SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) March 11, 1997
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TELCO COMMUNICATIONS GROUP, INC.
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(Exact name of registrant as specified in its charter)
Virginia 0-28668 54-1674283
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(State or other (Commission File Number) (I.R.S. Employer
jurisdiction of Identification No.)
incorporation)
4219 Lafayette Center Drive, Chantilly, Virginia 20151
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(Address of principal executive office) (Zip code)
Registrant's telephone number including area code (703) 631-5600
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(Former name or former address, if changed since last report)
Exhibit Index on Page 4
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Item 5. Other Events.
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A wholly owned subsidiary of Telco Communications Group, Inc. (Telco
Communications Group, Inc. and its wholly owned subsidiaries are hereinafter
collectively referred to as "Telco" or the "Company") entered into a
Network Purchase Agreement on March 11, 1997 to acquire the voice network assets
of Advantis ("Advantis"), a partnership formed by International Business
Machines Corp. and Sears, Roebuck and Co., for approximately $170 million in
cash.
The assets to be acquired from Advantis by Telco include a long-term lease on
approximately 100,000 network miles of DS-3 fiber optic capacity. Currently,
the flexible portion of the leased network capacity serves 30 cities in the
eastern United States and the fixed portion of the leased network crosses 19
cities in the western United States. Additionally, Telco would acquire five
Nortel DMS 250 switches and other ancillary network equipment located in
Atlanta, Georgia; Chicago, Illinois; Dallas, Texas; Los Angeles, California
and New York, New York. The Company has secured a commitment to increase its
existing credit facility by an additional $100 million in order to fund this
transaction and to provide for the ongoing liquidity needs of the Company. The
Company expects the transaction to close in mid-April of 1997.
Certain additional information regarding the Advantis acquisition is contained
in the press release issued by Telco with respect to the transaction, annexed
hereto as Exhibit 99.1, which is incorporated in its entirety by reference
in response to this Item 5.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
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c) Exhibits
Exhibit Number Description
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99.1 Press Release dated March 11, 1997
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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.
TELCO COMMUNICATIONS GROUP, INC.
By: /s/ Bryan Rachlin
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Date: March 18, 1997 Bryan Rachlin
General Counsel
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INDEX TO EXHIBITS
FORM 8-K
Exhibit Number Description Page
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99.1 Press Release dated March 11, 1997 5
[Letterhead of Telco Communications FOR IMMEDIATE RELEASE
Group] For More Information Contact:
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Donald A. Burns, President and
Chief Executive Officer,
Telco Communications Group, Inc.
(703) 631-5651
TELCO COMMUNICATIONS GROUP, INC.
TO ACQUIRE VOICE NETWORK ASSETS
AND BECOME FACILITIES-BASED CARRIER
CHANTILLY, Va (March 11, 1997) - Telco Communications Group, Inc.
(Nasdaq/NM:TCGX) and its wholly owned subsidiaries (collectively "Telco" or
"the Company") announced today that its newly formed network subsidiary has
signed a definitive asset purchase agreement to acquire the voice network
assets of Advantis for approximately $170 million in cash. The Advantis
assets include approximately 100,000 network miles of DS-3 fiber optic
capacity (under a long-term lease), five Nortel DMS 250 switches, and other
ancillary network equipment. The Nortel switches are located in the strategic
cities of Atlanta, Chicago, Dallas, Los Angeles and New York. Nortel switches
can support Telco's move into the local service market and may be efficiently
integrated into Telco's existing nationwide switch-based network. The
majority of the 100,000 DS-3 network miles are part of the existing "Big
Three" long distance carrier network and are currently configured throughout
the United States. Under the long-term lease, a portion of this network
capacity may be reconfigured to meet Telco's evolving needs, subject to
certain terms and conditions. Currently, the flexible network capacity serves
30 cities in the eastern United States. The fixed portion of the network,
through multiple DS-3 city-pair locations, crosses 19 cities in the western
United States.
Donald A. Burns, President and Chief Executive Officer of Telco said, "We
now have the benefits of fiber optic bandwidth ownership without the
corresponding construction cost or maintenance burden. This is a significant
addition to our existing inventory of telecommunications assets which includes
our national switch-based network, value-added billing and data processing
platform, and marketing channels staffed by Company personnel. The
acquisition of Advantis Voice Network assets places us among an elite group of
the telecommunications companies which own their own nationwide
telecommunications network and switching equipment. Our strategy has always
been to own and directly control the strategic assets necessary to operate as
a telecommunications services company. We believe that such ownership is
essential to the long-term prosperity of any company in this industry."
The Company noted that it currently leases approximately 40,000 DS-3
equivalent miles to support its existing network and the corresponding lease
cost constitutes approximately 10% to 15% of the Company's cost of services
expense. The Company believes that over time a significant portion of this
expense can be eliminated as it migrates onto the new capacity. From the date
of closing, the Company will generate additional revenue from several major
telecommunications services companies which have committed to long-term leases
of a significant portion of the network.
Burns added, "Since the Company's IPO in August 1996, we have operated
Telco with a significant cash balance, nominal debt and an undrawn credit
facility, all in anticipation of an opportunity
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like this. We have secured a commitment to increase our existing $100 million
credit facility in order to fund this transaction and to provide for the
ongoing liquidity needs of the Company."
The Company expects the transaction to close in mid-April and expects
nominal accretion to its earnings per share in 1997. The Company also
anticipates gaining access to a highly qualified labor pool as it offers
employment to certain Advantis voice network professionals.
Telco Communications Group, Inc. is one of the nation's 10 largest
long-distance companies. Telco is a rapidly growing nationwide switch-based
provider of a full spectrum of long distance telecommunications products and
services targeting residential, commercial and carrier customers. Telco
markets its residential products and services primarily through its Dial &
Save and Long Distance Wholesale Club subsidiaries. Telco markets its
commercial and carrier products through approximately 270 sales professionals
in 26 regional offices in 14 states.
Advantis, with headquarters in Schaumburg, Illinois, is a partnership of
International Business Machines Corp. (NYSE:IBM) and Sears, Roebuck and Co.
(NYSE:S).
VOICE NETWORK CITY LOCATIONS
(all locations are subject to change)
Atlanta Los Angeles Reno
Austin Memphis Sacramento
Boston Milwaukee Salinas
Chattanooga Minneapolis Salt Lake City
Chicago* Mobile San Antonio
Cleveland Nashua, NH San Francisco*
Columbia Nashville San Jose
Columbia, SC New Orleans San Luis Obispo
Columbus, OH New York City Santa Barbara
Dallas Omaha Seattle
Denver Philadelphia St. Louis
El Paso Phoenix Tampa
Houston* Pittsburgh Tucson
Indianapolis Providence Washington, D.C.
Jackson Raleigh White Plains
Kansas City
*City location for both fixed and flex portions of the Voice Network.
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As noted above, this press release contains information regarding 1997
and 1998 and, accordingly, contains forward-looking statements concerning
projected revenues, net income and earnings per share. Such forward-looking
statements express the current beliefs and expectations of Telco's management,
but are subject to a number of known and unknown risks and uncertainties that
could cause actual results to differ materially from those projected or
implied in the forward-looking statements in this press release. Among the
risk factors and uncertainties that could cause actual results for 1997 and
1998 to differ materially from those referred to above are: Telco's ability to
maintain its current pace in attracting and retaining customers, the
development of increased price competition in the telecommunications industry,
an increase in rates for access or charges for transmission facilities, the
ability of the Company to integrate the acquisition of the Advantis assets and
to generate the anticipated earnings and cash flow and the costs associated
with the continued expansion of the Company's Commercial Sales Division.
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[Graphic of Map of the United States entitled "Telco DS-3 Backbone" indicating
voice network city locations for both fixed and flexible portions of the
network
Fixed Flex
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San Francisco, CA* San Francisco, CA*
Sacramento, CA Houston, TX
San Jose, CA New Orleans, LA
Reno, NV Dallas, TX
Salt Lake City, UT Austin, TX
Salinas, CA Tampa, FL
San Luis Obispo, CA Mobile, AL
Santa Barbara, CA Jackson, MS
Los Angeles, CA Atlanta, GA
Phoenix, AZ Columbia, SC
Tucson, AZ Memphis, TN
El Paso, TX Nashville, TN
San Antonio, TX Chattanooga, TN
Houston, TX* Raleigh, NC
Denver, CO St. Louis, MO
Omaha, NE Downer's Grove, IL
Kansas City, MO Milwaukee, WI
Minneapolis, MN Indianapolis, IN
Chicago, IL* Columbus, OH
Cleveland, OH
Pittsburgh, PA
Washington, DC
Philadelphia, PA
White Plains, NY
New York, NY
Providence, RI
Boston, MA
Nashua, NH
*City location for both fixed and flex portions of the voice network]
