10-Q 1 h81791e10-q.txt GLOBAL TELESYSTEMS EUROPE B.V. - 09/30/2000 1 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 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 SEPTEMBER 30, 2000 (COMMISSION FILE NUMBER: 333-37719 ) GLOBAL TELESYSTEMS EUROPE B.V. (Exact name of registrant as specified in its charter) NETHERLANDS NONE (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)

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] [ ] As of September 30, 2000 there were 200,634 outstanding common shares of the registrant of which 200,316 were held by Global TeleSystems, Inc. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 2 GLOBAL TELESYSTEMS EUROPE B.V. TABLE OF CONTENTS

i 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS GLOBAL TELESYSTEMS EUROPE B.V. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

The accompanying notes are an integral part of these financial statements. 1 4 GLOBAL TELESYSTEMS EUROPE B.V. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

The accompanying notes are an integral part of these financial statements. 2 5 GLOBAL TELESYSTEMS EUROPE B.V. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

The accompanying notes are an integral part of these financial statements. 3 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 is 99.8% 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. 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 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 nine months ended September 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 September 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 4 7 GLOBAL TELESYSTEMS EUROPE B.V. NOTES TO CONDENSED 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:

4. COMPREHENSIVE INCOME (LOSS) The following table reflects the calculation of comprehensive income (loss) for the Company for the three and nine months ended September 30, 2000 and 1999:

5. DEBT FINANCING TRANSACTION On July 14, 2000, a subsidiary of the Company executed an eight year, $550 million, multi-currency bank facility ("the Bank Facility"). The Bank 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. Of the $550 million committed under the Bank Facility, $275 million is currently available, of which, as of September 30, 2000, the subsidiary has borrowed E.200 million, or $175.9 million. The remaining $275 million of commitment will be available when certain licenses and rights of way relating to the Company's network have been transferred to the subsidiary (collectively, the "Conditions Subsequent"). The Company currently expects that the Conditions Subsequent will be completed during the time period required by the lenders under the Bank Facility (nine months from entry into the Bank Facility in the case of licenses and rights of way in France and the United Kingdom and six months from entry into the Bank Facility in the case of licenses and rights of way in other countries), but borrowed funds will have to be repaid and any outstanding bank guarantees discharged, and commitments to lend under the Bank Facility will be reduced to zero, upon the expiration of a 90-day period following each of the above- described six-and nine-month periods (as applicable) if the Conditions Subsequent are not satisfied. 6. EQUITY TRANSACTIONS 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 which GTS had entered into on October 15, 1999, with the minority interest holders of the Company, who were grantees of the Company's stock options. The July 26, 2000 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 was recorded in July 2000. 5 8 GLOBAL TELESYSTEMS EUROPE B.V. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In September 2000, the remaining 318 options of the Company were exercised. As a result of this transaction, as of September 2000, 99.8% of the outstanding common shares of the Company are owned by GTS. GTS is obligated to exchange its common stock for the remaining 318 shares of the Company's stock during 2001. 7. MERGER AND AUGUST 2000 RESTRUCTURING COSTS In August 2000, the Board of Directors of GTS approved management's plan to exit from its residential and pre-paid card businesses, and streamline its operations by, among other things, consolidating its headquarters functions, reducing or redeploying headcount, centralizing finance and billing operations and consolidating sales offices. As a result of these initiatives, the Company has recorded a charge of approximately $3.4 million in its third quarter 2000 financial results, since this plan of restructuring will have an impact on the Company's current business operations. The components of the charge include approximately $1.3 million for severance costs associated with the termination of personnel and approximately $2.1 million for costs associated with cancellation of facility leases and anticipated office closure costs. Of the $3.4 million, $3.1 million remains as an accrual at September 30, 2000 for additional cash payments that the Company expects to incur as a part of its plan for restructuring. 8. RELATED PARTY TRANSACTIONS The Company had receivable and payable balances from affiliates of GTS of $133.5 million and $54.6 million, respectively, at September 30, 2000. The Company derived revenue from affiliates of $47.6 million for the nine months ended September 30, 2000. Costs of revenue from affiliates were $17.6 million for the nine months ended September 30, 2000. 9. SUBSEQUENT EVENTS: Organizational Structure Change On November 10, 2000, the Board of Directors' of GTS approved a plan by which GTS will focus on providing broadband services to traditional carriers, Internet service providers ("ISPs"), application service providers ("ASPs"), other Web-centric entities and data intensive pan-European corporations. The objective of the restructuring is to position GTS as a data services-only provider that will generate positive earnings before interest, taxes, depreciation and amortization ("EBITDA"). As part of this plan, GTS will immediately restructure into four "stand alone" business units -- GTS Broadband Services; GTS Business Services; GTS Central Europe; and Golden Telecom, Inc. GTS intends to sell the portion of its Business Services and Central Europe units focused on serving small-to-medium-sized enterprises ("SMEs"), and has retained an investment bank to assist in the sale of these assets. These actions are intended to simplify the organization and operations of the GTS. As a result of these initiatives, the Company expects that it will incur a charge for severance, shut-down activities, legal and professional fees as well as the write-off of certain intangible assets, including goodwill related to the Business Services businesses. This charge is expected to be in the range of $75 million to $80 million, most of which is anticipated to be non-cash, prior to any proceeds that may result from the intended sales transactions. As a result of the intended sale of the Business Services businesses, certain affiliate transactions may be reduced. Consent Solicitation On November 13, 2000, GTS commenced soliciting consents from holders of its 9 7/8% Senior Notes due 2005 (the "Notes") to amendments of certain provisions of the indenture governing the Notes. The purpose of 6 9 GLOBAL TELESYSTEMS EUROPE B.V. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) the consent solicitation is to permit GTS to modify the "Event of Default" provisions of the indenture governing the Notes in order to provide GTS with greater flexibility to, among other things, restructure the operations of its Global TeleSystems (Europe) Limited subsidiary (formerly, Esprit Telecom Group plc) ("Esprit Telecom"), and address the indebtedness represented by Esprit Telecom's publicly traded debt securities and long-term debt owed to the Company by Esprit Telecom. Such additional flexibility is sought to reduce the possibility that actions taken to restructure such operations or address such indebtedness may negatively impact the creditworthiness of GTS, other than Esprit Telecom and its subsidiaries. The amendments sought in the consent solicitation would remove as events of default under the indenture default sunder any indebtedness of, judgment's against, and bankruptcy, insolvency and related filings and other events of, Esprit Telecom or any of its direct or indirect subsidiaries. The consent solicitation will expire at 5:00 p.m., New York City time, on November 21, 2000, unless extended by GTS prior to that date. GTS will make a payment equal to 1% of the principal amount of the Notes ($10 in cash for each $1,000 principal amount of Notes) to each holder of Notes whose consent is received and accepted prior to the expiration date. The record date of the consent solicitation is November 17, 2000. GTS will pay this consent payment promptly after the execution of a supplemental indenture (the "Supplemental Indenture") effecting the amendments described above. 7 10 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 nine months ended September 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 September 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. 8 11 RESULTS OF OPERATIONS Organizational Structure Change The financial results for the three and nine month period that is reflected below is not indicative of the financial results of the Company upon the sale of its interest in its SME-focused Business Services of GTS. In addition, as a result of these initiatives, the Company expects that it will incur a charge for severance, shut-down activities, legal and professional fees as well as the write-off of certain intangible assets, including goodwill related to the Business Services businesses. This charge is expected to be in the range of $75 million to $80 million, most of which is anticipated to be non-cash, prior to any proceeds that may result from the intended sales transactions. As a result of the intended sale of the Business Service businesses, certain affiliate transactions may be reduced. The following table sets forth the Company's statement of operations as a percentage of revenues:

Three Months Ended September 30, 2000 Compared To The Three Months Ended September 30, 1999 Revenue. Consolidated revenues for the three months ended September 30, 2000 were $120.0 million as compared to $90.1 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 September 30, 2000 were $56.8 million or 47.3% of revenues as compared to $26.1 million or 29.0% of revenues for the comparable period in 1999. The increase in telecommunications services costs for the three months ended September 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 September 30, 2000 were $30.8 million or 25.7% of revenues as compared to $14.5 million or 16.1% 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 September 30, 2000 was $29.6 million as compared to $18.8 million for the comparable period in 1999. The 9 12 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. Merger & August 2000 Restructuring Costs. On August 1, 2000, the Board of Directors of GTS approved management's plan to exit from its residential and pre-paid card businesses, and streamline its operations by, among other things, consolidating its headquarters functions, reducing or redeploying headcount, centralizing finance and billing operations and consolidating sales offices. As a result of these initiatives, the Company has recorded a charge of approximately $3.4 million in its third quarter 2000 financial results, since this plan of restructuring will have an impact on the Company's current business operations. Interest. Interest expense for the three months ended September 30, 2000 was $31.3 million as compared to $20.2 million for the comparable period in 1999. The increase was primarily attributable to the interest associated with the issuance of the 1999 New Senior Notes. Interest income for the three months ended September 30, 2000 was $12.0 million as compared to $7.5 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. Nine Months Ended September 30, 2000 Compared To The Nine Months Ended September 30, 1999 Revenue. Consolidated revenues for the nine months ended September 30, 2000 were $352.6 million as compared to $213.0 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 nine months ended September 30, 2000 were $151.1 million or 42.8% of revenues as compared to $64.9 million or 30.5% of revenues for the comparable period in 1999. The increase in telecommunications services costs for the nine months ended September 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 nine months ended September 30, 2000 were $87.1 million or 24.7% of revenues as compared to $35.9 million or 16.9% 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 nine months ended September 30, 2000 was $85.0 million as compared to $45.2 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. Merger & August 2000 Restructuring Costs. On August 1, 2000, the Board of Directors of GTS approved management's plan to exit from its residential and pre-paid card businesses, and streamline its operations by, among other things, consolidating its headquarters functions, reducing or redeploying headcount, centralizing finance and billing operations and consolidating sales offices. As a result of these initiatives, the Company has recorded a charge of approximately $3.4 million in its third quarter 2000 financial results, since this plan of restructuring will have an impact on the Company's current business operations. Interest. Interest expense for the nine months ended September 30, 2000 was $93.8 million as compared to $54.2 million for the comparable period in 1999. The increase was primarily attributable to the interest associated with the issuance of the 1999 New Senior Notes. 10 13 Interest in come for the nine months ended September 30, 2000 was $39.2 million as compared to $15.5 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. LIQUIDITY AND CAPITAL RESOURCES: Execution of the Company's strategy has been capital intensive. The Company currently expects that it will incur additional cash capital expenditures of approximately $150.0 million through December 31, 2000, 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's cash capital expenditure program for 2001 is anticipated to be between $350.0 and $400.0 million. Further, as a result of the reorganization measures discussed above, we expect that the cash capital expenditure requirements are likely to decrease as the Company continues to evaluate its capital expenditure program in light of the proposed sale of those business units. The Company believes existing cash balances and the Company's projected internally generated funds, as well as funding available through the multi-currency bank credit facility, described below, should be sufficient to fund currently identified capital expenditures, at least through December 31, 2001, 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 14, 2000, a subsidiary of the Company executed an eight year, $550 million, multi-currency bank credit facility ("the Bank Facility"). The Bank 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. Of the $550 million committed under the Bank Facility, $275 million is currently available, of which, as of September 30, 2000, the subsidiary has borrowed E200 million, or $175.9 million. The remaining $275 million of commitment will be available when certain licenses and rights of way relating to the Company's network have been transferred to the subsidiary (collectively, the "Conditions Subsequent"). The Company currently expects that the Conditions Subsequent will be completed during the time period required by the lenders under the Bank Facility (nine months from entry into the Bank Facility in the case of licenses and rights of way in France and the United Kingdom and six months from entry into the Bank Facility in the case of licenses and rights of way in other countries), but borrowed funds will have to be repaid and any outstanding bank guarantees discharged, and commitments to lend under the Bank Facility will be reduced to zero, upon the expiration of a 90-day period following each of the above-described six-and nine-month periods (as applicable) if the Conditions Subsequent are not satisfied. The Company had a positive working capital of $354.0 million and $563.9 million as of September 30, 2000 and December 31, 1999, respectively. The Company had cash and cash equivalents of $370.8 million and $565.4 million at September 30, 2000 and December 31, 1999, respectively. The Company had $22.0 million and $18.4 million of restricted cash at September 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. During the nine months ended September 30, 2000, the Company provided $104.0 million cash from operating activities compared with providing $19.2 million for the comparable period in 1999. Investing activities used cash of $413.2 million for the nine months ended September 30, 2000 as compared to using cash of $96.8 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 11 14 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 The only significant change since December 31, 1999 is the execution in July 2000 by a subsidiary of the Company of an eight year, $550 million, multi-currency bank facility. Of the $550 million committed under the bank facility, $275 million is currently available, of which, as of September 30, 2000, the subsidiary has borrowed E200 million, or $175.9 million. The bank facility exposes us to changes in interest and foreign exchange rates. PART II OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS In September 2000, we issued stock that was not registered under the Securities Act of 1993, as amended, pursuant to the exercise by certain employees of options to purchase 318 shares. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the third quarter 2000, the Registrant's shareholders unanimously authorized the transfer of 23,458 shares of the Registrant from Global TeleSystems, Inc. to GTS Carrier Services, Inc. GTS Carrier Services, Inc. is a wholly owned subsidiary of Global TeleSystems, Inc. During the third quarter 2000, Robert Amman was appointed to, and Brian Thompson resigned from the Supervisory Board with effect from October 4, 2000. Vimal Agarwal was appointed to the Management Board with effect from June 6, 2000. Maurice Woolf and Mikel Williams were appointed to, and Robert Amman, Mr G Caccappolo and Mr P Nemirovsky resigned from the Management Board with effect from October 4, 2000. 12 15 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K A. Exhibits

B. Reports on Form 8-K

13 16 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: November 14, 2000 14 17 EXHIBIT INDEX

GLOBAL TELESYSTEMS EUROPE B V 10-Q