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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 6-K
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
Date of Report: March 2, 2000
---------------
VERSATEL TELECOM INTERNATIONAL N.V.
(Exact name of Registrant as specified in its charter)
Paalbergweg 36
1105 BV 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
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<PAGE>
VERSATEL TELECOM INTERNATIONAL N.V.
REPORT ON FORM 6-K
ITEM 5. OTHER INFORMATION
On December 13, 1999, we acquired VEW Telnet, a competitive network
operator in the Northwest Rhine region of Germany, from VEW Energie, a power
company in the Westphalia-Lippe region of Germany.
The following financial information relating to VEW Telnet as well the
pro forma financial information for VersaTel Telecom International N.V. to
reflect the acquisition of VEW Telnet have been prepared in accordance with
United States generally accepted accounting principles ("US GAAP").
2
<PAGE>
Unaudited Pro Forma Consolidated Financial Information
The following unaudited pro forma financial information of VersaTel has
been prepared in accordance with U.S. GAAP and is derived from, and should be
read in conjunction with, the historical audited financial statements of
VersaTel, included in VersaTel's other public filings, and VEW Telnet included
elsewhere in this filing. On December 13, 1999, VersaTel acquired all of the
issued and outstanding capital of VEW Telnet, for a total purchase price valued
at Eurodollar120 million, consisting of Eurodollar65 million in cash under a
three year earnout agreement, subject to performance adjustments, from VEW
Telnet, and Eurodollar55 million spread over a three year period related to a 30
year indefeasible right of use (the "IRU") of VEW Telnet's fiber network which
is owned by VEW Telnet's former shareholder, VEW Energie.
The purchase price of Eurodollar65 million is conditional upon VEW
Telnet achieving certain revenue targets in each of the next three years. No
adjustments will be made if the revenue targets are exactly met. In the event
such targets are exceeded, VEW Energie will be entitled to an incremental
adjustment equal to 60% of the additional turnover in respect of the applicable
financial year. However, the maximum amount payable to VEW Energie over the
three year period is limited to Eurodollar20 million, which, if payed, would
increase the amount of the deferred payment to Eurodollar75 million. Conversely,
in the event the revenue targets are not attained, VersaTel will be entitled to
an adjusting deduction equal to 60% of the shortfall in respect of the
applicable financial year, up to a maximum of Eurodollar4,583,333 in each year.
The adjustment deduction over the three year period is limited to
Eurodollar13,750,000, which would mean a decrease in the amount of the deferred
payment to Eurodollar41,250,0000.
The unaudited pro forma statement of operations data for the year ended
December 31, 1998 give effect to the acquisition of VEW Telnet as if it had
occurred on January 1, 1998. The unaudited pro forma statement of operations
data for the nine months ended September 30, 1999 give effect to the acquisition
of VEW Telnet as if it had occurred on January 1, 1999. The unaudited pro forma
balance sheet data as of September 30, 1999 give effect to the acquisition of
VEW Telnet as if it had occurred on such date.
The unaudited pro forma financial information set forth below reflects
pro forma adjustments that are based upon available information and certain
assumptions that VersaTel believes are reasonable. The acquisition of VEW Telnet
will be accounted for under the purchase method of accounting and, accordingly,
this method of accounting has been applied in the unaudited pro forma financial
information. Under the purchase method of accounting, the purchase price is
allocated to the assets acquired and liabilities assumed based on their
estimated fair values at the time of the acquisition of VEW Telnet. Estimates of
the fair values of the VEW Telnet assets and liabilities have been combined with
the recorded values of the assets and liabilities of VersaTel in the unaudited
pro forma financial information. The estimates of fair value of assets and
liabilities are based on a number of assumptions which management believe to be
reasonable but which are subject to change. Such changes could include, among
other things, changes in the classification and useful lives of
3
<PAGE>
intangible assets and the related amortization expense from amounts presented in
the pro forma financial information.
The unaudited pro forma financial information is presented for
illustrative purposes only and is not necessarily an indication of the results
that would have been achieved had such transactions been consummated as of the
dates indicated or that may be achieved in the future.
4
<PAGE>
VERSATEL TELECOM INTERNATIONAL N.V.
Unaudited Pro Forma Consolidated Statement of Operations
For the year ended December 31, 1998
(in thousands, except for per share data)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------------------------- ------------------------------------------------
VersaTel VEW Telnet Adjustments Combined
-------------- ------------- -------------- -----------------------------
NLG NLG(1) NLG NLG US$(2)
<S> <C> <C> <C> <C> <C>
Operating Revenues 39,561 22,016 61,577 29,747
Operating expenses
Cost of Revenue, excluding
depreciation and amortization 31,821 17,058 (11,129)(3) 37,750 18,237
Selling, general and
administrative 47,733 44,628 92,361 44,619
Depreciation and amortization 6,473 9,372 21,578 (4) 28,423 13,731
---------- --------- --------- ---------
Total operating expenses 86,027 71,058 158,534 76,587
---------- --------- --------- ---------
Operating loss (46,466) (49,042) (96,957) (46,840)
Other income (expenses):
Income from investments - (5,860) (5,860) (2,831)
Currency gains 5,146 - 5,146 2,486
Interest income 11,857 12 11,869 5,734
Interest expense third parties (37,522) (105) (26,142)(5) (63,769) (30,806)
Interest expense related
parties (145) (1,131) (1,276) (616)
Other income - 648 648 313
---------- --------- --------- ---------
Total other income (expense) (20,664) (6,436) (53,242) (25,720)
---------- --------- --------- ---------
Net loss before income taxes (67,130) (55,478) (150,199) (72,560)
Provision for income taxes 7 (2,210) (2,203) (1,064)
---------- --------- --------- ---------
Net loss (67,137) (53,268) (147,996) (71,496)
========== ========= ========= =========
Net loss per share outstanding (2.06) (4.54) (2.19)
Weighted number of shares
outstanding (6) 32,622 32,622 32,622
(footnotes on following page)
</TABLE>
NYDOCS01/675096 7
5
<PAGE>
(1) Solely for the convenience of the reader, Deutsche mark amounts have been
translated into Dutch guilders amounts at NLG 1.12674 per DEM 1.00, based on the
fixed conversion rate with respect to the euro established on January 1, 1999.
(2) Solely for the convenience of the reader, Dutch guilder amounts have been
translated into U.S. dollars at the Noon Buying Rate on September 30, 1999 of
NLG 2.07 per $1.00.
(3) Reflects the cost charged to VEW Telnet by VEW Energie for the use of the
telecommunication network of VEW Energie.
(4) Reflects:
(i) the amortization, over the current period, of goodwill. Goodwill
reflects the excess of the acquisition price of VEW Telnet over the fair value
of assets and liabilities of VEW Telnet. The book value of tangible assets
acquired and liabilities assumed are assumed to approximate fair value. The
excess of the minimum purchase price over the fair value of tangible assets
acquired and liabilities assumed was allocated to assets acquired based on
management's best estimate, based on discussion with VersaTel's advisers and
preliminary analysis of available financial and non-financial data, of the fair
values of such assets. The purchase price of Eurodollar65 million (NLG 143.2
million) is subject to an earn-out agreement based on revenue for the years 2000
until 2002 and can vary between a repayment of Eurodollar13.75 million (NLG 30.3
million) to an additional payment of Eurodollar20.0 million (NLG 44.1 million).
NLG
(in thousands)
--------------
Total minimum purchase price (112,940)
Fair value of tangible assets acquired and
liabilities assumed 14,154
------------
Goodwill recorded on acquisition (98,786)
===========
The above goodwill calculation is based on the fair value of assets and
liabilities as if they had been acquired at January 1, 1998. Goodwill is
amortized over a period of 10 years, and
(ii) The depreciation on the IRU which is based on the present value of
the long term payables to VEW Energie amounting to NLG 81.1 million. The IRU is
amortized over a period of 30 years.
(5) Interest expense reflects (i) NLG 17.0 million of interest expense relating
to the financing cost of the initial purchase price payment of NLG 143.2 million
(Eurodollar65 million) for the acquisition of VEW Telnet (calculated using an
interest rate of 117/8% per annum), (ii) the interest expense relating to the
acquisition of the IRU from VEW Energie of NLG 8.5 related to the amortization
of the discount on the long term payable to VEW Energie, and (iii) NLG 0.6
million of amortization expenses relating to the amortization of deferred
financing costs incurred in connection with the acquisition of VEW Telnet.
(6) Historical share numbers are adjusted to give effect to a 2-for-1 stock
split on April 13, 1999.
6
<PAGE>
VERSATEL TELECOM INTERNATIONAL N.V.
Unaudited Pro forma Consolidated Statement of Operations
For the nine months ended September 30, 1999
(in thousands, except for per share data)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------------------------- ------------------------------------------------
VersaTel VEW Telnet Adjustments Combined
-------------- ------------- -------------- -----------------------------
NLG NLG(1) NLG NLG US$(2)
<S> <C> <C> <C> <C> <C>
Operating Revenues 78,134 32,674 110,808 53,530
Operating expenses
Cost of revenue, excluding
depreciation and amortization 59,690 25,339 (9,942)(3) 75,087 36,274
Selling, general and
administrative 119,025 39,223 158,248 76,448
Depreciation and amortization 30,127 11,252 9,457 (4) 50,836 24,558
---------- --------- --------- ---------
Total operating expenses 208,842 75,814 284,171 137,280
---------- --------- --------- ---------
Operating loss (130,708) (43,140) (173,363) (83,750)
Other income (expenses):
Income from investments - (5,230) (5,230) (2,527)
Currency gains (losses) (44,036) - (44,036) (21,273)
Interest income 17,317 9 17,326 8,370
Interest expense third parties (103,378) (70) (19,607)(5) (123,055) (59,447)
Interest expense related parties - (1,464) (1,464) (707)
Other expense, net (4,033) 3,387 (646) (312)
---------- --------- --------- ---------
Total other income (expense) (134,130) (3,368) (157,105) (75,896)
---------- --------- --------- ---------
Net loss before income taxes (264,838) (46,508) (330,468) (159,646)
Provision for income taxes 2,893 (631) 2,262 1,093
---------- --------- --------- ---------
Net loss (267,731) (45,877) (332,730) (160,739)
========== ========= ========= =========
Net loss per share outstanding (5.91) (7.34) (3.55)
Weighted number of shares
outstanding (6) 45,332 45,332 45,332
</TABLE>
7
<PAGE>
(1) Solely for the convenience of the reader, Deutsche mark amounts have been
translated into Dutch guilders amounts at NLG 1.12674 per DEM 1.00, based on the
fixed conversion rate with respect to the euro established on January 1, 1999.
(2) Solely for the convenience of the reader, Dutch guilder amounts have been
translated into U.S. dollars at the Noon Buying Rate on September 30, 1999 of
NLG 2.07 per $1.00.
(3) Reflects the cost charged to VEW Telnet by VEW Energie for the use of the
telecommunication network of VEW Energie.
(4) Reflects:
(i) the amortization, over the current period, of goodwill. Goodwill
reflects the excess of the acquisition price of VEW Telnet over the fair value
of assets and liabilities of VEW Telnet. The book value of tangible assets
acquired and liabilities assumed are assumed to approximate fair value. The
excess of the minimum purchase price over the fair value of tangible assets
acquired and liabilities assumed was allocated to assets acquired based on
management's best estimate, based on discussion with VersaTel's advisers and
preliminary analysis of available financial and non-financial data, of the fair
values of such assets. The purchase price of Eurodollar65 million (NLG 143.2
million) is subject to an earn-out agreement based on revenue for the years 2000
until 2002 and can vary between a repayment of Eurodollar13.75 million (NLG 30.3
million) to an additional payment of Eurodollar20.0 million (NLG 44.1 million).
NLG
(in thousands)
--------------
Total minimum purchase price (112,940)
Fair value of tangible assets acquired and
liabilities assumed 13,843
----------
Goodwill recorded on acquisition (99,097)
=========
The above goodwill calculation is based on the fair value of assets and
liabilities as if they had been acquired at January 1, 1999. Goodwill is
amortized over a period of 10 years, and
(ii) The depreciation on the IRU which is based on the present value of
the long term payables to VEW Energie amounting to NLG 81.1 million. The IRU is
amortized over a period of 30 years
(5) Interest expense reflects (i) NLG 12.7 million of interest expense relating
to the financing cost of the initial purchase price payment of NLG 143.2 million
(Eurodollar65 million) for the acquisition of VEW Telnet (calculated using an
interest rate of 117/8% per annum), and (ii) the interest expense relating to
the acquisition of the IRU from VEW Energie of NLG 6.4 related to the
amortization of the discount on the long term payable to VEW Energie, and (iii)
NLG 0.5 million of amortization expenses relating to the amortization of
deferred financing costs incurred in connection with the acquisition of VEW
Telnet.
(6) Historical share numbers are adjusted to give effect to a 2-for-1 stock
split on April 13, 1999.
8
<PAGE>
VERSATEL TELECOM INTERNATIONAL N.V.
Unaudited Pro Forma Consolidated Balance Sheets
As of September 30, 1999
(in thousands, except for per share data)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------------------------- ------------------------------------------------
VersaTel VEW Telnet Adjustments Combined
-------------- ------------- -------------- -----------------------------
NLG NLG(1) NLG NLG US$(2)
<S> <C> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents 763,376 595 (16,069)(3) 747,904 361,306
Restricted cash current portion 95,241 - 95,241 46,010
Accounts receivable, less allowance
for doubtful accounts 30,179 5,176 35,355 17,080
Inventory 3,695 2,336 6,031 2,914
Other currency assets 36,938 1,743 38,681 18,686
---------- --------- --------- ---------
Total current assets 929,431 9,850 923,212 445,996
Tangible Fixed Assets:
Property, plant and equipment, net 203,965 80,307 81,805 (4) 365,357 176,501
Construction in progress 129,402 3,621 133,023 64,262
---------- --------- --------- ---------
Total tangible fixed assets 333,367 83,928 498,380 240,763
Restricted cash, net of current portion 90,573 - 90,573 43,755
Financial fixed assets - 606 30,301 (5) 30,907 14,931
Capitalized finance cost, net 46,388 - 6,411 (6) 52,799 25,507
Intangible assets - 11,703 11,703 5,654
Goodwill 379,263 10,293 117,932 (7) 507,488 245,163
Deferred tax assets - 2,206 2,206 1,066
---------- --------- --------- ---------
Total Assets 1,779,022 118,586 2,117,268 1,022,835
========== ========= ========= =========
(footnotes on following page)
</TABLE>
9
<PAGE>
VERSATEL TELECOM INTERNATIONAL N.V.
Unaudited Pro Forma Consolidated Balance Sheets
As of September 30, 1999
(in thousands, except for per share data)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------------------------- ------------------------------------------------
VersaTel VEW Telnet Adjustments Combined
-------------- ------------- -------------- -----------------------------
NLG NLG(1) NLG NLG US$(2)
<S> <C> <C> <C> <C> <C>
Liabilities and Shareholders'
Equity
Current liabilities
Accounts payable 159,647 6,190 165,837 80,115
Due to related parties - 78,537 78,537 37,941
Accrued liabilities 32,050 25,121 57,171 27,619
Deferred income 8,765 - 8,765 4,234
Current portion of capital lease
obligations 268 - 268 129
---------- ----------- ---------- ----------
Total current liabilities 200,730 109,848 310,578 150,038
Long-term liabilities 3,184 - 3,184 1,538
Pension liability 750 968 1,718 830
Finance lease - - 81,085 (8) 81,085 39,171
Long-term debt (Notes) 1,392,229 - 143,240 (9) 1,535,469 741,773
Long-term debt to banks - 3,105 3,105 1,500
Long-term debt to shareholders - 9,657 (9,657)(10) - -
Shareholders' Equity:
Share capital 3,209 61,773 (61,773)(11) 3,209 1,550
Additional paid-in capital 534,324 59,914 (59,914)(11) 534,324 258,128
Warrants 4,673 - 4,673 2,257
Accumulated (deficit) profit (360,077) (126,679) 126,679 (11) (360,077) (173,950)
---------- ----------- ---------- ----------
Total shareholders' equity 182,129 (4,992) 182,129 87,985
Total liabilities and shareholders'
equity 1,779,022 118,586 2,117,268 1,022,835
========== =========== ========== ==========
(footnotes on following page)
</TABLE>
10
<PAGE>
(1) Solely for the convenience of the reader, Deutsche mark amounts have been
translated into Dutch guilders amounts at NLG 1.12674 per DEM 1.00, based on the
fixed conversion rate with respect to the euro established on January 1, 1999.
(2) Solely for the convenience of the reader, Dutch guilder amounts have been
translated into U.S. dollars at the Noon Buying Rate on September 30, 1999 of
NLG 2.07 per $1.00.
(3) Reflects (i) the assumed cash payments regarding the financing costs (see
Note 6) and (ii) the early repayment of long-term debt as a result of the
acquisition of VEW Telnet (see Note 10).
(4) Reflects the net present value of the long term payables to VEW Energie by
VEW Telnet for the IRU of the telecommunication network of VEW Energie over a
period of 30 years as a result of the acquisition of VEW Telnet. The IRU is
amortized over a period of 30 years.
(5) Reflects the excess of payment of the purchase price of VEW Telnet over the
minimum purchase price (see Note 7).
(6) Reflects financing costs associated with the incurrence of the financing for
the acquisition of VEW Telnet, which is deemed to be a part of the proceeds of
the Third High Yield Offering, of $117.6 million (NLG 243.4 million).
(7) Reflects:
(i) the amortization, over the current period, of goodwill. Goodwill
reflects the excess of the acquisition price of VEW Telnet over the fair value
of assets and liabilities of VEW Telnet. The book value of tangible assets
acquired and liabilities assumed are assumed to approximate fair value. The
excess of the minimum purchase price over the fair value of tangible assets
acquired and liabilities assumed was allocated to assets acquired based on
management's best estimate, based on discussion with VersaTel's advisers and
preliminary analysis of available financial and non-financial data, of the fair
values of such assets. The purchase price of Eurodollar65 million (NLG 143.2
million) is subject to an earn-out agreement based on revenue for the years 2000
until 2002 and can vary between a repayment of Eurodollar13.75 million (NLG 30.3
million) to an additional payment of Eurodollar20.0 million (NLG 44.1 million).
NLG
(in thousands)
--------------
Total minimum purchase price (112,940)
Fair value of tangible assets acquired and
liabilities assumed (4,992)
---------
Goodwill recorded on acquisition (117,932)
=========
The above goodwill calculation is based on the fair value of assets and
liabilities as if they had been acquired at September 30, 1999. Goodwill is
amortized over a period of 10 years, and
(ii) The depreciation on the IRU which is based on the present value of
the long term payables to VEW Energie amounting to NLG 81.1 million. The IRU is
amortized over a period of 30 years
11
<PAGE>
(8) Reflects the long-term commitment related to the IRU (see Note 4).
(9) Reflects the financing for the acquisition of VEW Telnet, which is deemed to
be a part of the proceeds of the Third High Yield Offering.
(10) Reflects the early repayment of long-term debt as a result of the
acquisition of VEW Telnet.
(11) Reflects the elimination of the shareholders' equity of VEW Telnet.
12
<PAGE>
VEW TELNET Gesellschaft fur Telekommunikation und Netzdienste mbH, Dortmund
FINANCIAL STATEMENTS
Index to Financial Statements
Independent Auditors' Report F-2
Balance Sheets as of December 31, 1998 and 1997 F-3
Statements of Operations for the Years Ended
December 31, 1998 and 1997 F-5
Statements of Shareholder's Equity for the Years
Ended December 31, 1998 and 1997 F-6
Statements of Cash Flows for Years Ended
December 31, 1998 and 1997 F-7
Notes to Financial Statements F-8
<PAGE>
Independent Auditors' Report
We have audited the balance sheets of VEW Telnet Gesellschaft fur
Telekommunikation und Netzdienste mbH, Dortmund, Germany, as of December 31,
1998 and 1997 and the related statements of operations, shareholder's equity and
cash flows for the years then ended. 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 Germany which do not differ in any significant respect from United States
generally accepted auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation. We believe that our audits provide a reasonable basis for our
opinion.
VEW Telnet Gesellschaft fur Telekommunikation and Netzdienste mbH, was acquired
by VersaTel Deutschland Holding GmbH, and VersaTel Deutschland Verwaltungs GmbH,
as per December 1, 1999 and is now a wholly owned entity of the VersaTel Group.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of VEW Telnet Gesellschaft fur
Telekommunikation und Netzdienste mbH, Dortmund, Germany, as of December 31,
1998 and 1997, and the result of its operations and cash flows for the years
then ended, in conformity with generally accepted accounting principles in the
United States.
Dusseldorf, Germany
February 11, 2000
BDO Deutsche Warentreuhand
Aktiengesellschaft
Wirtschaftsprufungsgesellschaft
Dr. Nehles Geis
Wirtschaftsprufer Wirtschaftsprufer
F-2
<PAGE>
VEW TELNET Gesellschaft fur Telekommunikation und Netzdienste mbH, Dortmund
Balance Sheets
As of December 31, 1998 and 1997
(in thousands of German Marks)
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------------ -----------------
DEM DEM
ASSETS
<S> <C> <C>
Current Assets
Cash and bank deposits 752 315
Receivables trade 3,005 1,189
Less allowance for doubtful accounts (33) 0
Receivables related parties 3,266 1,710
Inventories 2,135 252
Other current assets and prepaid expenses 15 80
----------- ----------
Total current assets 9,140 3,546
----------- ----------
Long-term investments
Treasury bills (held to maturity) 5 5
Shares in subsidiaries 758 481
----------- ----------
Total long-term investments 763 486
----------- ----------
Fixed Assets
Intangible assets (net) 9,720 1,546
Property, plant and equipment
Buildings on third party's land 4,528 3,603
Telecommunication equipment 51,021 13,350
Other equipment, furniture and fixtures 5,655 2,839
Construction in progress 15,449 21,468
Loss: Accumulated depreciation and amortization (7,256) (1,002)
----------- ----------
Total fixed assets 79,117 41,804
----------- ----------
Deferred Taxes 1,398 (563)
Goodwill 9,878 -
----------- ----------
Total assets 100,296 45,273
=========== ==========
</TABLE>
F-3
<PAGE>
VEW TELNET Gesellschaft fur Telekommunikation und Netzdienste mbH, Dortmund
Balance Sheets
As of December 31, 1998 and 1997
(in thousands of German Marks)
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------------ -----------------
DEM DEM
ASSETS
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable trade 6,810 7,638
Accounts payable to related parties, current portion 46,521 3,840
Salaries, Wages and Commissions 1,905 365
Taxes withheld from employees 625 477
Other accrued liabilities 18,539 6,898
Other liabilities and deferred credits 102 112
----------- ----------
Total current liabilities 74,502 19,330
----------- ----------
Noncurrent liabilities
Long-term debt due to banks 2,756 2,756
Long-term debt intercompany 10,000 10,000
Accrued pension cost 752 625
----------- ----------
Total noncurrent liabilities 13,508 13,381
----------- ----------
Shareholder's equity
Capital stock 54,825 24,148
Additional paid-in capital 29,175 12,852
Loss current year (47,276) (18,254)
Accumulated deficit previous years (24,438) (6,184)
----------- ----------
Total shareholder's equity 12,286 12,562
----------- ----------
Total liabilities and shareholder's equity 100,296 45,273
=========== ==========
</TABLE>
F-4
<PAGE>
VEW TELNET Gesellschaft fur Telekommunikation und Netzdienste mbH, Dortmund
Statements of Operations
For the Fiscal Years Ended December 31, 1998 and 1997
(in thousands of German Marks)
(unaudited)
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1998 1997
------------------ -----------------
DEM DEM
<S> <C> <C>
Sales 19,540 5,749
Cost of Sales (15,139) (5,607)
Selling, General and Administrative costs (39,608) (16,534)
Depreciation and amortization (8,318) (1,012)
Other income 731 77
Loss from subsidiaries valuated at equity (5,201) (14)
Other expenses (156) (4)
Interest income 11 21
Interest expense third parties (93) (98)
Interest expense related parties (1,004) (269)
Tax benefit (expense) 1,961 (563)
--------- ---------
Net loss/Comprehensive loss (47,276) (18,254)
========= =========
</TABLE>
F-5
<PAGE>
VEW TELNET Gesellschaft fur Telekommunikation und Netzdienste mbH, Dortmund
Statement of Shareholders' Equity
For the Fiscal Year Ended December 31, 1998 and 1997
(in thousands of German Marks)
<TABLE>
<CAPTION>
Additional
paid-in Retained
Capital Stock capital Earnings Total
--------------- --------------- --------------- ---------------
DEM DEM DEM DEM
<S> <C> <C> <C> <C>
Balance at December 31, 1996 2,000 7,000 (6,184) 2,816
Capital increase 22,148 5,852 - 28,000
Net loss - - (18,254) (18,254)
----------- ----------- ----------- -----------
Balance at December 31, 1997 24,148 12,852 (24,438) 12,562
Capital increase 30,677 16,323 - 47,000
Net loss - - (47,276) (47,276)
----------- ----------- ----------- -----------
Balance at December 31, 1998 54,825 29,175 (71,714) 12,286
=========== =========== =========== ===========
</TABLE>
F-6
<PAGE>
VEW TELNET Gesellschaft fur Telekommunikation und Netzdienste mbH, Dortmund
Statement of Cash Flows
For the Fiscal Years Ended December 31, 1998 and 1997
(in thousands of German Marks)
<TABLE>
<CAPTION>
Year ended Year ended
December 31, December 31,
1998 1997
----------------- -----------------
DEM DEM
<S> <C> <C>
Net result for the year (47,276) (18,254)
Depreciation of fixed asset items 13,519 1,026
Net change in accruals for pensions 127 (13)
Cash flow - according to DFVA/SG (33,630) (17,241)
Profit/loss on disposal of fixed assets (208) (2)
Increase/decrease in inventories, trade receivables and other
assets (7,118) 36
Increase in trade payables and other liabilities 55,172 11,656
Cash outflow from current operating activities 14,216 (5,551)
Receipts from disposals of fixed assets 718 -
Payments for capital expenditures (61,497) (34,897)
Cash outflow from investing activities (60,779) (34,897)
Amounts paid in by shareholders
Capital increase and transfer to capital reserves 47,000 28,000
Proceeds from loans - 12,756
Payments for loans - -
Cash inflow from financing activities 47,000 40,756
Movement in cash and cash equivalents 437 308
Cash and cash equivalents at the beginning of the period 315 7
Cash and cash equivalents at the end of the period 752 315
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net amount capitalized) 34 3
Income taxes - -
</TABLE>
F-7
<PAGE>
VEW TELNET Gesellschaft fur Telekommunikation und Netzdienste mbH, Dortmund
Notes to Financial Statements as of December 31, 1998 and December 31, 1997
1. Description of Business and Basis of Presentation
VEW Telnet Gesellschaft fur Telekommunikation und Netzdienste mbH (the
"company") is a wholly owned entity of VEW Energie AG, Dortmund, Germany, which
belongs to the VEW Group. The company is a provider of integrated data and
telecommunications network services in Germany. The company considers its
operations to be in one business segment and internally makes operating
decisions, allocates resources and assesses performance based on one segment.
Included in the company results are group charges relating to costs in
connection with various administrative services provided by VEW Energie AG on
behalf of the company. The company's management believes such costs are
reflective of actual benefits received by the company.
The company is part of a fiscal unity regarding value added tax with other VEW
Group companies.
2. Summary of Significant Accounting Policies
(a) Cash and bank deposits
Cash and bank deposits consist mainly of cash at banks on demand. For purposes
of the statement of cash flows, the company considers all highly liquid
investments with original maturities of three months or less to be cash
equivalents.
(b) Inventory
Work in progress is stated at the lower of cost or market value. Cost is
determined using the average method. Cost of work in progress consists of the
direct salary costs and a charge for indirect costs.
(c) Treasury bills
There are no restrictions concerning the sale of the treasury bills. They are
not pledged as collateral.
(d) Shares in subsidiaries
Shares in subsidiaries consist of four participations of which two were valued
at equity. The other two are stated at purchase cost. All subsidiaries are
making losses.
F-8
<PAGE>
(e) Intangible assets
Intangible assets are stated at cost minus depreciation. The company depreciates
the intangible assets using the straight-line method over the estimated useful
lives. The intangible assets have useful lives between 1 and 15 years. The main
addition to this balance sheet item was a DEM 6 million net license with a
useful life of 15 years in 1998.
(f) Property and equipment
Property and equipment is stated at cost. The company depreciates its property
and equipment using the following methods:
Buildings on third-party property mainly straight-line method
Telecommunication equipment straight-line method
Other declining-balance method
Goods purchased for less than DEM 800 net are being written off in the year of
purchase according to ss. 6II EStG (German income tax code). They are included
in the accumulated cost and the accumulated depreciation as an addition and as a
disposal.
Interest is capitalized on construction in progress during construction if the
amount is material. As per December 31, 1999; DEM 34 thousand were capitalized
(DEM 3 thousand as per December 31, 1997).
(g) Goodwill
The goodwill results from VEW Energie AG's purchase of 13.5% of the company's
shares which made VEW Energie AG the sole shareholder in December 1998.
Depreciation is calculated on an estimated useful life of 10 years.
(h) Revenue recognition
Revenues are recorded in the period in which the service is rendered. Cash
received in advance of services rendered is recorded as deferred income. All
revenues originated in Germany. As it is impracticable to disclose information
for revenues of each product and service, this information is not provided.
(i) Cost of sales
Cost of sales consists of direct connection costs only. Personnel costs and
depreciation are included in selling, general and administrative costs.
(j) Advertising expense
Advertising costs are expensed as incurred and amounted to DEM 2,594 thousand
from January 1, 1998 to December 31, 1998. The costs from January 1, 1997 to
December 31, 1997 amounted to DEM 1,062 thousand.
F-9
<PAGE>
(k) Income taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statements
carrying amounts of existing assets and liabilities and their respective tax
bases.
No deferred tax asset was recognized for loss carry forwards as the possible use
of loss carry forwards is restricted by law. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled.
The rate used in the financial statements is 60% which includes federal and
local income tax.
(l) Pensions
Three company employees have individually defined benefit pension agreements.
The company recognizes interest and pension costs for the full amount of the
pension obligation. There are no plan assets.
(m) Accounts payable to related parties
The company has a maximum credit line of DEM 29.3 million with VEW Energie AG
which amounted to DEM 29.3 million on December 31, 1998 and DEM 3.8 million on
December 31, 1997.
(n) Accruals
There is a DEM 15,929 thousand (DEM 6,719 thousand as per December 31, 1997)
accrual for a possible liability to a supplier from a risk-sharing contract. The
other accruals mainly relate to outstanding liabilities for services and goods
received.
(o) Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Significant estimates and assumptions are used in the amounts reflected as
allowance for doubtful accounts and recovery of deferred tax assets. Actual
results could differ from those estimates.
(p) Segmental reporting
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosure about
Segments of an Enterprise and Related Information" has been issued and is
effective for fiscal years beginning after December 15, 1997. SFAS No. 131
requires certain disclosures about business segments of an enterprise, if
applicable. The adoption of SFAS No. 131 did not have an effect on the company's
financial statements, as the company currently manages its operations as one
segment under the guidelines of the new standard.
(q) Recently issued accounting standards
F-10
<PAGE>
In June, 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income", which the company adopted beginning on January
1, 1998. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. The objective of SFAS No. 130 is to report a measure of
all changes in equity of an enterprise that results from transactions and other
economic events of the period other than transactions with stockholders
("comprehensive income"). Comprehensive income is the total of net income (loss)
and all other non-owner changes in stockholders' equity. For each of the two
years ended December 31, 1998 and December 31, 1997 the company's comprehensive
income (loss) was equal to net loss.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued the Statement of Position 98-1
("SOP 98-1"), "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use", which provides guidance on accounting for costs of
computer software developed or obtained for internal use. SOP 98-1 requires
computer software costs that are incurred in the preliminary project stage to be
expensed as incurred. Once the capitalization criteria of SOP 98-1 have been
met, directly attributed development costs should be capitalized. It also
provides guidance on the treatment of upgrade and maintenance expenditures. SOP
98-1 is effective for fiscal years beginning after December 15, 1998. Costs
incurred prior to initial application of SOP 98-1, whether capitalized or not,
should not be adjusted to the amounts that would have been capitalized had SOP
98-1 been in effect when those costs were incurred. The company has adopted SOP
98-1 in its 1998 financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS 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 a liability
measured as its fair value. It also requires that changes in the derivative's
fair value be recognized currently into 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 is effective for fiscal years beginning after June 15, 1999 and
cannot be applied retroactively. The company has not yet qualified the impacts
of adopting SFAS No. 133 on the financial statements and has not determined the
timing or method of adoption of SFAS No. 133.
3. Related party transactions
Of the 1998 revenues DEM 1.6 million relate to subscriptions recharges relating
to telephone access (1997: DEM 0.2 million) for all VEW Group companies.
1998 costs charged by group companies to the company include lease on premises
of DEM 1,681 thousand (1997: DEM 943 thousand), interest expenses of DEM 1,004
thousand (1997: DEM 269 thousand), telephone connection charges of DEM 2,930
thousand (1997: DEM 1,133 thousand) and charges for various administrative
services and support of DEM 1,271 thousand (1997: DEM 298 thousand).
All related party transactions were performed at arm's length.
The accounts due to the group companies as of December 31, 1998 include a value
added tax asset of DEM 2,096 thousand (December 31, 1997: DEM 1,212 thousand).
F-11
<PAGE>
4. Inventory
Inventory is comprised of the following:
December 31, 1998 December 31, 1997
----------------- -----------------
DEM DEM
(in thousands)
Materials 1,568 141
Work in progress 567 111
-------- ------
Total 2,135 252
======== ======
5. Shares in subsidiaries
<TABLE>
<CAPTION>
Net book value Equity Net income
Share December 31, 1998 (1997) December 31, 1998 1998
Name and registry of subsidiary % DEM DEM DEM
------------------------------- ----- ------------------------ ----------------- -----------
(in thousands)
<S> <C> <C> <C> <C>
TeleBeL Gesellschaft fur
Telekommunikation Bergisches Land
mbH, Wuppertal
(valued at equity) 40.0 316 (0) 719* (10,385)
RuhrNet Gesellschaft fur
Telekommunikation mbH Schwerte,
Schwerte
(valued at equity) 24.0 61 (106) 254 (187)
DOKOM Gesellschaft fur
Telekommunikation mbH, Dortmund 10.0 375 (375) 1,029 (2,594)
BORnet GmbH, Stadtiohn 5.0 6 (0) 93 (27)
</TABLE>
*Including a loan of DEM 7 million with a subordination clause.
6. Long-term debt
The long-term debt of DEM 2.756 million matures on May 6, 2002 with the
Westdeutsche Landesbank Girozentrale, Dortmund, Germany. The interest rate is
5.83%, interest is charged annually.
The company has a loan of DEM 10 million, maturing December 30, 2002 with VEW
Energie AG. Interest is charged every quarter, the rate depends on the prime
rate.
F-12
<PAGE>
7. Income taxes
Income tax expenses and income consist of deferred taxes only, since the company
does not pay income taxes at this time due to its losses. Since there are no
material differences between the book basis and the tax basis, income tax
expense approximates 60% of net differences between book values according to
German GAAP and US GAAP. The differences result mainly from using the equity
method for two financial investments.
In assessing the ability to realize deferred tax assets, management does not
consider loss carry-forwards as likely to be realized. Therefore, no deferred
tax asset was capitalized for loss carry-forwards.
8. Commitments
As per December 31, 1998, the company has the following material off balance
sheet commitments:
- - Financial promise in favor of TeleBel in the amount of DEM 4,000 thousand;
payable in the first half of the year 1999.
- - Lease commitment with VEW Energie AG; monthly payment in the amount of DEM
212 thousand.
- - Lease commitment with Olympia Consulting GmbH; monthly payment in the
amount of DEM 35 thousand.
Leases
Rental commitments under operating leases are for cars only and not material.
Rent and Operating Lease Commitments
Future minimum commitments in connection with rent and other operating lease
agreements are as follows at December 31, 1998:
DEM
---
1999 2,976
2000 432
2001 396
------
3,804
======
9. Pensions
Pension costs incurred for the period ended December 31, 1998 was DEM 67
thousand. Interest costs incurred for the period ended December 31, 1998 was DEM
60 thousand.
F-13
<PAGE>
The assumptions used in calculating the SFAS 87 pension obligation were as
follows:
Discount rate 6.5%
Salary increase rate 3.0%
COLA rate 1.5%
10. Subsequent events
As per December 1, 1999, VersaTel Deutschland Holding GmbH, Frankfurt, Germany
and VersaTel Deutschland Verwaltungs GmbH, Frankfurt, Germany acquired 100%
(99.09% resp. 0.91%) of the company's capital.
Due to the change of the company's shareholder, the company will have to
refinance with a bank or the new shareholder. According to the purchase
agreement, the company does not have to repay the outstanding credit line to VEW
Energie AG and only DEM 8.571 million of the DEM 10 million loan. An additional
loan of DEM 10 million was granted in November 1999.
As per November 24, 1999, the company has bought a license for the net
communication systems of VEW Energie AG for a duration of 30 years. The purchase
price and the repayable loans as above are due in three installments which are
DEM 35.857 million due on December 31, 2000, DEM 35.857 million due on December
31, 2001 and DEM 35.857 million due on December 31, 2002.
F-14
<PAGE>
VEW TELNET Gesellschaft fur Telekommunikation und Netzdienste mbH, Dortmund
FINANCIAL STATEMENTS
Index to Financial Statements
Condensed Balance Sheets as of September 30, 1999 and 1998 F-16
Condensed Statement of Operations for the Nine Months
Ended September 30, 1999 and 1998 F-18
Condensed Statement of Shareholder's Equity for the Nine Months Ended
September 30, 1999 and 1998 F-19
Condensed Statements of Cash Flows for the Nine Months Ended
September 30, 1999 and 1998 F-20
Condensed Notes to Financial Statements F-21
<PAGE>
VEW TELNET Gesellschaft fur Telekommunikation und Netzdienste mbH, Dortmund
Condensed Balance Sheets
As of September 30, 1999 and 1998
(in thousands of German Marks)
(unaudited)
<TABLE>
<CAPTION>
September 30, September 30,
1999 1998
---------------- ---------------
DEM DEM
<S> <C> <C>
ASSETS
Current Assets
Cash and bank deposits 528 162
Receivables trade 4,818 2,673
Less allowance for doubtful accounts (224) (20)
Receivables related parties 1,512 1,248
Inventories 2,073 545
Other current assets and prepaid expenses 35 14
---------- ----------
Total current assets 8,742 4,622
---------- ----------
Long-term investments
Treasury bills (held to maturity) 5 5
Shares in subsidiaries 533 447
Long-term loans to subsidiaries - -
---------- ----------
Total long-term investments 538 452
---------- ----------
Fixed Assets
Intangible Assets (net) 10,387 9,102
Property, Plant and Equipment
Buildings on third party's land 5,168 4,528
Telecommunication equipment 73,714 51,010
Other equipment, furniture and fixtures 7,045 4,839
Construction in progress 3,214 4,337
Less accumulated depreciation and amortization (14,653) (5,477)
---------- ----------
Total fixed assets 84,875 68,339
---------- ----------
Deferred Taxes 1,958 1,409
Goodwill 9,135 -
---------- ----------
Total assets 105,248 74,822
========== ==========
</TABLE>
F-16
<PAGE>
VEW TELNET Gesellschaft fur Telekommunikation und Netzdienste mbH, Dortmund
Condensed Balance Sheets
As of September 30, 1999 and 1998
(in thousands of German Marks)
(unaudited)
<TABLE>
<CAPTION>
September 30, September 30,
1999 1998
---------------- ---------------
DEM DEM
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable trade 5,494 2,924
Accounts payable to related parties, current portion 69,703 12,332
Salaries, Wages and Commissions 2,822 10,873
Taxes withheld from employees 788 580
Other accrued liabilities 18,621 12,348
Other liabilities and deferred credits 64 111
---------- ---------
Total current liabilities 97,492 39,168
---------- ---------
Noncurrent liabilities
Long-term debt due to banks 2,756 2,756
Long-term debt intercompany 8,571 10,000
Accrued pension cost 859 723
---------- ---------
Total noncurrent liabilities 12,186 13,479
---------- ---------
Shareholder's equity
Capital stock 54,825 54,825
Additional paid-in capital 53,175 29,175
Loss current year (40,716) (37,387)
Accumulated deficit previous years (71,714) (24,438)
---------- ---------
Total shareholder's equity (4,430) 22,175
---------- ---------
Total liabilities and shareholder's equity 105,248 74,822
========== =========
</TABLE>
F-17
<PAGE>
VEW TELNET Gesellschaft fur Telekommunikation und Netzdienste mbH, Dortmund
Condensed Statements of Operations
For the Nine Months Ended September 30, 1999 and 1998
(in thousands of German Marks)
(unaudited)
<TABLE>
<CAPTION>
Nine months Nine months
Ended Ended
September 30, September 30,
1999 1998
------------------ ------------------
DEM DEM
<S> <C> <C>
Sales 28,999 12,314
Cost of Sales (22,489) (11,315)
Selling, general and administrative costs (34,811) (29,514)
Depreciation and amortization (9,986) (6,002)
Other income 3,589 29
Loss from subsidiaries valuated at equity (4,642) (3,996)
Other expenses (583) (143)
Interest income 8 10
Interest expense third parties (62) (34)
Interest expense related parties (1,299) (708)
Tax benefit (expense) 560 1,972
------------ ----------
Net loss/Comprehensive loss (40,716) (37,387)
============ ==========
</TABLE>
F-18
<PAGE>
VEW TELNET Gesellschaft fur Telekommunikation und Netzdienste mbH, Dortmund
Condensed Statement of Shareholders' Equity
As of September 30, 1999 and 1998
(in thousands of German Marks)
(unaudited)
<TABLE>
<CAPTION>
Additional
paid-in Retained
Capital Stock capital Earnings Total
--------------- --------------- --------------- ---------------
DEM DEM DEM DEM
<S> <C> <C> <C> <C>
Balance at December 31, 1997 24,148 12,852 (24,438) 12,562
Capital increase 30,677 16,323 - 47,000
Net loss - - (37,387) (37,387)
--------- ---------- ---------- ---------
Balance at September 30, 1998 54,825 29,175 (61,825) 22,175
========= ========== ========== =========
Balance at December 31, 1998 54,825 29,175 (71,714) 12,286
Capital increase - 24,000 - 24,000
Net loss - - (40,716) (40,716)
--------- ---------- ---------- ---------
Balance at September 30, 1999 54,825 53,175 (112,430) (4,430)
========= ========== ========== =========
</TABLE>
F-19
<PAGE>
VEW TELNET Gesellschaft fur Telekommunikation und Netzdienste mbH, Dortmund
Condensed Statement of Cash Flows
For the Nine Months Ended September 30, 1999 and 1998
(in thousands of German Marks)
(unaudited)
<TABLE>
<CAPTION>
Nine months ended Nine months ended
September 30, 1999 September 30, 1998
------------------ ------------------
DEM DEM
<S> <C> <C>
Net result for the year (40,716) (37,387)
Depreciation of fixed asset items 14,628 9,998
Net change in accruals for pensions 107 98
Cash flow - according to DFVA/SG (25,981) (27,291)
Profit/loss on disposal of fixed assets (144) -
Increase/decrease in inventories, trade receivables and
other assets (386) (3,201)
Increase in trade payables and other liabilities 22,990 19,838
Cash outflow from current operating activities (3,521) (10,654)
Receipts from disposals of fixed assets - 143
Payments for capital expenditures (19,274) (36,642)
Cash outflow from investing activities (19,274) (36,499)
Amounts paid in by shareholders
Capital increase and transfer to capital reserves 24,000 47,000
Proceeds from loans - -
Payments for loans (1,429) -
Cash inflow from financing activities 22,571 47,000
Movement in cash and cash equivalents (224) (153)
Cash and cash equivalents at the beginning of the period 752 315
Cash and cash equivalents at the end of the period 528 162
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net amount capitalized) 161 34
Income taxes - -
</TABLE>
F-20
<PAGE>
VEW TELNET Gesellschaft fur Telekommunikation und Netzdienste mbH, Dortmund
Condensed Notes to Financial Statements as of September 30, 1999
and September 30, 1998
(unaudited)
1. Description of Business and basis of presentation
VEW Telnet Gesellschaft fur Telekommunikation und Netzdienste mbH (the
"company") is a wholly owned entity of VEW Energie AG, Dortmund, Germany, which
belongs to the VEW Group. The company is a provider of integrated data and
telecommunications network services in Germany. The company considers its
operations to be in one business segment and internally makes operating
decisions, allocates resources and assesses performance based on one segment.
Included in the company results are group charges relating to costs in
connection with various administrative services provided by VEW Energie AG on
behalf of the company. The company's management believes such costs are
reflective of actual benefits received by the company.
The company is part of a fiscal unity regarding value added tax with other VEW
Group companies.
2. Summary of Significant Accounting Policies
(a) Cash and bank deposits
Cash and bank deposits consist mainly of cash at banks on demand. For purposes
of the statement of cash flows, the company considers all highly liquid
investments with original maturities of three months or less to be cash
equivalents.
(b) Inventory
Work in progress is stated at the lower of cost or market value. Cost is
determined using the average method. Cost of work in progress consists of the
direct salary costs and a charge for indirect costs.
(c) Treasury bills
There are no restrictions concerning the sale of the treasury bills. They are
not pledged as collateral.
(d) Shares in subsidiaries
Shares in subsidiaries consist of four participations of which two were valued
at equity. The other two are stated at purchase lost. All subsidiaries are
making losses.
(e) Intangible Assets
Intangible assets are stated at cost minus depreciation. The company depreciates
the intangible assets using the straight-line method over the estimated useful
lives. The intangible assets, mostly licenses,
F-21
<PAGE>
have useful lives between 1 and 15 years. The main addition of this balance
sheet item was a DEM 6 million net license with a useful life of 15 years in
1998.
(f) Property and equipment
Property and equipment is stated at cost. The company depreciates its property
and equipment using the following methods:
Buildings on third-party property mainly straight-line method
Telecommunication equipment straight-line method
Other declining-balance method
Goods purchased for less than DEM 800 net are being written off in the year of
purchase according to ss. 6 II EstG (German income tax code). They are included
in the accumulated cost and the accumulated depreciation as an addition and as a
disposal.
Interest is capitalized on construction in progress during construction if the
amount is material. As per September 30, 1999, DEM 161 thousand were capitalized
(DEM 34 thousand as per September 30, 1998).
(g) Goodwill
The goodwill results from VEW Energie AG's purchase of 13.5% of the company's
shares which made VEW Energie AG the sole shareholder in December 1998.
Depreciation is calculated on an estimated useful life of 10 years.
(h) Revenue recognition
Revenues are recorded in the period in which the service is rendered. Cash
received in advance of services rendered is recorded as deferred income. All
revenues originated in Germany. As it is impracticable to disclose information
for revenues of each product and service, we do not provide that information.
(i) Cost of sales
Cost of sales consists of direct connection costs only. Personnel costs and
depreciation are included in selling, general and administrative costs.
(j) Advertising expense
Advertising costs are expensed as incurred and amounted to DEM 1,793 thousand
from January 1, 1999 to September 30, 1999. The costs from January 1, 1998 to
September 30, 1998 amounted to DEM 1,981 thousand.
F-22
<PAGE>
(k) Income taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statements
carrying amounts of existing assets and liabilities and their respective tax
bases.
No deferred tax asset was recognized for loss carry forwards as the possible use
of loss carry forwards is restricted by law. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled.
The rate used in the financial statements is 60% which includes federal and
local income tax.
(l) Pensions
Three company employees have individually defined benefit pension agreements.
The company recognizes interest and pension costs for the full amount of the
pension obligation.
(m) Accounts payable to related parties
The company has a unlimited credit line with VEW Energie AG which amounted to
DEM 42.6 million on September 30, 1999 and DEM 3.8 million on September 30,
1998. Additionally, there is a loan of DEM 12 million which is not long-term by
definition but has a subordination clause (on September 30, 1999 only).
(n) Accruals
There is a DEM 15,442 thousand (DEM 13,579 thousand as per September 30, 1999)
accrual for a possible liability to a supplier from a risk-sharing contract. The
other accruals mainly relate to outstanding liabilities for services and goods
received.
(o) Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Significant estimates and assumptions are used in the amounts reflected as
allowance for doubtful accounts and recovery of deferred tax assets. Actual
results could differ from those estimates.
(p) Segmental reporting
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosure about
Segments of an Enterprise and Related Information" has been issued and is
effective for fiscal years beginning after December 15, 1997. SFAS No. 131
requires certain disclosures about business segments of an enterprise, if
applicable. The adoption of SFAS No. 131 did not have an effect on the company's
financial statements, as the company currently manages its operations as one
segment under the guidelines of the new standard.
F-23
<PAGE>
(q) Recently issued accounting standards
In June, 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," which the company adopted beginning on January
1, 1998. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. The objective of SFAS No. 130 is to report a measure of
all changes in equity of an enterprise that results from transactions and other
economic events of the period other than transactions with stockholders
("comprehensive income"). Comprehensive income is the total of net income (loss)
and all other non-owner changes in stockholders' equity. For each of the two
nine month periods ended September 30, 1999 and September 30, 1998 the
company's comprehensive income (loss) was equal to net loss.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued the Statement of Position 98-1
("SOP 98-1"). "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use", which provides guidance on accounting for costs of
computer software developed or obtained for internal use. SOP 98-1 requires
computer software costs that are incurred in the preliminary project stage to be
expensed as incurred. Once the capitalization criteria of SOP 98-1 have been
met, directly attributed development costs should be capitalized. It also
provides guidance on the treatment of upgrade and maintenance expenditures. SOP
98-1 is effective for fiscal years beginning after December 15, 1998. Costs
incurred prior to initial application of SOP 98-1, whether capitalized or not,
should not be adjusted to the amounts that would have been capitalized had SOP
98-1 been in effect when those costs were incurred. The company has adopted this
SOP in its financial statements as of September 30, 1999.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS 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 a liability
measured as its fair value. It also requires that changes in the derivative's
fair value be recognized currently into 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 is effective for fiscal years beginning after June 15, 1999 and
cannot be applied retroactively. The company has not yet quantified the impacts
of adopting SFAS No. 133 on the financial statements and has not determined the
timing or method of adoption of SFAS No. 133.
3. Related party transactions
Of the 1999 revenues, DEM 2.2 million relate to subscriptions recharges relating
to telephone access (1998: DEM 1.2 million) for all VEW Group companies.
1999 costs charged by group companies to the company include lease on premises
of DEM 1,908 thousand (1998: DEM 880 thousand), interest expenses of DEM 1,666
thousand (1998: DEM 707 thousand), telephone connection charges of DEM 3,184
thousand (1998: DEM 1,885 thousand) and
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<PAGE>
charges for various administrative services and support of DEM 834 thousand
(1998: DEM 650 thousand).
All related party transactions were performed at arms' length.
The accounts due to the group companies for 1999 as of September 30, 1999
include a value added tax asset of DEM 160 thousand (September 30, 1998: DEM 406
thousand).
4. Inventory
Inventory is comprised of the following:
September 30, 1999 September 30, 1998
------------------ ------------------
DEM DEM
(in thousands)
Materials 1.919 235
Work in progress 154 310
-------- -------
2.073 545
======== ======
5. Shares in subsidiaries
<TABLE>
<CAPTION>
Net book value Equity Net income
Share September 30, 1999 (1998) December 31, 1998 1998
Name and registry of subsidiary % DEM DEM DEM
- ------------------------------- ----------- ----------------------------- ----------------------- ----------
<S> <C> <C> <C> <C>
TeleBeL Gesellschaft fur
Telekommunikation Bergisches Land
mbH, Wuppertal
(valued at equity) 40.0 0 (0) 719* (10,385)
RuhrNet Gesellschaft fur
Telekommunikation mbH Schwerte
Schwerte
(valued at equity) 24.0 127 (72) 254 (187)
DOKOM Gesellschaft fur
Telekommunikation mbH, Dortmund 10.0 375 (375) 1,029 (2,594)
BORnet GmbH, Stadtiohn 5.0 34 (0) 93 (27)
</TABLE>
*Includes a loan of DEM 7 million with a subordination clause.
6. Long-term debt
The long-term debt of DEM 2.756 million matures on May 6, 2002 with the
Westdeutsche Landesbank Girozentrale, Dortmund, Germany. The interest rate is
5.83%, interest is charged annually.
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<PAGE>
The company has a loan (DEM 10 million) maturing December 30, 2002 with VEW
Energie AG. Interest is charged every quarter, the rate depends on the prime
rate.
7. Income taxes
Income tax expenses and income consist of deferred taxes only, since the company
does not pay income taxes at this time due to its loss. Since there are no
material differences between the book basis and the tax basis, income tax
expense approximates 60% of net differences between book values according to
German GAAP and US GAAP. The differences result mainly from using the equity
method for two financial investments.
In assessing the ability to realize deferred tax assets, management does not
consider loss carry-forwards as likely to be realized. Therefore, no deferred
tax asset was capitalized for loss carry-forwards.
8. Commitments
As per September 30, 1999, the company has the following material off balance
sheet commitments:
- - Financial promise in favor of TeleBel in the amount of DM 2,510 thousand;
Payable in the first half of the year 2000.
- - Lease commitment with VEW Energie AG; monthly payment in the amount of DM
212 thousand.
- - Lease commitment with Olympia Consulting GmbH; monthly payment in the
amount of DM 36 thousand.
Leases
Rental commitments under operating leases are for cars only and not material.
Rent and Operating Lease Commitments
Future minimum commitments in connection with rent and other operating lease
agreements are as follows at September 30, 1999:
DEM
---
1999 744
2000 2,976
2001 396
-------
1,143
=======
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<PAGE>
9. Pensions
Pension costs incurred for the period ended September 30, 1999 was DEM 47
thousand (January 1 till September 30, 1998: DEM 53 thousand). Interest costs
incurred for the period ended September 30, 1999 was DEM 60 thousand (January 1,
1998 to September 30, 1998: DEM 45 thousand).
The assumptions used in calculating the SFAS 87 pension obligation were as
follows (1999 and 1998):
Discount rate 6.5%
Salary increase rate 3.0%
COLA rate 1.5%
10. Subsequent events
As per December 1, 1999, VersaTel Deutschland Holding GmbH, Frankfurt, Germany
and VersaTel Deutschland Verwaltungs GmbH, Frankfurt, Germany acquired 100%
(99.09% resp. 0.91%) of the company's capital.
Due to the change of the company's shareholder, the company will have to
refinance with a bank or the new shareholder. According to the purchase
agreement, the company does not have to repay the outstanding credit line to VEW
Energie AG and only DEM 8.571 million of the DEM 10 million loan.
An additional loan of DEM 10 million was granted in November 1999.
As per November 24, 1999, the company has bought a license for the net
communication systems of VEW ENERGIE AG for a duration of 30 years. The purchase
price and the repayable loans as above are due in three installments of DEM
35.857 million due on December 31, 2000, DEM 35.857 million due on December 31,
2001 and DEM 35.857 million due on December 31, 2002.
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<PAGE>
ITEM 6. EXHIBITS
There are no exhibits filed herewith.
F-28
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on March 2, 2000.
VERSATEL TELECOM INTERNATIONAL N.V.
By: /s/ Raj Raithatha
-----------------------------------
Name: Raj Raithatha
Title: Vice President Finance and
Chief Financial Officer
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