GLOBAL TELESYSTEMS GROUP INC
8-K, 2000-02-08
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)
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<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549



                                    FORM 8-K


                                 CURRENT REPORT


     Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


                                February 8, 2000
                Date of Report (Date of earliest event reported)


                         Global TeleSystems Group, Inc.
             (Exact name of registrant as specified in its charter)


          Delaware                    0-23717                    94-3068423
(State or other jurisdiction  (Commission File Number)          (IRS Employer
     of incorporation)                                       Identification No.)



         4121 Wilson Boulevard
               8th Floor
          Arlington, VA 22203                                       22203
(Address of principal executive offices)                          (Zip Code)



                                 (703) 236-3100
              (Registrant's telephone number, including area code)



<PAGE>   2

Item 5. Other Events.

        On February 8, 2000, Global TeleSystems Group, Inc. (the "Company")
announced its results of operations for the Fourth Quarter 1999 and fiscal year
1999. The Company's press release announcing such results of operations is
attached hereto as Exhibit 99.1.

Item 7. Financial Statements and Exhibits.

(c) Exhibits


Designation                     Description of Exhibit

   99.1    Press release announcing Fourth Quarter 1999 and fiscal year 1999
           results of operations for Global TeleSystems Group, Inc.

<PAGE>   3

                                   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 hereunto duly authorized.

                                      Global TeleSystems Group, Inc.
                                      (Registrant)


                                      /s/ ARNOLD Y. DEAN
Date:  February 8, 2000               ------------------------------------------
                                      Arnold Y. Dean
                                      Vice President, Deputy General Counsel and
                                      Assistant Secretary

<PAGE>   4

                                 EXHIBIT INDEX



<TABLE>
<CAPTION>
Exhibit
  No.                             Description
- -------                           -----------
<S>            <C>

99.1           Press release announcing Fourth Quarter 1999 and fiscal year 1999
               results of operations for Global TeleSystems Group, Inc.
</TABLE>


<PAGE>   1
                                                                    EXHIBIT 99.1

FOR IMMEDIATE RELEASE

               GTS REPORTS FOURTH QUARTER AND ANNUAL 1999 RESULTS

HIGHLIGHTS
o    Grows full-year revenues 129 percent in 1999; quarterly revenues up 78
     percent year-over-year, 11 percent sequentially, to US$253.1 million.

o    Improves annual EBITDA1 losses from (17) percent of revenues in 1998 to (9)
     percent of revenues in 1999.

o    Reports quarterly recurring EBITDA losses of (US$17.6) million, or (7)
     percent, including approximately US$10 million in new e*Business and
     branding investments, up from (12) percent in 1998.

o    Initiates a series of new e*Business developments, including Web hosting
     centers and dedicated Internet access (DIA).

o    Announces network plans to expand backbone in "core" cities up to 144
     fibers; extends backbone network to 30 cities.

o    Announces, with FLAG Telecom Holdings Ltd., an increase in planned
     trans-Atlantic capacity of FLAG Atlantic-1 to 2 x 2.4 Tbps; enters
     marketing agreement with GlobeNet for connections between Latin America,
     Europe.

o    Begins doubling size of Europe's largest IP-over-DWDM backbone.

o    Announces acquisition of Netcom, a U.K.-based ISP and Web hosting company

WASHINGTON, FEBRUARY 8, 1999 - Global TeleSystems Group, Inc. (GTS) (NYSE: GTS;
Easdaq: GTSG; Frankfurt: GTS), the leading European e*Business and borderless
broadband services company, today reported its results for the fourth quarter
and full year of 1999. Consolidated revenues in the quarter expanded to US$253.1
million, up 78 percent from US$141.9 million in the fourth quarter of 1998. On a
recurring basis, the company's EBITDA loss for the fourth quarter of 1999
improved to (7) percent of revenues versus (12) percent in the year-ago quarter.
The company also announced investments in its e*Business initiatives and
branding amounting to US$10 million in the most recent quarter ended.

H. Brian Thompson, GTS's chairman and chief executive officer, said: "While
growing its base business at an impressive 11 percent sequentially, GTS has been
changing to meet the new and rapidly-evolving demands of the European
marketplace. To respond to the coming data/IP boom in Europe, we have put in
place a series of new e*Business initiatives. We own the largest Tier-1 IP
network, Ebone, with a quarter of the European IP-transit market, some 1.6 Gbps
of IP interconnections, and nearly 10 percent of the Internet's global routing
tables. In combination with our recent Netcom acquisition, GTS now has about 200
data-focused and -trained sales people in its 800-person sales force and some
35,000 Internet access customers. We are, today, one of the best positioned
companies in Europe to take advantage of the burgeoning European telecom
marketplace."

In the quarter GTS recorded a charge of US$97.6 million for restructuring and
other non-recurring costs. The charge included a US$59 million restructuring
charge, which reflects the integration and rationalization of GTS's
switched-voice assets as well as costs recorded for certain employee-related
reorganization expenses. These charges were principally a result of the
acquisitions and organizational consolidation the company made in 1999. Included
in the US$97.6 million is US$38.6 million of non-recurring items, which
represents reserve strengthening and out-of-period costs. Excluding these
one-time charges, recurring EBITDA was (US$17.6) million.

                                    - MORE -

<PAGE>   2
GTS 4th Quarter 1999 Release
Page 2

In the fourth quarters of 1999 and 1998, including non-recurring charges, net
loss applicable to common shareholders was, respectively, (US$248.4) and
(US$94.3) million, or (US$1.38) and (US$0.61) per share.

For the full year 1999, consolidated revenues were US$852.2 million, up 129
percent from US$372.4 million for 1998. The company's full-year 1999 EBITDA loss
was (US$78.4) million, versus (US$64.7) million a year ago. Full year 1999 net
loss applicable to common shareholders was (US$642.4) million, or (US$3.76) per
share compared to a net loss applicable to common shareholders of (US$255.8)
million, or (US$1.79) per share.

OPERATIONS

Revenues
In the fourth quarter of 1999, GTS's revenues grew 78 percent year-over-year to
US$253.1 million and 11 percent sequentially, compared with 1999's third
quarter. The company's Carrier Services unit grew revenues to US$82.6 million
compared with US$42.3 million in the year-ago quarter. Business Services'
revenues grew to US$145.0 million, or 95 percent, compared with US$74.2 million
in the year-ago quarter. Revenues at Golden Telecom, which incorporates GTS's
assets in Russia, Ukraine and other former Soviet countries, remained relatively
unchanged at US$25.5 million in the fourth quarter 1999.

GTS continues to be the largest independent provider of cross-border managed
bandwidth services in Europe. Growing demand at Carrier Services is reflected in
its backlog at the end of the year of approximately US$635 million. The average
contract length is now 6.0 years, up from 4.5 years in the first quarter of
1999. Existing customers have converted from short- to long-term contracts
throughout 1999, including 10-year contracts in which revenues are recognized
ratably over the life of the contract. While this had the effect of somewhat
dampening the sequential revenue growth rates from what they otherwise would
have been, the company believes that the long-term nature of these contracts
significantly improves prospects for long-term returns.

Business Services' revenues grew sequentially at a 20-percent rate, reflecting
growth in the customer base, additional service offerings, the positive effects
of a reorganization the company completed in the summer of 1999 and the initial
benefits of its new product development and marketing efforts.

In the fourth quarter of 1999, GTS's consolidated revenues were derived 10
percent from data and IP services, 61 percent from voice services and 29 percent
from managed bandwidth services (including both voice and data traffic).

EBITDA
In the fourth quarter of 1999, GTS's recurring EBITDA loss remained constant at
(US$17.6) million - or about (7) percent of revenues, compared with about (12)
percent of revenues in the year-ago period. As a percentage of revenues, these
results improved year-over-year due to a near doubling of revenues at GTS's
Carrier Services unit, which contributes roughly 50 percent EBITDA margin
percentages. These improvements were offset by approximately US$5.0 million in
new spending on e*Business initiatives and US$5.0 million in pan-European brand
advertising.


                                    - MORE -
<PAGE>   3
GTS 4th Quarter 1999 Release
Page 3

In spite of substantial retail pricing pressure in the fourth quarter and the
year overall, Business Services' revenues grew substantially. While these
revenues added significantly to the company's gross margins in absolute dollars,
they generate lower gross margins as a percentage of revenues than does Carrier
Services. Comparing the third to fourth quarters of 1999, Business Services'
revenues increased relative to Carrier Services. This mix change, coupled with
rate declines, put pressure on total company gross margin percentages. However,
as the company has put in place a program to improve network efficiencies, these
pressures on gross margin percentages were partially offset. Further, the new
data and e*Business services, which the company is emphasizing going forward,
should typically generate higher gross margins as a percentage of revenues than
do telephony services.

e*Business Initiatives
GTS has recently announced several e*Business-related initiatives, including:
o    The acquisition of Netcom Internet Ltd., a leading ISP and Web hosting
     company in the United Kingdom.

o    New Web hosting centers in London, Paris, Amsterdam and Frankfurt that are
     planned to be operational in the second quarter of 2000. The company
     expects to operate Web hosting centers with a total of over 150,000 square
     feet in those four cities initially, with options for additional square
     footage.

o    The introduction of high-speed, broadband-enabled DIA services in 10
     European countries - the United Kingdom, France, Germany, Belgium, Ukraine,
     Russia, Czech Republic, Slovakia, Poland and Hungary. By year-end 2000, GTS
     expects to offer DIA services in an additional seven countries: the
     Netherlands, Sweden, Ireland, Norway, Spain, Italy and Denmark.

o    The offering of International Private Leased Circuits (or "private line")
     service for businesses across Europe.

2000 Estimates
The company expects its revenues growth for 2000 to be in the 35-to-40-percent
range, assuming the Euro:dollar exchange rate remains at parity. To strengthen
its position in the marketplace, GTS plans to incrementally spend on e*Business
and branding initiatives approximately US$75 million to US$85 million. As a
result, the company expects EBITDA losses to be in the range of (3) percent to
(4) percent of revenues. In addition, the company plans to make capital
expenditures of US$900 million to US$950 million.

GTS's Network
With 17,000 operational route-kilometers, GTS's trans-European fiber optic
network includes primary access nodes in the following 30 cities: Amsterdam,
Antwerp, Barcelona, Basel, Berlin, Bilbao, Brussels, Copenhagen, Dresden,
Dusseldorf, Frankfurt, Geneva, Gothenberg, Hamburg, Hanover, London, Lyon,
Madrid, Milan, Munich, Paris, Prague, Reims, Rotterdam, Stockholm, Strasbourg,
Stuttgart, Valencia, Vienna and Zurich. GTS also offers Internet backbone
connectivity to New York and Bratislava. In addition, GTS's Ebone IP network,
the largest Tier-1 IP backbone in Europe, was the first network to introduce
optical IP transit internationally.

The company also has city enterprise networks (CENs) operating in Paris, Geneva,
Berlin, Prague and Budapest. GTS plans to have a total of 16 CENs operational
this year.

                                    - MORE -

<PAGE>   4
GTS 4th Quarter 1999 Release
Page 4

ABOUT GTS                                 (WWW.GTSGROUP.NET)
Global TeleSystems is the leading provider of e*Business and borderless
broadband services across Europe, serving businesses and carriers in 20 European
countries with a range of broadband, Internet/IP and voice services. As an
industry leader in Europe, the company has the largest cross-border fiber-optic
network; the largest Tier-1 IP backbone; the most widely deployed pan-European
e*Business sales and service staff; and the largest pan-European customer base.
GTS's trans-European network - the first and most extensive trans-European
broadband fiber network with points of presence in over 50 European cities -
stretches 17,000 route kilometers. In addition, GTS has announced plans to build
FLAG Atlantic-1, an advanced trans-Atlantic undersea dual-cable system, in a
joint venture with FLAG Telecom. GTS is extending its core network deeper into
key European cities through the development of City Enterprise Networks (CENs).
Also, GTS is the majority owner of Golden Telecom, which offers a variety of
fixed-line and mobile telecommunications services in Russia, Ukraine and other
former Soviet nations.

In 1999, GTS won the prestigious World Communications Award for Best Wholesale
Carrier and the ECTA award for Best New Carrier. Headquartered in the
metropolitan Washington, D.C. area and with European headquarters in London, GTS
has offices in over 80 European cities.

CONTACTS:
Investors and U.S. Media
Robert Capozzi, Vice President, Investor Relations and Corporate Communications
Tel.: +1-703-236-3140; fax: +1-703-236-3606; pager: +1-800-331-4741;
e-mail: [email protected]

Libby Hess, Director, Investor Relations (Available to investors beginning
7:30 a.m. EST) Tel.: +1-703-236-3184; fax: +1-703-236-3606; e-mail:
[email protected]

European Media
Glenn Manoff, Director of Communications
Tel.: +44-(0)-207-769-8290; fax: +44-(0)-207-769-8084;
mobile: +44-(0)-467-446-087; e-mail: [email protected]

THIS PRESS RELEASE MAY INCLUDE FORWARD-LOOKING STATEMENTS THAT INVOLVE RISK AND
UNCERTAINTY. ALTHOUGH THE COMPANY BELIEVES ITS EXPECTATIONS REFLECTED IN SUCH
FORWARD-LOOKING STATEMENTS ARE BASED ON REASONABLE ASSUMPTIONS, NO ASSURANCE CAN
BE GIVEN THAT SUCH PROJECTIONS WILL BE FULFILLED. ANY SUCH FORWARD-LOOKING
STATEMENT MUST BE CONSIDERED ALONG WITH KNOWLEDGE THAT ACTUAL EVENTS OR RESULTS
MAY VARY MATERIALLY FROM SUCH PREDICTIONS DUE TO, AMONG OTHER THINGS, POLITICAL,
ECONOMIC OR LEGAL CHANGES IN THE MARKETS IN WHICH GTS DOES BUSINESS, COMPETITIVE
DEVELOPMENTS OR RISKS INHERENT IN THE COMPANY'S BUSINESS PLAN. READERS ARE
REFERRED TO THE DOCUMENTS FILED BY GTS WITH THE U.S. SECURITIES AND EXCHANGE
COMMISSION, SPECIFICALLY THE MOST RECENT REPORTS FILED UNDER THE SECURITIES
EXCHANGE ACT OF 1934 AND REGISTRATION STATEMENTS FILED PURSUANT TO THE
SECURITIES ACT OF 1933, WHICH IDENTIFY IMPORTANT RISK FACTORS.


                               - TABLES ATTACHED -
<PAGE>   5
GTS 4th Quarter 1999 Release
Page 5

                         GLOBAL TELESYSTEMS GROUP, INC.
                CONDENSED, CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)

<TABLE>
<CAPTION>

                                                  Three Months Ended:                   Twelve Months Ended:
                                           ----------------------------------     ----------------------------------
                                                12/31/98         12/31/99              12/31/98         12/31/99
                                                --------         --------              --------         --------
                                                             (In millions, except per share data)
<S>                                        <C>               <C>                  <C>               <C>
Revenues                                   $        141.9    $       253.1        $        372.4    $       852.2

    Access and network services                      86.9            156.4                 238.0            523.7
    Selling, general & administrative                72.6            114.3                 199.1            406.9
                                           --------------    -------------        --------------    -------------

EBITDA1                                             (17.6)           (17.6)                (64.7)           (78.4)

    Depreciation and amortization                    28.0             65.9                  78.8            212.8
    Merger, restructuring and
        non-recurring costs                             -             97.6                     -            142.5
                                           --------------    -------------        --------------    --------------

Loss from operations                                (45.6)          (181.1)               (143.5)          (433.7)

Other income (expense):
    Interest expense                                (38.1)           (60.8)               (131.1)          (208.9)
    Interest income                                  10.2             23.7                  60.1             74.3
    Foreign currency (loss) gain                     (9.9)            (7.3)                (23.3)            (8.9)
    Other (expense) income, net2                     (5.3)            (6.6)                  2.5            (21.6)
                                           --------------    -------------       ---------------    --------------

       Total other expense                          (43.1)           (51.0)                (91.8)          (165.1)
                                           --------------    -------------       ---------------    --------------

Net loss before taxes and
    extraordinary loss                              (88.7)          (232.1)               (235.3)          (598.8)
Income taxes                                         (5.6)            (7.3)                 (7.8)           (17.9)
                                           --------------    -------------       ---------------     -------------
Net loss before extraordinary loss                  (94.3)          (239.4)               (243.1)          (616.7)
Extraordinary loss -- debt refinancing                  -                -                 (12.7)               -
                                           --------------    -------------       ---------------    --------------

Net loss                                   $        (94.3)   $      (239.4)      $        (255.8)   $      (616.7)
Preferred dividend                                      -             (9.0)                    -            (25.7)
                                           --------------    -------------       ---------------    --------------

Net loss applicable to
     common shareholders                   $        (94.3)   $       248.4)      $        (255.8)   $      (642.4)
                                           ==============    =============       ===============    ==============

Net loss per share applicable
    to common shareholders                         ($0.61)          ($1.38)               ($1.79)          ($3.76)
                                           ==============    =============       ===============    ==============

Recurring net loss applicable
    to common shareholders                 $      (94.3)     $       150.8)      $        (243.1)   $      (499.9)
                                           ==============    =============       ===============    ==============

Recurring net loss per share
    applicable to common shareholders              ($0.61)          ($0.84)               ($1.70)          ($2.93)
                                           ==============   ==============       ===============    ==============

Weighted avg. common shares3                        155.7            179.9                 142.6            170.8
                                           --------------   --------------       ---------------    --------------
</TABLE>


                                    - MORE -

<PAGE>   6
GTS 4th Quarter 1999 Release
Page 6



                         GLOBAL TELESYSTEMS GROUP, INC.
                     CONDENSED, CONSOLIDATED BALANCE SHEETS
                                  (UNAUDITED)
<TABLE>
<CAPTION>
                                                                         DECEMBER 31,             DECEMBER 31,
                                                                             1998                     1999
                                                                     ---------------------   ------------------------
                                                                                      (In millions)
<S>                                                                  <C>                    <C>
ASSETS
CURRENT ASSETS
Cash and restricted cash equivalents                                 $         1,080.5       $            1,381.5
Accounts receivable, net                                                         174.4                      286.4
Prepaid expenses and other assets                                                 38.5                       59.1
                                                                     ------------------      ---------------------

TOTAL CURRENT ASSETS                                                           1,293.4                    1,727.0

Property and equipment, net                                                      643.0                    1,004.5
Goodwill and intangible assets, net                                              543.5                    1,172.8
Other assets                                                                     134.7                       97.5
                                                                     ------------------      ---------------------

TOTAL ASSETS                                                         $         2,614.6       $            4,001.8
                                                                     ==================      =====================

LIABILITIES AND SHAREHOLDERS'  EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses                                $           279.5                      493.9
Debt maturing within one year                                                     67.0                      122.2
Other current liabilities                                                         64.6                       86.6
                                                                     ------------------      ---------------------

TOTAL CURRENT LIABILITIES                                                        411.1                      702.7

Long-term debt and capital leases                                              1,725.3                    2,430.0
Other liabilities                                                                 74.9                      123.9
                                                                     ------------------      ---------------------

TOTAL LIABILITIES                                                              2,211.3                    3,256.6

Commitments and Contingencies
Minority interest and common stock subject to repurchase                          53.4                      114.6
Redeemable convertible preferred securities                                          -                      502.3

SHAREHOLDERS' EQUITY
Common stock                                                                      16.1                       18.4
Additional paid-in capital                                                       877.5                    1,280.8
Notes receivable due from shareholder                                                -                      (10.4)
Accumulated deficit                                                             (543.7)                  (1,160.5)
                                                                     ------------------      ---------------------

TOTAL SHAREHOLDERS' EQUITY                                                       349.9                      128.3
                                                                     ------------------      ---------------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                           $         2,614.6       $            4,001.8
                                                                     ==================      =====================
</TABLE>


                                    - MORE -


<PAGE>   7
GTS 4th Quarter 1999 Release
Page 7

Notes:

1.   EBITDA is earnings/(loss) from operations before interest, taxes,
     depreciation and amortization, foreign currency gains/(losses), other
     (expense)/income and non-recurring expenses. EBITDA is a measure of a
     company's performance commonly used in the telecommunications industry, ut
     should not be construed as an alternative to net income/(loss) determined
     in accordance with generally accepted accounting principles (GAAP) as an
     indicator of operating performance or as an alternative to cash from
     operating activities determined in accordance with GAAP as a measure of
     liquidity.

2.   Includes Earnings/(Losses) from Equity in Ventures and Minority Interest.

3.   Reflects a 2-for-1 stock split effective July 21, 1999.


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