FLAG TELECOM HOLDINGS LIMITED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2001 AND 2000 (EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS) 2001 2000 ---------- ---------- ASSETS: Current assets: Cash and cash equivalents................................. $ 424,174 $ 919,709 Accounts receivable, net of allowance for doubtful accounts of $4,099 (2000--$5,289).......................................... 154,000 141,221 Prepaid expenses and other assets......................... 66,205 23,591 Interest rate collars..................................... 57 -- ---------- ---------- 644,436 1,084,521 Goodwill (2000--net of accumulated amortization of $139).... -- 31,463 Restricted cash............................................. 321,195 372,808 Capitalized financing costs, net of accumulated amortization of $8,543 (2000--$5,783)............................................ 27,872 28,949 Deferred tax asset.......................................... 2,940 -- Construction in progress.................................... 315,718 514,875 Other long term assets, net................................. 157,427 12,348 Property and equipment, net................................. 2,007,078 1,033,800 ---------- ---------- $3,476,666 $3,078,764 ========== ========== LIABILITIES: Current liabilities: Accrued construction costs................................ $ 67,084 $ 49,138 Accounts payable.......................................... 112,183 163,109 Accrued liabilities....................................... 109,684 65,702 Deferred revenue and other................................ 173,000 51,597 Cross currency swaps...................................... 7,226 -- Income taxes payable...................................... 13,686 4,479 Short-term debt........................................... 556,078 -- ---------- ---------- 1,038,941 334,025 Long-term debt.............................................. 767,953 1,139,002 Deferred revenue and other.................................. 1,236,951 594,759 Deferred taxes.............................................. 2,901 3,371 ---------- ---------- 3,046,746 2,071,157 SHAREHOLDERS' EQUITY: Common stock, $.0006 (2000--$.0006) par value, 300,000,000 (2000--300,000,000) authorized and 134,139,046 (2000--134,061,920) issued and outstanding................ 80 80 Additional paid-in capital.................................. 1,112,668 1,112,173 Deferred stock compensation................................. (51) (2,058) Accumulated other comprehensive income...................... 5,165 2,364 Accumulated deficit......................................... (687,942) (104,952) ---------- ---------- 429,920 1,007,607 ========== ========== $3,476,666 $3,078,764 ========== ========== FLAG TELECOM HOLDINGS LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000, AND THE PERIOD FROM INCORPORATION TO DECEMBER 31, 1999 (EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS) 2001 2000 1999 ----------- ----------- ---------- REVENUES: Capacity revenue, net of discounts.......... $ 80,081 $ 36,765 $ 105,612 Operations and maintenance revenue.......... 58,764 40,942 26,818 Network services revenue.................... 49,478 21,599 -- ----------- ----------- ---------- 188,323 99,306 132,430 EXPENSES: Cost of capacity sold ..................... -- -- 41,349 Operations and maintenance cost (including non-cash stock compensation expense of $513 (2000--$1,845))........................... 47,545 32,298 26,201 Network expenses............................ 58,228 13,036 -- Sales and marketing (including non-cash stock compensation expense of $333 (2000--$1,164)) 17,349 12,744 11,096 General and administrative (including non-cash stock compensation expense of $1,161 (2000--$4,221) 46,394 39,189 22,901 Asset impairment and restructuring.......... 387,169 -- -- Depreciation and amortization............... 131,910 79,414 11,133 ----------- ----------- ---------- 688,595 176,681 112,680 OPERATING (LOSS)/INCOME ...................... (500,272) (77,375) 19,750 INCOME FROM INVESTMENT IN FLAG ATLANTIC LIMITED -- 4,717 361 INTEREST EXPENSE............................. (109,156) (102,543) (45,062) FOREIGN CURRENCY (LOSS)/GAIN................. (7,871) 17,014 -- INTEREST INCOME.............................. 43,002 69,817 7,188 LOSS BEFORE MINORITY INTEREST AND INCOME TAXES (574,297) (88,370) (17,763) MINORITY INTEREST .......................... -- -- 3,826 LOSS BEFORE INCOME TAXES..................... (574,297) (88,370) (13,937) PROVISION FOR INCOME TAXES................... (7,402) (1,096) (1,549) ----------- ----------- ---------- NET LOSS BEFORE CUMULATIVE EFFECT OF ADOPTION OF SFAS No. 133.................................... (581,699) (89,466) (15,486) CUMULATIVE EFFECT OF ADOPTION OF SFAS No. 133. (1,291) -- -- ----------- ----------- ---------- NET LOSS..................................... $ (582,990) $ (89,466) $ (15,486) =========== =========== ========== Basic and diluted loss per common share before cumulative effect of adoption of SFAS No.133 $ (4.34) $ (0.68) $ (0.22) Cumulative effect of adoption of SFAS No. 133 $ (0.01) -- -- Basic and diluted loss per common share...... $ (4.35) $ (0.68) $ (0.22) ----------- ----------- ---------- Weighted average common shares outstanding.... 134,122,061 130,763,607 69,709,935 =========== =========== ========== FLAG TELECOM HOLDINGS LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000, AND THE PERIOD FROM INCORPORATION TO DECEMBER 31, 1999 (EXPRESSED IN THOUSANDS OF DOLLARS) 2001 2000 1999 --------- -------- -------- NET LOSS............................................ $(582,990) $(89,466) $(15,486) Foreign currency translation adjustment............. 2,743 2,223 141 Cumulative effect of change in accounting policy re SFAS No. 133 ........... (526) -- -- Change in fair market value of derivatives.......... 584 -- -- --------- -------- -------- COMPREHENSIVE LOSS.................................. $(580,189) $(87,243) $(15,345) ========= ======== ======== FLAG TELECOM HOLDINGS LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000, AND THE PERIOD FROM INCORPORATION TO DECEMBER 31, 1999 (EXPRESSED IN THOUSANDS OF DOLLARS) 2001 2000 1999 ---------- ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss....................................... $ (582,990) $ (89,466) $ (15,486) Adjustments to reconcile net loss to net cash provided by operating activities: Cumulative effect of adoption of SFAS No .133 1,291 -- -- Minority interest........................... -- -- (3,826) Amortization of financing costs.............. 2,760 2,522 1,370 Provision for doubtful accounts.............. (1,190) (1,548) (1,803) Senior debt discount.......................... 1,769 1,523 493 Non-cash stock compensation................... 2,007 7,230 8,800 Depreciation and amortization................. 131,910 79,414 11,133 Non-cash asset impairment charge.............. 359,000 -- -- Loss on disposal of property and equipment.... -- 93 -- Deferred taxes................................ (3,410) (363) 625 Add/(deduct) net changes in operating assets and liabilities: Accounts receivable......................... (11,601) (25,183) 1,078 Due from affiliate......................... -- 2,000 (2,000) Prepaid expenses and other assets............ (17,041) (23,394) 86 Capacity available for sale.................. -- -- 47,463 Accounts payable and accrued liabilities..... 37,189 77,136 24,972 Income taxes payable........... ............. 9,207 (46) (2,793) Due to affiliate............. ............. -- -- (1,175) Deferred revenue and other.................. 763,595 165,024 46,845 ---------- ---------- ---------- Net cash provided by operating activities. 692,496 194,942 115,782 CASH FLOWS FROM FINANCING ACTIVITIES: Financing costs incurred.................. .... (1,683) (891) (970) Net proceeds from issuance of 11 5/8% Senior Notes -- 576,649 -- Repayment of long-term debt....................... (45,500) (97,000) (66,500) Proceeds from long-term debt................... 232,000 -- -- Proceeds from Initial Public Offering.......... -- 633,769 -- Proceeds from options exercised................ 495 489 -- ---------- ---------- ---------- Net cash provided by/(used in) financing activities............................. 185,312 1,113,016 (67,470) CASH FLOWS FROM INVESTING ACTIVITIES: Decrease in restricted cash..................... 51,602 10,340 85,068 Cash paid for construction..................... (943,191) (109,201) (123,557) Investment in FLAG Atlantic Limited prior to acquisition of 100% interest............................. -- (104,814) (7,162) Acquisition of FLAG Atlantic Limited........... -- (130,000) -- Proceeds from disposals of property and equipment 14 32 -- Investment in property and equipment and networks (484,092) (39,320) (1,407) ---------- ---------- ---------- Net cash used in investing activities.... (1,375,667) (372,963) (47,058) ---------- ---------- ---------- FLAG TELECOM HOLDINGS LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000, AND THE PERIOD FROM INCORPORATION TO DECEMBER 31, 1999 (EXPRESSED IN THOUSANDS OF DOLLARS) 2001 2000 1999 ---------- ---------- ---------- NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS..... (497,859) 934,995 1,254 Effect of foreign currency movements.. ........ 2,324 (18,477) 21 CASH AND CASH EQUIVALENTS, beginning of period. 919,709 3,191 1,916 ---------- ---------- ---------- CASH AND CASH EQUIVALENTS, end of year......... $ 424,174 $ 919,709 $ 3,191 ========== ========== ========== SUPPLEMENTAL INFORMATION ON NON-CASH INVESTING ACTIVITIES: Decrease in capacity available for sale........ $ -- $ 774,366 $ 59,463 Transfer to property and equipment............. -- (774,366) -- Decrease in accrued construction costs......... -- -- (12,000) ---------- ---------- ---------- Cost of capacity sold.......................... $ -- $ -- $ 47,463 ========== ========== ========== Increase in construction in progress............ $ 984,108 $ 105,928 $ 34,039 (Increase)/decrease in accrued construction costs (40,917) 3,273 89,518 ---------- ---------- ---------- Cash paid for construction in progress.......... $ 943,191 $ 109,201 $ 123,557 ========== ========== ========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest expense for period..................... $ 109,156 $ 102,543 $ 45,062 Amortization of financing costs................ (4,529) (4,045) (1,863) Decrease/(Increase) in accrued interest payable 1,367 (15,328) (4,170) ---------- ---------- ---------- Interest paid.................................. $ 105,994 $ 83,170 $ 39,029 ========== ========== ========== Interest capitalized........................... $ 16,150 $ 6,683 $ 1,281 ========== ========== ========== Taxes paid..................................... $ 1,518 $ 1,207 $ 1,771 ========== ========== ==========