<PAGE> 1
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
(COMMISSION FILE NUMBER: 333-37719)
GLOBAL TELESYSTEMS EUROPE B.V.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
NETHERLANDS NONE
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
</TABLE>
TERHULPSESTEENWEG 6A
1560 HOEILAART
BELGIUM
(Address of principal executive office)
(322) 658-5200
(Registrant's telephone number)
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
registrants were required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
As of July 31, 2000 the registrant is a wholly owned subsidiary of Global
TeleSystems, Inc.
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GLOBAL TELESYSTEMS EUROPE B.V.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements of Global TeleSystems Europe B.V.
(unaudited)...............................................
Condensed Consolidated Balance Sheets as of June 30, 2000 3
and December 31, 1999.....................................
Condensed Consolidated Statements of Operations for the 4
Three and Six Months Ended June 30, 2000 and 1999.........
Condensed Consolidated Statements of Cash Flows for the Six 5
Months Ended June 30, 2000 and 1999.......................
Notes to Condensed Consolidated Financial Statements........ 6
Item 2 Management's Discussion and Analysis of Financial Condition 9
and Results of Operations.................................
Item 3 Quantitative and Qualitative Disclosures About Market 12
Risk......................................................
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K............................ 12
Signatures............................................................... 13
</TABLE>
2
<PAGE> 3
GLOBAL TELESYSTEMS EUROPE B.V.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
---------- ------------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents, including restricted cash...... $ 326,603 $ 583,787
Accounts receivable, net.................................. 124,639 83,267
Other current assets...................................... 145,325 74,423
---------- ----------
TOTAL CURRENT ASSETS.............................. 596,567 741,477
Property and equipment, net................................. 956,147 756,452
Goodwill and intangible assets, net......................... 321,744 268,577
Other non-current assets.................................... 53,975 17,441
---------- ----------
TOTAL ASSETS...................................... $1,928,433 $1,783,947
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses..................... $ 183,394 $ 100,301
Deferred revenue.......................................... 70,458 66,170
Current portion of capital lease obligations.............. 22,167 11,120
---------- ----------
TOTAL CURRENT LIABILITIES......................... 276,019 177,591
Long-term debt.............................................. 1,016,914 1,057,975
Long term portion of capital lease obligations.............. 240,107 171,861
Deferred revenue and other non-current liabilities.......... 150,240 118,132
---------- ----------
TOTAL LIABILITIES................................. 1,683,280 1,525,559
SHAREHOLDERS' EQUITY
Common stock, 1000 guilders par value (297,000 shares
authorized; 200,316 shares issued and outstanding at
June 30, 2000 and December 31, 1999.................... 101,518 101,518
Additional paid-in capital................................ 229,744 232,062
Accumulated deficit....................................... (86,109) (75,192)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY........................ 245,153 258,388
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........ $1,928,433 $1,783,947
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
GLOBAL TELESYSTEMS EUROPE B.V.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues........................................... $117,882 $ 67,142 $232,649 $122,869
Operating expenses:
Access and network services...................... 50,364 19,458 94,269 38,764
Selling, general and administrative.............. 28,904 10,267 56,355 21,404
Depreciation and amortization.................... 28,464 15,498 55,421 26,371
-------- -------- -------- --------
Total operating expenses................. 107,732 45,223 206,045 86,539
Income from operations............................. 10,150 21,919 26,604 36,330
Other income/(expense):
Interest, net.................................... (17,302) (12,551) (35,266) (25,986)
Foreign currency gains (losses).................. 1,844 1,039 (409) (530)
Other expenses................................... (73) (338) (133) (468)
-------- -------- -------- --------
(15,531) (11,850) (35,808) (26,984)
-------- -------- -------- --------
Net income (loss) before income taxes.............. (5,381) 10,069 (9,204) 9,346
Income taxes....................................... 214 2,525 1,713 3,670
-------- -------- -------- --------
Net income (loss)........................ $ (5,595) $ 7,544 $(10,917) $ 5,676
======== ======== ======== ========
Net income (loss) per share:
Basic.............................................. $ (27.93) $ 38.23 $ (54.50) $ 28.81
======== ======== ======== ========
Diluted............................................ $ (27.93) $ 37.73 $ (54.50) $ 28.40
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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GLOBAL TELESYSTEMS EUROPE B.V.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
2000 1999
--------- --------
(IN THOUSANDS)
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES................... $ 63,386 $ 182
INVESTING ACTIVITIES
Purchases of property and equipment....................... (187,665) (63,139)
Acquisitions, net of cash acquired........................ (80,497) (15,667)
Other investing activities................................ -- 15,227
--------- --------
NET CASH USED IN INVESTING ACTIVITIES............. (268,162) (63,579)
FINANCING ACTIVITIES
Due to affiliated companies, net.......................... (49,819) (17,782)
Repayments of debt........................................ (10,802) (16,476)
Proceeds from debt........................................ -- 302,450
Payment of debt issue costs............................... -- (10,164)
Net proceeds from issuance of common stock................ -- 1,249
--------- --------
NET CASH (USED IN)/PROVIDED BY FINANCING
ACTIVITIES...................................... (60,621) 259,277
Effect of exchange rate changes on cash and cash
equivalents............................................... 6,409 15,857
--------- --------
Net (decrease) increase in cash and cash equivalents........ (258,988) 211,737
Cash and cash equivalents at beginning of period............ 565,402 130,081
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 306,414 $341,818
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Capitalization of leases.................................. $ 104,100 $ 42,100
========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
GLOBAL TELESYSTEMS EUROPE B.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Global TeleSystems Europe B.V. (the "Company"), formerly Hermes Europe
Railtel B.V., is one of the leading European providers of managed bandwidth
services and related telecommunications services to telecommunications carriers,
Internet service providers and other bandwidth-intensive customers. The Company
operates a centrally managed fiber optic network (the "Network") in Europe
connecting various cities with service to the United States provided through
capacity leased on transatlantic cables. In addition, the Company operates
Ebone, a Tier 1 Internet backbone network that connects European service
providers to the Internet.
The Company was formed on July 6, 1993 and was 98.4% owned by GTS Carrier
Services, Inc., a wholly owned subsidiary of Global TeleSystems, Inc. ("GTS"), a
leading independent provider of telecommunications services to businesses, other
high usage customers and telecommunications carriers in Europe, Russia and the
Commonwealth of Independent States. On July 26, 2000, GTS acquired the remaining
outstanding shares that were held by minority shareholders, and as a result, the
Company became a wholly owned subsidiary of GTS.
The financial statements included herein are unaudited and have been
prepared in accordance with generally accepted accounting principles for interim
financial reporting and Securities and Exchange Commission regulations. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. Material
intercompany affiliate account transactions have been eliminated. In the opinion
of management, the financial statements reflect all adjustments of a normal and
recurring nature necessary to present fairly the Company's financial position,
results of operations and cash flows for the interim periods. These financial
statements should be read in conjunction with the Company's 1999 audited
consolidated financial statements and the notes related thereto. The results of
operations for the three and six months ended June 30, 2000 may not be
indicative of the operating results for the full year.
Throughout 2000, GTS has been realigning its legal organizational structure
in order to achieve the most beneficial company wide tax structure. Due to this
realignment, the FY2000 financial results contained herein now include
subsidiaries that were previously included elsewhere within the GTS
organizational structure during 1999. As required under the Company's bond
covenants, GTS has obtained appraisals from an independent appraisal firm to
support the acquisition of net assets by the Company, at their appraised fair
market value, from other GTS affiliates.
Certain reclassifications have been made to the prior period consolidated
financial statements presented in order to conform to the June 30, 2000
presentation.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which was amended in June 1999 and June
2000. The Company expects to adopt the new statement effective January 1, 2001.
The statement will require the Company to recognize all derivatives on the
balance sheet at fair value. The Company does not anticipate that the adoption
of the statement will have a significant effect on its results of operations or
financial position.
3. EARNINGS PER SHARE
The Company's net income (loss) per share calculation (basic and diluted)
is based upon the weighted average common shares issued. There are no
reconciling items in the numerator of the Company's net income
6
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GLOBAL TELESYSTEMS EUROPE B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(loss) per share calculation. The following is a reconciliation of the
denominator of the Company's net income (loss) per share calculation:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -----------------
2000 1999 2000 1999
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Weighted Average Shares Outstanding............ 200,316 197,335 200,316 197,026
Common Stock Equivalents....................... 318 2,591 318 2,868
------- ------- ------- -------
Diluted Shares Outstanding..................... 200,634 199,926 200,634 199,894
======= ======= ======= =======
</TABLE>
4. COMPREHENSIVE INCOME (LOSS)
The following table reflects the calculation of comprehensive income (loss)
for the Company for the three and six months ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- ------------------
2000 1999 2000 1999
-------- ------- -------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net loss................................... $(5,595) $7,544 $(10,917) $5,676
Other comprehensive loss...................
Foreign currency translation adjustments... (1,430) (553) (2,318) (2,448)
------- ------ -------- ------
Comprehensive income (loss)................ $(7,025) $6,991 $ 13,235 $3,228
======= ====== ======== ======
</TABLE>
5. RELATED PARTY TRANSACTIONS
The Company had receivable and payable balances from affiliates of GTS of
$113.5 million and $33.6 million, respectively, at June 30, 2000.
The Company derived revenue from affiliates of $27.3 million for the six
months ended June 30, 2000. Costs of revenue from affiliates were $8.4 million
for the six months ended June 30, 2000.
6. SUBSEQUENT EVENTS
Line of Credit Facility
On July 17, 2000, one of the Company's subsidiaries executed an eight (8)
year, US $550 million, multi-currency, line of credit facility. The line of
credit facility will be applied to the purchase of additional network assets; to
construct the Company's proposed hosting centers and city enterprise networks;
to pursue business development opportunities in the telecommunications field;
and for general corporate purposes in the telecommunications business.
Under the terms of the agreement, $275 million will become available upon
satisfaction of certain customary conditions, such as the execution of various
security agreements, with the remainder of the $550 million becoming available
once certain additional conditions have been satisfied.
Purchase of Minority Interest in GTS Europe B.V.
On July 26, 2000, GTS exchanged 3,166,528 of its common shares for 3,283 of
the Company's common shares, pursuant to an exchange agreement that GTS had
entered into, on October 15, 1999, with the minority interest holders of the
Company, including grantees of the Company's stock options. Upon the completion
of this exchange, GTS, as of July 26, 2000, owns 100% of the outstanding common
shares of the Company. The remaining 318 options held by minority interest
holders of the Company will become exercisable into the
7
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GLOBAL TELESYSTEMS EUROPE B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company's common shares in September 2000. Further, pursuant to the October 15,
1999 exchange agreement, GTS is obligated to exchange its common shares for the
Company's common shares that the Company will issue upon the exercise of the 318
options.
This exchange of GTS common shares was based on the fair market value of
the Company as of the date of the exchange, and the transaction resulted in
excess purchase price over the fair value of assets acquired of approximately
$37.2 million, which will be recorded in the third quarter of 2000.
Third Quarter Restructuring Initiative
On August 1, 2000, the Board of Directors of GTS formally approved a plan
of restructuring of the GTS business operations. This plan of restructuring is
focused on separating the GTS non-core business from its core strategic
businesses and streamlining operations, including headcount
reductions/redeployment, the centralization of finance and billing operations
and sales office consolidation. Because the Company is a wholly owned subsidiary
of GTS, the plan of restructuring will have an impact on the Company's future
financial results.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis relates to the Company's financial
condition and results of operations for the three and six months ended June 30,
2000 and 1999 and of certain factors that management believes are likely to
affect the Company's prospective financial condition. This information should be
read in conjunction with the Company's Condensed Consolidated Financial
Statements and the notes related thereto appearing elsewhere in this document.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
Certain statements contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" including, without limitation,
those concerning (i) projected traffic volume, (ii) future revenues and costs
and (iii) changes in the Company's competitive environment, contain
forward-looking statements concerning the Company's operations, economic
performance and financial condition. Because such statements involve risks and
uncertainties, actual results may differ materially from those expressed or
implied by such forward-looking statements.
In addition, any statements that express, or involve discussions as to,
expectations, beliefs, plans, objectives, assumptions or future events or
performance (often, but not always, through the use of words or phrases such as
"will likely result," "are expected to," "will continue," "is anticipated,"
"estimated," "intends," "plans," "projection" and "outlook") are not historical
facts and may be forward-looking and, accordingly, such statements involve
estimates, assumptions and uncertainties which could cause actual results to
differ materially from those expressed in the forward-looking statements.
Accordingly, any such statements are qualified in their entirety by reference
to, and are accompanied by, the factors discussed throughout this Report. Among
the key factors that have a direct bearing on the Company's results of
operations are the potential risk of delay in implementing the Company's
business plan; the political, economic and legal aspects of the markets in which
the Company operates; competition and the Company's need for additional
substantial financing. These and other factors are discussed herein under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and elsewhere in this Report.
The factors described in this Report could cause actual results or outcomes
to differ materially from those expressed in any forward-looking statements made
by us or on behalf of us, and investors, therefore, should not place undue
reliance on any such forward-looking statements. Further, any forward-looking
statement speaks only as of the date on which such statement is made, and the
Company undertakes no obligation to update any forward-looking statement or
statements to reflect events or circumstances after the date on which such
statement is made or to reflect the occurrence of unanticipated events. New
factors may emerge from time to time, and it is not possible for management to
predict all of such factors. Further, the Company cannot assess the impact of
each such factor on its business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.
OVERVIEW
The Company is a leading European provider of managed bandwidth services
and related telecommunications services to telecommunications carriers, Internet
service providers and other bandwidth-intensive customers. As of June 30, 2000,
the Company operated a centrally managed fiber optic network in Europe over
approximately 17,500 kilometers connecting 38 cities in 14 European countries,
with service to the United States provided through capacity leased on
transatlantic cables.
9
<PAGE> 10
RESULTS OF OPERATIONS
The following table sets forth the Company's statement of operations as a
percentage of revenues:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
------------- -------------
2000 1999 2000 1999
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenues............................................... 100.0% 100.0% 100.0% 100.0%
Access and network services............................ 42.7 29.0 40.5 31.5
Selling, general and administrative.................... 24.5 15.3 24.2 17.4
Depreciation and amortization.......................... 24.2 23.1 23.8 21.5
Merger and restructuring costs......................... -- -- -- --
----- ----- ----- -----
Income from operations................................. 8.6 32.6 11.5 29.6
Interest expense....................................... (47.0) (24.9) (37.6) (27.7)
Interest income........................................ 32.3 6.2 22.4 6.5
Foreign currency gains/(losses)........................ 1.6 1.6 (0.2) (0.4)
Other income/(expense)................................. (0.1) (0.5) (0.1) (0.4)
----- ----- ----- -----
Loss before income taxes............................... (4.6) 15.0 (4.0) 7.6
Income taxes........................................... (0.1) (3.8) (0.7) (3.0)
----- ----- ----- -----
Net loss............................................... (4.7)% 11.2% (4.7)% 4.6%
===== ===== ===== =====
</TABLE>
Three Months Ended June 30, 2000 Compared To The Three Months Ended June 30,
1999
Revenue. Consolidated revenues for the three months ended June 30, 2000
were $117.9 million as compared to $67.1 million for the comparable period in
1999. The growth in revenue is attributable to the continued deployment of the
Company's network, increased customer base as well as the result of the
inclusion of the financial results associated with the acquired GTS affiliated
companies during fiscal year 2000.
Access and Network Services. Telecommunications services costs for the
three months ended June 30, 2000 were $50.4 million or 42.7% of revenues as
compared to $19.5 million or 29.0% of revenues for the comparable period in
1999. The increase in telecommunications services costs for the three months
ended June 30, 2000 was due to increased costs related to operating and
maintaining the network as it continues to be deployed, increases in local
access costs as required for customer connectivity, as well as the result of the
inclusion of the financial results associated with the acquired GTS affiliated
companies during fiscal year 2000.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended June 30, 2000 were $28.9
million or 24.5% of revenues as compared to $10.3 million or 15.3% of revenues
for the same period in 1999. The increase in selling, general and administrative
expenses is reflective of the growth of the Company's business operations and
support personnel, as well as the result of the inclusion of the financial
results associated with the acquired GTS affiliated companies during fiscal year
2000.
Depreciation and Amortization. Depreciation and amortization expense for
the three months ended June 30, 2000 was $28.5 million as compared to $15.5
million for the comparable period in 1999. The increase in depreciation and
amortization expense is attributable to an increase in depreciation of network
assets due to the continued deployment of the Company's network.
Interest. Interest expense for the three months ended June 30, 2000 was
$55.4 million as compared to $16.7 million for the comparable period in 1999.
The increase was primarily attributable to the interest associated with the
issuance in November 1999 of $500.0 million aggregate principal amount of senior
notes.
Interest income for the three months ended June 30, 2000 was $38.1 million
as compared to $4.2 million in the comparable period in 1999. The increase is
due to the interest earned from the Company's short-term investments that have
increased as a result of the investment of the proceeds from the issuance of the
1999 new senior notes due 2009.
10
<PAGE> 11
Six Months Ended June 30, 2000 Compared To The Six Months Ended June 30, 1999
Revenue. Consolidated revenues for the six months ended June 30, 2000 were
$232.6 million as compared to $122.9 million for the comparable period in 1999.
The growth in revenue is attributable to the continued deployment of the
Company's network, increased customer base as well as the result of the
inclusion of the financial results associated with the acquired GTS affiliated
companies during fiscal year 2000.
Access and Network Services. Telecommunications services costs for the six
months ended June 30, 2000 were $94.3 million or 40.5% of revenues as compared
to $38.8 million or 31.5% of revenues for the comparable period in 1999. The
increase in telecommunications services costs for the six months ended June 30,
2000 was due to increased costs related to operating and maintaining the network
as it continues to be deployed, increases in local access costs as required for
customer connectivity, as well as the result of the inclusion of the financial
results associated with the acquired GTS affiliated companies during fiscal year
2000.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the six months ended June 30, 2000 were $56.4
million or 24.2% of revenues as compared to $21.4 million or 17.4% of revenues
for the same period in 1999. The increase in selling, general and administrative
expenses is reflective of the growth of the Company's business operations and
support personnel, as well as the result of the inclusion of the financial
results associated with the acquired GTS affiliated companies during fiscal year
2000.
Depreciation and Amortization. Depreciation and amortization expense for
the six months ended June 30, 2000 was $55.4 million as compared to $26.4
million for the comparable period in 1999. The increase in depreciation and
amortization expense is attributable to an increase in depreciation of network
assets due to the continued deployment of the Company's network.
Interest. Interest expense for the six months ended June 30, 2000 was $87.4
million as compared to $34.0 million for the comparable period in 1999. The
increase was primarily attributable to the interest associated with the issuance
in November 1999 of $500.0 million aggregate principal amount of senior notes.
Interest income for the six months ended June 30, 2000 was $52.1 million as
compared to $8.0 million in the comparable period in 1999. The increase is due
to the interest earned from the Company's short-term investments that have
increased as a result of the investment of the proceeds from the issuance of the
1999 new senior notes due 2009.
LIQUIDITY AND CAPITAL RESOURCES
Execution of the Company's strategy has been capital intensive. The Company
currently expects that it will incur additional capital expenditures, including
capital leases, of between $400.0 million and $600.0 million through June 30,
2001, to expand the reach and capacity of its network, and to construct
intracity fiber networks and data- and Web-hosting centers in the its target
metropolitan markets. The Company believes existing cash balances and the
Company's projected internally generated funds, should be sufficient to fund
currently identified capital expenditures, at least through December 31, 2000,
including payments on the long-term fiber lease arrangements. However, the
actual amount and timing of the Company's future requirements may differ
materially from estimates. Any failure to obtain necessary financing may require
the Company to delay or abandon its plans for expanding the reach and capacity
of the network, and constructing its planned intracity fiber networks and data-
and Web-hosting centers which could jeopardize the Company's viability.
On July 17, 2000, the Company executed an eight (8) year, US $550 million,
multi-currency, line of credit facility ("the New Credit Facility"). The New
Credit Facility will be applied to the purchase of additional network assets; to
construct the Company's proposed hosting centers and city enterprise networks;
to pursue business development opportunities in the telecommunications field;
and for general corporate purposes in the telecommunications business.
The Company had a positive working capital of $320.5 million and $563.9
million as of June 30, 2000 and December 31, 1999, respectively. The Company had
cash and cash equivalents of $306.4 million and $565.4 million at June 30, 2000
and December 31, 1999, respectively. The Company had $20.2 million and $18.4
million of restricted cash at June 30, 2000 and December 31, 1999, respectively.
The restricted cash primarily relates to cash held in escrow for bank guarantees
issued in connection with fiber and office leases.
11
<PAGE> 12
During the six months ended June 30, 2000, the Company provided $63.4
million cash from operating activities compared with providing $0.2 million for
the comparable period in 1999. Investing activities used cash of $268.2 million
for the six months ended June 30, 2000 as compared to using cash of $63.6
million for the comparable period in 1999.
The Company has developed risk management policies that establish
guidelines for managing foreign exchange risk. The Company continuously
evaluates the materiality of foreign exchange exposures in different countries
and the financial instruments available to mitigate these exposures. The Company
has designed and implemented reporting processes to monitor the potential
exposure on an ongoing basis and the Company will use the output of this process
to execute financial hedges to cover foreign exchange exposure when practically
and economically justified.
INTRODUCTION OF THE EURO
On January 1, 1999, eleven of the fifteen member countries of the European
Union, including Belgium, The Netherlands, Ireland, France, Germany, Italy and
Spain, where the Company has operations, established fixed conversion rate
between their existing sovereign currencies and a new currency called the
"Euro." These countries adopted the Euro as their common legal currency on that
date. The Euro trades on currency exchanges and is available for non-cash
transactions. Hereafter and until January 1, 2002, the existing sovereign
currencies will remain legal tender in these countries. On January 1, 2002, the
Euro is scheduled to replace the sovereign legal currencies of these countries.
The Company has significant operations within the European Union including
many of the countries that have adopted the Euro. The Company continues to
evaluate the impact the Euro will have on its continuing business operations and
no assurances can be given that the Euro will not have material adverse affect
on the Company's business, financial condition and results of operations.
However, the Company does not expect the Euro to have a material effect on the
Company's competitive position as a result of price transparency within the
European Union as the Company has always operated as a pan-European business
with transparent pricing in ECU for the majority of the Company's customers.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
There were no significant changes since December 31, 1999.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the second quarter 2000, the shareholders of the Company took action
by unanimous written resolution to elect (1) Robert J. Amman, Jeffrey Von
Deylen, James Reynolds, Gerard Caccappolo, Paul Nemirovsky and Vimal Agarwal to
the Company's Board of Managing Directors and (2) H. Brian Thompson and Grier C.
Raclin to the Company's Board of Supervisory Directors. The members of the
previous Managing and Supervisory Boards resigned.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
B. Reports on Form 8-K
<TABLE>
<CAPTION>
DATE OF REPORT SUBJECT OF REPORT
-------------- -----------------
<S> <C>
None
</TABLE>
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
GLOBAL TELESYSTEMS EUROPE B.V.
(Registrant)
By: /s/ JEFFREY H. VON DEYLEN
----------------------------------
Name: Jeffrey H. Von Deylen
Title: Senior Vice President,
Finance
(Principal Accounting Officer)
Date: August 14, 2000
13
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<C> <S>
27 -- Financial Data Schedule
</TABLE>
