") consisting of senior notes and senior discount notes due 2008 and
shares of 10% Series A Redeemable Convertible Preferred Stock due 2010
("Series A Preferred") (see Note 9), $.01 par value per share, of the Company
and units consisting of senior notes and senior discount notes due 2008 and
subordinated convertible debentures due 2011 (the "Subordinated Debentures")
(see Note 9) through which it raised approximately $889.6 million of gross
proceeds ($856.6 million of net proceeds). The Company utilized $118.9 million
of the proceeds from the Units Offering to retire its 15% Senior Discount Notes
due 2005 resulting in an extraordinary loss of $28.3 million. A portion of the
proceeds from the senior notes was used to purchase U.S. government and German
government securities which were pledged as security for the first six interest
payments on the Senior notes due 2008 and four interest payments on the Senior
notes due 2009. The amount of restricted securities remaining pledged as
security for these notes at December 31, 1999 is $176.7 million. The interest on
the senior notes is payable in semi-annual installments. The senior discount
notes accrete through April 15, 2003 and interest becomes payable in cash in
semi-annual installments thereafter.
The indentures pursuant to which the 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.
F-17
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
(8) LONG-TERM DEBT AND CONVERTIBLE SECURITIES (CONTINUED)
(b) In conjunction with the Destia acquisition, the Company assumed
Destia's 13.5% 1997 notes which have an aggregate principal value of
$150.8 million. The Company determined the fair value of this debt to be
$158.3 million and is amortizing the premium over the remaining term. These
notes were unsecured obligations of Destia and mature in 2007. A portion of the
proceeds from the senior notes due 2007 was used by Destia to purchase U.S.
government securities and cash equivalents which were pledged as security for
the first six interest payments on such notes. The amount of restricted
securities and cash equivalents remaining pledged as security for these notes at
December 31, 1999 is $21.1 million.
The indentures pursuant to which the Destia 13.5% notes were issued contain
substantially similar covenants to the ones the Company has on its senior notes,
which 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, as a result of our acquisition of Destia, the Company was required to
offer to repurchase the notes at a purchase price equal to 101% of the
outstanding principal amount, together with accrued and unpaid interest. The
Company launched this required offer to purchase on December 22, 1999. In
connection therewith, the Company repurchased an aggregate amount of
$.6 million.
(c) In connection with the Destia acquisition, the holders of all of
Destia's 11% senior discount notes due 2008 ($213.3 million in accreted
principal amount) exchanged their Destia notes and all accreted but unpaid
interest on these notes through the date of the acquisition for $205.8 million
in aggregate principal amount at maturity of 11.5% senior notes due 2009 from
the Company. In connection with the exchange offer, the Company also completed a
private placement of $63.7 million in gross principal amount of its 11.5% senior
dollar notes. A portion of the proceeds from the private placement was used to
purchase U.S. government securities which were pledged as security for the first
three interest payments.
(9) STOCKHOLDERS' EQUITY (DEFICIENCY)
At the Company's 1999 Annual Meeting of Stockholders, the stockholders
approved an increase in the Company's capital stock from 52 million to 152
million. This increase reflected an increase in the available shares of common
stock from 50 million to 150 million.
On May 13, 1999, the conditions for mandatory conversion were met for both
the Series A Preferred and the Subordinated Debentures. The conversion rates for
the Series A Preferred and Subordinated Debentures were $13.20 and DM24.473,
respectively, at the then applicable exchange rates. Accordingly, the Company
issued 4,615,232 shares of its common stock and paid cash for any fractional
shares due upon conversion.
On June 1, 1999 the Company granted certain members of senior management a
total of 152,351 shares of its common stock subject to certain restrictions
("restricted shares"). Such shares have been valued at approximately
$6.6 million which was based on the closing market price of the Company's common
stock on the date of issue. The $6.6 million has been recorded as unearned
compensation in the consolidated statement of stockholder's equity (deficit) and
is being amortized as earned over the restricted period. Until the restrictions
lapse (which is 5 years from grant date), the restricted shares are not deemed
to vest other than that restricted shares do give an immediate right to normal
common stock voting rights. As of December 31, 1999 none of the restricted
shares issued in 1999 had satisfied the necessary conditions for the
restrictions to lapse.
F-18
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
(9) STOCKHOLDERS' EQUITY (DEFICIENCY) (CONTINUED)
On June 29, 1999, the Company completed an offering of 4,315,000 shares of
its common stock at $47.00 per share. The net proceeds of the offering were
approximately $191.9 million and are being used primarily to fund the further
development of the Company's network as well as for working capital and general
corporate purposes.
As detailed in Note 13 below, the Company has in place a Stock Incentive
Plan which grants options to its employees. During 1999 and 1998 a total of
436,344 and 174,198, respectively, shares of common stock of the Company were
issued as a result of such options being exercised at an average exercise price
of $6.68 and $5.44 per share, respectively.
On December 16, 1999, the Company issued 90,000 shares of its common stock,
valued at $4.5 million to a contractor as part of its consideration for
construction work being performed on the Company's network. Such shares have
been valued based upon the closing market price on the date of issue.
(10) INCOME TAXES
The statutory Federal tax rate for the years ended December 31, 1997, 1998
and 1999 was 35%. The effective tax rate was zero for the years ended December
31, 1997, 1998 and 1999 due to the Company incurring net operating losses for
which no tax benefit was recorded.
For Federal and foreign income tax purposes, the Company has unused net
operating loss carryforwards of approximately $577.2 million expiring in 2007
through 2019. This amount includes acquired net operating loss carryforwards of
approximately $228.7 million from the Company's acquisition of Destia. The
availability of the net operating loss carryforwards to offset income in future
years is restricted as a result of the Company's issuance of its Common Stock
and may be further restricted as a result of future sales of Company stock and
other events. In addition, the availability of the net operating loss
carryforwards acquired from Destia will be limited due to Destia's change in
ownership.
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets are as follows as of December 31 (in
thousands):
<TABLE>
<CAPTION>
1998 1999
-------- ---------
<S> <C> <C>
Accounts receivable principally due to
allowance for doubtful accounts...................... $ 1,506 $ 3,198
Restructuring Reserve.................................. -- 2,796
OID Interest not deductible in current period.......... 11,125 27,826
Federal net operating loss carryforwards............... 68,579 142,611
Foreign net operating loss carryforwards............... 7,989 59,399
Fixed Assets........................................... -- 5,797
-------- ---------
Total gross deferred tax assets.................. 89,199 241,627
Customer base.......................................... -- (42,673)
Workforce.............................................. -- (3,162)
-------- ---------
Total gross deferred tax liabilities............. -- (45,835)
Total deferred tax assets.............................. 89,199 195,792
Less valuation allowance............................... (89,199) (195,792)
-------- ---------
Net deferred tax assets.......................... $ -- $ --
======== =========
</TABLE>
F-19
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
(10) INCOME TAXES (CONTINUED)
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning in making these assessments. During 1998 and 1999, the
valuation allowance increased by $44.6 million and $106.6 million, respectively.
(11) SEGMENT AND GEOGRAPHIC DATA
While the Company's chief decision maker monitors the 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
years ended December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Retail...................................................... $52,621 $ 56,411 $131,769
Wholesale................................................... 20,397 75,527 116,831
Capacity.................................................... -- 3,250 84,501
------- -------- --------
Consolidated.............................................. $73,018 $135,188 $333,101
======= ======== ========
</TABLE>
The information below summarizes revenue by geographic area for the years
ended December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Western Europe.............................................. $ 32,647 $ 62,946 $222,589
North America............................................... 15,936 56,172 100,925
Latin America............................................... 16,240 14,653 9,460
Asia/Pacific Rim and other.................................. 8,195 1,417 127
-------- -------- --------
Consolidated.............................................. $ 73,018 $135,188 $333,101
======== ======== ========
</TABLE>
The information below summarizes long-lived assets by geographic area as of
December 31 (in thousands):
<TABLE>
<CAPTION>
1998 1999
-------- ----------
<S> <C> <C>
Western Europe.............................................. $237,443 $ 746,107
North America(1)............................................ 46,837 1,103,129
Latin America............................................... 289 201
-------- ----------
Consolidated.............................................. $284,569 $1,849,437
======== ==========
</TABLE>
F-20
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
(11) SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
(1) Included in the long-lived assets as of December 31, 1999 is net goodwill
and other identifiable intangibles of approximately $942 million related to
the acquisition of Destia.
(12) RESTRUCTURING AND ASSET IMPAIRMENTS
Restructuring and asset impairments represent charges related to the
streamlining of the Company's organizational structure and the strategic
repositioning of certain operations, primarily as a result of the merger with
Destia. The Company recorded $4.1 million in restructuring charges and $9.1
million in asset impairments in the fourth quarter of 1999. There were no
restructuring charges in 1997 and 1998.
Restructuring charges were composed primarily of anticipated costs to
terminate lease and other contract cancellation costs in connection with the
company's streamlining activities, as well as severance costs associated with
workforce reductions. The Company identified approximately 175 employees who
would be separated as a result of actions taken during 1999 to streamline the
organizational structure. The charge included cash charges of $2.7 million for
lease and other contract cancellation costs, and $1.4 million for severance
costs. Asset impairments consist of non-cash charges for asset write-offs
related to assets no longer in service at December 31, 1999. At December 31,
1999, the Company had accruals for restructuring of approximately $3.9 million,
primarily related to severance and lease and other contract cancellation costs.
The Company has also accelerated depreciation on certain assets which are
currently in use but will be taken out of service in 2000. The Company
anticipates that action required to complete the plan will be completed by
December 2000.
(13) STOCK OPTION PLAN
At the 1999 Annual Meeting of Stockholders, the Company's stockholders
approved an amendment to the Stock Incentive Plan that increased the number of
shares of common stock available for future issuance thereunder from 3.6 million
to 5.3 million shares. The Company had approximately 1.7 million shares
available as of December 31, 1999 for future grant.
The Company has adopted an Amended Stock Incentive Plan (the "Stock
Incentive Plan"), the Amended and Restated 1999 Flexible Incentive Plan (the
"1999 Flexible Incentive Plan") (previously a Destia plan) and the Amended and
Restated 1996 Flexible Incentive Plan (previously a Destia plan) (the "1996
Flexible Incentive Plan," and collectively with the Stock Incentive Plan and the
1999 Flexible Incentive Plan, the "Plans"). Pursuant to the Plans,
"non-qualified" stock options to acquire shares of common stock may be granted
to employees, directors and consultants of the Company and
"incentive" stock options to acquire shares of common stock may be granted to
employees, including employee-directors. The Plans also provide for the grant of
stock appreciation rights and shares of restricted common stock to the Company's
employees, directors and consultants.
The Plans are currently administered by the Compensation Committee of the
Board of Directors of the Company. The Stock Incentive Plan allows for the
issuance of up to a maximum of 5,300,000 shares of common stock. The 1999
Flexible Incentive Plan allows for the issuance of up to a maximum of 2,670,000
shares of common stock, provided, however, that no individual may receive awards
of more than 445,000 shares of common stock in any calendar year. The 1996
Flexible Incentive Plan allows for the issuance of up to a maximum of 2,447,500
shares of common stock, of which 2,336,250 shares may be in the form of voting
stock and 111,250 shares may be in the form of non-voting stock. As a result of
the Company's
F-21
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
(13) STOCK OPTION PLAN (CONTINUED)
acquisition of Destia, virtually all options granted by Destia prior to the
merger vested and became exercisable. Any options granted under the 1999
Flexible Incentive Plan and the 1996 Flexible Incentive Plan after the Destia
acquisition will be subject to accelerated vesting only as described below.
Under the Plans, the option price of any incentive stock option may not be less
than the fair market value of a share of common stock on the date on which the
option is granted. The option price of a non-qualified stock option may be less
than the fair market value on the date the non-qualified stock option is granted
if the Company's board so determines. An incentive stock option may not be
granted to a "ten percent stockholder" (as that term is defined in Section 422A
of the Internal Revenue Code of 1986) unless the exercise price is at least
110.0% of the fair market value of the common stock and the term of the option
may not exceed five years from the date of grant. Each option granted pursuant
to the Plans is evidenced by a written agreement, which contains the terms,
provisions and conditions of the grant. Stock options may not be assigned or
transferred during the lifetime of the holder except as may be required by law
or pursuant to a qualified domestic relations order. Common stock subject to a
restricted stock purchase or bonus agreement is transferable only as provided in
that agreement. The maximum term of each stock option granted to persons other
than ten percent stockholders is ten years from the date of grant.
On December 8, 1999, each outstanding option previously granted by Destia to
acquire shares of Destia common stock was converted into an option to acquire
the Company's common stock. The number of shares that the new option was
exercisable for and the exercise price of the new option was adjusted to reflect
the 0.445 exchange ratio in the merger (see Note 6 above). Excluding the options
related to the Destia acquisition, the per share weighted average fair value of
stock options granted during 1997, 1998 and 1999 was $5.99, $6.40 and $14.98,
respectively, on the date of grant using the Black-Scholes option pricing model
with the following assumptions: (1) a risk free interest rate of 5.0% in 1997
and 1998 and 6.0%in 1999; (2) an expected life of 10 years for 1997 and 1998 and
7 years for 1999; (3) volatility of approximately 52.2% for 1997, 92.7% for 1998
and 50.0% for 1999; and (4) an annual dividend yield of 0% for all years.
The Company applies the provisions of APB Opinion No. 25 in accounting for
its Stock Incentive Plan and, accordingly, no compensation cost has been
recognized for its stock options in the financial statements since the exercise
price was equal to or greater than the fair market value at the date of grant.
Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, the Company's net loss
would have been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1997 1998 1999
-------- --------- ---------
<S> <C> <C> <C>
Net loss, as reported (in thousands)......... $(43,044) $(130,605) $(219,177)
Net loss, pro forma (in thousands)........... (44,171) (135,458) (227,003)
Net loss per common share, as reported....... (1.90) (5.67) (7.43)
Net loss per common share, pro forma......... (1.95) (5.88) (7.69)
</TABLE>
Pro forma net loss reflects only options granted since January 1, 1995.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net loss amounts because
compensation cost is reflected over the options' vesting period of three years
and compensation cost for options granted prior to January 1, 1995 is not
considered.
F-22
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
(13) STOCK OPTION PLAN (CONTINUED)
Stock option activity, including activity related to the acquisition of
Destia under the Stock Incentive Plan, is shown below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE NUMBER OF
EXERCISE SHARES
PRICES (IN THOUSANDS)
-------- --------------
<S> <C> <C>
Outstanding at January 1, 1997.............................. $ 6.18 970
Granted..................................................... 8.61 428
Forfeited................................................... 6.68 (197)
Expired..................................................... 5.46 (27)
Exercised................................................... 3.49 (122)
------ ------
Outstanding at December 31, 1997............................ 7.40 1,052
Granted..................................................... 7.19 1,794
Forfeited................................................... 7.14 (64)
Expired..................................................... 5.05 (14)
Exercised................................................... 5.44 (174)
------ ------
Outstanding at December 31, 1998............................ 7.41 2,594
Granted..................................................... 16.68 3,641
Forfeited................................................... 9.52 (57)
Expired..................................................... 5.85 (1)
Exercised................................................... 6.68 (436)
------ ------
Outstanding at December 31, 1999............................ $13.33 5,741
====== ======
</TABLE>
The following table summarizes weighted-average option exercise price
information:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------- OPTIONS EXERCISABLE
NUMBER ----------------------------
OUTSTANDING AT WEIGHTED WEIGHTED NUMBER WEIGHTED
RANGE OF DECEMBER 31, AVERAGE AVERAGE EXERCISABLE AT AVERAGE
EXERCISE 1999 REMAINING EXERCISE DECEMBER 31, 1999 EXERCISE
PRICES (IN THOUSANDS) LIFE PRICE (IN THOUSANDS) PRICE
-------------------------- -------------- --------- -------- ----------------- --------
<S> <C> <C> <C> <C> <C>
$ 0.15 - $ 5.00 433 7 Years $ 4.38 198 $ 3.66
5.01 - 10.00 2,080 4 Years 5.94 1,575 5.89
10.01 - 15.00 1,361 4 Years 11.68 897 12.37
15.01 - 25.00 1,473 3 Years 21.17 1,087 20.66
25.01 - 55.00 394 3 Years 38.55 282 37.40
----- ------ ----- ------
5,741 $13.33 4,039 $13.40
===== ====== ===== ======
</TABLE>
The exercise price of all options approximates the fair market value of the
Common Stock on the date of grant.
(14) STOCKHOLDER RIGHTS PLAN
Effective December 6, 1999, the Company adopted a Stockholder Rights Plan
(the "Rights Plan"). Under the Rights Plan, each stockholder of record on
December 24, 1999, received one preferred share
F-23
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
(14) STOCKHOLDER RIGHTS PLAN (CONTINUED)
purchase right (a "Right") for each outstanding share of common stock. Each
share of common stock issued after the distribution is accompanied by a Right.
When a right becomes exercisable it entitles the holder to buy one
two-hundred thousandth of a share of a new series of preferred stock for $210.
The Rights are subject to adjustment upon the occurrence of certain dilutive
events. The Rights will become exercisable only when a person or group becomes
the beneficial owner of 15% or more of the outstanding shares of common stock or
10 days after a person or group announces a tender offer to acquire beneficial
ownership of 15% or more of the outstanding shares of common stock. No
certificates representing the Rights will be issued unless the Rights become
exercisable.
Under certain circumstances, holders of Rights, except a person or group
described above, and certain related parties, will be entitled to purchase
shares of common stock at 50% of the price at which the common stock traded
prior to the acquisition or announcement. In addition, if the Company is
acquired after the Rights become exercisable, the Rights will entitle those
holders to buy the acquiring company's shares at a similar discount.
The Company is entitled to redeem the Rights for one cent per Right under
certain circumstances. If not redeemed, the Rights will expire on December 5,
2009. The preferred stock issuable upon exercise of Rights consists of Series A
Junior Participating Preferred Stock of the Company.
(15) LETTER OF CREDIT
The Company has a revolving line of credit agreement which provides for
secured borrowings of up to $25.0 million, as amended. At December 31, 1998 and
1999, the Company had no borrowings under this line of credit. At December 31,
1998 and 1999, standby letters of credit of approximately $3.3 million and
$15.4 million, respectively, have been issued under this line of credit
agreement.
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 of
approximately $112.8 million (DM219.1 million) in support of its obligation. At
December 31, 1999, the total amount outstanding relating to this letter of
credit was approximately $50.2 million (DM97.4 million) and was collateralized
by cash deposits.
F-24
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
(16) SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash used in operating activities included:
Interest paid.................................... $ 134 $31,560 $ 82,363
Noncash investing and financing activities
included:
Assets acquired under capital lease
obligations.................................. 1,122 30,359 18,335
Common stock issued for network construction... -- -- 4,500
Conversion of preferred stock and convertible
debentures................................... -- -- 60,791
Common stock issued for acquisitions........... -- 3,375 560,702
Value of options and warrants exchanged for
options and warrants of Destia............... -- -- 111,573
Exchange of senior debt........................ -- -- 205,790
</TABLE>
(17) COMMITMENTS AND CONTINGENCIES
(A) LEASES
At December 31, 1999, the Company was committed under non-cancelable
operating and capital leases for the rental of office space, network locations
and communication systems.
The Company's future minimum capital and operating lease payments are as
follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
-------- ---------
<S> <C> <C>
2000..................................................... $ 13,780 $10,940
2001..................................................... 12,439 10,285
2002..................................................... 3,645 9,609
2003..................................................... 2,936 8,050
2004..................................................... 2,932 7,308
Thereafter............................................... 56,201 31,781
-------- -------
Total minimum lease payments....................... 91,933 $77,973
=======
Less amounts representing interest....................... (44,432)
--------
$ 47,501
========
</TABLE>
Total rent expense amounted to $1.3 million, $1.8 million and $6.1 million
for the years ended December 31, 1997, 1998 and 1999, respectively.
(B) PURCHASE COMMITMENTS
The Company continues to build its advanced broadband network that will link
40 major cities in Western Europe and is continually upgrading and expanding its
network and its switching facilities. In connection therewith, the Company has
entered into purchase commitments to spend approximately $147.9 million.
F-25
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
(17) COMMITMENTS AND CONTINGENCIES (CONTINUED)
(C) LITIGATION
From time to time, the Company is subject to litigation in the normal course
of business. The Company believes that any adverse outcome from litigation would
not have a material adverse effect on its financial position or results of
operations.
(D) 401(K) PLAN
The Company established a 401(k) Plan on January 1, 1996 that is available
to all employees for enrollment on the first day of the quarter following 90
days of service. Employees may contribute up to 15 percent of their salary. At
the discretion of management, the Company can make matching contributions to the
401(k) Plan up to 6% of the employees' salary. The Company contributed
$.2 million and $.4 million for 1998 and 1999, respectively.
(18) REGULATORY MATTERS
The Company is subject to regulation in countries in which it does business.
The Company believes that an adverse determination as to the permissibility of
the Company's services under the laws and regulations of any such country would
not have a material adverse long-term effect on its business.
(19) RELATED PARTY TRANSACTIONS
On June 3, 1998, the Company entered into a Mutual Cooperation Agreement
with Martin Varsavsky, then a greater than ten percent stockholder of the
Company, and Jazz Telecom S.A. pursuant to which Mr. Varsavsky agreed to lock-up
his Viatel shares for a specified period, and the Company agreed to release any
past claims which the Company had against either Jazz Telecom S.A. and Mr
Varsavsky in exchange for their respective release of any claims against the
Company. On November 13, 1998, Mr. Varsavsky entered into an additional lock-up
agreement with the Company pursuant to which Mr. Varsavsky agreed that he would
not sell, contract to sell, announce an intention to sell, pledge or otherwise
dispose of his shares of the Company's common stock, either directly or
indirectly, without the prior written consent of the Company until after
August 12, 1999.
During 1998 and 1999, the Company entered into agreements with Cignal Global
Communications, Inc. ("Cignal"), pursuant to which the Company sold network
transmission systems. Consideration received was in the form of 650,000 and
350,000 shares of Cignal's common stock, respectively. The Company recognized
$3.25 million and $1.75 million of revenue in 1998 and 1999, respectively, the
fair value of the network transmission systems. The Company's Chairman and Chief
Executive Officer is a director of Cignal.
During 1999, the Company entered into agreements with Sonic
Telecommunications International ("Sonic") pursuant to which the Company sold
network transmission systems. Consideration received was in the form of notes
receivable amounting to approximately $7.1 million at December 31, 1999. The
Company recognized $6.7 million of revenue in 1999, which represents the fair
value of the network transmission systems. The Company's Chairman and Chief
Executive Officer is a director of Sonic.
F-26
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
(20) SUBSEQUENT EVENTS
ACQUISITION
On February 29, 2000, the Company acquired the entire issued and outstanding
share capital of AT&T Corporation's U.K. subsidiary, AT&T Communications (UK)
Limited ("AT&T UK"). The Company paid $125 million in cash for AT&T UK. As a
result of the transaction, AT&T UK became a wholly-owned subsidiary of the
Company. The transaction will be accounted for as a purchase.
ISSUANCE OF CONVERTIBLE PREFERRED STOCK -- UNAUDITED
On February 1, 2000, the Company executed a securities purchase agreement
pursuant to which the Company agreed to issue, and certain investors identified
therein committed to buy, $325 million in Series B Cumulative Convertible
Preferred Stock for net proceeds to the Company of $307.1 million. The Series B
preferred accrues interest at an annual rate of 7.50%, may be converted at the
option of the holder at a conversion price of $46.25 per share and is
mandatorily redeemable in 2015. As part of this financing, the Company also
issued warrants to purchase 753,116 shares of common stock, 50% of which are
exercisable for 5 years at a price of $75 per share, and 50% of which are
exercisable for 7 1/2 years at a price of $100 per share. In addition, the
Company issued warrants to purchase 7,532 shares of its Series C preferred stock
(each share of which is convertible into 100 shares of the Company's common
stock), 50% of which are exercisable for 5 years at a price of $7,500 per share
and 50% of which are exercisable for 7 1/2 years at a price of $10,000 per
share. The transaction closed on March 9, 2000, following receipt of Hart-
Scott-Rodino Antitrust Improvements Act clearance.
OFFERING OF TRUST CONVERTIBLE PREFERRED SECURITIES -- UNAUDITED
On March 30, 2000, the Company announced its intention to raise
approximately $350 million through an offering of trust convertible preferred
securities issued by Viatel Financing Trust I, a Delaware trust and subsidiary
of the Company. The transaction is expected to be completed in April 2000. The
trust convertible preferred securities will be sold to investors in the United
States pursuant to a private placement transaction.
F-27
<PAGE>
UNAUDITED PRO FORMA COMBINING FINANCIAL INFORMATION
The following Unaudited Pro Forma Combining Statement of Operations of
Viatel for the year ended December 31, 1999 illustrate the effect of our merger
with Destia on December 8, 1999. The Unaudited Pro Forma Combining Statements of
Operations assumes that the merger with Destia had been completed as of
January 1, 1999. Certain reclassifications have been made to Destia's historical
financial statements to conform with our presentation.
ACCOUNTING TREATMENT
We have recorded the Destia acquisition as a purchase transaction. For
accounting purposes, we were the acquiring corporation in the merger.
Holders of Destia common stock received 0.445 share (the exchange ratio) of
our common stock for each share of Destia common stock. In connection with the
acquisition, we issued 14,299,969 shares of our common stock valued at $39.21
per share (total value of $560.7 million). Each outstanding option and warrant
to acquire shares of Destia common stock was converted into an option or warrant
to acquire our shares on the basis of the exchange ratio described above.
The purchase price for Destia was $901.9 million and was comprised of the
issuance of common stock, the fair value of existing Destia options and warrants
exchanged, issuance of 11.5% senior notes, the cash portion of the debt exchange
offer and transaction costs. The options and warrants have been valued at their
fair value using the Black-Scholes option pricing model. 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. This
preliminary allocation has resulted in intangible assets and goodwill of
approximately $131.0 million and $822.3 million, respectively, which are being
amortized on a straight-line basis over their estimated useful lives which are
four to seven years and seven years, respectively. In connection with our
integration plan, we recorded liabilities related to the closing and termination
of Destia facilities and lease and other contract costs of $9.6 million and
severance related to Destia employees of $2.2 million.
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 Destia 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 Destia, together with the related notes
thereto, which are incorporated by reference elsewhere in this offering
memorandum.
<PAGE>
UNAUDITED PRO FORMA COMBINING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
DESTIA
ELEVEN VIATEL
VIATEL MONTH PRO FORMA MERGER PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ---------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue:
Communication services revenue............ $ 248,600 $ 291,458 $ -- $ 540,058
Capacity sales............................ 84,501 -- (5,644)(1) 78,857
--------- --------- --------- ---------
Total revenue........................... 333,101 291,458 (5,644) 618,915
--------- --------- --------- ---------
Operating expenses
Cost of services and sales................ 250,574 214,818 (886)(1) 464,506
Selling, general and administrative....... 100,559 125,102 -- 225,661
Depreciation and amortization............. 75,911 27,429 125,719 (2) 222,308
(4,830)(3)
(1,921)(4)
Restructuring and impairment.............. 13,206 -- -- 13,206
--------- --------- --------- ---------
Total operating expenses................ 440,250 367,349 118,082 925,681
--------- --------- --------- ---------
Operating loss.............................. (107,149) (75,891) (123,726) (306,766)
Interest income............................. 26,722 6,354 -- 33,076
Interest expense............................ (137,409) (43,373) (30,951)(5) (191,342)
20,391 (6)
--------- --------- --------- ---------
Net loss.................................... (217,836) (112,910) (134,286) (465,032)
--------- --------- --------- ---------
Dividends on redeemable convertible
preferred stock........................... (1,341) -- -- (1,341)
--------- --------- --------- ---------
Net loss attributable to common
stockholders.............................. $(219,177) $(112,910) $(134,286) $(466,373)
========= ========= ========= =========
Net loss per common share attributable to
common stockholders, basic and
diluted................................. $ (7.43) $ (10.87)
========= =========
Weighted average common shares outstanding,
basic and diluted......................... 29,518 42,917 (7)
========= =========
</TABLE>
See accompanying notes to unaudited pro forma combining financial information.
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINING FINANCIAL INFORMATION
(1) Elimination of intercompany transactions between Viatel and Destia prior to
the merger.
(2) Reflects the amortization expense of the intangible assets and goodwill
resulting from the preliminary allocation of the purchase price based on the
estimated fair values at the date of acquisition, pending final
determination of certain acquired assets. The intangible assets and goodwill
are being amortized on a straight-line basis over their estimated useful
lives, which are four to seven years and seven years, respectively.
(3) Reflects the elimination of Destia's historical amortization of goodwill and
deferred financing costs.
(4) Reflects depreciation expense adjustment resulting from the preliminary fair
valuation of property and equipment at the date of acquisition.
(5) Reflects interest expense, amortization of discount and amortization of
deferred financing costs on the notes issued in connection with the merger
as if they were issued on January 1, 1999.
(6) Reflects the elimination of Destia's historical interest expense on its 11%
senior discount notes.
(7) The average number of common shares outstanding used in calculating pro
forma loss per common share is calculated assuming that the shares of common
stock issued in the merger were outstanding from the beginning of 1999.
Options and warrants to purchase shares of common stock were not included in
computing pro forma diluted earnings per common share because their
inclusion would result in a smaller loss per common share.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet of Viatel, Inc. at December 31, 1999 and the
consolidated statements of operations for the year ended December 31, 1999 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 373,044
<SECURITIES> 125,581
<RECEIVABLES> 125,137
<ALLOWANCES> 10,034
<INVENTORY> 0
<CURRENT-ASSETS> 678,016
<PP&E> 960,268
<DEPRECIATION> 75,940
<TOTAL-ASSETS> 2,704,097
<CURRENT-LIABILITIES> 399,158
<BONDS> 1,680,885
0
0
<COMMON> 471
<OTHER-SE> 536,920
<TOTAL-LIABILITY-AND-EQUITY> 2,704,097
<SALES> 0
<TOTAL-REVENUES> 333,101
<CGS> 0
<TOTAL-COSTS> 250,574
<OTHER-EXPENSES> 189,676
<LOSS-PROVISION> 11,511
<INTEREST-EXPENSE> 137,409
<INCOME-PRETAX> (217,836)
<INCOME-TAX> 0
<INCOME-CONTINUING> (217,836)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (217,836)
<EPS-BASIC> (7.43)
<EPS-DILUTED> (7.43)
</TABLE>
