Exhibit 99.1
Risk Factors
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Statements in this Form 10-Q that are not historical facts are "forward-looking
statements" (as defined in the Private Securities Litigation Reform Act of
1995). These statements include but are not limited to those relating to
projections regarding future network configuration and scope, revenues and
revenue growth, costs (direct and operating costs), cost reductions, earnings
per share, EBITDA, specific product and service sales and capital expenditures.
These statements, when made, are intended to reflect VIA management's then
current views with respect to future events and expectations and are subject to
a number of risks, assumptions and uncertainties which could cause our actual
results to differ materially from those projected in such statements.
Discussion of Risk Factors, Assumptions and Uncertainties
RISKS RELATED TO OUR BUSINESS
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OUR COMBINED OPERATING HISTORY IS LIMITED AND MAY NOT BE INDICATIVE OF OUR
FUTURE PERFORMANCE.
Although a number of the operating companies we have acquired have been in
operation for some time, VIA, as a combined operation, has a limited history of
operations. Our limited history makes it more difficult to recognize operational
or financial trends and indicators that might otherwise allow us to predict
future financial performance with a higher degree of comfort.
While we are currently experiencing a slow down in revenue growth due to
economic conditions, we have experienced rapid growth in the past. In order to
manage that growth, we scaled our operations and infrastructure to support the
anticipated demands for our services. We may have difficulty reducing our costs
and scaling our operations to a level more reflective of current revenue growth
rates.
From June 1998 through December 2000, we acquired 26 companies and increased the
total number of our employees from five to over 1000. Current economic
conditions have created lower revenue growth expectations and limited access to
capital markets. Therefore the need to scale costs to these lower revenue
growth expectations without impacting service quality has become a priority. To
address this priority, we must reduce our costs, without impacting our ability
to provide quality service and attract new customers and implement integrated
operating, administrative, financial and accounting systems and controls. If we
are unable to execute these actions, we may be unable to become self sustaining
before depleting our cash reserves.
OUR EFFORTS TO REDUCE OUR LOWER MARGIN RESIDENTIAL AND WHOLESALE CUSTOMER BASE
MAY REDUCE OUR REVENUES IN THE SHORT OR INTERMEDIATE TERM FASTER THAN WE CAN
GENERATE HIGHER MARGIN BUSINESS AND VALUE-ADDED SERVICES REVENUES
We have focused our sales and product development efforts on selling higher
margin products and pursuing greater market share of the business market for
Internet and Internet-related services. In doing so, we have allowed our legacy
residential and wholesale customer base to run off and, in certain markets, have
pursued or considered the sale of such customer accounts. We may not be able to
acquire business customer revenues as quickly as our residential customer or
wholesale revenues diminish, which could adversely affect our operating results.
IF WE FAIL TO INTEGRATE OPERATING AND INFORMATION SYSTEMS, NETWORKS AND
MANAGEMENT OF OUR ACQUIRED COMPANIES SUCCESSFULLY, WE MAY SUFFER OPERATING
INEFFICIENCIES AND REDUCED OPERATING CASH FLOW.
We may not be able to integrate our acquired companies to the extent that we
have assumed. Any material failure to integrate systems, networks or management
of these operations or implement adequate internal controls may have a
significant negative impact on the assumptions we make or have made with respect
to cost reductions, sales and marketing opportunities as well as our ability to
adequately serve and bill our customers. In addition, we have and will continue
to commit substantial management, operating, financial and other resources to
integrate our operating companies and implement our business model, which will
continue to reduce our operating cash flow.
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OUR INTEGRATION EFFORTS MAY LEAD TO THE LOSS OF KEY STAFF AND A DISTRACTION FROM
REVENUE-GENERATING OPPORTUNITIES AND CUSTOMER SERVICE FUNCTIONS, WHICH MAY LEAD
TO LOWER THAN EXPECTED OPERATING RESULTS
We have acquired multiple operations in the United Kingdom, France, Germany, The
Netherlands and Switzerland. In each of these countries, we are in various
stages of integrating legally, financially and operationally the separate
companies acquired in that country into a single operation. These efforts may
create operational and personnel disruptions that may lead to the loss of key
personnel or require that we increase salaries or fringe benefits to retain
staff. In addition, integration activities require significant attention from
key management and staff at these operations, which may distract management and
staff from revenue-generating opportunities and customer service functions and
may thereby negatively affect our results. If we fail to properly integrate the
financial or operating data of any of the newly combined operations, we may
incur increased costs to remedy the failure, dissatisfaction from our customers
and loss of revenues.
FINANCIAL INFORMATION ON WHICH WE HAVE RELIED TO MAKE ACQUISITIONS MAY NOT HAVE
BEEN ACCURATE, WHICH MAY RESULT IN OUR ACQUIRING UNDISCLOSED LIABILITIES OR
EXPERIENCING LOWER THAN EXPECTED OPERATING RESULTS.
The companies we have acquired typically have not had audited financial
statements and historically have varying degrees of internal controls and
detailed financial information. As a result, we may have acquired undisclosed
liabilities or experience lower-than-expected revenues or higher-than-expected
costs for those companies that we have acquired recently, which could adversely
affect our future operating results. To date, no issues of this kind have arisen
that have materially adversely affected our results; however, they may arise in
the future.
FLUCTUATIONS IN THE EXCHANGE RATE BETWEEN THE U.S. DOLLAR AND THE VARIOUS
CURRENCIES IN WHICH WE CONDUCT BUSINESS MAY AFFECT OUR OPERATING RESULTS.
We record the revenues and expenses of our local operations in their home
currencies and translate these amounts into U.S. dollars for purposes of
reporting our consolidated results. As a result, fluctuations in foreign
currency exchange rates may adversely affect our revenues, expenses and results
of operations as well as the value of our assets and liabilities. Fluctuations
may adversely affect the comparability of period-to-period results. If the
average value of the Euro increases in relation to the U.S dollar during a
quarterly period as compared to the prior period, each Euro will convert to less
U.S dollars during that quarterly period than the prior and we will report
higher revenue growth than what would have been calculated in local currencies
for that period. In addition, we hold foreign currency balances that will create
foreign exchange gains or losses, depending upon the relative values of the
foreign currency at the beginning and end of the reporting period, affecting our
net income and earnings per share. In projecting future operating results, we
make certain assumptions about the fluctuation of the home currencies of our
operations. If these assumptions turn out to be materially inaccurate, our
actual operating results may be materially different from our projections.
LOGISTICAL PROBLEMS OR ECONOMIC DOWNTURNS THAT COULD RESULT FROM THE
INTRODUCTION OF THE EURO MAY AFFECT OUR ABILITY TO OPERATE AND ADVERSELY IMPACT
OUR OPERATING RESULTS.
On January 1, 1999, 11 of the 15 European Union member countries adopted the
Euro as their common legal currency, at which time their respective individual
currencies became fixed at a rate of exchange to the Euro, and the Euro became a
currency in its own right. During a January 1, 1999 to January 1, 2002
transition period, we must manage transactions with our customers and our third-
party vendors who conduct business in Euro participating countries in both the
Euro and the individual currencies. If VIA, its customers or vendors, experience
systems problems in converting to the Euro, VIA may be unable to bill and
collect from customers or pay vendors for services, and our operating results
could be materially adversely affected. To date, we have not experienced any
material problems in this conversion effort.
OUR BRAND NAMES ARE DIFFICULT TO PROTECT AND MAY INFRINGE ON THE INTELLECTUAL
PROPERTY RIGHTS OF THIRD PARTIES.
We are aware of other companies using or claiming to have rights to use
trademarks that are similar to our marks and variations of those marks,
including the VIA NET.WORKS mark. We have received several demands from third
parties to cease and desist using one or more of our trademarks. The users of
these or similar marks may be found to have senior rights if they were ever to
assert a claim against us for trademark infringement. If an infringement suit
were instituted against us, even if groundless, it could result in substantial
litigation expenses in defending the suit. If such a suit were to be successful,
we could be forced to cease using the mark and to pay damages. Moreover, if we
are forced to stop using any of our trademarks, we may have to expend
significant resources to establish new brands and our operating results may be
materially impacted.
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REACTION BY CUSTOMERS, INVESTORS OR REGULATORS TO RESTATEMENT OF OUR FINANCIAL
RESULTS MAY ADVERSELY IMPACT OUR REVENUES AND EXPENSES.
We have restated our financial results for 2000 and for the first and second
quarters of 2001. As a result of the restatements, we may be subject to adverse
customer reaction, which may make it more difficult to attract and retain
customers and lead to loss of revenues. Adverse investor reaction and inquiries
by regulators may divert management's attention from core business needs or
strategic opportunities, reduce revenue opportunities or increase costs.
WE HAVE BEEN NAMED AS A DEFENDANT IN A SECURITIES CLASS ACTION LAWSUIT WHICH
COULD DISTRACT OUR MANAGEMENT AND IMPACT OUR CASH POSITION
On November 5, 2001, the law firm of Wolf Haldenstein Adler Freeman & Herz LLP
issued a press release stating that it had initiated a class action lawsuit in
the District Court for the Southern District of New York against VIA NET.WORKS,
Inc., certain of the underwriters who supported our initial public offering
("IPO") and certain of our officers, under the title O'Leary v. Via Net.works et
al [01-CV-9720] (the "Complaint"). While we have not yet received service of
the Complaint, we understand it alleges that the prospectus we filed with our
registration statement in connection with our IPO was materially false and
misleading because it failed to disclose, among other things, that: (i) the
named underwriters had solicited and received excessive and undisclosed
commissions from certain investors in exchange for the right to purchase large
blocks of VIA IPO shares; and (ii) the named Underwriters had entered into
agreements with certain of their customers to allocate VIA IPO shares in
exchange for which the customers agreed to purchase additional VIA shares in the
aftermarket at pre-determined prices ("Tie-in Arrangements"), thereby
artificially inflating the Company's stock price. The Complaint further alleges
violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 and
Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder arising out of the alleged failure to disclose and the alleged
materially misleading disclosures made with respect to the commissions and the
Tie-in Arrangements in the prospectus.
We believe that any allegations in the Complaint of wrongdoing on the part of
VIA or our officers are without legal merit and we intend to vigorously defend
against them. The defense of this action may distract our senior management from
the normal operation of business and may cause us to incur substantial defense
costs.
RISKS RELATED TO OUR INDUSTRY
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REGULATORY AND ECONOMIC CONDITIONS OF THE COUNTRIES WHERE OUR OPERATING
COMPANIES ARE LOCATED ARE UNCERTAIN AND MAY DECREASE DEMAND FOR OUR SERVICES,
INCREASE OUR COST OF DOING BUSINESS OR OTHERWISE REDUCE OUR BUSINESS PROSPECTS.
Our operating companies are located in countries with rapidly changing
regulatory and economic conditions that may affect the Internet services
industry. Any new law or regulation pertaining to the Internet or
telecommunications, or the application or interpretation of existing laws, could
decrease demand for our services, increase our costs, or otherwise reduce our
profitability or business prospects. Specific examples of the types of laws or
regulations that could adversely affect us include laws that
. impose taxes on transactions made over the Internet
. impose telecommunications access fees on Internet services providers
. directly or indirectly affect telecommunications costs generally or
the costs of Internet telecommunications specifically
. prohibit the transmission over the Internet of various types of
information and content
. impose requirements on Internet services providers to protect Internet
users' privacy, monitor content, or to permit government interception
of data traffic
. increase the likelihood or scope of competition from
telecommunications or cable companies
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For example, a number of European countries have enacted legislation that
requires Internet services providers to establish technical means to permit
national authorities to intercept data traffic of identified customers. The
application of these laws to Internet services providers has been subject to
significant opposition from Internet services providers industry groups in
Germany, the UK and the Netherlands, among others, because of the significant
cost that would be imposed on service providers to comply with the law.
Ultimately, these requirements may impose significant costs on our European
operations in these countries, which would negatively impact our operating
results. These laws could require us to incur costs to comply with them or to
incur new liability. They could also increase our competition or change our
competitive environment so that customer demand for our products and services is
affected.
In addition to risks we face from new laws or regulations, we face uncertainties
in connection with the application of existing laws to the Internet. It may take
years to determine the manner in which existing laws governing issues like
property ownership, libel, negligence and personal privacy will be applied to
communications and commerce over the Internet.
INCREASING COMPETITION FOR CUSTOMERS IN OUR MARKETS MAY CAUSE US TO REDUCE OUR
PRICES OR INCREASE SPENDING, WHICH MAY NEGATIVELY AFFECT OUR REVENUES AND
OPERATING RESULTS.
There are competitors in our markets with more significant market presence and
brand recognition and greater financial, technical and personnel resources than
we have. We also face competition from new entrants such as ADSL/DSL and
wireless local loop providers who may have significantly reduced cost structures
in obtaining local access connectivity to the customer. Although the competitors
we face vary depending on the market and the country, these competitors may
include local and regional Internet services providers, telecommunication
companies and cable companies. Some of our competitors, especially the
telecommunications companies, have large networks in place as well as a
significant existing customer base. As a result of this competition, we
currently face and expect to continue to face significant pressure to reduce our
prices, particularly with respect to Internet access services, and to improve
the products and services we offer.
IF DEMAND FOR INTERNET SERVICES IN OUR MARKETS DOES NOT GROW AS WE EXPECT, OUR
ABILITY TO GROW OUR REVENUES WILL BE NEGATIVELY AFFECTED.
Internet use in our markets is relatively low. If the market for Internet
services fails to develop, or develops more slowly than expected, we may not be
able to increase our revenues at the rate we have projected. Obstacles to the
development of Internet services in our markets include:
. low rates of personal computer ownership and usage
. lack of developed infrastructure to develop Internet access and
applications
. limited access to Internet services
. concern by customers of economic viability of service providers and
Internet industry in general
In particular, we depend on increasing demand for Internet services by small to
mid-sized businesses in our geographic markets. Demand for Internet services by
these businesses will depend partly on the degree to which these businesses'
customers and suppliers adopt the Internet as a means of doing business, and
partly on the extent to which these businesses adopt Internet technologies to
deal with internal business processes, such as internal communications. Demand
will also partly depend on whether there is a general economic downturn in these
markets, which may result in a cutback of expenditures of the services we offer.
Furthermore, as competitive pressures drive down customer prices for Internet
access in many of our markets, we depend increasingly in such markets on our
ability to sell our customers higher margin, value added services such as
security services, web hosting, and ecommerce solutions. Due to an increasing
number of business failures in the Internet services industry in our core
markets, an increase in customer reluctance to rely on third party service
providers in the Internet services industry for critical business functions may
also impact our revenues and increase our cost of sales by lengthening sales
cycles.
WE ARE IN A RAPIDLY EVOLVING INDUSTRY IN WHICH THE PRODUCTS AND SERVICES WE
OFFER, THEIR METHODS OF DELIVERY AND THEIR UNDERLYING TECHNOLOGIES ARE CHANGING
RAPIDLY, AND IF WE DO NOT KEEP PACE WITH THESE CHANGES, WE MAY FAIL TO RETAIN
AND ATTRACT CUSTOMERS, WHICH WOULD REDUCE OUR REVENUES.
The Internet services market is characterized by changing customer needs,
frequent new service and product introductions, evolving industry standards and
rapidly changing technology. Our success will depend, in part, on our ability to
recognize and respond to these changes in a timely and cost-effective manner. If
we fail to do so, we will not be able to compete successfully.
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WE RELY ON TELECOMMUNICATIONS COMPANIES IN OUR MARKETS TO PROVIDE OUR CUSTOMERS
WITH RELIABLE ACCESS TO OUR SERVICES, AND FAILURES OR DELAYS IN PROVIDING ACCESS
COULD LIMIT OUR ABILITY TO SERVICE OUR CUSTOMERS AND IMPACT OUR REVENUES AND
OPERATING RESULTS.
Our customers typically access our services either through their normal
telephone lines or dedicated lines provided by local telecommunications
companies specifically for that use. In some of our markets, we experience
delays in delivery of new telephone or dedicated lines that have prevented our
customers from accessing our services. These delays result in lost revenues.
Additionally, some local telecommunications companies that provide Internet
services provide delivery of telephone or dedicated lines to their Internet
customers on a preferential basis, which may cause us to lose current and
potential customers. We also lease network capacity from telecommunications
companies and rely on the quality and availability of their service. These
companies may experience disruptions of service, which could disrupt our
services to, or limit Internet access for, our customers. We may not be able to
replace or supplement these services on a timely basis or in a cost-effective
manner, which may result in customer dissatisfaction and lost revenues. In
addition, to the extent that alternative local access providers fail in any
particular market, the incumbent telecommunications providers will experience
less competitive pressure to lower prices for access which will impact our cost
structures and ability to improve our sales margins.
WE DEPEND ON THE RELIABILITY OF OUR NETWORK, AND A SYSTEM FAILURE OR A BREACH OF
OUR SECURITY MEASURES COULD RESULT IN A LOSS OF CUSTOMERS AND REDUCED REVENUES.
We are able to deliver services only to the extent that we can protect our
network systems against damages from telecommunication failures, computer
viruses, natural disasters and unauthorized access. Any system failure, accident
or security breach that causes interruptions in our operations could impair our
ability to provide Internet services to our customers and negatively impact our
revenues and results of operations. To the extent that any disruption or
security breach results in a loss or damage to our customers' data or
applications, or inappropriate disclosure of confidential information, we may
incur liability as a result. In addition, we may incur additional costs to
remedy the damages caused by these disruptions or security breaches. Although we
currently possess errors and omissions insurance, business interruption
insurance, and insurance covering losses resulting from computer viruses and
security breaches, these policies may not provide effective coverage upon the
occurrence of all events.
IF WE FAIL TO ATTRACT AND RETAIN QUALIFIED PERSONNEL OR LOSE THE SERVICES OF OUR
KEY PERSONNEL, OUR OPERATING RESULTS MAY SUFFER.
Our success depends on our key management, engineers, sales and marketing
personnel, technical support representatives and other personnel, many of whom
may be difficult to replace. If we lose key personnel, we may not be able to
find suitable replacements, which may negatively affect our business. In
addition, since the demand for qualified personnel in our industry is very high,
we may have to increase the salaries and fringe benefits we may offer to our
personnel and incur additional costs relating to recruiting efforts, which may
affect our operating results. We do not maintain key person life insurance on,
or restrictive employment agreements with, any of our executive officers. The
current worldwide economic downturn, which has impacted particularly the
Internet services industry, the decline of our own revenue growth, our depressed
stock price and the resulting negative impact on our broad based stock option
program, and our cost reduction programs may have an impact on our ability to
retain and attract key personnel, which may affect our operating results.
WE MAY BE LIABLE FOR INFORMATION DISSEMINATED OVER OUR NETWORK.
We may face liability for information carried on or disseminated through our
network. Some types of laws that may result in our liability for information
disseminated over our network include:
. laws designed to protect intellectual property, including trademark
and copyright laws
. laws relating to publicity and privacy rights and laws prohibiting
defamation
. laws restricting the collection, use and processing of personal data
and
. laws prohibiting the sale, dissemination or possession of pornographic
material
The laws governing these matters vary from jurisdiction to jurisdiction.
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OUR LATIN AMERICAN MARKETS HAVE A HISTORY OF POLITICAL AND ECONOMIC INSTABILITY
THAT MAY DISRUPT OUR OPERATIONS AND ADVERSELY AFFECT OUR RESULTS.
We derive and expect to continue to derive a material portion of our revenues
from the Latin American markets. Latin America has experienced periods of
political and economic instability. If these conditions were to reoccur, our
business could be adversely affected. Historically, instability in Latin
American countries has been caused by
. extensive governmental involvement, control or ownership of industries
in local economies, including telecommunications facilities, financial
institutions and other commerce infrastructure
. unexpected changes in regulatory requirements such as the imposition of
licensing requirements or the levying of new taxes
. slow or negative growth as a result of recessionary trends caused by
foreign currency devaluations, interest rate hikes and inflation
. wage and price controls that reduce potential profitability of
businesses
We have made no allowances for the impact of any such potential events in
financial projections we have announced. The occurrence of any such adverse
political or economic conditions may deter growth in Internet usage or create
uncertainty regarding our operating climate, which my adversely impact our
business and operating results.
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