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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER: 000-25015
WORLDPORT COMMUNICATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
84-1127336
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
975 WEILAND ROAD, SUITE 160 BUFFALO GROVE, ILLINOIS 60089
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(847) 229-8200
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAMES OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON SHARES, $0.0001 PAR VALUE
Indicate by check mark whether the Registrant (l) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
As of March 22, 2001, 33,950,352 shares of Registrant's common stock were
outstanding.
The aggregate market value of the Registrant's common stock held by
non-affiliates on March 22, 2001 was approximately $62.6 million.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant intends to file a definitive Proxy Statement pursuant to
Regulation 14A within 120 days after the close of the fiscal year ended December
31, 2000. Portions of such Proxy Statement are incorporated by reference in Part
III of this report.
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WORLDPORT COMMUNICATIONS, INC.
2000 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
Page
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PART I
Item 1 Business 4
Item 2 Properties 14
Item 3 Legal Proceedings 14
Item 4 Submission of Matters to a Vote of Security Holders 15
Item 4A Executive Officers of the Registrant 15
PART II
Item 5 Market for Registrant's Common Equity and Related 17
Stockholder Matters
Item 6 Seletected Financial Data 18
Item 7 Management's Discussion and Analysis of Financial 20
Condition and Results of Operation
Item 7A Quantitative and Qualitative Disclosures about Market Risk 24
Item 8 Financial Statements and Supplementary Data 25
Item 9 Changes in and Disagreements with Accountants on 47
Accounting and Financial Disclosure
PART III
Item 10 Directors and Executive Officers of the Registrant 48
Item 11 Executive Compensation 48
Item 12 Security Ownership of Certain Beneficial Owners and 48
Management
Item 13 Certain Relationships and Related Transactions 48
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on 49
Form 8-K
Signatures 50
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PART I
This report contains certain "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of
the Securities Exchange Act of 1934, as amended, and the Private Securities
Litigation Reform Act of 1995, including, among others (i) expected changes in
the Company's revenues and profitability, (ii) prospective business
opportunities and (iii) the Company's strategy for redirecting and financing its
business. Forward-looking statements are statements other than historical
information or statements of current condition. Some forward-looking statements
may be identified by use of terms such as "believes", "anticipates", "intends"
or "expects". These forward-looking statements relate to the plans, objectives
and expectations of the Company for future operations. Although the Company
believes that its expectations with respect to the forward-looking statements
are based upon reasonable assumptions within the bounds of its knowledge of its
business and operations, in light of the risks and uncertainties inherent in all
future projections, the inclusion of forward-looking statements in this report
should not be regarded as a representation by the Company or any other person
that the objectives or plans of the Company will be achieved.
ITEM 1. BUSINESS
OVERVIEW
Prior to the consummation of the sales transactions described below,
Worldport Communications, Inc. ("the Company" or "Worldport") was a
facilities-based global telecommunications carrier offering voice, data and
other telecommunications services to carriers, Internet service providers
("ISPs"), medium and large corporations and distributors and resellers. In order
to meet its obligations under its interim loan facility (the "Interim Loan
Facility"), which originally matured on June 23, 1999 and was extended until
November 18, 1999, the Company sold substantially all of its material assets
during the first quarter of 2000.
In the second quarter of 2000, we announced a new business strategy,
focused on the delivery of Internet solutions to global companies doing business
in the European marketplace. In addition to Web-enabled application solutions,
the Company intends to provide a complete managed Web hosting service portfolio
- - including network management, colocation services, Internet connectivity, ASP
support services, data backup, storage and disaster recovery - providing
end-to-end service to corporations, as well as service providers, enabling them
to completely outsource their Internet operations. The choice of this new
business strategy was a result of extensive investigation by the Company through
its independent consultants to assess growth opportunities in the
telecommunications and related industries and to identify high potential markets
for these industries. According to Forrester Research, in 1999 the European Web
hosting market generated approximately $500.0 million in revenues and is
expected to generate $18.0 billion in revenues by 2003. The Company believes
that the market is currently under-served by small companies lacking the
necessary scale, presence, resources and expertise required to satisfy the
demands of mid-to-large sized companies, and it believes it has the management
resources and market, product and service expertise to become a leading provider
in this market. In addition, the Company believes that providing wireless access
to the Internet also offers an opportunity to enhance shareholder value and
intends to focus on such market as well.
The Company constructed a new Internet solutions SuperCentre in Dublin,
Ireland, which became operational in early October and was designed to meet the
specific needs of its various services. The SuperCentre, located in close
proximity to redundant fiber routes from multiple providers, will serve as the
flagship to the Company's Internet Solution Centres, which the Company expects
to locate in key European cities. Under an agreement with Global Crossings,
brokered by the Irish government, Worldport has gained access to bandwidth on
the trans-Atlantic and pan-European fiber optic networks, which connect Ireland
with the U.S., the U.K., and the majority of major markets in Western Europe.
The Company has successfully hired a new management team with extensive
experience in the telecommunications, Web hosting, and Internet solutions
markets to design, build and maintain the SuperCentre and manage operations and
sales throughout Europe. The Company is also developing products and services to
offer its customers and is negotiating with various strategic partners for the
marketing and selling of
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complementary products and services (although no assurances can be given as to
any successful development of a product or service or the successful completion
of any such negotiations).
On September 15, 2000, the Company acquired all of the common stock of
Sweden based VIS-able International AB and its affiliates ("VIS-able"), pursuant
to a Stock Purchase Agreement dated September 15, 2000, for approximately $17.7
million, net of liabilities assumed and including the payment of certain fees
and expenses. The payment of $2.7 million of the purchase price was deferred for
one year pending any claims against the representations and warranties made in
the Stock Purchase Agreement. This amount is collateralized by a Letter of
Credit which expires one year from the acquisition date. VIS-able is a leading
professional services firm, specializing in complex systems development,
consulting, WAP integration and Web hosting, with offices in Sweden, Belgium,
the U.S. and the U.K. The VIS-able acquisition gives the Company access to more
than 3,500 customers, a fully operational data center, and Internet consulting
and application design and development expertise supported by 61 skilled
professional employees.
OUR HISTORY
Worldport was originally organized as a Colorado corporation under the
name Sage Resources, Inc. in January 1989 to evaluate, structure and complete
mergers with, or acquisitions of, other companies. Worldport remained inactive
until 1996 when the Company's domicile was changed to Delaware and the name was
changed to Worldport Communications, Inc.
From 1997 to 1999, Worldport was a facilities-based global
telecommunications carrier offering voice, data and other telecommunications
services to carriers, ISPs, medium and large corporations and distributors and
resellers. We primarily operated through a number of acquired subsidiaries in
Europe and the United States. The core of our operations and the source of a
significant portion of our revenues was our EnerTel subsidiary, the leading
second network operator in the Netherlands.
To finance certain acquisitions, the Company borrowed $120 million in June
1998 under the Interim Loan Facility. In order to meet its obligations under the
Interim Loan Facility upon maturity, the Company sold substantially all of its
material assets during the first quarter of 2000.
On November 11, 1999, through Worldport International, Inc. ("Worldport
International"), our wholly-owned subsidiary, we entered into a series of
agreements with Energis plc ("Energis") to sell our 85% stake in the issued and
outstanding shares of Worldport Communications Europe Holding B.V., the parent
company of EnerTel, N.V., and associated assets ("EnerTel"). In connection with
the sale of Enertel, Energis also agreed to purchase all of the issued and
outstanding shares of Worldport Communications Limited, our U.K. subsidiary. In
addition, we agreed to sell our interest in certain switches located in New York
and London to subsidiaries of Energis. All of these sale transactions were
consummated on January 14, 2000.
On February 29, 2000, we sold our subsidiary, International InterConnect,
Inc. ("IIC"), and on March 2, 2000, we assigned certain leasehold and equipment
rights relating to our Miami switch operations to a subsidiary of Centennial
Communications Corp. for a cash payment and the assumption of certain
liabilities. We also intend to dispose of our subsidiary, Telenational
Communications, Inc. ("TNC") located in Omaha, Nebraska in the near future.
After TNC is disposed of, we will have exited our carrier operations business.
As a result of these transactions, we received approximately $453.2 million
in cash, and Energis assumed approximately $29.9 million of Worldport's
liabilities. A portion of the net proceeds realized from the sale was used to
repay existing debt, including the Interim Loan Facility, trade credit and other
liabilities. The remaining net proceeds are being used to pursue our new plan to
become the leading provider of Internet solutions in Europe.
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OUR CURRENT STRATEGY
Worldport's current strategy is to establish a pan-European network of
Internet solution centers to become a major provider of managed Internet
services for global companies doing business in the European market. These
Internet solution centers will provide a complete portfolio of Internet products
and services, including strategic and tactical Internet consulting and a full
complement of Web hosting products.
Worldport's partnerships with key software and hardware providers will
ensure delivery of leading edge hardware and software technology and solutions.
According to IDC and Intercai Mondale, the European Internet solutions
market was a $5 billion market in 1999 and is expected to grow into a $35
billion industry by 2003. Today, approximately 25% of European companies
outsource their Internet operations as compared to 75% for the U.S. The
percentage of European companies that will outsource their Internet operations
is expected to increase as the Internet is increasingly used for commerce.
Morgan Stanley Dean Witter recently surveyed European corporations and
discovered that 70% of corporations surveyed now plan to outsource their
Internet operations.
OUR OPERATING PLAN
Worldport has developed a multi-phase approach to the market. The initial
phase is fully funded and includes the construction of the SuperCentre, a total
of three to five Internet solution centers in major European cities and the
acquisition of VIS-able International. Below are details relating to the initial
phase of the plan.
The Company has secured trans-Atlantic and pan-European bandwidth through
Global Crossings, providing connectivity to the U.S. and 35 major European
cities. In addition, the Company has secured private peering agreements with
global backbone providers.
Worldport opened its SuperCentre in Dublin, Ireland on October 2, 2000
completing construction in slightly less than five months. The SuperCentre
serves as our operational and business support center for our European Web
hosting business. The SuperCentre is a 125,000 square foot facility with 55,000
square feet of hosting space and 45,000 square feet dedicated to our technical
resources and personnel that will support all of our European operations. The
Company will provide multi-level technical support, customer service, 24x7
operations, network management, systems development and billing for all the
Worldport European operations from the SuperCentre. The SuperCentre is a
purpose-built facility that has state of the art security, power, cabling, fire
detection and communication systems that will set the standard for Europe.
Worldport has invested approximately $40 million to date in the construction of
the SuperCentre.
Worldport acquired VIS-able on September 15, 2000 for $17.7 million, net
of liabilities assumed and including the payment of certain fees and expenses.
VIS-able is a professional services company with offices in Sweden, Belgium, the
U.K. and the U.S. In addition, VIS-able has Web hosting operations in Sweden and
the U.S. The company provides strategic and tactical Internet consulting,
application design, development and hosting. VIS-able's operations have been
successfully integrated and re-branded under the Worldport name.
The acquisition of VIS-able provides Worldport with access to the
Scandinavian market which is one of Europe's most developed Internet markets.
Sweden has the highest Internet penetration in Europe with 55% of Swedish
households connected to the Internet today. VIS-able serves 3,500 customers
worldwide, which includes an impressive list of customers such as ABB, Ericsson,
Volvo, Whirlpool, IBM and Telia.
Worldport plans to acquire and develop a full portfolio of managed
services including consulting and application support in each Internet solution
center. This will allow our customers to be able to outsource their Internet
support operations to Worldport across Europe.
6
Due to recent developments in the European marketplace, we now expect to
be able to lease suitable basic data center space that can be improved to our
hosting standards. Leasing space eliminates the need to construct stand alone
facilities and enables us to develop smaller sites ranging in size from 5,000 to
10,000 square feet, thereby reducing capital required for our business
expansion. As a result, we plan to defer the development of certain Internet
solution centers for six to twelve months and we expect to have a total of three
to five Internet solution centers operational across Europe by the end of 2001.
We had previously planned to construct four additional Internet solution centers
in 2001 ranging in size from 30,000 to 60,000 square feet.
Based on our revised roll-out plan, Worldport currently expects to be
operating by the end of 2001 at an annual revenue run rate of approximately $35
million from the Dublin SuperCentre, VIS-able operations and the additional
centers expected to be open in 2001. Depending on product mix, these operations
have the capability of supporting up to $300 million in revenue at total
capacity. Headcount is expected to reach approximately 350 by year-end 2001. The
Company projects to achieve a positive EBITDA run rate in 2002.
The second phase of Worldport's strategy continues rapid expansion across
Europe including the development of additional Internet solution centers and the
acquisition of Internet and eService companies. Worldport will need to secure
funding for this phase of the plan.
OUR OPERATING AND BUSINESS SUPPORT SYSTEMS
Worldport's integrated operating and business support systems ("OSS/BSS
systems") allow Worldport to proactively monitor and manage both internal and
customer systems. The OSS/BSS systems allow Worldport to use technology and not
people to scale the business. The OSS/BSS systems were built with the following
software:
o Micromuse Netcool
o Visionael
o InfoVista
o Clarify ClearSales and ClearSupport
o Portal Infranet
o Oracle Financials
o Oracle databases
o Vitria
o Concord Empire Agents
All Worldport operations will utilize the OSS/BSS systems including
companies acquired. Worldport plans to invest $20 million in the development of
these systems by the end of 2001.
OUR TARGET CUSTOMERS
The Company has targeted the following customers:
o Small-medium enterprises (minimum 50 employees)
o Large and multi-national corporations
o Fixed and mobile operators
o Service providers (ISP's and ASP's)
Separate product portfolios have been developed for each of the target
customer groups. Worldport estimates that Europe has approximately 250,000
companies in its target markets that could outsource some or all of their
Internet operations over the next three years. Morgan Stanley Dean Witter
recently completed a survey of European companies and discovered that 70% of
companies surveyed now expect to outsource their Internet operations.
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WorldPort intends to sell its services and products through (1) its direct
sales force, (2) strategic partnerships with service providers and (3) a network
of resellers. WorldPort will focus on strategic partnerships with service
providers in the telecommunications and cable industries, which will add
WorldPort's products to their product portfolios and will cross-sell WorldPort's
core services. WorldPort's reseller network will be comprised of Web designers,
ASPs and systems integrators, with a focus on fully managed hosting.
OUR PRODUCTS
Worldport is a full service provider of Internet solutions. Below is a
summary of our product portfolio:
Professional Services:
o Business consulting
o Web site design
o Application development
Web Hosting:
o nterprise or Complex hosting
o anaged hosting
o ecure cabines
o uites
The following services are available to Worldport's Web hosting customers:
o Database and server administration
o Network and physical security
o Data back-ups
o Internet connectivity
o Internet-ready IP addresses
o E-commerce functionality
o 24x7 customer support
o 24x7 network operations
o Standard and advanced reporting
EMPLOYEES
As of December 31, 2000, we had approximately 195 employees located in
five countries. None of our employees are represented by a labor union and we
believe that our employee relations are good.
RISK FACTORS
We have a history of losses and we expect to incur significant losses in the
future as we expand our operations.
Excluding the gain on the sale of Enertel in 2000, we had before-tax
losses of $11.0 million in 2000 and $121.0 million in 1999 and we expect to
remain unprofitable for the foreseeable future. We plan to continue to incur
significant expenses and to generate negative operating cash flow as we build
the infrastructure necessary to provide our Web-hosting services, grow our
professional services and sales and marketing organizations and develop new
products and services. In order to achieve profitability, we must, among other
things, develop and successfully market services that are commercially accepted
by European businesses. If we are unable to increase
8
our revenues to cover our operating costs and capital expenditures, we will
continue to experience negative cash flow and may never achieve profitability.
We may not be successful in implementing our new strategy to provide hosting and
professional services.
We plan to derive the majority of our business from providing value-added
Internet-related services to the European marketplace. This represents a new
business plan for us and we have only recently begun to offer these services. We
cannot predict whether demand for our Internet solutions such as Web hosting,
Web solutions and systems integration in Europe will be sufficient to permit us
to focus our business on value-added services.
In order for our strategy to be successful, we must accurately forecast
the Internet services needs of these businesses and the value of such services
to them. If we overestimate the needs of our market or the willingness of these
businesses to purchase higher cost Internet services such as hosting,
co-location, Web design and other professional services, we may be unsuccessful
in selling value-added Internet services to our target market, and we may be
unable to successfully carry out our business strategy.
Accordingly, there can be no assurance that our future operations will
generate cash flows or operating or net income, and our prospects must therefore
be considered in light of the risks, expenses, problems and delays inherent in
establishing a new business. We and our stockholders may suffer a substantial
loss should the new business plan prove to be unsuccessful.
Growth through expansion and acquisitions is expected to place significant
strain on our business.
Our strategy involves growth through expansion and acquisitions, which
has placed, and is expected to continue to place, a significant strain on our
management, operational and financial resources and increased demands on our
systems and controls. Our ability to engage in acquisitions will be dependent
upon our ability to identify attractive acquisition candidates and, if
necessary, obtain financing on satisfactory terms. The challenges of growth,
through expansion and acquisitions, include:
o potential distraction to management;
o implementing additional controls, information systems, and
infrastructure appropriate to a growing company;
o integrating the acquired business's financial, computer, payroll and
other systems into our own;
o unanticipated liabilities or contingencies from the acquired company;
o reduced earnings due to costs related to integration, increased
goodwill amortization and increased interest costs and; and
o retaining key personnel and customers of acquired companies.
In addition, as we increase our level of service and expand our global
reach, there will be additional demands on our customer service support and
sales, marketing and administrative resources. We may not be able to manage
successfully our operations or the quality of our services. If our management is
unable to manage growth effectively or maintain the quality of its service, our
business, financial condition and results of operations could be materially and
adversely affected.
Our quarterly revenues and operating results are difficult to predict, and, if
our results are below expectations, the price of our common stock may decline.
Our quarterly revenues and operating results may fluctuate significantly
as a result of a variety of factors, many of which are outside of our control.
As a result, you should not rely on year-to-year or quarter-to-quarter
comparisons of our operating results as an indication of future performance.
Some of the factors that may cause our revenues and operating results to
fluctuate significantly include, but are not limited to:
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o demand for and market acceptance of our services;
o the timing and magnitude of capital expenditures relating to growing
our operations;
o changes in our pricing policies in response to changing costs,
competition or industry trends such as consolidation;
o changes in telecommunications and other operating costs;
o currency fluctuations; and
o unexpected regulatory changes in our target markets.
We may also experience seasonality in our business in the future,
resulting in diminished revenues as a consequence of reduced demand for Internet
services during summer or holiday periods. As a result of the foregoing factors,
as well as others, our revenues and operating results in some future reporting
periods may be below the expectations of some analysts or investors, which may
cause our stock price to fall.
If we fail to expand our product development, professional services and sales
and marketing organizations and attract, retain, and train technical and
marketing personnel, we may be unable to expand our market and grow our
business.
We believe that our growth may be affected by our ability to provide our
customers with new products and services. Our business requires trained
product-development personnel, as well as experienced sales and marketing
personnel to educate prospective customers regarding the use and benefits of our
services. A wide range of companies active in our markets, many of which have
substantially greater resources than we have, compete for the same skilled
personnel. In turn, the inability to hire and train a sufficient number of
personnel at all levels may limit our ability to undertake future projects and
could cause us to lose market share. In addition, new professional services
personnel that require training and education will take time to reach full
productivity. As a result, our future success may be affected by our ability to
timely identify, attract, hire, train, retain and motivate highly skilled
technical, managerial, sales and marketing personnel. We plan to increase the
number of our product development, professional services and sales and marketing
personnel to meet these needs. It may be more difficult to attract prospective
employees with equity incentives as a larger, public company than as a smaller,
privately held company. Failure to retain and attract the necessary technical,
sales, marketing and administrative personnel could adversely affect our
business, financial condition and operating results.
If we do not respond to rapid technological changes, our services could become
obsolete and we could lose customers.
To remain competitive, we must continue to enhance and improve the
functionality and features of our services. If competitors introduce new
products and services featuring new technologies, or if new industry standards,
technologies and practices emerge, our existing technology and systems may
become obsolete or the relative benefit of our services to customers may be
diminished. Keeping up with changes in technology could require substantial
expenditures of time and money by us. Furthermore, we may fail to use new
technologies effectively, or we may be unable to license or otherwise obtain
desired new technologies from third parties.
We will continue to face significant competition and we may be unable to compete
successfully.
There are competitors in our markets with more significant local market
presence, brand recognition and greater financial, technical and personnel
resources. As a result of this competition, we expect to continue to face
significant pressure to reduce our prices and improve the products and services
we offer. The barriers to entry are low for some of the services we offer, such
as Web hosting and Web design, so we could quickly face additional competition.
Although our competitors vary depending on the market and the country, these
competitors may include local and regional Internet service providers,
telecommunication companies, information technology companies and cable
companies. These competitors may be local, regional or global companies. Some of
our
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competitors, especially the telecommunications companies, have large
networks in place as well as a significant existing customer base. These
competitors may offer products and services that are more appealing to our
current and potential customers.
We rely upon the availability of adequate connectivity with third-party
providers, and failure or delay in obtaining necessary connectivity would impede
our growth.
In building our network we will rely upon connectivity supplied by
third-party providers and local and international telecommunications carriers.
In some of our markets we will be dependent on one or a limited number of
connectivity providers. Many of these carriers are, or potentially are, our
competitors. In some of our markets our ability to meet expanding access needs
is limited by our ability to obtain additional network capacity as our customer
levels require it. There can be no assurance that we will be able to obtain the
requisite network connectivity at commercially viable prices or that the
necessary connectivity will be available on a timely basis or at all. Failure to
obtain this connectivity would jeopardize our ability to meet existing customer
demand, limit our ability to conduct business and restrict our growth in these
markets.
We depend on the reliability of our network, and a system failure or a breach of
our security measures could result in a loss of customers and reduced revenues.
We are able to deliver services only to the extent that we can protect our
network systems against damage from power or telecommunication failures,
computer viruses, natural disasters, unauthorized access and other disruptions.
Any system failure, accident or security breach that causes interruptions in our
operations could impair our ability to provide Internet services to our
customers, damage our reputation and negatively impact our revenues and results
of operations. To the extent that any disruption or security breach results in a
loss or damage to our customers' data or applications, or inappropriate
disclosure of confidential information, we may incur liability and suffer from
adverse publicity. In addition, we may incur additional costs to remedy the
damage caused by these disruptions or security breaches.
We are dependent on the proper development of our billing, customer services and
information systems.
Sophisticated information and processing systems are vital to our
growth and our ability to monitor costs, bill customers, provision customer
orders and achieve operating efficiencies. Our plans for the development and
implementation of our billing and other operating systems rely, for the most
part, on the delivery of products and services by third party vendors. We could
be materially adversely affected by our failure to adequately identify all of
our information and processing needs or the failure of these vendors to deliver
proposed products and services in a timely and effective manner and at
acceptable costs.
Governmental regulation and the application of existing laws to the Internet may
slow the Internet's growth, increase our costs of doing business and inhibit our
ability to provide services to our customers.
Laws and regulations directly applicable to Internet communications are
becoming more prevalent. The international nature of the Internet and the
possibility that we may be subject to conflicting laws of, or the exercise of
jurisdiction by, different countries may make it difficult or impossible to
comply with all the laws that may govern our activities. Furthermore, the law
relating to the liability of online service providers for information carried on
or disseminated through their networks is currently unsettled. New laws and
regulations in Europe or in the United States could inhibit the expansion of the
Internet, prevent or limit our ability to operate in certain of our markets,
expose us to compliance costs and substantial liability and could result in
costly and time consuming litigation, all of which could materially harm our
business, operating results and financial condition. Additionally, we face these
same risks because of uncertainties about how existing laws will be applied to
address the Internet. New and existing laws may cover issues that affect our
business, such as:
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o national sovereignty issues, including controls on foreign ownership
of Internet-related companies, export controls governing encryption
containing software and national security concerns;
o rights and protection of Internet users, including user privacy, libel
and defamation, consumer protection, pornography and obscenity laws
and government interception of data traffic;
o controls on the Internet as a market place, including sales and other
taxes, telecommunications access fees, pricing, characteristics and
quality of products and services, antitrust and fair trade laws;
o the level and scope of competition from telecommunications or cable
companies;
o limits on foreign ownership of companies in general or communications
services companies specifically; and
o copyright, trademark and patent infringement laws.
To comply with new or existing laws regulating electronic business and
information on the Internet, we may need to modify the manner in which we do
business, which could result in additional expenses and could slow our growth.
We may need to hire additional personnel to monitor our compliance with
applicable laws. A restrictive regulatory policy regarding the Internet industry
in any country in Europe could have a direct material adverse effect on us by
retarding the industry's growth in such countries. Any liability as a result of
a change in laws or failure to comply with laws could harm our operations and
financial condition.
We may be liable for information disseminated over our network.
We may face liability for information carried on or disseminated through
our network. Some types of laws that may result in our liability for information
disseminated over our network include:
o laws designed to protect intellectual property, including trademark
and copyright laws;
o laws relating to publicity and privacy rights and laws prohibiting
defamation;
o laws restricting the collection, use and processing of personal data;
o laws prohibiting the sale, dissemination or possession of pornographic
material; and
o other laws relating to the nature and content of Internet materials.
The laws governing these matters vary from jurisdiction to jurisdiction.
If we violate laws governing content on our network, we may face fines,
temporary disruption of our service or loss of required operating licenses,
depending on the jurisdiction.
We may need to secure additional financing to carry out our business plan.
We may need to raise additional funds to carry out our business plan. If
we are able to raise additional funds through the incurrence of debt, and we do
so, we would likely become subject to restrictive financial covenants. The
amount and nature of any borrowings by us will depend on numerous
considerations, including our capital requirements, our perceived ability to
meet debt service on any such borrowings and the then prevailing conditions in
the financial markets, as well as general economic conditions. Additionally, to
the extent that debt financing ultimately proves to be available, any borrowings
may subject us to various risks and restrictions traditionally associated with
indebtedness, including the risks of interest rate fluctuations and
insufficiency of cash flow to service that indebtedness.
If additional funds are raised through the issuance of equity securities,
the percentage ownership of our then current shareholders would be diluted, our
earnings and book value per share could be diluted and, if such equity
securities take the form of preferred stock, the holders of such preferred stock
may have rights, preferences or privileges senior to those of holders of common
stock.
We cannot assure you that we will be able to raise equity capital, obtain
capital lease or bank financing or incur other indebtedness to fund any business
combination or the working capital and other capital requirements of a new
operating business on terms deemed by us to be commercially acceptable and in
our best interests.
12
We may issue new equity in order to help attain our new business plan.
Generally, the board of directors has the power to issue new equity (to
the extent of authorized shares) without shareholder approval, except that
shareholder approval may be required under applicable law or NASD rules for
certain transactions. We may issue new equity to raise additional capital in
connection with a business combination or venture transaction with an operating
business. Any additional issuance by us would have the effect of diluting your
percentage ownership, could have the effect of diluting our earnings and our
book value per share, and could result in the adverse tax consequences described
above. We have no current arrangement, agreement or understanding with respect
to the sale or issuance of any new equity.
Currency fluctuations and different standards, regulations and laws relating to
our international operations may adversely affect our business.
A key component of our strategy is our expansion in international
markets. Our international expansion will require us to comply with multiple
regulatory and taxation regimes. In addition, laws or administrative practices
relating to taxation, foreign exchange or other matters within countries in
which we operate or plan to operate may change. Moreover, operating
internationally exposes us to risks such as:
o fluctuations in currency exchange rates,
o foreign exchange controls which restrict or prohibit repatriation of
funds,
o technology export and import restrictions or prohibitions,
o difficulty collecting accounts receivable,
o political instability,
o delays with customs or government agencies,
o seasonal reductions in business activity during the summer months in
Europe and certain other parts of the world, and
o potentially adverse tax consequences resulting from operating in
multiple jurisdictions with different tax laws.
The Heico Companies, LLC and the Company's management has substantial voting
control over the Company.
In addition to the shares of our Common Stock which are currently
outstanding and entitle the holders thereof to one vote per share, we also have
outstanding shares of our Series B, C, D, E and G Convertible Preferred Stock,
each of which entitle the holders thereof to 40, 40, 1, 10.865, and 1,000 votes
per preferred share, respectively. As of March 22, 2001, substantially all of
the outstanding preferred stock was owned by The Heico Companies, LLC ("Heico")
which, combined with the common stock owned by Heico, represents approximately
73% of our outstanding votes.
In addition, as of March 22, 2001, our executive officers and
directors as a group had an approximately 75% voting interest in our capital
stock. Included in the shares owned by our executive officers and directors as a
group is the direct voting interest which is held by Heico. Mr. Michael E.
Heisley, Sr., Mr. Stanley H. Meadows and Ms. Emily Heisley Stoeckel, all members
of our Board of Directors, have an interest in, or are employed by, Heico.
As a result of its voting interest, Heico and/or our directors and
executive officers as a group have the power to control the vote regarding such
matters as the election of our directors, amendments to our charter, other
fundamental corporate transactions such as mergers, asset sales, and the sale of
our business, and to otherwise influence the direction of our business and
affairs. Additionally, as stockholders of the Company and through their ability
to control the election of directors, Heico and/or our executive directors as a
group may authorize actions that could have an anti-takeover effect and may
delay, defer or prevent a tender offer or takeover attempt that a stockholder
might consider in its best interest, including an attempt that might result in
the receipt of a premium
13
over the market price for the shares held by such stockholder. Such actions may
include creating additional classes of stock with disparate voting rights;
creating a classified Board of Directors with staggered terms; prohibiting the
stockholders to take any action by a written consent or requiring advance notice
for stockholder proposals and director nominations.
ITEM 2. PROPERTIES
We currently lease office space for our corporate headquarters in Buffalo
Grove, Illinois pursuant to an agreement which expires in 2010. The 125,000
square foot facility for our SuperCentre in the Dublin, Ireland area is leased
pursuant to an agreement which expires in 2025. With the acquisition of
VIS-able, we gained office facilities and Web hosting centers in the U.S. and
Europe totalling approximately 25,000 square feet pursuant to agreements that
expire from 2001 to 2003. The majority of our facility leases have renewal
options.
We also lease approximately 11,000 square feet of office and operating
space in Omaha, Nebraska, for our U.S. carrier business which is currently held
for sale, pursuant to an agreement which expires in June 2001. We have office
space located in the Atlanta, Georgia area pursuant to an agreement which
expires in June 2003, which has been sublet to a third party.
We believe that our property and equipment are well maintained and adequate
to support our current needs, although substantial investments are expected to
be made in additional property and equipment for expansion and in connection
with corporate development activities.
ITEM 3. LEGAL PROCEEDINGS
On April 17, 1998, the Company was served with a summons and complaint from
MC Liquidating Corporation f/k/a MIDCOM Communications, Inc. ("MIDCOM"). Both
the Company and TNC were named as defendants, as were Telenational
Communications, Limited Partnership, the former owner of the TNC assets
("TCLP"), and Edmund Blankenau, a principal of TCLP and a former director of the
Company. In its complaint, filed on April 8, 1998 in the U.S. Bankruptcy Court
for the Southern Division of the Eastern District of Michigan (the "MIDCOM
Lawsuit"), MIDCOM sought payment of over $600,000 for services allegedly
provided to TCLP and the Company, together with other damages, attorney fees and
costs. A settlement of the MIDCOM Lawsuit was approved by the bankruptcy court
supervising MIDCOM's liquidation on November 3, 2000. Pursuant to the
settlement, the Company paid $200,000 in exchange for dismissal of the MIDCOM
Lawsuit with prejudice.
The Company is a defendant in litigation filed in the District Court of
The Hague, The Netherlands. The case, filed in February 1999 by Mr. Bahman
Zolfagharpour, alleges that the Company breached agreements with Mr.
Zolfagharpour in connection with its purchase of MathComp B.V. from Mr.
Zolfagharpour. The litigation seeks damages in an amount exceeding $20 million
and the award of 2,350,000 shares of the Company's common stock to Mr.
Zolfagharpour. Although the Company believes that the litigation is wholly
without merit, settlement negotiations are currently being considered, the
outcome of which is not expected to have a material adverse effect on the
consolidated financial position or results of operations of the Company.
Since July 14, 1999, Worldport and certain of its former officers have been
named as defendants in multiple shareholder class action lawsuits filed in the
United States District Court for the Northern District of Georgia. On or about
March 21, 2000, a Consolidated Complaint was filed which adds The Heico
Companies, LLC and Michael E. Heisley, Sr. as defendants. The plaintiffs in
these lawsuits seek to represent a class of individuals who purchased or
otherwise acquired the Company's common stock from January 4, 1999 through June
28, 1999. Among other things, the plaintiffs allege that the defendants spoke
positively about the Heico financing without disclosing the risk that
non-compliance with certain Nasdaq rules in connection with the financing might
cause Worldport to be delisted from Nasdaq. The plaintiffs further allege the
subsequent disclosure that Worldport might be delisted from
14
Nasdaq adversely affected the value of the Company's common stock. The
plaintiffs allege violations of Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934 and seek unspecified compensatory damages, interest,
attorneys' fees and costs of litigation. These cases are currently pending on
defendants' motions to dismiss. Worldport intends to defend these lawsuits
vigorously, but due to inherent uncertainties of the litigation process and the
judicial system, Worldport is unable to predict the outcome of this litigation.
In addition to the aforementioned claims, the Company is involved in
various other lawsuits or claims arising in the normal course of business. In
the opinion of management, none of these lawsuits or claims will have a material
adverse effect on the consolidated financial position or results of operations
of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following are the Company's executive officers as of March 31, 2001.
NAME AGE PRINCIPAL POSITION WITH REGISTRANT
---- --- ----------------------------------
Michael E. Heisley, Sr.. 63 Chairman of the Board, Chief Executive
Officer, and Director
James L. Martin..... 47 President and Chief Operating Officer
John T. Hanson...... 43 Vice President, Chief Financial Officer
David Hickey........ 40 Vice President, Corporate Development
Frazer N. Hamilton. 52 Vice President, Sales & Marketing
MICHAEL E. HEISLEY, SR.
Michael E. Heisley, Sr., age 63, has been a member of the Board of
Directors since December 1998, Chairman since June 1999 and Chief Executive
Officer of the Company since May 2000. Mr. Heisley has been the Manager,
President and Chief Executive Officer of The Heico Companies, LLC ("Heico"), a
holding company in Chicago, IL which acquires or invests in and operates a
diverse group of businesses, since its formation in 1988 and also serves as the
Chief Executive Officer of various of Heico's subsidiaries. Mr. Heisley is a
director of Robertson-Ceco Corporation, a metal buildings manufacturing company,
Tom's Foods Inc. and Envirodyne, Inc. Mr. Heisley is also owner of the National
Basketball Association's (NBA) Vancouver Grizzlies. Mr. Heisley received a
Bachelor's degree in Business Administration from Georgetown University.
JAMES L. MARTIN
James L. Martin, age 47, joined the Company in April 2000 as Chief
Technology Officer and in October 2000 was promoted to President & Chief
Operating Officer. Prior to this, Mr. Martin was a senior executive responsible
for deployment of Internet and e-business networks at both Cable & Wireless and
then previously MCI. Mr. Martin also managed a support organization for such
companies spanning 21 states, comprising of technical sales and sale support
consultants.
15
JOHN T. HANSON
John T. Hanson has been Worldport's Chief Financial Officer since July
1999. From August 1998 to July 1999, Mr. Hanson served as Vice President and
Chief Financial Officer for Millenium Rail, Inc., a railcar repair and
maintenance services company. Prior to that, from 1995 to 1998, Mr. Hanson was
Vice President and Chief Financial Officer for Wace USA, Inc., an international
provider of technology based solutions for the graphic arts industry. For ten
years prior to that, Mr. Hanson served as Vice President Finance and Controller
for Ameritech where he was responsible for building the Telephone Industry
Services business unit. Previously, Mr. Hanson was Chief Financial Officer for
Illinois Bell Communications. Mr. Hanson received a Bachelors degree in
Accounting from DePaul University and a Masters degree in Management from
Northwestern University.
DAVID HICKEY
David Hickey is the Company's Vice President, Corporate Development, and
has been with the Company since June 1998. From 1986 to June 1998, Mr. Hickey
served as a telecommunications consultant and founding director of Datanet
Limited, an independent international telecommunications consulting firm based
in Dublin, Ireland, advising corporate clients, including carriers and
government agencies. Mr. Hickey graduated with honors from the University
College of Dublin with a Bachelors degree in Electrical Engineering.
FRAZER N. HAMILTON
Frazer N. Hamilton, age 52, joined the Company in January 2001 as Vice
President, Sales and Marketing. Prior to this, Mr. Hamilton was Chief Marketing
Officer at City-Reach International LLC, a British provider of secure Internet
exchanges. Earlier, Mr. Hamilton was Vice President, Worldwide Sales and
Marketing at PictureTel, a provider of visual and audio collaboration platforms.
Before that, he spent 22 years in various positions with British Telecom, 3M and
Cable & Wireless. Mr. Hamilton received an ONC Electrical Engineering degree
from Langside & Stow College, Glasgow, Scotland.
16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Worldport's common stock has traded under the symbol "WRDP" on the
following stock exchanges:
LISTING PERIOD STOCK EXCHANGE
-------------- --------------
August 4, 1999 to the present OTC Bulletin Board
November 23, 1998 to August 4, 1999 Nasdaq Small Cap Market
June 17, 1997 to November 23, 1998 OTC Bulletin Board
Prior to June 17, 1997, there was no public market for our common stock.
The table below sets forth the high and low sales prices for the common
stock (as reported on the OTC since August 5, 1999 and as reported on the Nasdaq
SmallCap Market from November 23, 1998 to August 4, 1999) during the periods
indicated. The OTC quotations reflect high and low bid information and reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions.
PRICE RANGE OF
--------------
COMMON STOCK
------------
HIGH LOW
---- ---
YEAR ENDED DECEMBER 31, 2000:
First Quarter.................................... $4.1250 $1.9600
Second Quarter................................... 4.0625 2.1875
Third Quarter.................................... 7.2500 2.1875
Fourth Quarter................................... 8.0000 2.1250
YEAR ENDED DECEMBER 31, 1999:
First Quarter.................................... $11.2500 $6.5625
Second Quarter................................... 12.3750 3.2500
Third Quarter (through August 4, 1999)........... 6.0625 2.6250
Third Quarter (from August 5, 1999).............. 3.0000 0.4844
Fourth Quarter................................... 3.4375 0.5469
As of March 22, 2001, there were approximately 4,400 stockholders of record
of our common stock.
We have never declared or paid any cash dividends on our capital stock,
although our Series A Preferred Stock accrued dividends from its issuance to its
conversion. Additionally, although non-cumulative, each of our Series B, C, D, E
and G Preferred Stock bears dividends at the rate of 7% of the stated value per
annum. We currently intend to retain future earnings, if any, to finance the
growth and development of our business and, therefore, do not anticipate paying
any cash dividends in the future.
During the quarter ended December 31, 2000, various holders of warrants
issued in connection with the Company's Interim Loan Facility exercised their
warrants for 2,305,312 shares of the Company's common stock. The issuances of
these shares were exempt from registration under Section 4(2) of the Securities
Act of 1933, as amended, as a transaction by an issuer not involving any public
offering.
17
ITEM 6. SELECTED FINANCIAL DATA
The selected statements of operations data for each of the years ended
December 31, 1996, 1997, 1998, 1999, and 2000 and the selected balance sheet
data for the periods then ended have been derived from our Consolidated
Financial Statements audited by Arthur Andersen LLP, included elsewhere herein.
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and our Consolidated Financial Statements and Notes thereto,
included elsewhere in this Report.
YEARS ENDED DECEMBER 31,
--------------------------------------
1996 1997(1) 1998(2) 1999 2000(5)
---- ------- ------- ---- -------
(IN THOUSANDS, EXCEPT RATIO AND PER SHARE DATA)
STATEMENTS OF OPERATIONS DATA:
Revenues............................................... $ -- $ 2,776 $ 28,591 $ 85,967 $ 9,795
Cost of services....................................... -- 2,605 21,187 57,438 8,479
---------- --------- -------- ---------- --------
Gross margin........................................... -- 171 7,404 28,529 1,316
Other operating expenses:
Selling, general and administrative................. 270 2,723 39,147 62,020 22,677
Depreciation and amortization....................... -- 818 11,069 25,396 4,323
Asset impairment.................................... -- -- 4,842 11,902 --
---------- --------- -------- ---------- --------
Operating loss......................................... (270) (3,370) (47,654) (70,789) (25,684)
---------- --------- -------- ---------- --------
Other income (expense):
Interest income (expense), net...................... 10 (128) (24,570) (52,076) 12,094
Gain on sale of assets............................. -- -- -- -- 346,195
Other............................................... -- 6 (5,451) -- 2,626
---------- --------- -------- ---------- --------
Income (loss) before minority interest and income tax (260) (3,492) (77,675) (122,865) 335,231
provision.
Minority interest...................................... -- -- 903 1,845 --
---------- --------- -------- ---------- --------
Income (loss) before income tax provision.............. (260) (3,492) (76,772) (121,020) 335,231
Income tax provision................................... -- -- -- -- (59,999)
---------- --------- -------- ---------- --------
Net income (loss)...................................... $ (260) $ (3,492) $(76,772) $(121,020) $275,232
Basic net earnings (loss) per common share............. $ (0.11) $(0.26) $ (4.47) $ (6.93) $ 9.03
========== ========= ======== ========== =======
Diluted net earnings (loss) per common share........... $ (0.11) $ (0.26) $ (4.47) $ (6.93) $ 4.85
========== ========= ======== ========== =======
Weighted average common shares - basic................. 2,358 13,245 17,158 24,244 30,402
========== ========= ======== ========== =======
Weighted average common shares - diluted............... 2,358 13,245 17,158 24,244 56,550
========== ========= ======== ========== =======
OTHER OPERATING DATA:
EBITDA(3).............................................. $ (270) $ (2,552) $(31,743) $ (33,491) $(20,685)
Net cash flows from operating activities (198) (2,904) (140,815) (25,364) (79,457)
Net cash flows from investing activities (1,300) (701) (2,939) (21,428) 371,267
Net cash flows from financing activities 3,035 2,231 149,867 43,357 (159,251)
Capital expenditures -- 771 85 21,428 61,903
AS OF DECEMBER 31,
1996 1997 1998 1999(4) 2000(4)(5)
------- --------- ---------- ----------- ----------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents.............................. $ 1,553 $ 179 $ 6,826 $1,149 $132,396
Working capital (deficit).............................. 2,787 (4,143) 29,445 (80,138) 125,665
Property and equipment, net............................ -- 5,032 676 145 62,361
Net assets held for sale............................... -- -- 111,777 101,302 1,350
Total assets........................................... 2,889 13,197 158,464 104,288 231,917
Long-term obligations.................................. 420 4,197 16,717 4,021 46
Stockholders' equity (deficit)......................... 2,367 4,155 17,522 (83,482) 206,182
(1) Includes the financial results of Telenational Communications, Inc. and
Wallace Wade, Inc. from June 20, 1997 and July 3, 1997, the respective
dates of their acquisition.
18
(2) Includes the financial results of EnerTel and IIC from June 23, 1998 and
August 1, 1998, the respective dates of their acquisition.
(3) EBITDA represents operating loss adjusted for depreciation, amortization,
and asset impairment. EBITDA is provided because it is a measure commonly
used in our industry. EBITDA is not a measurement of financial performance
under GAAP and should not be considered an alternative to net income as a
measure of performance or to cash flow as a measure of liquidity.
(4) The European operations and IIC were sold in January and February 2000,
respectively. The TNC net assets are for sale. Accordingly, the related
assets and liabilities have been collapsed and reflected as "Net Assets
held for Sale" in the 1999 balance sheet. The TNC net assets remain
reflected as "Net Assets held for Sale" in the 2000 balance sheet.
(5) Includes the financial results of VIS-able International AB and its
affiliates from September 15, 2000, the date of its acquisition.
19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Financial Data," the Consolidated Financial Statements and Notes
thereto, and the other financial data appearing elsewhere in this Report.
The information set forth in Management's Discussion and Analysis of
Financial Condition and Results of Operations ("MD&A") contains certain
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as
amended, and the Private Securities Litigation Reform Act of 1995, including,
among others (i) expected changes in the Company's revenues and profitability,
(ii) prospective business opportunities and (iii) the Company's strategy for
redirecting and financing its business. Forward-looking statements are
statements other than historical information or statements of current condition.
Some forward-looking statements may be identified by use of terms such as
"believes", "anticipates", "intends" or "expects". These forward-looking
statements relate to the plans, objectives and expectations of the Company for
future operations. Although the Company believes that its expectations with
respect to the forward-looking statements are based upon reasonable assumptions
within the bounds of its knowledge of its business and operations, in light of
the risks and uncertainties inherent in all future projections, the inclusion of
forward-looking statements in this report should not be regarded as a
representation by the Company or any other person that the objectives or plans
of the Company will be achieved.
The Company's revenues and results of operations could differ materially
from those projected in the forward-looking statements as a result of numerous
factors, including, but not limited to, the following: (i) changes in external
competitive market factors, (ii) termination of certain operating agreements or
inability to enter into additional operating agreements, (iii) inability to
satisfy anticipated working capital or other cash requirements, (iv) changes in
or developments under domestic or foreign laws, regulations, licensing
requirements or telecommunications standards and Internet protocols, (v) changes
in the Company's business strategy or an inability to execute its strategy due
to unanticipated changes in the market, (vi) various competitive factors that
may prevent the Company from competing successfully in the marketplace, and
(vii) the Company's ability to raise additional capital. In light of these risks
and uncertainties, there can be no assurance that actual results, performance or
achievements of the Company will not differ materially from any future results,
performance or achievements expressed or implied by such forward-looking
statements. The foregoing review of important factors should not be construed as
exhaustive. The Company undertakes no obligation to release publicly the results
of any future revisions it may make to forward-looking statements to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
The following discussion should be read in conjunction with the
Consolidated Financial Statements and Notes thereto.
OVERVIEW
Prior to the consummation of the sales transactions described in this
report, the Company was a facilities-based global telecommunications carrier
offering voice, data and other telecommunications services to carriers, ISPs,
medium and large corporations and distributors and resellers. On November 11,
1999, in order to meet its obligations under the Interim Loan Facility, the
Company entered into a series of definitive agreements with Energis for the sale
of EnerTel. The sale was consummated on January 14, 2000 for $453.2 million, net
of certain transaction expenses. The Company applied a portion of the net
proceeds realized from the sale to repay existing debt, including debt incurred
under the Interim Loan Facility, trade credit and other liabilities.
Additionally, the Company completed the sale of IIC in February 2000.
In the second quarter of 2000, the Company announced a new business
strategy, focused on the delivery of Internet solutions to global companies
doing business in the European marketplace. In addition to Web-enabled
20
application solutions, the Company intends to provide a complete managed Web
hosting service portfolio - including network management, colocation services,
Internet connectivity, ASP support services, data backup, storage and disaster
recovery - providing end-to-end service to corporations, as well as service
providers, enabling them to completely outsource their Internet operations.
The Company constructed a new Internet solutions SuperCentre in Dublin,
Ireland, which became operational in early October and was designed to meet the
specific needs of its various services. The SuperCentre, located in close
proximity to redundant fiber routes from multiple providers, is expected to
serve as the flagship to the Company's Internet Solution Centres, which the
Company expects to locate in key European cities. Under an agreement with Global
Crossings, brokered by the Irish government, Worldport has gained access to
bandwidth on the trans-Atlantic and pan-European fiber optic networks, which
connect Ireland with the U.S., the U.K., and the majority of major markets in
Western Europe. The Company has successfully hired a new management team with
extensive experience in the telecommunications, Web hosting, and Internet
solutions markets to design, build and maintain the SuperCentre and manage
operations and sales throughout Europe. The Company is also developing products
and services to offer its customers and negotiating with various strategic
partners for the marketing and selling of complementary products and services
(although no assurances can be given as to any successful development of a
product or service or the successful completion of any such negotiations).
On September 15, 2000, the Company acquired all of the common stock of
Sweden based VIS-able, pursuant to a Stock Purchase Agreement dated September
15, 2000, for approximately $17.7 million, net of liabilities assumed and
including the payment of certain fees and expenses. The payment of $2.7 million
of the purchase price was deferred for one year pending any claims against the
representations and warranties made in the Stock Purchase Agreement. This amount
is collateralized by a Letter of Credit which expires one year from the
acquisition date. VIS-able is a leading professional services firm, specializing
in complex systems development, consulting, WAP integration and Web hosting,
with offices in Sweden, Belgium, the U.S. and the U.K. The VIS-able acquisition
gives the Company access to more than 3,500 customers, a fully operational data
center, and Internet consulting and application design and development expertise
supported by 61 skilled professional employees.
With the opening of the Dublin SuperCentre and the acquisition of
VIS-able, the Company had approximately 195 employees located in five countries
as of December 31, 2000.
The Company intends to fund potential future operating losses and capital
expenditures required to pursue its new business plan out of net proceeds
remaining from the sales referred to above. Additional requirements, if any, may
be funded through debt facilities and equity financings not yet arranged.
However, there can be no assurance that sufficient financing will be available
on terms acceptable to the Company. If such financing is not available, the
Company will have to curtail or alter its business plan and/or seek alternative
financing.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
During the first quarter of 2000, the Company completed the disposition of
substantially all of its operating assets, and began execution of the Company's
new business plan. Accordingly, the historical results of operations for prior
periods in which the Company was operational and the Interim Loan Facility was
in place are not comparable to the current period and are not representative of
what future results will be.
During the year ended December 31, 2000, the Company had net income of
$275.2 million, compared to a net loss of $168.1 million during the same period
in 1999. Included in the results of operations for the year ended December 31,
2000 are the results of EnerTel and IIC through their dates of sale (January 14,
2000 and February 29, 2000, respectively) and the results of VIS-able from its
date of acquisition (September 15, 2000). Included in the losses incurred during
the year ended December 31, 1999 are the operating results of EnerTel and IIC
for a full year.
21
Revenues for the year ended December 31, 2000 of $9.8 million included
$8.5 million from EnerTel and IIC (through their dates of sale) and Telenational
Communications, Inc. (an asset which is currently held for sale). The remaining
$1.3 million in current year revenue was generated from Web hosting services and
Internet professional services provided by the newly acquired VIS-able
operations, since its date of acquisition, and the recently opened Dublin
SuperCentre.
Cost of sales for the year ended December 31, 2000 of $8.5 million
included $5.3 million of costs from the sold and held-for-sale subsidiaries.
Cost of sales for VIS-able and the Dublin SuperCentre was $3.2 million and was
generated almost entirely in the fourth quarter. Included in cost of sales are
salaries and benefits on direct labor employees, depreciation expense on
revenue-generating assets and facility and bandwidth costs for the Web hosting
operations.
Operating expenses for the year ended December 31, 2000 of $27.0 million
included $5.0 million of expenses for the sold and held-for-sale subsidiaries.
The remaining $22.0 million in operating expenses primarily represented
salaries, facility costs (for offices other than the data centers) and
professional services associated with the execution of the new business plan.
Also included in the $22.0 million was $1.1 million of amortization expense on
goodwill from the acquisition of VIS-able since September 15, 2000. Goodwill is
being amortizing over a five year period.
Net interest income of $12.1 million represented $14.1 million of interest
income on the Company's cash and cash equivalents, offset partially by $2.0
million of interest expense, primarily on warrants issued in connection with the
Interim Loan Facility. The gain on sale of assets of $346.2 million primarily
consists of a gain of $346.9 million upon the sale of EnerTel in January 2000.
Other income of $2.6 million primarily represented foreign exchange gains and
losses incurred by EnerTel prior to its sale.
A tax provision of $60.0 million resulted from the taxable gain from the
sale of EnerTel, offset partially by the realization of the Company's net
operating loss carryforwards from previous years that had not been benefited for
tax purposes. An $85.0 million tax provision was recorded in the first quarter
of 2000 based on a preliminary estimate of the tax due on the sale of EnerTel.
This estimate was reduced in the third quarter by $2.4 million primarily for the
tax impact of a $6.0 million refund of the purchase price made to Energis in
November 2000 upon resolution of certain sale contingencies. In the fourth
quarter, the final calculation of the 2000 tax provision was completed, which
resulted in a further reduction in the tax provision of $22.6 million.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
During the year ended December 31, 1999, the Company incurred a net loss of
$121.0 million compared to a net loss of $76.8 million during the same period in
1998. Included in this loss incurred during the year ended December 31, 1999 are
the operating results of EnerTel, IIC and ICX, including amortization of the
purchased intangibles and recording of financing costs related to the Company's
acquisition of EnerTel, as well as general expenses related to the Company's
worldwide business development and financing activities. The operating results
for ICX and IIC did not have a material impact on the losses incurred by the
Company in 1999.
Revenues for the year ended December 31, 1999 were $86.0 million compared
to $28.6 million for the year ended December 31, 1998. The increase in revenues
was primarily attributed to the inclusion of the results of operations of
EnerTel, acquired in June 1998 and the commencement of the Company's U.S.
wholesale carrier operations during 1999. EnerTel's revenues were $60.7 million
during the year ended December 31, 1999. The U.S. wholesale carrier operations,
which the Company terminated in the third quarter of 1999, contributed revenues
of $6.8 million during the year ended December 31, 1999. Also contributing to
the increase over the prior year is the inclusion of IIC acquired in July 1998.
This entity contributed approximately $6.9 million in total revenues during the
year ended December 31, 1999. Results for the year ended December 31, 1999 also
included revenue of $2.1 million from the sale of transmission capacity under an
agreement between the Company and a telecommunication carrier.
22
Gross margin for the year ended December 31, 1999 was $28.5 million
compared to $7.4 million for the year ended December 31, 1998. The increase in
gross margin was primarily due to the inclusion of the results of operations of
EnerTel. The Company's primary costs of sales in 1999 were its cost of
terminating switched minutes through third parties, as well as its cost of
access circuits used to connect its customers in the Netherlands.
Selling, general and administrative expenses increased to $62.0 million for
the year ended December 31, 1999 from $39.1 million in the prior year. The
increase was primarily due to (i) the inclusion of the selling, general and
administrative expenses associated with the operation of EnerTel, the U.S.
wholesale carrier operations and IIC, (ii) increased business development and
expansion activity, and (iii) costs incurred in connection with the termination
of the Company's U.S. wholesale carrier operations and the reduction in the U.S.
corporate headquarters staff.
Depreciation and amortization expense for the year ended December 31, 1999
was $25.4 million compared to $11.1 million for the year ended December 31,
1998. The increase was due to (i) depreciation on the assets acquired in
connection with the EnerTel and IIC acquisitions, (ii) amortization of goodwill
and other intangible assets associated with the EnerTel and IIC acquisitions,
and (iii) depreciation on additional switching and network equipment acquired
during 1998 and 1999.
In the year ended December 31, 1999, the Company recorded nonrecurring
charges totaling approximately $11.9 million in connection with its decision to
close and sell certain U.S. operations. Included in these nonrecurring charges
are charges totaling approximately $10.9 million to write-down the Company's
investment in TNC and IIC to their estimated net realizable value and an asset
impairment charge of $1 million to reduce certain U.S. based telecommunications
equipment to their estimated resale values. In 1998, we wrote off $4.8 million
related to certain assets that were deemed to be impaired under SFAS 121 as a
result of our shift in business focus during 1998. This write-off principally
related to the write-down of certain switching and network equipment that we
operated prior to the EnerTel acquisition and the write down of certain assets
related to WWC, acquired in 1997, which is no longer part of our strategic plan.
For the year ended December 31, 1999 interest expense (net) was $52.1
million compared to $24.6 million during the same period in 1998. The increase
in interest expense was due primarily to the Interim Loan issued on June 23,
1998. Interest expense also included interest for the debt the Company assumed
in connection with the EnerTel and IIC acquisitions, and the acquisition of
switching equipment subject to capital lease. Other income (expense) for the
year ended December 31, 1998 of $5.5 million primarily consisted of $4.4 million
incurred in conjunction with unsuccessful financing activities and acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $125.7 million and ($80.1) million, and
cash of $132.4 million and $1.1 million, at December 31, 2000 and 1999,
respectively. The EnerTel sale transaction contributed substantially all of the
working capital increase to the Company in 2000, offset partially by current
year capital expenditures, operating costs, and income tax payments.
Operations used $79.5 million during the year ended December 31, 2000, due
primarily to the payment of income taxes related to the taxable gain on the
EnerTel sale transaction. The operating costs related to the execution of the
Company's new business plan have been substantially funded by interest income on
the Company's cash balance. Operations used $25.4 million during the year ended
December 31, 1999 due primarily to the net loss excluding non-cash charges,
offset by an increase in payables and accrued liabilities.
Investing activities provided $371.3 million during the year ended December
31, 2000, primarily consisting of the proceeds from the EnerTel sale transaction
of $453.2 million, offset by $61.9 million of capital expenditures associated
with the buildout of the Company's SuperCentre in Ireland and $17.7 million for
the acquisition of VIS-able. Investing activities used $21.4 million during the
year ended December 31, 1999 and consisted entirely of capital spending.
23
Financing activities used $159.3 million during the year ended December 31,
2000, and principally related to the repayment of the Interim Loan Facility and
a related party note payable from the proceeds of the EnerTel sale transaction.
Financing activities provided $43.4 million during the year ended December 31,
1999 and consisted primarily of proceeds from the issuance of Series C and
Series E convertible preferred stock and the exercise of employee stock options,
reduced by principal payments on capital leases and notes payable.
The Company intends to fund potential future operating losses and capital
expenditures required to pursue its new business plan out of net proceeds
remaining from the sales referred to above. Additional requirements, if any, may
be funded through debt facilities and equity financings not yet arranged.
However, there can be no assurance that sufficient financing will be available
on terms acceptable to the Company. If such financing is not available, the
Company will have to curtail or alter its current business plan and/or seek
alternative financing.
MARKET RISK
Management believes that the Company's exposure to market rate
fluctuations on its investments is nominal due to the short-term nature of those
investments (less than 90 days).
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date of
FASB Statement #133". SFAS No. 137 defers the effective date of SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, to fiscal years
beginning after June 15, 2000. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments and transactions involving hedge
accounting. The Company will adopt SFAS No. 133 on January 1, 2000, which will
have no impact on the consolidated financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We believe that our exposure to market rate fluctuations on our investments
is nominal due to the short-term nature of those investments (less than 90
days).
24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial information is included in this Report:
Report of Independent Public Accountants.................................. 26
Consolidated Balance Sheets--December 31, 2000 and 1999................... 27
Consolidated Statements of Operations for the years ended
December 31, 2000, 1999, and 1998....................................... 28
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 2000, 1999, and 1998................................. 29
Consolidated Statements of Comprehensive Income (Loss) for the
years ended December 31, 2000, 1999, and 1998........................... 30
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999, and 1998....................................... 31
Notes to Consolidated Financial Statements ............................... 32
25
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Worldport Communications, Inc.:
We have audited the accompanying consolidated balance sheets of Worldport
Communications, Inc. (a Delaware corporation) and subsidiaries as of December
31, 2000 and 1999, and the related consolidated statements of operations,
stockholders' equity (deficit), comprehensive income (loss), and cash flows for
each of the three years in the period ended December 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 financial position of Worldport
Communications, Inc. and subsidiaries as of December 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
--------------------------
ARTHUR ANDERSEN LLP
Chicago, Illinois
February 21, 2001
26
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31
-----------
2000 1999
---- ----
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents................................................................... $132,396 $ 1,149
Accounts receivable, net of allowance for doubtful accounts of $21 and $359, respectively... 1,220 1,126
VAT receivable.............................................................................. 8,092 --
Other current assets........................................................................ 8,296 34
Net assets held for sale.................................................................... 1,350 101,302
-------- -------
Total current assets...................................................................... 151,354 103,611
-------- -------
PROPERTY AND EQUIPMENT, net................................................................... 62,361 145
OTHER ASSETS:
Goodwill, net of accumulated amortization of $1,060 and $0, respectively.................... 17,114 --
Other assets, net........................................................................... 1,088 532
-------- -------
TOTAL ASSETS.............................................................................. $231,917 $ 104,288
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
CURRENT LIABILITIES:
Accounts payable............................................................................ $ 7,779 $ 13,168
Accrued expenses............................................................................ 7,898 1,056
Current portion of obligations under capital leases......................................... 3,812 2,932
Other current liabilities................................................................... 6,200 6,071
Notes payable to related party.............................................................. -- 12,981
Interim loan facility....................................................................... -- 147,541
-------- -------
Total current liabilities................................................................. 25,689 183,749
Long-term obligations under capital leases, net of current portion............................ -- 4,021
Other long-term liabilities................................................................... 46 --
-------- -------
Total Liabilities......................................................................... 25,735 187,770
-------- -------
STOCKHOLDERS' EQUITY (DEFICIT):
Undesignated preferred stock, $0.0001 par value, 4,004,000 shares authorized, 0 shares
issued and outstanding.................................................................... -- --
Series A convertible preferred stock, $0.0001 par value, 750,000 shares authorized, 0 shares
issued and outstanding in 2000 and 1999................................................... -- --
Series B convertible preferred stock, $0.0001 par value, 3,000,000 shares authorized,
965,642 shares issued and outstanding in 2000 and 1999.................................... -- --
Series C convertible preferred stock, $0.0001 par value, 1,450,000 shares authorized,
1,416,030 shares issued and outstanding in 2000 and 1999.................................. -- --
Series D convertible preferred stock, $.0001 par value, 650,000 shares authorized, 316,921
shares issued and outstanding in 2000 and 1999............................................ -- --
Series E convertible preferred stock, $.0001 par value, 145,000 shares authorized, 141,603
issued and outstanding in 2000 and 1999................................................... -- --
Series G convertible preferred stock, $.0001 par value, 1,000 shares authorized, 1,000 and 0
shares issued and outstanding in 2000 and 1999, respectively............................. -- --
Common stock, $0.0001 par value, 200,000,000 and 65,000,000 shares authorized in 2000 and
1999, respectively; 33,950,352 and 28,210,280 shares issued and outstanding in 2000 and
1999, respectively........................................................................ 3 3
Warrants.................................................................................... 2,611 23,398
Additional paid-in capital.................................................................. 175,739 149,824
Accumulated other comprehensive income (loss)............................................... 2,050 (7,942)
Retained earnings (deficit)................................................................. 25,779 (248,765)
-------- -------
Total stockholders' equity (deficit)...................................................... 206,182 (83,482)
-------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)...................................... $231,917 $104,288
========= ========
The accompanying notes are an integral part of these consolidated financial statements.
27
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31,
-----------------------
2000 1999 1998
---- ---- ----
REVENUES.................................................................... $ 9,795 $ 85,967 $ 28,591
COST OF SERVICES............................................................ 8,479 57,438 21,187
------- -------- --------
Gross margin........................................................... 1,316 28,529 7,404
------- -------- --------
OPERATING EXPENSES:
Selling, general and administrative expenses........................... 22,677 62,020 39,147
Depreciation and amortization.......................................... 4,323 25,396 11,069
Asset impairment....................................................... -- 11,902 4,842
------- -------- --------
Operating loss.................................................... (25,684) (70,789) (47,654)
------- -------- --------
OTHER INCOME (EXPENSE):
Interest income...................................................... 14,112 398 266
Interest expense.................................................... (2,018) (52,474) (24,836)
Gain on sale of assets.............................................. 346,195 -- --
Other income (expense)................................................. 2,626 -- (5,451)
------- -------- --------
360,915 (52,076) (30,021)
------- -------- --------
INCOME (LOSS) BEFORE MINORITY INTEREST AND
INCOME TAXES........................................................... 335,231 (122,865) (77,675)
MINORITY INTEREST........................................................... -- 1,845 903
------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES........................................... 335,231 (121,020) (76,772)
INCOME TAX PROVISION........................................................ (59,999) -- --
------- -------- --------
NET INCOME (LOSS)........................................................... 275,232 (121,020) (76,772)
PREFERRED STOCK BENEFICIAL CONVERSION....................... (688) (47,085) --
------- -------- --------
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS $274,544 $(168,105) $(76,772)
========= ========== =========
NET EARNINGS (LOSS) PER SHARE:
BASIC.................................................... $ 9.03 $ (6.93) $ (4.47)
========= ========== =========
DILUTED.................................................. $ 4.85 $ (6.93) $ (4.47)
========= ========== =========
SHARES USED IN NET EARNINGS (LOSS) PER SHARE CALCULATION:
BASIC................................................... 30,402 24,244 17,158
CONVERTIBLE PREFERRED STOCK............................ 21,513 -- --
WARRANTS............................................... 3,815 -- --
OPTIONS............................................. 820 -- --
------- -------- --------
DILUTED................................................. 56,550 24,244 17,158
========= ========== =========
The accompanying notes are an integral part of these consolidated financial statements.
28
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
ACCUMULATED
ADDITIONAL UNEARNED OTHER RETAINED
REFERRED COMMON PAID-IN- COMPENSATION COMPREHENSIVE EARNINGS
STOCK STOCK WARRANTS CAPITAL EXPENSE INCOME (LOSS) (DEFICIT) TOTAL
----- ----- --------- -------- -------- ------------ --------- ------
Balance, December 31, 1997..................... $ -- $ 2 $ -- $ 7,953 $ -- $ -- $ (3,800) $ 4,155
Issuance of Series B Preferred Stock........... -- -- -- 14,702 -- -- -- 14,702
Issuance of common stock in connection with -- -- -- 8,162 -- -- -- 8,162
acquisitions...................................
Sale of common stock........................... -- -- -- 900 -- -- -- 900
Exercise of stock options...................... -- -- -- 188 -- -- -- 188
Issuance of Series C Preferred Stock........... -- -- -- 40,000 -- -- -- 40,000
Conversion of payables to equity............... -- -- -- 2,652 -- -- -- 2,652
Issuance of warrants........................... -- -- 28,263 -- -- -- -- 28,263
Cumulative translation adjustment.............. -- -- -- -- -- (6,747) -- (6,747)
Issuance of stock and options under -- -- -- 2,857 (750) -- -- 2,107
compensation agreements........................
Dividend on Series A Preferred Stock........... -- -- -- -- -- -- (88) (88)
Net loss....................................... -- -- -- -- -- -- (76,772) (76,772)
---- ----- ------- --------- ---- ------- ---------- --------
Balance, December 31, 1998..................... $ -- $ 2 $28,263 $ 77,414 $ (750) $ (6,747) $ (80,660) $17,522
Conversion of Series A and B Preferred Stock... -- 1 -- (1) -- -- -- --
Issuance of Series C Preferred Stock........... -- -- -- 10,000 -- -- -- 10,000
Issuance of Series D Preferred Stock........... -- -- -- 1,030 -- -- -- 1,030
Issuance of Series E Preferred Stock........... -- -- -- 5,000 -- -- -- 5,000
Issuance of warrants........................... -- -- 3,602 -- -- -- -- 3,602
Exercise of warrants........................... -- -- (8,467) 8,467 -- -- -- --
Exercise of stock options...................... -- -- -- 1,945 -- -- -- 1,945
Settlement of escrowed shares in conjunction
with acquisitions............................. -- -- -- (366) -- -- -- (366)
Preferred Stock beneficial conversion features. -- -- -- 47,085 -- -- (47,085) --
Cumulative translation adjustment.............. -- -- -- -- -- (1,195) -- (1,195)
Amortization of compensation expense........... -- -- -- (750) 750 -- -- --
Net loss....................................... -- -- -- -- -- -- (121,020) (121,020)
---- ----- ------- --------- ---- ------- ---------- --------
Balance, December 31, 1999..................... $ -- $ 3 $23,398 $ 149,824 $ -- $ (7,942) $(248,765) $(83,482)
Issuance of Series G Preferred Stock........... -- -- -- 2,000 -- -- -- 2,000
Issuance of warrants........................... -- -- 1,229 -- -- -- -- 1,229
Exercise of warrants........................... -- -- (22,016) 22,016 -- -- -- --
Exercise of stock options...................... -- -- -- 489 -- -- -- 489
Issuance of common stock....................... -- -- -- 340 -- -- -- 340
Preferred Stock beneficial conversion features. -- -- -- 688 -- -- (688) --
Amortization of compensation expense........... -- -- -- 120 -- -- -- 120
Tax benefit from stock option exercises........ -- -- -- 262 -- -- -- 262
Cumulative translation adjustment.............. -- -- -- -- -- 9,992 -- 9,992
Net income..................................... -- -- -- 275,232 275,232
---- ----- ------- --------- ---- ------- ---------- --------
Balance, December 31, 2000..................... $ -- $ 3 $ 2,611 $ 175,739 $ -- $ 2,050 $ 25,779 $206,182
==== ===== ======= ========= ==== ======= ========== ========
The accompanying notes are an integral part of these consolidated financial statements.
29
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
-----------------------
2000 1999 1998
---- ---- ----
Net income (loss).............................. $275,232 $(121,020) $(76,772)
Other comprehensive income:
Foreign currency translation adjustments.. 9,992 (1,195) (6,747)
Comprehensive income (loss).................... $285,224 $(122,215) $(83,519)
======== ========= ========
The accompanying notes are an integral part of these consolidated
financial statements.
30
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
-----------------------
2000 1999 1998
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................................................. $275,232 $(121,020) $ (76,772)
Adjustments to reconcile net income (loss) to net cash flows from
operating activities:
Depreciation and amortization............................................... 3,961 25,396 11,069
Amortization of goodwill.................................................... 1,038 -- --
Gain on sale of assets.................................................. (346,195) -- --
Asset impairment............................................................ -- 11,902 4,842
Non-cash interest expense................................................... 1,229 40,165 23,052
Non-cash compensation expense............................................... 120 385 2,107
Minority interest........................................................... -- (1,845) (903)
Other ...................................................................... -- (1,428) (962)
Change in accounts receivable, net.......................................... 650 (1,126) --
Change in VAT receivable.................................................... (7,721) -- --
Change in other current assets.............................................. (4,452) 688 (722)
Change in accounts payable, accrued expenses and other liabilities.......... (3,319) 11,044 9,251
Change in net assets held for sale.......................................... -- 10,475 (111,777)
-------- --------- ---------
Net cash flows from operating activities................................ (79,457) (25,364) (140,815)
-------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.......................................................... (61,903) (21,428) (85)
Sale of assets.............................................................. 453,243 -- --
Purchase of subsidiaries.................................................... (17,735) -- --
Purchase of real estate held for sale....................................... (2,338) -- --
Deposits paid in conjunction with new business alliances...................... -- -- (2,854)
-------- --------- ---------
Net cash flows from investing activities................................ 371,267 (21,428) (2,939)
-------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of Interim Loan Facility.......................................... (147,541) -- --
Proceeds from Interim Loan Facility......................................... -- -- 114,700
Repayment on note payable - related party................................... (10,981) -- --
Principal payments on obligations under capital leases........................ (1,218) (8,088) (1,123)
Exercise of stock options and warrants........................................ 489 1,945 188
Proceeds from issuance of preferred stock, net of offering expenses........... -- 47,500 20,966
Proceeds from issuance of common stock, net of offering expenses.............. -- -- 900
Proceeds from shareholder loan................................................ -- 2,000 12,028
Proceeds from short-term borrowings........................................... -- -- 4,528
Principal payments on short-term debt......................................... -- -- (4,528)
Principal payments on notes payable--related parties.......................... -- -- (540)
Sale of minority interest..................................................... -- -- 2,748
-------- --------- ---------
Net cash flows from financing activities................................ (159,251) 43,357 149,867
-------- --------- ---------
Effect of exchange rate on cash and cash equivalents............................ (1,312) (2,242) 534
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................ 131,247 (5,677) 6,647
-------- --------- ---------
CASH AND CASH EQUIVALENTS, beginning of period.................................. 1,149 6,826 179
-------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period........................................ $ 132,396 $ 1,149 $ 6,826
========== ======== =========
SUPPLEMENTAL CASH FLOW INFORMATION - See Note 3
The accompanying notes are an integral part of these consolidated financial statements.
31
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(1) ORGANIZATION
Worldport Communications, Inc., a Delaware corporation (together with its
subsidiaries, the "Company"), is pursuing a plan to become the European leader
of Internet solutions. Until consummation of the sale transactions described in
Note 4, the Company was a facilities-based global telecommunications carrier
offering voice, data and other telecommunications services to carriers, Internet
service providers ("ISPs"), medium and large corporations and distributors and
resellers.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
Use of Estimates
The Company's financial statements are prepared in accordance with
accounting principles generally accepted in the United States ("GAAP").
Financial statements prepared in accordance with GAAP require the use of
management estimates and assumptions that affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities at the date
of the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company recognizes revenues as services are provided. Payments received
in advance are recorded as deferred revenues until such related services are
provided.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and all liquid investments
with an original maturity of three months or less when purchased.
Accounts Receivable
Accounts receivable includes unbilled amounts of $0.3 million at
December 31, 2000. This amount represents hours incurred by VIS-able employees
on consulting engagements that have not yet been invoiced to customers. The
timing of invoicing is dependent on the contractual arrangements made with the
respective customers.
32
Property and Equipment
Property and equipment is carried at cost less writedowns for impairments
where necessary. Expenditures for additions, improvements and renewals, which
add significant value to the asset or extend the life of the a