1
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FORM 10-Q
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE QUARTERLY PERIOD ENDED: March 31, 2000
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________TO ___________
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COMMISSION FILE NUMBER: 000-24219
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VERIO INC.
(Exact name of registrant as specified in its charter)
DELAWARE 84-1339720
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
8005 S. CHESTER STREET, SUITE 200
ENGLEWOOD, COLORADO 80112
(Address of principal executive offices)
(Zip Code)
303/645-1900
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares of the registrant's common stock outstanding as of May
4, 2000 was 79,660,247.
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VERIO INC.
FORM 10-Q
MARCH 31, 2000
INDEX PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - December 31, 1999 and March 31, 2000
(unaudited).................................................................. 3
Condensed Consolidated Statements of Operations and Comprehensive Loss -
Three Months Ended March 31, 1999 and March 31, 2000 (unaudited)............. 4
Condensed Consolidated Statement of Stockholders' Equity - Three Months
Ended March 31, 2000 (unaudited)............................................. 5
Condensed Consolidated Statements of Cash Flows - Three Months Ended
March 31, 1999 and March 31, 2000 (unaudited)................................ 6
Notes to Condensed Consolidated Financial Statements............................ 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations................................................................ 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk............... 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings......................................................... 17
Item 2. Changes in Securities and Use of Proceeds................................. 17
Item 3. Defaults Upon Senior Securities........................................... 17
Item 4. Submission of Matters to a Vote of Security Holders....................... 17
Item 5. Other Information......................................................... 17
Item 6. Exhibits and Reports on Form 8-K.......................................... 17
2
3
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
VERIO INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS December 31, March 31,
1999 2000
------------ -----------
(unaudited)
Current assets:
Cash and cash equivalents ............................................... $ 506,055 $ 496,232
Securities available for sale ........................................... 358,969 338,640
Restricted cash and securities (notes 1 and 5) .......................... 18,801 12,832
Trade receivables, net of allowance for doubtful accounts
of $8,694 and $9,524, respectively .................................... 32,642 36,905
Prepaid expenses and other .............................................. 14,386 17,041
----------- -----------
Total current assets ............................................. 930,853 901,650
Restricted cash and securities (notes 1 and 5) ............................ 1,680 1,556
Investments in affiliates, at cost (note 2) ............................... 8,957 30,579
Prepaid marketing expense ................................................. 17,247 16,119
Equipment and leasehold improvements (note 3) ............................. 269,132 330,660
Less accumulated depreciation and amortization ............................ (64,002) (79,748)
----------- -----------
Net equipment and leasehold improvements ................................ 205,130 250,912
Other assets:
Goodwill, net of accumulated amortization of $79,263 and
$94,959, respectively ................................................. 546,936 531,165
Debt issuance costs, net of accumulated amortization of
$3,934 and $4,867, respectively ....................................... 28,362 27,680
Other, net of accumulated amortization of $8,262 and
$10,726, respectively ................................................. 24,559 24,011
----------- -----------
Total assets ..................................................... $ 1,763,724 $ 1,783,672
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................................ $ 29,807 $ 18,252
Accrued expenses ........................................................ 42,223 45,925
Accrued interest payable ................................................ 18,620 39,439
Line of credit, notes payable and current portion of
long-term debt ........................................................ 945 473
Current portion of capital lease obligations ............................ 15,447 19,661
Deferred revenue ........................................................ 24,800 29,430
----------- -----------
Total current liabilities ........................................ 131,842 153,180
Long-term debt, less current portion, net of discount ..................... 1,070,601 1,070,874
Capital lease obligations, less current portion ........................... 16,080 23,409
Other long-term liabilities ............................................... 12,078 2,035
----------- -----------
Total liabilities ................................................ 1,230,601 1,249,498
----------- -----------
Stockholders' equity (note 5):
Preferred stock, 12,500,000 shares authorized; 7,200,000
issued and outstanding of 6.75% Series A Convertible Preferred
(aggregate liquidation preference $360,000) (notes 5 and 6) ........... 347,304 347,216
Common stock, $.001 par value; 250,000,000 shares authorized;
77,769,395 and 80,980,754 shares issued and 77,769,395 and
79,620,754 outstanding at December 31, 1999 and
March 31, 2000, respectively (notes 5 and 6) .......................... 78 80
Additional paid-in capital .............................................. 462,480 502,372
Accumulated deficit ..................................................... (366,290) (439,315)
Accumulated other comprehensive income .................................. 89,551 123,821
----------- -----------
Total stockholders' equity ....................................... 533,123 534,174
----------- -----------
Commitments and contingencies (note 4)
Total liabilities and stockholders' equity ....................... $ 1,763,724 $ 1,783,672
=========== ===========
See accompanying notes to condensed consolidated financial statements.
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4
VERIO INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended
March 31,
-------------------------
1999 2000
--------- ----------
(unaudited)
Revenue:
Internet connectivity:
Dedicated .................................................. $ 21,470 $ 28,029
Dial-up .................................................... 6,614 5,900
Enhanced services and other ................................... 27,040 47,211
--------- ---------
Total revenue ......................................... 55,124 81,140
Costs and expenses:
Cost of service ............................................... 19,406 26,039
Sales and marketing ........................................... 14,831 19,726
General and administrative and other .......................... 28,805 45,035
Depreciation and amortization ................................. 21,614 37,456
--------- ---------
Total costs and expenses .............................. 84,656 128,256
--------- ---------
Loss from operations ....................................... (29,532) (47,116)
Other income (expense):
Interest income ............................................... 4,778 11,960
Interest expense .............................................. (20,358) (31,794)
--------- ---------
Net loss .............................................. (45,112) (66,950)
Return on convertible preferred stock (note 5) ................. -- (6,075)
--------- ---------
Net loss attributable to common stockholders .......... $ (45,112) $ (73,025)
========= =========
Weighted average number of common shares
outstanding -- basic and diluted .............................. 72,896 78,438
========= =========
Loss per common share -- basic and diluted ...................... $ (0.62) $ (0.93)
========= =========
Net loss ........................................................ $ (45,112) $ (66,950)
Other comprehensive income (loss):
Foreign currency translation gain ............................. -- 158
Unrealized gains on securities ................................ -- 34,112
--------- ---------
Other comprehensive income ...................................... -- 34,270
--------- ---------
Total comprehensive loss .............................. $ (45,112) $ (32,680)
========= =========
See accompanying notes to condensed consolidated financial statements.
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5
VERIO INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
Accumulated
Convertible Common Stock Additional Other
Preferred ----------------------- Paid-In Accumulated Comprehensive
Stock Shares Amount Capital Deficit Income Total
----------- ---------- ---------- ---------- ----------- ------------- -----
Balances at January 1, 2000
(note 5): ....................... $ 347,304 77,769,395 $ 78 $ 462,480 $ (366,290) $ 89,551 $ 533,123
Issuance of common stock for:
Exercise of options ............. -- 934,270 1 5,591 -- -- 5,592
Exercise of warrants ............ -- 277,089 -- 910 -- -- 910
Equity under swap agreement,
net (note 5) .................. -- 640,000 1 33,099 -- -- 33,100
Interest related to equity swap ... -- -- -- (86) -- -- (86)
Additional issuance costs of
convertible preferred stock ....... (88) -- -- -- -- -- (88)
Stock option related
compensation and
severance costs (note 5) ........ -- -- -- 378 -- -- 378
Other comprehensive income ........ -- -- -- -- -- 34,270 34,270
Return on convertible
preferred stock ................. -- -- -- -- (6,075) -- (6,075)
Net loss .......................... -- -- -- -- (66,950) -- (66,950)
---------- ---------- ------- ---------- ---------- ---------- ----------
Balances at March 31, 2000
(unaudited) ..................... $ 347,216 79,620,754 $ 80 $ 502,372 $ (439,315) $ 123,821 $ 534,174
========== ========== ======= ========== ========== ========== ==========
See accompanying notes to condensed consolidated financial statements.
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6
VERIO INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Three Months Ended
March 31,
------------------------
1999 2000
--------- ---------
(unaudited)
Cash flows from operating activities:
Net loss ........................................................... $ (45,112) $ (66,950)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization .................................... 21,614 37,456
Stock option related compensation and severance costs ............ 680 378
Other ............................................................ -- 1,128
Changes in operating assets and liabilities, excluding
effects of business combinations:
Receivables .................................................... (1,144) (4,263)
Prepaid expenses and other current assets ...................... (11,988) (2,655)
Accounts payable ............................................... (3,374) (11,420)
Accrued expenses ............................................... 10,489 (6,087)
Accrued interest payable ....................................... 19,435 14,958
Deferred revenue ............................................... (321) 4,630
--------- ---------
Net cash used by operating activities ....................... (9,721) (32,825)
--------- ---------
Cash flows from investing activities:
Acquisition of equipment and leasehold improvements ................ (9,867) (47,225)
Acquisition of net assets in business combinations and
investments in affiliates, net of cash acquired .................. (207,565) (30,000)
Change in restricted cash and securities ........................... (217) 6,093
Change in securities available for sale ............................ 10,340 62,976
Other .............................................................. (8,975) (1,841)
--------- ---------
Net cash used by investing activities ............................ (216,284) (9,997)
--------- ---------
Cash flows from financing activities:
Debt issuance costs ................................................ (520) (341)
Repayments of lines of credit and notes payable .................... (2,111) (473)
Repayments of capital lease obligations ............................ (2,096) (5,789)
Proceeds from equity swap agreement, net ........................... -- 33,100
Proceeds from issuance of common and preferred stock, net
of issuance costs ................................................ 2,283 6,502
--------- ---------
Net cash provided (used) by financing activities ................. (2,444) 32,999
--------- ---------
Net decrease in cash and cash equivalents ........................ (228,449) (9,823)
Cash and cash equivalents:
Beginning of period ................................................ 433,424 506,055
--------- ---------
End of period ...................................................... $ 204,975 $ 496,232
========= =========
Supplemental disclosures of cash flow information:
Cash paid for interest ............................................. $ 799 $ 10,855
========= =========
Cash paid for return on convertible preferred stock ................ $ -- $ 6,075
========= =========
Supplemental disclosures of non-cash investing and financing
activities:
Equipment acquired through capital lease obligations ............... $ 4,895 $ 17,054
========= =========
Acquisition of net assets in business combinations through
issuance of preferred stock, common stock and preferred
stock options .................................................... $ 68,405 $ --
========= =========
Other liabilities incurred for prepaid marketing expense
and acquisition of customers through AOL agreement ............... $ 25,000 $ --
========= =========
See accompanying notes to condensed consolidated financial statements.
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7
VERIO INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Basis of Presentation
Verio Inc. ("Verio" or "the Company") was incorporated on March 1, 1996.
Since then, Verio has rapidly established a global presence by acquiring and
growing Internet service providers with a business customer focus. Verio is the
world-wide leader in hosting domain-based Web sites and is a leading provider of
high speed connectivity and enhanced services such as electronic commerce and
virtual private networks to small and medium sized businesses. Verio operates in
one business segment and has operations in the United States, Europe and Asia.
International customers generated approximately 10% of total revenue in each of
the three-month periods ended March 31, 1999 and March 31, 2000.
The accompanying unaudited financial information as of March 31, 2000 and
for the three-month periods ended on March 31, 1999 and March 31, 2000 has been
prepared in accordance with generally accepted accounting principles for interim
financial information. All significant adjustments, consisting of only normal
and recurring adjustments, which, in the opinion of management, are necessary
for a fair presentation of the results for each of the three-month periods ended
on March 31, 1999 and March 31, 2000 have been included. Operating results for
the three-month period ended March 31, 2000 are not necessarily indicative of
the results that may be expected for the full year.
The accompanying consolidated financial statements include the accounts of
Verio and its majority owned subsidiaries. All intercompany balances and
transactions have been eliminated in consolidation. The preparation of financial
statements 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 revenue and expenses during the reporting period. Actual results could differ
significantly from those estimates. Certain reclassifications have been made to
the 1999 financial statements to conform with the 2000 financial statement
presentation. In particular, the financial statements reflect the effect of the
two-for-one stock split that became effective on August 20, 1999 for
stockholders of record at the close of business on August 3, 1999 (the "Stock
Split") which was effected in the form of a stock dividend.
(b) Cash and Cash Equivalents, Restricted Cash and Securities Available for
Sale
Verio considers all highly liquid debt instruments with original maturities
of three months or less to be cash equivalents. Included in cash equivalents as
of December 31, 1999 and March 31, 2000 are U.S. government, municipal and
corporate debt securities, money market accounts and commercial paper totaling
$506.1 million and $496.2 million respectively, with maturities ranging from 30
to 90 days.
Restricted cash and securities include U.S. government securities that are
classified as securities held to maturity and are recorded at amortized cost. At
March 31, 1999 and March 31, 2000, amortized cost approximated fair value.
Verio's securities available for sale consist of readily marketable debt
securities with remaining maturities of greater than 90 days but less than 360
days at time of purchase, commercial paper and equity securities. Verio has
classified a portion of its investment portfolio as available for sale
securities. Available for sale securities are stated at fair value with
unrealized gains and loss included in other comprehensive income. Realized gains
and loss are determined on a specific identification basis. At March 31, 1999,
the cost of these securities approximated fair value. At March 31, 2000,
unrealized gains were approximately $123.8 million, primarily related to equity
securities.
(c) Other Assets
Goodwill consists of the excess of cost over the fair value of net assets
acquired and is generally amortized using the straight-line basis over 10 years.
Debt issuance costs are amortized using the interest method over the life of the
debt. Other intangibles consist primarily of costs associated with customer
acquisitions and non-compete agreements and are amortized on the straight-line
basis over three years.
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8
(2) INVESTMENTS IN AFFILIATES
In March 2000, Verio LLC, a subsidiary of the Company invested $30.0 million
in cash in Agilera.com, a next generation application service provider that
delivers customized e-business and enterprise solutions to emerging and
middle-market companies. Verio's Board of Directors designated Verio LLC as an
"Unrestricted Subsidiary" under each of the indentures pursuant to which Verio
has issued debt instruments. Verio will account for its 39% equity interest in
Agilera.com under the equity method. In connection with the investment, Verio
entered into a commercial agreement with Agilera.com under which the Company
will provide fundamental infrastructure to Agilera.com, including Internet
connectivity through its Tier One network, as well as the servers, data center
facilities and managed services necessary for Agilera.com to offer its hosted
applications.
(3) EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consisted of the following (in
thousands):
December 31, March 31,
1999 2000
------------ ---------
Internet access and computer equipment ..................... $ 175,111 $ 224,048
Fiber capacity ............................................. 65,477 65,477
Furniture, fixtures and computer software .................. 9,062 10,951
Leasehold improvements ..................................... 19,482 30,184
--------- ---------
$ 269,132 $ 330,660
========= =========
Depreciation expense was $7.7 million and $16.3 million for the three
months ended March 31, 1999 and 2000, respectively. During the three months
ended March 31, 2000, $2.1 million of purchased software was written off as
management abandoned the related project.
(4) COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company is subject to certain legal
proceedings. In the opinion of management, the outcome of such litigation will
not have a material adverse effect on the Company's financial position,
operating results or liquidity.
(5) STOCKHOLDERS' EQUITY AND LOSS PER SHARE
A two-for-one stock split, which was effected on August 20, 1999 for
stockholders of record at the close of business on August 3, 1999, is reflected
in the accompanying financial statements for all periods presented.
In July 1999 Verio issued 7.2 million shares of its 6.75% Series A
Convertible Preferred Stock, with a liquidation preference of $50.00 per share,
for approximate net proceeds of $347.3 million. The shares of preferred stock
are convertible to shares of common stock at $48.2813 per share. The convertible
preferred stock may be redeemed, at the Company's option, at 102.0% of the
liquidation preference, plus accumulated and unpaid dividends on or after August
1, 2001, but prior to August 1, 2002, if the trading price of Verio common stock
equals or exceeds $72.4219 per share for a specified period. In addition to the
payments described above, holders would receive a payment equal to the present
value of the dividends that would thereafter have been payable on the
convertible preferred stock through and including August 1, 2002. Except as
described above, the Company may not redeem the convertible preferred stock
prior to August 1, 2002. Beginning on August 1, 2002, Verio may redeem the
convertible preferred stock initially at 103.8571% of the liquidation preference
and thereafter at prices declining to 100.0% on and after August 1, 2006, plus,
in each case, all accumulated and unpaid dividends. Verio may effect any
redemption, in whole or in part, by delivering cash, shares of common stock or a
combination thereof. At the closing of this offering, the initial purchasers of
the convertible preferred stock deposited approximately $24.3 million of the
proceeds into an account from which four, equal quarterly cash payments are made
to the preferred stockholders of record in the form of a return of capital, or
which, at Verio's election, may be used to purchase shares of Verio common stock
for delivery to holders in lieu of cash payments. The deposit account will be
fully disbursed by August 1, 2000, unless it is earlier terminated. As of March
31, 2000, two of the quarterly payments have been made; the remaining two
payments of $12.2 million are reflected in restricted cash on the consolidated
balance sheet. Subsequent to August 1, 2000, dividends will accrue on a
cumulative basis at 6.75% per annum.
8
9
In March 2000, the Company and Verio LLC entered into several
agreements with Salomon Smith Barney Inc. ("Salomon"). Pursuant to a purchase
and sale agreement ("Purchase and Sale Agreement"), Verio LLC sold 0.6 million
shares of Verio common stock to Salomon for gross proceeds of $33.6 million. The
Company paid Salomon a $0.5 million structuring fee which was deducted from the
proceeds. Simultaneously, Verio LLC and Salomon entered into an agreement
("Equity Swap Facility") whereby the Company is obligated to repay the gross
proceeds of $33.6 million, plus a periodic fee equal to a LIBOR based rate plus
a 2% margin. The Equity Swap Facility matures on December 18, 2000, but can be
settled earlier by the Company without penalty. At settlement, Verio LLC, at its
sole option, will determine the method of settlement as either share settlement
or cash settlement. Due to the Company's ability and sole option to issue or
receive shares of Verio common stock to settle the Equity Swap Facility, the
Company records all amounts received or paid under this agreement as increases
or decreases to equity.
In connection with the Equity Swap Facility, Verio LLC entered into a pledge
agreement with Salomon. Under the terms of the pledge agreement, Verio LLC
pledged an additional 1.4 million shares of Verio common stock ("Pledged
Shares") to secure the Equity Swap Facility. If the market value of the Pledged
Shares and the original 0.6 million shares sold to Salomon falls below a
specified ratio, Verio LLC will be required to pledge additional shares of Verio
common stock. Subsequent to March 31, 2000, Verio LLC was required to pledge an
additional 0.7 million shares of Verio common stock.
Stock-Based Compensation Plans
Verio has established incentive stock option plans (the Plans) whereby, at
the discretion of the Board of Directors (the Board), Verio may grant stock
options to employees of Verio and its controlled subsidiaries. As of March 31,
2000, Verio had reserved 18.4 million shares for issuance under the Plans. Prior
to Verio's initial public offering, the option price was determined by the Board
at the time the option was granted, with such price being not less than the
estimated fair value of Verio's common stock. Options granted subsequent to the
initial public offering are granted at fair value based on quoted prices for
Verio's common stock. As of March 31, 2000 options had been granted and remained
outstanding under the Plans entitling the holders to purchase approximately 14.0
million shares of Verio's common stock, at exercise prices ranging from $0.46 to
$61.13 per share. Options granted on or before December 19, 1997 vest over a
five year period, and expire ten years from the date of grant. Options granted
December 20, 1997, or later, vest over periods up to four years, and expire
eight years from the date of grant. Certain options granted prior to March 1998
may be exercised prior to their scheduled vesting date, but are subject to a
repurchase by Verio at the exercise price until the scheduled vesting date. In
addition, Verio has established a non-employee director stock incentive plan
(the "Director Plan"), under which non-employee directors are granted stock
options in order to incent them to serve the Company. As of March 31, 2000,
Verio has reserved 1.1 million shares for issuance under the Director Plan.
Options granted under the Director Plan are granted at fair value based on
quoted prices for Verio's common stock. As of March 31, 2000, options had been
granted and remained outstanding under the Director Plan entitling the holders
to purchase approximately 0.4 million shares of Verio's common stock.
With respect to certain option grants made subsequent to February 28, 1998
and before the completion of the initial public offering ("IPO"), Verio granted
options to employees with exercise prices that subsequently were determined to
be less than the fair value per share based upon Verio's estimated price per
share in the IPO. Accordingly, Verio is recognizing compensation expense
totaling approximately $7.5 million, as adjusted for forfeitures, pro rata over
the forty-eight month vesting period of the options. This compensation expense
totaled approximately $0.4 million for the three months ended March 31, 2000.
Loss per share is calculated using weighted average common shares
outstanding, which in the case of weighted average diluted shares, excludes the
effect of common stock options and warrants, and convertible preferred stock,
all of which are anti-dilutive in 1999 and 2000.
(6) SUBSEQUENT EVENTS
At the April 27, 2000 annual meeting of the Company's stockholders,
amendments were adopted to restate the Company's certificate of incorporation to
increase the number of authorized common shares from 250.0 million to 750.0
million and to increase the number of authorized preferred shares from 12.5
million to 20.0 million.
On May 7, 2000, the Company announced that it entered into an Agreement and
Plan of Merger ("the Merger Agreement") with NTT Communications Corporation
("NTT") and Chaser Acquisition, Inc., a wholly-owned subsidiary of NTT ("Sub").
Pursuant to the Merger Agreement, and subject to the conditions thereof, Sub
will commence a cash tender offer (the "Offer") for all outstanding shares of
common stock of Verio at a purchase price of $60 per share, and all of the
shares of preferred stock of the Company at a purchase price of $62.136 per
share. The Board of Directors of both companies have approved the Merger
Agreement. The agreement provides for the Sub to commence an Offer no later than
May 17, 2000, for all of the outstanding shares of Verio's common and preferred
stock. The Offer is subject to customary terms and conditions, including the
tender of that number of shares of common stock that, together with the shares
of Verio common stock currently owned by NTT Communications, constitute at least
a majority of Verio's outstanding shares of common stock on a fully diluted
basis. Following the Offer, Sub will merge with and into the Company (the
"Merger") and the Company will become a wholly-owned subsidiary of NTT. In the
Merger, the remaining common and preferred shareholders of the Company will
become entitled to receive the per share consideration paid in the Offer. The
transaction is expected to be completed in the third quarter of 2000.
9
10
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion should be read in conjunction with the audited
consolidated financial statements and related notes thereto included in Verio's
Annual Report on Form 10-K/A-1 for the year ended December 31, 1999, and the
condensed consolidated financial statements and related notes thereto appearing
elsewhere in this Form 10-Q.
OVERVIEW
Verio was founded in March 1996 and is the world's largest operator of Web
sites for businesses and a leading provider of comprehensive Internet services
with an emphasis on serving the small and medium sized business market. We offer
customers a broad range of Internet solutions, including:
o Telecommunication circuits -- permitting our customers to make
connections to and transmit data over the Internet.
o Web hosting services -- providing our customers with a presence on the
Internet in the form of a Web site. We offer a complete suite of Web
hosting services, including shared and dedicated server hosting for
customers who prefer that we provide the server hardware, as well as
co-location services where customers bring their own servers to a Verio
data center.
o Domain name registration -- providing a fast, on-line process for our
customers to reserve their personalized Web address (such as
www.yourcompany.com).
o Electronic commerce services -- enabling our customers to conduct
transactions with their customers and vendors over the Internet.
o Application hosting services -- providing our customers with the
functionality and features of business-focused software and database
applications on a shared or rented basis via the Internet. These
applications support and automate office systems and business processes,
such as financial reporting, payroll, sales order entry, shipping,
inventory management and customer service systems.
o Secure Internet communication links -- permitting our customers to
establish "virtual private networks" in order to engage in private and
secure Internet communication with their employees, vendors, customers
and suppliers.
o Other enhanced value Internet services, such as automated Web site
development tools and templates.
As of March 31, 2000, we served over 315,000 customer accounts, including
over 395,000 hosted Web sites, and had total revenue of approximately $81.1
million for the three months ended March 31, 2000.
RESULTS OF OPERATIONS
The following table presents operating data, as a percentage of total
revenue, for the three-month periods ended March 31, 1999 and March 31, 2000.
This information is from our Condensed Consolidated Financial Statements
included in this Form 10-Q. This information should be read in conjunction with
the Condensed Consolidated Financial Statements and Notes thereto:
Three Months Ended
March 31,
------------------
1999 2000
---- ----
Revenue:
Internet connectivity ..................................... 51% 42%
Enhanced services and other ............................... 49% 58%
---- ----
Total revenue ..................................... 100% 100%
Costs and expenses:
Cost of service ........................................... 35% 32%
Sales and marketing ....................................... 27% 24%
General and administrative and other ...................... 53% 56%
Depreciation and amortization ............................. 39% 46%
---- ----
Total costs and expenses .......................... 154% 158%
---- ----
Loss from operations .............................. (54)% (58)%
Other income (expense):
Interest income ........................................... 9% 14%
Interest expense .......................................... (37)% (39)%
---- ----
Net loss .......................................... (82)% (83)%
Return on convertible preferred stock ....................... -- (7)%
---- ----
Net loss attributable to common stockholders....... (82)% (90)%
==== ====
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Revenue
Most of our revenue is received from business customers who purchase Web
hosting products, high-speed Internet connectivity, and other enhanced value
Internet services. Verio offers a broad range of connectivity options to its
customers including digital subscriber lines, integrated services digital
network, dedicated lines, frame relay and dial-up connections. Connectivity
customers typically sign a contract for one year of service and pay fixed,
recurring monthly service charges plus a one-time setup fee under those
agreements. These charges vary depending on the type of service, the length of
the contract and local market conditions. Our shared and dedicated Web hosting
customers typically pay fixed, recurring monthly service charges plus a one-time
set-up fee. These charges vary depending on the amount of disk space and transit
required by the customer. Other enhanced services include:
o e-commerce;
o virtual private networks permitting our customers to engage in private
and secure Internet communication with their employees, vendors,
customers and suppliers;
o security services;
o co-location services, which include leased space, connectivity and
support services in specialized facilities for customers that wish to
place their own equipment and software in our secure, controlled
facilities;
o consulting; and,
o the sales of equipment and customer circuits.
Revenue for all products is recognized as the service is provided. Amounts
billed relating to future periods are recorded as deferred revenue and are
amortized monthly as services are rendered.
We have experienced some seasonality in our internal revenue growth, with
the period of higher growth being the fall and winter. Verio's focus is on
services that generate recurring revenue from small and mid-sized business
customers. Revenue from business customers currently represents approximately
90% of revenue, and approximately 85% of revenue is recurring. No single
customer represents more than 2% of revenue.
Total revenue increased 47% from $55.1 million for the three months ended
March 31, 1999 to $81.1 million for the three months ended March 31, 2000.
Internal growth contributed significantly to this increase as well as the
acquisition of digitalNATION, which was completed after March 31, 1999. Revenue
from Web hosting and other Internet enhanced value services increased from 49%
of revenue for the three months ended March 31, 1999 to 58% for the three months
ended March 31, 2000, and is expected to continue to grow as a percent of
revenue.
Cost of Service
Cost of service consists primarily of local telecommunications expense,
which is the cost of transporting data between a customer's place of business,
Verio's local points of presence and a national point of presence. Cost of
service also includes Internet access expense and the cost of equipment sold to
customers. Internet access expense is the cost that we pay to lease fiber
capacity that we use to carry our customers' data between national points of
presence on the Internet. Most of the Internet businesses and operations we have
acquired were parties to various local telecommunications and Internet access
contracts with third parties when we acquired them. We are continuing the
process of converting the traffic carried by third parties to our own network.
Cost of service increased $6.6 million from $19.4 million for the three
months ended March 31, 1999 to $26.0 million for the three months ended March
31, 2000, due to internal growth and acquisitions. As a percentage of revenue,
cost of service decreased from 35% for the three months ended March 31, 1999 to
32% for the three months ended March 31, 2000. This improvement primarily
reflects the scale efficiencies of our local and national networks and the shift
in our revenue mix to products with higher gross margin, such as Web hosting. As
Verio continues to grow, we expect our cost of service to continue to increase
in absolute dollars and
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decrease as a percentage of total revenue. This decrease reflects Verio's
revenue mix shift to higher margin Web hosting and other enhanced value Internet
services and the benefits of shifting traffic from third party networks to the
Verio network.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of salaries, commissions and
advertising.
Sales and marketing expenses increased $4.9 million from $14.8 million for
the three months ended March 31, 1999 to $19.7 million for the three months
ended March 31, 2000, due to increases in the number of direct sales
representatives, indirect channel managers and marketing personnel and increased
brand advertising. As a percent of revenue, sales and marketing expenses
decreased from 27% for the three months ended March 31, 1999 to 24% for the
three months ended March 31, 2000, as revenue growth outpaced expenditures. As
Verio seeks to accelerate our revenue growth, we also expect sales and marketing
expenses to increase in total dollars but limited changes as a percentage of
revenue.
General and Administrative and Other Expenses
General and administrative and other expenses consist primarily of salaries
and related benefits, rent and utilities. Such expenses also include the
expenses of general management, engineering, customer care and accounting.
General and administrative and other expenses increased $16.2 million from
$28.8 million for the three months ended March 31, 1999, to $45.0 million for
the three months ended March 31, 2000, reflecting our expanded operations. As a
percentage of revenue, general and administrative and other expenses increased
from 53% to 56%, which was the result of planned investments in new and expanded
data centers, scalable web hosting operations and international operations.
Verio expects significant increases in general and administrative expenses in
absolute dollars but limited changes as a percentage of revenue.
Depreciation and Amortization
Depreciation is provided over the estimated useful lives of assets ranging
from three to five years using the straight-line method. The excess of cost over
the fair value of net assets acquired, or goodwill, is amortized using the
straight-line method over a ten-year period. Debt issuance costs are amortized
over the life of the debt. Other intangibles consist primarily of the costs
associated with customer acquisitions and non-compete agreements and are
amortized over a three-year period or the life of the agreement. In 1999, the
Company entered into a 20-year capacity agreement with Qwest to acquire fiber
capacity on Qwest's fiber optic network for $65.5 million. This payment will be
depreciated over the life of the agreement.
Depreciation and amortization expenses increased $15.8 million, or 73%, from
the three months ended March 31, 1999 to March 31, 2000, primarily due to
increases in equipment and leasehold improvements and goodwill. Depreciation
expense is expected to increase significantly as a result of planned future
expenditures.
Other Income (Expenses)
Interest income increased from $4.8 million for the three months ended March
31, 1999 to $12.0 million for the three months ended March 31, 2000 due to
increased cash balances resulting from debt offerings and proceeds from the
issuance of $360.0 million in preferred stock in July 1999. See "-- Liquidity
and Capital Resources." Interest and other expenses increased from $20.4 million
for the three months ended March 31, 1999 to $31.8 million for the three months
ended March 31, 2000, primarily due to the issuance of 10 5/8% Senior Notes due
2009 in November 1999.
Other Comprehensive Income
Other comprehensive income increased $34.3 million from the three months
ended March 31, 1999 to March 31, 2000, primarily due to the unrealized gain on
investments in publicly traded equity securities. At March 31, 1999, these
securities were not publicly traded.
Return on Preferred Stock.
The return on preferred stock relates to the payments required to be made at
6.75% of $360.0 million per annum, which is being paid in cash quarterly through
August 1, 2000 from the deposit account established in connection with the
issuance of our Series A
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Convertible Preferred Stock. Amounts on deposit in the deposit account are
recorded as restricted cash. Subsequent to August 1, 2000, the obligation will
begin to accrue on a cumulative basis at the same rate of 6.75% per annum and is
expected to be paid in shares of Verio's common stock.
LIQUIDITY AND CAPITAL RESOURCES
Our business strategy has required, and is expected to continue to require,
substantial capital to fund acquisitions and investments, capital expenditures
and interest expense.
As of March 31, 2000, we had approximately $849.3 million in cash and cash
equivalents and securities available for sale (including $14.4 million of
restricted cash). Significant cash activity for the three months ended March 31,
2000 is explained by equipment purchases, investments and the Equity Swap
Facility that we entered into with Salomon Smith Barney Inc. Cash used to
purchase equipment increased $37.4 million for the three months ended March 31,
2000 compared to the three months ended March 31, 1999, as we expanded our Web
hosting and co-location physical infrastructure, systems and personnel. The
acquisition of Hiway in January 1999 resulted in an aggregate cash outflow of
approximately $176.0 million in investing activities whereas the March 2000
acquisition of Agilera.com, a subsidiary of CIBER, Inc., resulted in a cash
outflow of approximately $30.0 million. Also in 2000, the Equity Swap Facility
with Salomon resulted in $33.1 million (net) additional cash provided by
financing activities. Cash provided by working capital items was $13.1 million
for the three months ended March 31, 1999, compared to $4.8 million used by
working capital items for the three months ended March 31, 2000.
Our business plan for 2000 currently anticipates investing approximately
$350.0 million over the year for capital expenditures. Approximately $300.0
million of the budgeted amount is for the expansion of hosting operations.
Specifically, the expenditures include $200.0 million for new and expanded
hosting centers, $45.0 million for additional servers, and the balance for
product development, software licenses, IT systems, a new Web operations control
center and leasehold improvements. The remaining $50.0 million of capital has
been budgeted for network equipment, systems and facilities to support the
growth of our high-speed access business. During the quarter ended March 31,
2000, Verio made capital investments of $64.3 million.
We also have significant debt service requirements. At March 31, 2000 our
long-term liabilities were $1,096.3 million, and the expected annual interest
expense is approximately $119.2 million. The interest expense and principal
repayment obligations associated with our debt could have a significant effect
on our future operations.
We have a $100.0 million revolving credit facility with a group of
commercial lending institutions. This facility is secured by substantially all
of the stock of our subsidiaries and by an agreement with Qwest pursuant to
which Verio may lease fiber capacity from time to time. The credit facility
requires no payments of principal until its maturity on June 30, 2002. The terms
of the credit facility provide for borrowings at a margin of 2% above LIBOR.
There is a commitment fee of 1/2 of 1% per annum on the undrawn amount of the
credit facility. We have made no borrowings under the credit facility.
The credit facility contains a number of other restrictions, including
limitations on our ability to:
o engage in businesses other than the Internet service business;
o place liens on our assets; and
o pay cash dividends on common stock.
In addition, under the credit facility, our indebtedness (less cash) may not
exceed 2.35 times our annualized pro forma revenue for the most recent quarter.
We currently have the ability to borrow the full $100.0 million commitment. We
are required to pay back any amounts borrowed under the credit facility with the
proceeds of new indebtedness, asset sales, free cash flow in excess of $5.0
million in any quarter, or the net proceeds from insurance claims.
Certain of our other debt instruments also impose significant limitations on
our ability to incur additional indebtedness unless we have issued additional
equity, or if our Consolidated Pro Forma Interest Coverage Ratio, as defined in
the indentures, is greater than or equal to 1.8 to 1.0 prior to June 30, 1999,
or 2.5 to 1.0 on or after that date, and if the ratio of our total debt to
consolidated annualized pro forma operating cash flow is not higher than 6:1.
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The indentures contain a number of other restrictions, including, among
others, limitations on our ability to:
o engage or make investments in businesses other than the Internet service
business;
o place liens on or dispose of our assets; and
o pay cash dividends on common stock.
If a change of control with respect to Verio occurs, we are required to make
an offer to purchase all the debt instruments then outstanding at a price equal
to 101% of the respective principal amount of the notes, plus accrued and unpaid
interest. We are in compliance with the provisions of all of our debt
agreements.
We issued 7.2 million shares of 6.75% Series A Convertible Preferred Stock,
with a liquidation preference of $50.00 per share, for approximate net proceeds
of $347.3 million. At the closing of this offering, the initial purchasers of
the convertible preferred stock deposited approximately $24.3 million into an
account from which quarterly cash payments will be made, or which may be used,
at Verio's option, to purchase shares of our common stock from us for delivery
to holders in lieu of cash payments. The deposit account will be fully disbursed
on August 1, 2000, unless it is earlier terminated and is reflected in
restricted cash. Subsequent to August 1, 2000, the obligation is expected to be
paid in shares of Verio's common stock.
On November 19, 1999, we sold $400.0 million principal amount of 10 5/8%
Senior Notes due 2009 in November 1999, for net proceeds of approximately $388.0
million. Interest at the annual rate of 10 5/8% is payable semi-annually in
arrears on May 15 and November 15 of each year commencing May 15, 2000. We have
the option of redeeming these notes at 105.313% of the principal amount starting
November 15, 2004 and at decreasing redemption premiums thereafter.
In March 2000, the Company and Verio LLC entered into several agreements
with Salomon Smith Barney Inc. ("Salomon"). Pursuant to a purchase and sale
agreement ("Purchase and Sale Agreement"), Verio LLC sold 0.6 million shares of
Verio common stock to Salomon for gross proceeds of $33.6 million. The Company
paid Salomon a $0.5 million structuring fee which was deducted from the
proceeds. Simultaneously, Verio LLC and Salomon entered into an agreement
("Equity Swap Facility") whereby the Company is obligated to repay the gross
proceeds of $33.6 million, plus a periodic fee equal to a LIBOR based rate plus
a 2% margin. The Equity Swap Facility matures on December 18, 2000, but can be
settled earlier by the Company without penalty. At settlement, Verio LLC, at its
sole option, will determine the method of settlement as either share settlement
or cash settlement. Due to the Company's ability and sole option to issue or
receive shares of Verio common stock to settle the Equity Swap Facility, the
Company records all amounts received or paid under this agreement as increases
or decreases to equity
Our anticipated expenditures are inherently uncertain and will vary widely
based on many factors including operating performance and working capital
requirements, the cost of additional acquisitions and investments, the
requirements for capital equipment to operate our business and our ability to
raise additional funds. Accordingly, we may need significant amounts of cash in
excess of our plan, and no assurance can be given as to the actual amounts of
our future expenditures. We will have to increase revenue without a commensurate
increase in costs to generate sufficient cash to enable us to meet our debt
service obligations. There can be no assurance that we will have sufficient
financial resources if operating losses increase or additional acquisition or
other investment opportunities become available.
We expect to meet our capital needs for the next 12 months with cash on
hand, and beyond 12 months, with the proceeds from the sale or issuance of
capital stock, the credit facility, lease financing and additional debt. We
regularly examine financing alternatives based on prevailing market conditions
and expect to access the capital markets from time to time based on our current
and anticipated cash needs and market opportunities. Over the longer term, we
will be dependent on obtaining positive operating cash flows and, to the extent
cash flows are not sufficient, the availability of additional financing, to meet
our debt service obligations. Insufficient funding may require us to delay or
abandon some of our planned future expansion or expenditures, which could have a
material adverse effect on our growth and ability to realize economies of scale.
In addition, our operating flexibility with respect to certain business
activities is limited by covenants associated with our indebtedness. There can
be no assurance that such covenants will not adversely affect our ability to
finance our future operations or capital needs or to engage in business
activities that may be in our interest.
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NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board adopted Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities (SFAS 133). Statement of Financial Accounting Standards
No. 137, Accounting for Derivative Instruments and Hedging Activities --
Deferral of the Effective Date of SFAS 133 -- An Amendment of SFAS 133, has
delayed the effective date of SFAS 133 to fiscal years beginning after June 15,
2000. The adoption of these pronouncements is not expected to have a significant
effect on the Company's financial position or results of operations.
In December 1999, the SEC released Staff Accounting Bulletin ("SAB") No.
101, "Revenue Recognition in Financial Statements", which provides guidance on
the recognition, presentation and disclosure of revenue in financial statements
filed with the SEC. Subsequently, the SEC released SAB 101A, which delayed the
implementation date of SAB 101 for registrants with fiscal years that begin
between December 16, 1999 and March 15, 2000. We are required to be in
conformity with the provisions of SAB 101, as amended by SAB 101A, no later than
April 1, 2000 and do not expect a material effect on our financial position,
results of operations or cash flows as a result of SAB 101.
IMPACT OF YEAR 2000
The commonly referred to Year 2000 or Y2K issue results from the fact that
many computer programs and systems were developed without considering the
possible impact of a change in the century designation that occurred on January
1, 2000. As a result, these programs and systems use only two digits instead of
four to identify the year in the date field. Many people were concerned that
essential systems and programs might not properly recognize this date and
therefore could generate inaccurate data, calculate erroneous results, or fail
if the issue remained uncorrected. As a result of these concerns, we undertook a
pervasive inventory, internal and third-party compliance assessment, and
service-level testing effort across all of our operations. Based on these
initiatives we discovered certain non-material Y2K compliance issues and took
appropriate corrective actions in advance of January 1, 2000. On January 1, 2000
and since that time, we have not experienced any significant Year 2000 problems
in connection with any of our systems or operations. Based on that experience,
we do not expect that we will encounter any significant latent Y2K-related
problems in the future.
FORWARD-LOOKING STATEMENTS
The statements included in the discussion and analysis above that are not
historical or factual are "forward-looking statements" (as that term is defined
in the Private Securities Litigation Reform Act of 1995). The safe harbor
provisions provided in Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended, apply to
forward-looking statements made by Verio. These statements can be identified by
the use of forward-looking terminology such as "believes," "expects," "may,"
"will," "should," or "anticipates" or the negative thereof or other variations
thereon or comparable terminology, or by discussions of strategy that involve
risks and uncertainties. Management cautions the reader that these
forward-looking statements addressing the timing, costs and scope of our
acquisition of, or investments in, existing affiliates, the revenue and
profitability levels of the affiliates in which we invest, the anticipated
reduction in operating costs resulting from the integration and optimization of
those affiliates, and other matters contained herein or therein from time to
time regarding matters that are not historical facts, are only predictions. No
assurance can be given that future results indicated, whether expressed or
implied, will be achieved. While sometimes presented with numerical specificity,
these projections and other forward-looking statements are based on current
expectations and a variety of assumptions relating to the business of Verio,
which, although we consider them reasonable, may not be realized. Because of the
number and range of the assumptions underlying Verio's projections and forward-
looking statements, many of which are subject to significant uncertainties and
contingencies that are beyond the reasonable control of Verio, some of the
assumptions will not materialize and unanticipated events and circumstances may
occur subsequent to the date of this report. Therefore, the actual experience of
Verio and results achieved during the period covered by any particular
projections or forward-looking statements may differ substantially from those
projected.
ITEM 3: Quantitative and Qualitative Disclosures About Market Risk
No significant changes in the quantitative and qualitative disclosures about
market risk have occurred from the discussion contained in our report on Form
10-K/A-1 for the year ended December 31, 1999, which was filed with the
Commission on March 27, 2000.
In connection with the Equity Swap Facility, Verio LLC entered into a pledge
agreement with Salomon. Under the terms of the pledge agreement, Verio LLC
pledged an additional 1.4 million shares of Verio common stock ("Pledged
Shares") to secure the Equity Swap Facility. If the market value of the Pledged
Shares and the original 0.6 million shares sold to Salomon falls below a
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specified ratio, Verio LLC will be required to pledge additional shares of Verio
common stock. Subsequent to March 31, 2000, Verio LLC was required to pledge an
additional 0.7 million shares of Verio common stock.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
Verio is party to various legal proceedings that have arisen in the
ordinary course of business. We do not believe any of these proceedings, if
determined adversely to us, would have a material adverse effect on us.
ITEM 2. Changes in Securities and Use of Proceeds
On March 17, 2000 the Company entered into an equity swap transaction
(the "Equity Swap") with Verio, LLC and Salomon Brothers Holding Company Inc.
("Salomon") pursuant to which Verio, LLC sold 640,000 shares of common stock,
$0.001 par value per share, of the Company ("Common Stock") to Salomon for
proceeds in the amount of approximately $33,600,000. Prior to this transaction,
the Company had issued as a capital contribution to Verio, LLC, a wholly-owned
unrestricted subsidiary of the Company, 2,000,000 shares of Common Stock.
Subsequently, the Company issued an additional 1,500,000 shares of Common Stock
to Verio, LLC, again as a capital contribution. As part of the Equity Swap,
Verio, LLC pledged an additional amount of shares of Common Stock to Salomon to
support the financial derivative transaction with Salomon.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
ITEM 5. Other Information
On May 1, 2000, Verio issued a press release announcing the appointment
of Thomas A Marinkovich to the Verio Board of Directors, effective as of April
27, 2000. Mr. Marinkovich will also serve as chairman of the Audit Committee of
the Verio Board.
On May 7, 2000, Verio entered into an Agreement and Plan of Merger (the
"Merger Agreement") with NTT Communications Corporation ("NTT") and Chaser
Acquisition, Inc., a wholly-owned subsidiary of NTT ("Sub"). Pursuant to the
Merger Agreement, and subject to the conditions thereof, Sub will commence a
cash tender offer (the "Offer") for all outstanding shares of common stock, par
value $.001 per share, of Verio, at a purchase price of $60.00 per share, and
all the shares of preferred stock of Verio, at a purchase price of $62.136 per
share. Following the Offer, Sub will merge with and into Verio (the "Merger")
and Verio will become a wholly-owned subsidiary of NTT. In the Merger, the
remaining common and preferred stockholders of Verio will become entitled to
receive the per share consideration paid in the Offer. On May 7, 2000 (May 8,
2000 Tokyo time), the Company issued a press release announcing the execution of
the Merger Agreement.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
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(b) Reports on Form 8-K
On February 28, 2000, the Company filed a Current Report on Form 8-K,
dated January 31, 2000. The Current Report included as an exhibit a press
release issued by the Company announcing, among other things, the following
matters: (i) the Company's plan to accelerate Web hosting and co-location
services; (ii) a $350 million capital budget for calendar year 2000, including
significant facilities expansion; (iii) the Company's operating priorities focus
on the growth and support for Web hosting, e-commerce and other application
hosting services; (iv) European expansion is underway; and (v) the resignation
of Herbert R. Hribar as a director, President and COO of the Company, effective
February 4, 2000.
On March 1, 2000, the Company filed a Current Report on Form 8-K, dated
March 1, 2000. The Current Report included as an exhibit a press release issued
by the Company announcing, among other things, the following matters: (i) fourth
quarter results and $258.3 million in total 1999 revenue; (ii) the creation of
an ASP joint venture with CIBER, Inc. to host complex applications for larger
businesses; (iii) the addition of Qwest Communications as a "Powered by Verio"
distribution partner; and (iv) the launch of new domain name registration
services in partnership with Melbourne IT. The press release also included
summary consolidated financial data for the three months ending December 31,
1998 and December 31, 1999.
On May 1, 2000, the Company filed a Current Report on Form 8-K, dated
April 27, 2000. The Current Report included as an exhibit a press release issued
by the Company announcing the appointment of Thomas A Marinkovich to the
Company's Board of Directors, effective as of April 27, 2000, and that Mr.
Marinkovich would also serve as chairman of the Audit Committee of the Board of
Directors.
On May 8, 2000, the Company filed a Current Report on Form 8-K, dated
May 7, 2000, reporting that the Company, NTT Communications Corporation ("NTT")
and Chaser Acquisition, Inc., a wholly-owned subsidiary of NTT ("Sub"), entered
into an Agreement and Plan of Merger (the "Merger Agreement"), dated as of May
7, 2000. Pursuant to the Merger Agreement, and subject to the conditions
thereof, Sub will commence a cash tender offer (the "Offer") for all outstanding
shares of common stock, par value $.001 per share, of the Company, at a purchase
price of $60.00 per share, and all the shares of preferred stock of the Company,
at a purchase price of $62.136 per share. Following the Offer, Sub will merge
with and into the Company (the "Merger") and the Company will become a
wholly-owned subsidiary of NTT. In the Merger, the remaining common and
preferred stockholders of the Company will become entitled to receive the per
share consideration paid in the Offer. The Current Report included as exhibits a
press release issued by the Company relating to the Merger and a copy of the
Merger Agreement.
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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.
VERIO INC.
Date: May 10, 2000 /s/ PETER B. FRITZINGER
----------------------------------------------
Peter B. Fritzinger
Chief Financial Officer
Date: May 10, 2000 /s/ CARLA HAMRE DONELSON
----------------------------------------------
Carla Hamre Donelson
Vice President, General Counsel and Secretary
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INDEX TO EXHIBIT
EXHIBIT
NUMBER DESCRIPTION
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27.1 Financial Data Schedule