SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2000
---------------
VERSATEL TELECOM INTERNATIONAL N.V.
(Exact name of Registrant as specified in its charter)
Hullenbergweg 101
1101 CL Amsterdam-Zuidoost
The Netherlands
(Address of principal executive offices)
--------------
Indicate by check mark whether the registrant files
or will file annual reports under cover Form
20-F or Form 40-F.
Form 20-F [X] Form 40-F ___
Indicate by check mark whether the registrant by furnishing
the information contained in this Form is also thereby
furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities
Exchange Act of 1934.
Yes ___ No [X]
If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82- N/A
<PAGE>
VERSATEL TELECOM INTERNATIONAL N.V.
QUARTERLY REPORT ON FORM 6-K
FOR THE PERIOD ENDED MARCH 31, 2000
INDEX
-----
Page
----
PART I: FINANCIAL INFORMATION
ITEM 1. Financial Statements.................................................4
Unaudited Consolidated Balance Sheet as of March 31, 2000 and
Audited Consolidated Balance Sheet as of December 31, 1999...........4
Unaudited Consolidated Statements of Operations for the Three Months
Ended March 31, 2000 and March 31, 1999...............................6
Unaudited Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2000 and March 31, 1999...............................7
Notes to the Unaudited Consolidated Financial Statements..............8
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................11
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk...........20
PART II: OTHER INFORMATION....................................................21
SIGNATURES....................................................................22
2
<PAGE>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 6-K includes forward-looking statements. We
have based these forward-looking statements on our current expectations and
projections about future events. These forward-looking statements are subject
to risks, uncertainties, and assumptions about us, including, among other
things:
o Our anticipated expansion plans for our network and growth
strategies,
o Our expectation of the impact of this expansion on our
revenue potential, cost basis and margins,
o Our expectation of the competitiveness of our services,
o Our intention to introduce new products and services,
o Anticipated trends and conditions in our industry,
including regulatory reform and the liberalization of
telecommunications services across Europe, and
o Our ability to compete, both nationally and
internationally.
In light of these risks, uncertainties, and assumptions, the
forward-looking events discussed in this prospectus might not occur. We
undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
PRESENTATION OF INFORMATION
As of January 1, 2000, we publish our financial statements in euros. In
this document, references to "U.S. dollars" or "$" are to United States dollars,
references to "Dutch guilders" or "NLG" are to the currency of The Netherlands,
and references to "euros" or "[euro symbol omitted]" are to the currency
introduced at the start of the third stage of Economic and Monetary Union
("EMU") pursuant to the Treaty establishing the European Economic Community, as
amended by the Treaty on European Union. Solely for the convenience of the
reader, this document contains translations of certain euro amounts into U.S.
dollars at specified rates. These translations should not be construed as
representations that the euro amounts actually represent such U.S. dollar
amounts or could be converted into U.S. dollars at the rate indicated or at any
other rate. Unless otherwise indicated, the translation of euros into U.S.
dollars has been made at [euro symbol omitted]0.96 per $1.00, the noon buying
rate in the City of New York for cable transfers in euros as certified for
customs purposes by the Federal Reserve Bank of New York on March 31, 2000.
3
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VERSATEL TELECOM INTERNATIONAL N.V.
AUDITED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1999 AND UNAUDITED CONSOLIDATED
BALANCE SHEET AS OF MARCH 31, 2000
(amounts in thousands)
<TABLE>
<CAPTION>
December 31, 1999 March 31, 2000
----------------- ----------------------------------
(unaudited)
[euro symbol omitted] [euro symbol omitted] US$
ASSETS
<S> <C> <C> <C>
Current Assets:
Cash.................................................. 984,782 1,660,944 1,594,506
Restricted cash, current portion...................... 44,580 46,889 45,013
Accounts receivable, net.............................. 13,377 25,169 24,162
Inventory, net........................................ 2,028 1,533 1,472
Unbilled revenues..................................... 13,221 13,290 12,758
Prepaid expenses and other............................ 29,594 88,813 85,261
---------- ---------- ----------
Total current assets.............................. 1,087,582 1,836,638 1,763,172
---------- ---------- ----------
Fixed Assets:
Property, plant and equipment, net.................... 232,694 255,620 245,395
Construction in progress.............................. 81,803 105,555 101,333
---------- ---------- ----------
Total fixed assets................................ 314,497 361,175 346,728
---------- ---------- ----------
Investment, at cost..................................... - 1,359 1,305
Restricted cash, net of current portion................. 21,469 22,581 21,678
Capitalized finance costs, net.......................... 28,255 46,465 44,606
Other non-current assets................................ 14,344 14,328 13,755
Goodwill, net........................................... 196,973 191,892 184,216
---------- ---------- ----------
Total assets............................................ 1,663,120 2,474,438 2,375,460
========== ========== ==========
</TABLE>
See notes to the unaudited consolidated financial statements.
4
<PAGE>
VERSATEL TELECOM INTERNATIONAL N.V.
AUDITED CONSOLIDATED BALANCE SHEET AS OF
DECEMBER 31, 1999 AND UNAUDITED CONSOLIDATED
BALANCE SHEET AS OF MARCH 31, 2000
(amounts in thousands)
<TABLE>
<CAPTION>
December 31, 1999 March 31, 2000
----------------- -------------------------------------
(unaudited)
[euro symbol ommitted] [euro symbol ommitted] US$
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C> <C>
Current Liabilities:
Accounts payable..................................... 71,165 68,985 66,226
Accrued liabilities.................................. 73,249 81,057 77,815
Unearned revenue.................................... 2,359 5,598 5,374
Current portion of capital lease obligations......... 14,866 16,607 15,942
---------- ---------- ---------
Total current liabilities........................ 161,639 172,247 165,357
---------- ---------- ---------
Capital lease obligations, net of current portion...... 27,214 27,462 26,364
Long-term liabilities.................................. 5,071 6,502 6,242
Long-term debt (Senior Notes and Senior
Convertible Notes)..................................... 961,527 1,648,763 1,582,812
---------- ---------- ---------
Total liabilities................................ 1,155,451 1,854,974 1,780,775
---------- ---------- ---------
Shareholders' Equity:
Ordinary shares, NLG 0.05 par value.................. 1,797 1,931 1,854
Additional paid-in capital........................... 743,619 943,388 905,652
Warrants............................................. 2,088 1,785 1,714
Accumulated deficit.................................. (239,835) (327,640) (314,535)
---------- ---------- ---------
Total shareholders' equity....................... 507,669 619,464 594,685
---------- ---------- ---------
Total liabilities and shareholders' equity............. 1,663,120 2,474,438 2,375,460
========== ========== =========
</TABLE>
See notes to the unaudited consolidated financial statements.
5
<PAGE>
VERSATEL TELECOM INTERNATIONAL N.V.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND MARCH 31, 1999
(amounts in thousands, except for per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1999 March 31, 2000
---------------------- ------------------------------------------
[euro symbol omitted] [euro symbol omitted] US$
<S> <C> <C> <C>
OPERATING REVENUES........................................ 7,034 29,175 28,008
OPERATING EXPENSES:
Cost of revenues, excluding depreciation................ 5,665 22,213 21,324
Selling, general and administrative..................... 9,157 36,745 35,275
Depreciation and amortization........................... 1,399 15,284 14,673
------- -------- --------
Total operating expenses......................... 16,221 74,242 71,272
------- -------- --------
Operating Loss...................................... (9,187) (45,067) (43,264)
OTHER INCOME (EXPENSES):
Foreign currency exchange gains (losses), net (18,280) (24,076) (23,113)
Interest income ........................................ 2,742 9,229 8,860
Interest expense........................................ (10,843) (28,298) (27,166)
------- -------- --------
Total other income (expenses).................... (26,381) (43,145) (41,419)
Loss before income taxes......................... (35,568) (88,212) (84,683)
------- -------- --------
Credit from income taxes.................................. -- 41 39
------- -------- --------
Net loss before minority share................... (35,568) (88,171) (84,644)
------- -------- --------
Minority share............................................ -- 367 352
------- -------- --------
Net loss......................................... (35,568) (87,804) (84,292)
======= ======== ========
Net loss per share (basic and diluted).................... (0.91) (1.10) (1.05)
Weighted average number of shares outstanding............. 38,985 80,036 80,036
</TABLE>
See notes to the unaudited consolidated financial statements.
6
<PAGE>
VERSATEL TELECOM INTERNATIONAL N.V.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND MARCH 31, 1999
(amounts in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1999 March 31, 2000
--------------- ------------------------------------
[euro symbol omitted] [euro symbol omitted] US$
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss.................................................................. (35,568) (87,804) (84,292)
Adjustments to reconcile net loss to net cash used in operating
activities--
Depreciation and amortization........................................... 1,385 15,284 14,673
Amortization finance cost............................................... 340 1,107 1,063
Deferred income......................................................... 35 3,239 3,109
Exchange loss on long-term debt and restricted cash..................... 18,779 23,800 22,846
Changes in other operating assets and liabilities
Accounts receivable....................................................... (1,322) (11,792) (11,320)
Inventory................................................................. (866) 495 475
Prepaid expenses and other................................................ (2,056) 2,312 2,220
Accounts payable.......................................................... 4,852 (2,180) (2,093)
Due to related parties.................................................... (366) - -
Accrued liabilities....................................................... 19,209 9,357 8,983
---------- --------- ---------
Net cash provided by (used in) operating activities..................... 4,422 (46,182) (44,336)
========== ========= =========
Cash Flows from Investing Activities:
Capital expenditures...................................................... (23,683) (56,726) (54,457)
Finance costs senior notes and convertible loans ....................... - (19,317) (18,544)
Acquisition of business, net of cash acquired .......................... - (62,959) (60,441)
---------- --------- ---------
Net cash used in investing activities .................................. (23,683) (139,002) (133,442)
========== ========= =========
Cash Flows from Financing Activities:
Payments under capital lease obligations.................................. (6) 1,989 1,909
Redemptions of short-term loans .......................................... - (1,550) (1,488)
Proceeds from long-term debt ............................................. - 1,431 1,374
Proceeds from senior notes and convertible loans ......................... - 659,877 633,482
Warrants exercised ....................................................... - 54 52
Proceeds exercised options ............................................... - 1,145 1,100
Shareholder contributions................................................. - 198,400 190,464
---------- --------- ---------
Net cash provided by (used in) financing activities..................... (6) 861,346 826,893
========== ========= =========
Net Increase (Decrease) in Cash............................................ (19,267) 676,162 649,115
Cash, beginning of the period.............................................. 168,813 984,782 945,391
---------- --------- ---------
Cash, end of the period.................................................... 149,546 1,660,944 1,594,506
========== ========= =========
Supplemental Disclosures of Cash Flow Information:
Cash paid for--
Interest (net of amounts capitalized)................................... 3,593 35,536 34,115
Income taxes............................................................ -- -- --
</TABLE>
See notes to the unaudited consolidated financial statements.
7
<PAGE>
VERSATEL TELECOM INTERNATIONAL N.V.
NOTES TO THE UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
AS OF MARCH 31, 2000 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND 2000
1. Financial Presentation and Disclosures
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements of Versatel Telecom International N.V. and its
wholly owned subsidiaries (the "Company") have been prepared in conformity with
U.S. generally accepted accounting principles ("US GAAP") and contain all
adjustments (consisting only of normal recurring accruals) necessary to present
fairly the Company's consolidated financial position as of March 31, 2000, and
the results of operations and cash flows for the three months ended March 31,
1999 and 2000.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these financial statements
be read in conjunction with the Company's 1999 audited financial statements and
the notes related thereto, filed on Form 20-F, as amended. The results of
operations for the three months ended March 31, 2000 may not be indicative of
the operating results for the full year.
As of March 31, 2000, the Company (directly or indirectly) wholly owned the
following subsidiaries:
- Versatel Telecom Europe B.V.
- Versatel Telecom Netherlands B.V.
- Versatel Telecom Belgium N.V.
- Bizztel Telematica B.V.
- CS Net B.V.
- CS Engineering B.V.
- Numedi Net N.V. (70% owned by the Company)
- Amstel Alpha B.V.
- SpeedPort N.V.
- Glabana U.S.A., Inc.
- 7-klapper Beheer B.V.
- VuurWerk Internet B.V.
- VuurWerk Access B.V.
- ITinera Services N.V.
- Svianed B.V.
- Zon Netherlands N.V. (90% owned by the Company)
- VEW Telnet GmbH
- Versatel Deutschland Holding GmbH
- Versatel Deutschland Verwaltungs GmbH
- KomTel GmbH (80% owned by the Company)
8
<PAGE>
All intercompany assets, liabilities and transactions have been eliminated
in consolidation, with the exception of KomTel GmbH, see note 2.
As of March 31, 2000, the Company (directly or indirectly) wholly owned the
following investments:
- Hot Orange B.V. (10%)
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured as its fair value. It also requires that changes in the derivative's
fair value be recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a derivative's
gains and losses to offset related results on the hedged item in the income
statement, and requires that a company must formally document, designate, and
assess the effectiveness of transactions that receive hedge accounting.
SFAS No. 133, as amended by SFAS No. 137, is effective for fiscal years
beginning after June 15, 2000 and can not be applied retroactively. The Company
has not yet quantified the impacts of adopting SFAS No. 133 on the financial
statements and have not determined the timing of or method of our adoption of
SFAS No. 133.
2. Acquisition of new business
On March 24, 2000, Versatel acquired 80% of the outstanding common shares
of KomTel GmbH from Stadtwerke Flensburg Gmbh and other shareholders for [euro
symbol omitted]61.6 million in cash and the assumption of approximately [euro
symbol omitted]13.0 million in existing debt. Versatel has an option to purchase
the remaining 20% from Stadtwerke Flensburg GmbH in 2002 for [euro symbol
omitted] 15.4 million. Key (unaudited) figures for KomTel as December 31, 1999
under German GAAP are: sales of [euro symbol omitted]31.0 million, shareholders'
equity of [euro symbol omitted]3.7 million, total assets of [euro symbol
omitted]35.6 million and a loss for the financial year ended December 31, 1999
of [euro symbol omitted]9.6 million.
In view of the fact that the acquisition was consummated close to March 31,
2000, KomTel was not able to provide the Company with the necessary information
to enable it to consolidate Komtel in its quarterly financial statements for the
period ended March 31, 2000.
The payment of [euro symbol omitted]61.6 million in connection with the
KomTel acquisition is recorded in the Prepaid expenses and other.
3. Foreign Currency Transactions
The Company's reporting currency is the euro. Transactions involving other
currencies are converted into euro using the exchange rates which are in effect
at the time of the transactions.
At the balance sheet date, monetary assets and liabilities which are
denominated in other currencies are adjusted to reflect the current exchange
rates. Gains or losses resulting from foreign currency re-measurements are
reflected in the accompanying statements of operations.
For the three months ended March 31, 2000 an exchange loss of [euro symbol
omitted]28.6 million was realized on the long-term debt (13-1/4% senior notes
and 11-7/8% senior notes, denominated in U.S. dollars). In the same period, an
exchange gain was realized on the cash, partly denominated in U.S. dollars, to
an amount of [euro symbol omitted]1.7 million and on the restricted cash, fully
denominated in U.S. dollars, to an amount of [euro symbol omitted]3.3 million.
9
<PAGE>
4. Financial Condition and Operations
For the period ended March 31, 2000, the Company had a loss of [euro symbol
omitted]87.8 million. In addition, the Company had an accumulated deficit of
[euro symbol omitted]327.6 million as of March 31, 2000.
Although the Company expects to incur operating losses and net losses for
the foreseeable future as it incurs additional costs associated with the
development and expansion of the Company's network, the expansion of its
marketing and sales organization and the introduction of new telecommunications
services, it has a positive working capital of [euro symbol omitted]1,666.4
million at March 31, 2000, which should enable it to continue its operations
through March 31, 2001. The Company expects to raise additional funds in 2000
through public or private financings or from financial institutions.
5. Commitments
Commitments, mainly in connection to the roll-out of the Company's network
and the lease agreement relating to the new principal executive offices of the
Company, not yet recorded on the balance sheet, amount to approximately [euro
symbol omitted]75 million as of March 31, 2001.
The Company has earn-out arrangements with the former shareholders of
Zeven-Klapper Beheer B.V.and ITinera Services N.V. Any payments resulting from
these earn-out arrangements will be recorded as adjustments to the purchase
price upon the time they become certain. No such adjustments have been recorded
yet.
6. Subsequent Events
On April 2, 2000 the Company sold 850,000 ordinary shares at [euro symbol
omitted]49 per share and raised [euro symbol omitted]39.9 million in aggregate
net proceeds, after offering expenses, in connection with the exercise by the
underwriters of their over-allotment option in the Third Equity Offering.
On April 20, 2000, VersaTel and NorthPoint Communications Group, Inc.,
created VersaPoint N.V., pursuant to a joint venture agreement, dated March 8,
2000. VersaPoint N.V. will combine NorthPoint's DSL Network deployment and
operations expertise with Versatel's established broadband local access network,
DSL operations in the Benelux and Germany, and local market and regulatory
experience. NorthPoint and Versatel will equally fund VersaPoint's start-up
costs and the initial capital requirements through a [euro symbol omitted]100
million (in aggregate) cash investment and the contribution of certain assets.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
We are a rapidly growing, competitive communications network operator in
our target market of the Benelux and northwest Germany. We are a leading
alternative to the former monopoly telecommunications carriers in these regions.
Our objective is to become the leading fully integrated provider of local
access, facilities-based broadband services, including voice, data and Internet
services, to customers in our target market. We provide high-quality,
competitively priced telecommunications, data and Internet services to four
targeted market segments:
o Business Services -- small- and medium-sized businesses
located throughout our target market.
o Local Access Services -- high bandwidth users within our
target market located near to and who may be directly
connected with our network.
o Data Services -- high bandwidth data customers with multiple
sites throughout our target market.
o Carrier Services -- other telecommunications, data and
Internet service providers.
Our growth to date has been driven by the continued increase in the number
of customers we serve and the expansion of our products and services offering to
include data and Internet services. We have increased our customer base both
through organic growth and through acquisitions, such as our acquisitions of
Svianed B.V., which increased our ability to provide data services, VEW Telnet
GmbH and KomTel GmbH, which established our presence in Germany. We anticipate
that net losses also will continue to increase due to increasing selling,
general and administrative costs related to the expansion of our business, the
short-term leasing of access capacity, higher borrowing costs and increased
depreciation and amortization costs resulting from the continuing build-out of
our network. Currency fluctuations between the euro and the U.S. dollar also may
have an adverse impact on our net income.
On March 24, 2000, we acquired 80% of the outstanding common shares of
KomTel GmbH, a leading alternative fiber network operator in the
Schleswig-Holstein and Hamburg regions of Northern Germany, for [euro symbol
omitted]61.6 million in cash and the assumption of approximately [euro symbol
omitted]13.0 million in existing debt. We have an option to purchase the
remaining 20% from Stadtwerke Flensburg GmbH in 2002 for [euro symbol omitted]
15.4 million. Through KomTel, we have gained access to 1,078 km of fiber optic
network, most of which is leased.
On March 8, 2000, we entered into a joint venture agreement with NorthPoint
Communications Group, Inc., to form a new company, VersaPoint N.V. VersaPoint
intends to rapidly deploy DSL equipment and sell DSL services on a wholesale
basis to Internet Service Providers and communications companies throughout the
Benelux and Northwest Germany and eventually across Western Europe. We expect
that VersaPoint will launch its services by the end of the third quarter of
2000. Also in March 2000, we launched "24hours", a Dutch language business
ISP/portal. 24hours targets the rapidly growing small- and medium-sized
business market in The Netherlands.
We recently reorganized our Internet activities into a separate business
unit and appointed a new senior management team recruited primarily from UUNet
to manage these activities. This business unit, Versatel Internet, will focus
primarily on the small business and residential Internet markets. It will
consist of Zon, one of the largest residential ISP/portals in The Netherlands
with over 500,000 subscribers;
11
<PAGE>
VuurWerk, a leading web hosting company in The Netherlands for the small
business market with over 12,000 web hosting customers and 35,000 domain name
registrations; CS Net, a leading business-to-business e-commerce facilitator;
ITinera, a leading Belgian web hosting company and ISP; and 24hours, our new
Dutch language business ISP/portal.
Revenues
Historically, our revenues were derived primarily from minutes of long
distance telecommunications services billed to small- and medium-sized
businesses and to a lesser extent residential customers. Initially, our revenues
were generated in The Netherlands and later Belgium. Over the course of the past
year the composition of our customer base, service offering and geographical
focus has changed substantially as a result of the further development of our
network, acquisitions (Svianed B.V., VEW Telnet and KomTel) and the expansion of
our product offering. As a result, we have significantly increased the portion
of our revenues generated from fixed monthly fees, expanded our geographical
focus to include northwest Germany and expanded our customer base to include
larger customers. We have started to generate revenues from larger customers,
such as the GAK Group, which represented 13.6% of our revenues for the three
months ended March 31, 2000. Also, for the three months ended March 31, 2000,
46.5% of our revenues were generated from the provision of data and Internet
services. In addition, with the VEW Telnet and KomTel acquisitions, we have
expanded our geographical focus to include northwest Germany. We have changed
our approach to reaching residential customers by offering carrier select
hosting services to switchless resellers, who themselves target the residential
market. We believe that this approach is a more cost-effective way of reaching
residential customers. As our network expands and as we have available capacity,
we intend to increase our marketing efforts in the carrier services segment to
increase the use of our network and to capture revenues and margins from markets
we do not target directly.
The following table sets forth the total number of customers for telephony
services, based on the number of invoices issued, for the fiscal years ended
December 31, 1998 and December 31, 1999 and for the three months ended March 31,
1999 and March 31, 2000. As a result of our recent acquisitions, our total
number of customers, including data and Internet customers, but excluding
subscribers to Zon, is more than 38,000 as of March 31, 2000.
<TABLE>
<CAPTION>
Fiscal Years Ended Three Months Ended
December 31, March 31,
----------------------------------- ---------------------------
1998 1999 1999 2000
----------------- ----------------- --------------- -----------
(at period end)
<S> <C> <C> <C> <C>
Telephony Customers
Business customers........................ 5,649 15,844 7,180 17,328
Residential customers..................... 1,234 3,148 1,507 3,896
Wholesale customers....................... 4 36 7 40
------ ------- ------ -------
Total................................... 6,887 19,028 8,694 21,264
</TABLE>
12
<PAGE>
The total revenues attributable to our operations for the fiscal years
ended December 31, 1998 and December 31, 1999 and for the three months ended
March 31, 1999 and March 31, 2000.
<TABLE>
<CAPTION>
Fiscal Years Ended Three Months Ended
December 31, March 31,
----------------------- -----------------------
1998 1999 1999 2000
----------- ---------- ----------- ---------
(euros in thousands)
<S> <C> <C> <C> <C>
Revenues
Business customers
Telephony............................. 15,643 31,695 6,033 14,124
Data.................................. -- 14,109 -- 5,752
Internet.............................. 407 4,942 376 2,844
Residential customers
Telephony............................. 175 405 105 737
Internet.............................. -- 286 -- 1,242
Wholesale customers
Telephony............................. 1,727 5,194 520 757
Data.................................. -- -- -- 1,082
Internet.............................. -- 1,907 -- 2,637
-------- --------- ------ --------
Total........................... 17,952 58,538 7,034 29,175
</TABLE>
In 1997, all our revenues were generated in The Netherlands. In October
1998, we started generating revenues in Belgium and in December 1999, we started
generating revenues in Germany. The geographical composition of our revenues for
the fiscal years ended December 31, 1998 and December 31, 1999 and for the three
months ended March 31, 1999 and March 31, 2000 was as follows:
<TABLE>
<CAPTION>
Fiscal Years Ended Three Months Ended
December 31, March 31,
----------------------------------- ---------------------------
1998 1999 1999 2000
----------------- ----------------- --------------- -----------
(euros in thousands)
<S> <C> <C> <C> <C>
The Netherlands........................... 17,844 52,323 6,645 20,795
Belgium................................... 108 4,417 389 3,190
Germany................................... -- 1,798 -- 5,190
------ ------ ----- -------
Total................................... 17,952 58,538 7,304 29,175
</TABLE>
Our revenues, which are derived from minutes of communications traffic
billed, fixed broadband fees and subscription fees, are allocated to the period
in which the traffic has terminated or fees have been generated. The percentage
of our revenues attributable to fixed fees has increased, principally as a
result of the Svianed acquisition. In addition, through our own number ranges in
The Netherlands and Belgium, through number portability in The Netherlands and
through Internet traffic generated by Zon Netherlands N.V., our Internet service
provider, which forms a part of our Internet division, Versatel
13
<PAGE>
Internet, we generate revenues from terminating minutes. We generally price our
communications services at a discount to the local PTTs and expect to continue
this pricing strategy as we expand our operations. In general, prices for
communications services have decreased over the last several years. As a result,
we have experienced and expect to continue to experience declining revenues per
minute. This trend has accelerated as the number of traffic minutes attributable
to internet traffic generated by Zon has increased. KPN Telecom N.V. reduced its
prices per minute of telecommunications traffic billed in January 1999, May
1999, October 1999 and January 2000 with reductions of approximately 10.0%,
20.0%, 5.0% and 2.0%, respectively, which reductions are expected to have an
adverse impact on margins in the near term as we have responded by reducing our
prices. In Belgium, Belgacom introduced several discount programs for selected
customer groups, which we subsequently matched. Germany has experienced similar
levels of price reductions. Additionally, we expect to increase our national
billable minutes, which are priced at lower rates than international minutes. As
national and wholesale billable minutes and minutes attributable to termination
of our Internet traffic increase as a percentage of total billable minutes,
average revenue per billable minute will further decline. However, due to
technological improvements, liberalization of the European telecommunications
market and increased available transmission capacity, both from third parties
and as we build out our network, we expect costs per minute to decline as well.
Management believes that the decline of per minute prices will out-pace the
decline in per minute costs in the near term, resulting in downward pressure on
operating margins. Management believes that over the long term, this trend will
reverse and operating margins will thereby improve; however, there can be no
assurances that this will occur. If reductions in costs do not in fact out-pace
reductions in revenues, we may experience a substantial reduction in its margins
on calls which, absent a significant increase in billable minutes of traffic
carried or increased charges for other services, would have a material adverse
effect on our business and financial results. In addition, the introduction of
the euro has made pricing more transparent in the European telecommunications
market, which may lead to further competition and price decreases.
Cost of Revenues
Our costs of revenues are comprised of origination costs, network costs and
termination costs and are both fixed and variable. Origination costs represent
the cost of carrying traffic from the customer to our network. Origination
charges for calls transported to our network are variable and are incurred on a
per minute basis, including the call set-up charges. Origination charges for
business and residential customers are charged by the PTTs to us.
Over the past year we have experienced a significant decrease in
origination costs and we expect that these origination costs will continue to
decrease, although at a more moderate level. In addition, as we continue to
build our network, we intend to connect directly as many business customers as
economically feasible to the network, thereby eliminating origination charges
for these customers. These decreases would be offset to some extent by
amortization and depreciation charges associated with the build out of our
network. There can be no assurance that the trend in decreasing access costs
will continue. As a result, if origination costs do not continue to decrease,
anticipated decreases in revenues per minute would cause us to experience a
decline in gross margins per billable minute which would have a material adverse
effect on our business and financial performance.
Network costs represent the cost of transporting traffic between our
switches and points of interconnection and consist of depreciation and
amortization costs and the cost of leased lines. To date, our network costs have
primarily consisted of the cost of leased lines as well as Internet uplink
costs.
Network costs represent the cost of transporting traffic between our
switches and points of interconnection and consist of depreciation and
amortization costs and the cost of leased lines. To date, our network costs have
primarily consisted of the cost of leased lines as well as Internet uplink
costs. Over time, we expect a reduction in the cost of our leased lines as
traffic is shifted onto our owned network. In addition,
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as we provision Svianed's traffic onto our network, we will experience a
significant reduction in the cost of leased lines currently attributable to
Svianed. This shift of traffic, however, has not occurred as rapidly as we had
originally anticipated due to our focus on expanding our network to connect new
customers and central office locations to generate new revenues. This has
negatively impacted our operating margins in recent periods. We expect
depreciation and amortization costs to increase due to depreciation of the VEW
Telnet network and the continuing build out of our backbone network.
Termination costs are the per minute costs associated with using carriers
to carry a call from the point of interconnection to the final destination.
Through least-cost routing, our switches direct calls to the most cost-efficient
carrier for the required destination. As we build out our network to new points
of interconnection, we expect to be able to reduce average termination costs per
minute. For example, since we established a direct link from Amsterdam to
Rotterdam, we no longer pay for national termination costs on that route and
only pay local and regional termination costs from the point of interconnection
in Rotterdam to the final destination in that city. We also believe that per
minute termination costs will continue to decrease due to several additional
factors, including: (a) the incremental build out of our network, which will
increase the number of carriers with which we interconnect, (b) the increase of
minutes we originate, which should lead to higher volume discounts available to
us, (c) more rigorous implementation of the European Community directives
requiring cost-based termination rates and leased line rates and (d) the
emergence of new telecommunication service providers and the construction of new
transmission facilities, which should result in increased competition. There can
be no assurance, however, that the trend of decreasing termination costs will
continue.
Selling, General and Administrative Expenses
Selling, general and administrative expenses are comprised primarily of
salaries, employee benefits, office and administrative expenses, professional
and consulting fees and marketing costs. These expenses have increased as we
have developed and expanded our workforce, and they are expected to continue to
increase as we expand and establish new operations. Selling, general and
administrative expenses as a percentage of revenue will continue to vary from
period to period as a result of start-up costs relating to the development of
new products and the expansion into new regions such as northwest Germany and
into complementary businesses such as Versatel Internet.
We have grown substantially since our inception and we intend to continue
to grow by adding more sales, marketing and customer support staff and by
establishing additional sales offices. This growth involves substantial training
and start-up costs, a large portion of which will be reflected as fixed costs
and will be recorded as selling, general and administrative charges.
Accordingly, our results of operations will vary depending on the timing and
speed of our expansion strategy and, during a period of rapid expansion,
selling, general and administrative expenses will be relatively higher than
during more stable periods of growth.
Depreciation and Amortization
We capitalize and depreciate our fixed assets, including switching and
transmission equipment, routers, fiber optic cable and rights of use, over
periods ranging from two to 30 years. In addition, we capitalize and amortize
the cost of installing dialers at customer sites. The development of our network
will require large capital expenditures and larger depreciation charges in the
future. In particular, our acquisition of Svianed and our recent acquisitions of
VEW Telnet and KomTel will significantly increase our goodwill amortization
charges in future periods. Increased capital expenditures will adversely affect
our future operating results due to increased depreciation charges and interest
expense.
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Foreign Exchange
We have substantial U.S. dollar denominated assets and liabilities and our
revenues are generated and costs incurred in certain other currencies, primarily
the Dutch guilder. We are therefore exposed to fluctuations in the U.S. dollar
and other currencies, which may result in foreign exchange gains and/or losses.
The Netherlands, Belgium and Germany have all adopted the euro, and as a result,
we are no longer exposed to any fluctuations between the Dutch guilder, Belgian
franc and the German mark. A number of equipment purchases and consultancy
activities are billed to us in currencies other than Dutch guilders.
Results of Operations
For the three months ended March 31, 2000 compared to the three months ended
March 31, 1999
Revenues increased by [euro symbol omitted]22.2 million to [euro symbol
omitted]29.2 million for the three months ended March 31, 2000 from [euro symbol
omitted]7.0 million for the three months ended March 31, 1999, representing an
increase of 314.8%. The growth in revenues resulted primarily from the addition
of new customers, the introduction of data and Internet services in The
Netherlands and Belgium, the acquisitions of Svianed and VEW Telnet and an
increase in wholesale traffic. Included in the revenues for the three months
ended March 31, 2000 are the revenues of Svianed (acquired June 1, 1999) of
[euro symbol omitted]6.5 million and the revenues of VEW Telnet (acquired
December 1, 1999) of [euro symbol omitted]5.2 million. Revenues for the three
months ended March 31, 2000 as compared to the same period in 1999 were
negatively impacted by frequent price reductions resulting from competitive
pressures.
The number of customers for telephony services increased by 12,570 to
21,264 as of March 31, 2000 from 8,694 as of March 31, 1999. As a result of our
recent acquisitions, however, our total number of customers, including data and
Internet customers, but excluding subscribers to Zon, increased to more than
38,000 as of March 31, 2000. Since the inception of Zon on August 31, 1999 it
has generated over 500,000 subscribers to its Internet services as of March 31,
2000.
Cost of revenues increased by [euro symbol omitted]16.5 million to [euro
symbol omitted]22.2 million for the three months ended March 31, 2000 from [euro
symbol omitted]5.7 million for the three months ended March 31, 1999, primarily
reflecting an increase in billable minutes, increasing interconnect capacity and
short-term network capacity requirements (leased lines) in Belgium, Internet
uplinks and international leased lines to London and Frankfurt. Leased line
costs also increased as a result of using leased lines to connect customers
directly to our backbone network as demand for our services exceeded our ability
to build out these customer connections without unreasonable delay to the
customer. We also experienced delays in migrating Svianed traffic from leased
lines to our backbone network. Finally, our cost of revenues also has increased
as Dutch mobile operators have instituted call-blocking to prevent lower cost
international rerouting alternatives to the relatively expensive termination
costs for fixed-to-mobile calls.
Selling, general and administrative expenses increased by [euro symbol
omitted]27.5 million to [euro symbol omitted]36.7 million for the three months
ended March 31, 2000 from [euro symbol omitted]9.2 million for the three months
ended March 31, 1999, representing an 301.3% increase. This primarily resulted
from an increase in the cost of staff (including temporary personnel and
consultants) in the areas of network operations, customer service, sales and
marketing, installation services, accounting personnel, additional facilities
cost, expenses related to the expansion of our Belgium operations and additional
expenses as a result of the acquisitions of Svianed and VEW Telnet.
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Depreciation and amortization expenses increased by [euro symbol
omitted]13.9 million to [euro symbol omitted]15.3 million for the three months
ended March 31, 2000 from [euro symbol omitted]1.4 million for the three months
ended March 31, 1999. This increase was primarily related to capital
expenditures incurred in connection with the expansion of our network, an
increase in the number of dialers installed due to customer growth and the
purchase of computer equipment and office furniture for new employees and the
amortization of goodwill of [euro symbol omitted]3.9 million and [euro symbol
omitted]0.7 million as a result the acquisitions of Svianed and VEW Telnet,
respectively.
Currency exchange losses, net, increased by [euro symbol omitted]5.8
million to [euro symbol omitted]24.1 million for the three months ended March
31, 2000 from a loss of [euro symbol omitted]18.3 million for the three months
ended March 31, 1999 due to losses on our U.S. dollar denominated liabilities
resulting from the appreciation of the U.S. dollar against the euro.
Interest income increased by approximately [euro symbol omitted]6.5 million
to [euro symbol omitted]9.2 million for the three months ended March 31, 2000
from [euro symbol omitted]2.7 million for the three months ended March 31, 1999.
This increase was primarily related to our positive cash balance as a result of
the high yield offerings in May and November of 1998, the high yield offering in
July 1999, the initial public offering, the equity offering and the convertible
notes offering in December 1999 and the high yield offering, equity offering and
the convertible notes offering in March 2000.
Interest expense increased by [euro symbol omitted]17.5 million to [euro
symbol omitted]28.3 million for the three months ended March 31, 2000 from [euro
symbol omitted]10.8 million for the three months ended March 31, 1999. This
increase is primarily related to the accrual of interest expense on the notes
issued in the high yield offerings in 1998, 1999 and 2000 and the convertible
notes offerings in 1999 and 2000.
.
Liquidity and Capital Resources
We have incurred significant operating losses and negative cash flows as a
result of the development of our business and network. Prior to May 1998, we
financed our growth primarily through equity and subordinated loans from its
shareholders. In May 1998, we issued units consisting of $225 million principal
aggregate amount of 13 1/4% senior notes due 2008 and warrants to purchase
3,000,000 (as adjusted for a two-for-one stock split in April 1999) of our
ordinary shares ("the First High Yield Offering") and raised net proceeds, after
transaction expenses, of $216.2 million, $80.6 million of which was invested in
U.S. government securities placed in escrow to fund the first six interest
payments on the notes issued in the First High Yield Offering. In December 1998,
we issued units consisting of $150 million principal aggregate amount of 13 1/4%
senior notes due 2008 and warrants to purchase 2,000,100 (as adjusted for a
two-for-one stock split in April 1999) of our ordinary shares (the "Second High
Yield Offering") and raised net proceeds, after transaction expenses, of $139.5
million, $45.7 million of which was invested in U.S. government securities
placed in escrow to fund the first five interest payments on the notes issued in
the Second High Yield Offering.
In July 1999, we issued [euro symbol omitted]120 million 11 7/8% Senior
Euro Notes due 2009 and $180 million 11 7/8% Senior Dollar Notes due 2009 (the
"Third High Yield Offering") and raised net proceeds, after transaction
expenses, of [euro symbol omitted]116.1 million and $173.9 million, $152.1
million of which was used to repay certain interim loans, obtained to acquire
Svianed. Concurrently with the Third High Yield Offering, along with a number of
selling shareholders, we sold 21,250,000 ordinary shares in the form of shares
and American Depositary Shares ("ADSs") in an initial public offering (the
"Initial Public Offering"). In August 1999, we sold an additional 3,187,500
ordinary shares in connection with an over-allotment option granted to the
underwriters in the Initial Public Offering. We raised aggregate net proceeds,
after transaction expenses, of [euro symbol omitted]174.5 million and $35.5
million, in the Initial Public Offering. The shares are listed on the Amsterdam
Stock Exchange under the symbol "VRSA" and the ADSs are quoted on the Nasdaq
National Market under the symbol "VRSA".
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In December 1999, we issued and sold 15,000,000 ordinary shares (the
"Second Equity Offering") for aggregate net proceeds, after offering expenses,
of approximately [euro symbol omitted]506.6 million and [euro symbol omitted]300
million of 4% senior convertible notes due 2004 in a private placement to
institutional investors (the "First Convertible Notes"). With respect to the
First Convertible Notes, we raised aggregate net proceeds, after offering
expenses, of approximately [euro symbol omitted]292.5 million.
In March 2000, 8,500,000 of our ordinary shares were sold in our third
equity offering ("Third Equity Offering" and, together with the Initial Public
Offering and the Second Equity Offering, the "Equity Offerings"), of which
4,250,000 were sold by some of our shareholders, for aggregate net proceeds to
the Company, after offering expenses, of approximately [euro symbol
omitted]198.4 million. We also issued [euro symbol omitted]360 million 4% senior
convertible notes due 2005 (the "Second Convertible Notes", and together with
the First Convertible Notes, the "Convertible Notes") for aggregate net
proceeds, after offering expenses of approximately [euro symbol omitted]350.0
million. In addition, we issued [euro symbol omitted]300 million 11 1/4% senior
notes due 2010 (the "Fourth High Yield Offering", and, together with the First
High Yield Offering, the Second High Yield Offering and the Third High Yield
Offering, the "High Yield Offerings") for aggregate net proceeds, after offering
expenses, of approximately [euro symbol omitted]282.0 million. On April 2, 2000,
the Company sold an additional 850,000 ordinary shares and raised [euro symbol
omitted]39.9 million in aggregate net proceeds, after offering expenses, in
connection with the exercise by the underwriters of their over-allotment option
in the Third Equity Offering.
We have used a significant amount of the net proceeds of the High Yield
Offerings, the Equity Offerings and the offerings of Convertible Notes to make
capital expenditures related to the expansion and development of its network, to
acquire various companies, to fund operating losses and for other general
corporate purposes.
To date, we have made limited use of bank facilities and capital lease
financing. We may seek to raise senior secured debt financing in the future to
fund the expansion of its network and for general corporate purposes.
Although we currently maintain significant cash balances, we will require
additional capital to continue funding the expansion and development of our
network and service offerings. In addition to continuing the build out of our
network, we expect that we will need additional capital to expand our local
access network, invest in Internet activities, fund our investment in VersaPoint
N.V. and the fiber transmission related to the digital subscriber line (or DSL)
roll-out, as well as for acquisitions. In addition, we anticipate that we may
want to participate in auctions for UMTS wireless licenses in our target market.
The proceeds from the three offerings in March 2000, combined with our
existing cash balances, together with other available financings and cash flows
from operations, will provide us with sufficient capital to fund planned capital
expenditures and anticipated losses for at least the next 12 to 18 months. We
expect that we will need to raise substantial additional funds through public or
private financings or from financial institutions.
We are required to meet our debt service obligations on the notes issued in
the Third High Yield Offering and the Fourth High Yield Offering and the
Convertible Notes out of cash reserves and net cash flow. In addition, starting
November 15, 2001, our funds that have been placed in escrow to cover interest
payments on the notes issued in the First High Yield Offering and the Second
High Yield Offering will have been exhausted. As a result, we will need to
increase substantially our net cash flow in order to meet our debt service
obligations.
The general rate of inflation has been low in The Netherlands, Belgium,
Luxembourg and Germany in recent years. We do not expect that inflationary
pressures in the future, if any, will have a material effect on our results of
operations or financial condition.
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Net cash used in operating activities was [euro symbol omitted]46.2 million
for the three month period ended March 31, 2000 compared to net cash provided by
operating activities of [euro symbol omitted]4.4 million for the three month
period ended March 31, 1999. This increase was primarily the result of an
increase in operating losses, the increase in depreciation of our operational
network assets and the increase in accounts receivable as a result of increased
revenues.
Net cash used in investing activities was [euro symbol omitted]139.0
million in the three month period ended March 31, 2000 compared to [euro symbol
omitted]23.7million in the three month period ended March 31, 1999. This
increase was the result of the acquisition of KomTel, ongoing capital
expenditures to expand our network and operations as well as the finance cost
incurred in the first quarter as a result of the Fourth High Yield Offering, the
Third Equity Offering and the Second Convertible Notes.
Net cash provided by financing activities was [euro symbol omitted]861.3
million the three month period ended March 31, 2000 compared to no cash provided
during the three month period ended March 31, 1999. This increase was primarily
the result of the Fourth High Yield Offering, the Third Equity Offering and the
Second Convertible Notes.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Our financial department manages our funding, liquidity and exposure to
foreign exchange rate risks. It is our policy not to enter into any transactions
of a speculative nature.
Our debt obligations that are denominated in U.S. dollars expose us to
risks associated with changes in the exchange rates between the U.S. dollar and
the Dutch guilder, Belgian franc and German marks (which currencies are now
pegged to the euro) in which our revenues are denominated. However, in
conjunction with the First High Yield Offering and the Second High Yield
Offering, we have placed in escrow and pledged for the benefit of the holders of
the notes issued in the First High Yield Offering and the Second High Yield
Offering U.S. government securities sufficient to pay interest due on the notes
issued in the First High Yield Offering and the Second High Yield Offering until
and including the scheduled interest payment on May 15, 2001.
The notes issued in the First High Yield Offering and the Second High Yield
Offering will mature on May 15, 2008. The notes issued in the Third High Yield
Offering will mature on July 15, 2009. The notes issued in the Fourth High Yield
Offering will mature on March 30, 2010. The First Convertible Notes will mature
on December 17, 2004 and the Second Convertible Notes will mature on March 30,
2005. Unless previously redeemed or converted, we are not required to make any
mandatory redemptions (other than an offer to repurchase these notes upon a
change in control of Versatel) prior to maturity of these notes. Since the
interest rate on each of the notes issued in the High Yield Offerings is fixed
and the effective interest rate on the First Convertible Notes and the Second
Convertible Notes increases at fixed increments, we have limited our exposure to
risks due to fluctuations of interest rates. At March 31, 2000, the fair value
of the notes issued in the High Yield Offerings was approximately [euro symbol
omitted]992.3 million and the fair value of our Convertible Notes was
approximately [euro symbol omitted]754.8 million.
The costs and expenses relating to the construction of our network and the
development of our sales and marketing resources will largely be in Dutch
guilders, Belgian francs, German marks and, increasingly, euros. Therefore, the
construction of our network and the development of our sales and marketing
resources will also be subject to currency exchange rate fluctuations as we
exchange the proceeds from the remaining proceeds from our dollar denominated
offerings to pay our construction costs. However, as of March 31, 2000, we had
exchanged all but $37.0 million of the proceeds from these offerings into Dutch
guilders or euros. Prior to the application of the net proceeds from these
offerings, such funds have been invested in short-term investment grade
securities. Versatel from time to time hedges a portion of its foreign currency
risk in order to lock into a rate for a given time. In addition, we may become
subject to greater foreign exchange fluctuations as we continue to expand our
operations outside The Netherlands and receive more revenues denominated in
currencies other than Dutch guilders, although the introduction of the euro has
largely eliminated these risks as all three Benelux countries and Germany have
adopted the euro as their legal currency.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We have filed complaints in the past with the European Commission, OPTA and
the Minister of Transport and Waterways of The Netherlands as part of our
regulatory strategy. We also make routine filings with the regulatory agencies
and governmental authorities in the countries in which we operate or intend to
operate.
From time to time, we are involved in routine litigation in the ordinary
course of business. We believe that no currently pending litigation, to which we
are a party, will have a material adverse effect on our financial position or
results of operations.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on May 15, 2000.
Versatel Telecom International N.V.
By: /s/ R. GARY MESCH
-----------------------------
R. Gary Mesch
Managing Director
By: /s/ RAJ RAITHATHA
-----------------------------
Raj Raithatha
Chief Financial Officer
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