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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 MARCH 31, 2001
(COMMISSION FILE NUMBER: 0-27423)
GOLDEN TELECOM, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 51-0391303
(State of incorporation) (I.R.S. Employer Identification No.)
REPRESENTATION OFFICE GOLDEN TELESERVICES, INC.
12 TRUBNAYA ULITSA
MOSCOW, RUSSIA 103045
(Address of principal executive office)
(011-7-501) 797-9300
(Registrant's telephone number, including area code)
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 [ ]
At May 9, 2001 there were 24,621,958 outstanding shares of common stock of
the registrant.
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TABLE OF CONTENTS
PAGE
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PART I. FINANCIAL INFORMATION
Item 1(a) Condensed Consolidated Financial Statements of Golden Telecom, Inc. (unaudited)............ 3
Condensed Consolidated Balance Sheets as of December 31, 2000 and March 31, 2001........... 3
Condensed Consolidated Statements of Operations for the Three Months Ended
March 31, 2000 and 2001.................................................................... 4
Condensed Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2000 and 2001.................................................................... 5
Notes to Condensed Consolidated Financial Statements....................................... 6
Item 1(b) Condensed Financial Statements of EDN Sovintel LLC (unaudited)............................. 11
Condensed Balance Sheets as of December 31, 2000 and March 31, 2001........................ 11
Condensed Statements of Income and Members' Equity for the Three Months Ended
March 31, 2000 and 2001.................................................................... 12
Condensed Statements of Cash Flows for the Three Months Ended March 31, 2000
and 2001................................................................................... 13
Notes to Condensed Financial Statements.................................................... 14
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations *.................................................................... 15
PART II. OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders........................................ 23
Item 6 Exhibits and Reports on Form 8-K .......................................................... 23
Signatures .............................................................................................. 24
* Please refer to the special note regarding forward-looking statements in
this section.
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PART I. FINANCIAL INFORMATION
ITEM 1(a). CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF GOLDEN TELECOM, INC.
(UNAUDITED)
GOLDEN TELECOM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, MARCH 31,
2000 2001
-------------- --------------
(AUDITED) (UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents .................................................... $ 57,889 $ 103,521
Investments available for sale ............................................... 54,344 --
Accounts receivable, net ..................................................... 19,291 18,158
Prepaid expenses ............................................................. 4,413 4,595
Other current assets ......................................................... 5,471 5,661
-------------- --------------
TOTAL CURRENT ASSETS ........................................................... 141,408 131,935
Property and equipment, net of accumulated depreciation of $42,253 and
$46,783 at December 31, 2000 and March 31, 2001, respectively ................ 82,377 89,109
Investments in and advances to ventures ........................................ 49,629 51,106
Goodwill and intangible assets, net of accumulated
amortization of $48,420 and $53,665 at December 31, 2000
and March 31, 2001, respectively ............................................. 70,045 64,994
Restricted cash ................................................................ 2,519 2,319
Other non-current assets ....................................................... 2,478 2,716
-------------- --------------
TOTAL ASSETS ................................................................... $ 348,456 $ 342,179
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses ........................................ $ 28,256 $ 26,513
Debt maturing within one year ................................................ 3,339 2,923
Due to affiliates ............................................................ 7,957 6,309
Other current liabilities .................................................... 1,886 2,334
-------------- --------------
TOTAL CURRENT LIABILITIES ...................................................... 41,438 38,079
Long-term debt, less current portion ........................................... 9,408 9,933
Affiliate long-term debt ....................................................... 6,250 6,250
Other non-current liabilities .................................................. 4,830 4,955
-------------- --------------
TOTAL LIABILITIES .............................................................. 61,926 59,217
Minority interest .............................................................. 3,337 3,337
SHAREHOLDERS' EQUITY
Preferred stock, $0.01 par value (10,000,000 shares authorized;
none issued and outstanding at December 31, 2000 and
March 31, 2001)............................................................ -- --
Common stock, $0.01 par value (100,000,000 shares
authorized; 24,479,997 and 24,621,958 shares issued and outstanding
at December 31, 1999 and March 31, 2001 respectively) ..................... 245 246
Additional paid-in capital ................................................... 412,754 413,095
Accumulated deficit .......................................................... (129,806) (133,716)
-------------- --------------
TOTAL SHAREHOLDERS' EQUITY ..................................................... 283,193 279,625
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ..................................... $ 348,456 $ 342,179
============== ==============
See notes to condensed consolidated financial statements.
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GOLDEN TELECOM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
----------------------------
2000 2001
------------ ------------
REVENUE:
Telecommunication services ......................................... $ 22,053 $ 29,536
Revenue from affiliates ............................................ 2,256 2,784
------------ ------------
TOTAL REVENUE ........................................................ 24,309 32,320
OPERATING COSTS AND EXPENSES:
Access and network services ........................................ 10,294 14,686
Selling, general and administrative ................................ 10,254 12,707
Depreciation and amortization ...................................... 7,228 9,753
------------ ------------
TOTAL OPERATING COSTS AND EXPENSES ................................... 27,776 37,146
------------ ------------
LOSS FROM OPERATIONS ................................................. (3,467) (4,826)
OTHER INCOME (EXPENSE):
Equity in earnings (losses) of ventures ............................ (911) 583
Interest income .................................................... 2,286 1,482
Interest expense ................................................... (738) (631)
Foreign currency losses ............................................ (343) (295)
Other non-operating expense ........................................ (148) --
------------ ------------
TOTAL OTHER INCOME ................................................... 146 1,139
------------ ------------
Net loss before income taxes ......................................... (3,321) (3,687)
Income taxes ......................................................... 13 223
------------ ------------
NET LOSS ............................................................. $ (3,334) $ (3,910)
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Net loss per share ................................................... $ (0.14) $ (0.16)
============ ============
Weighted average common shares outstanding ........................... 24,060 24,496
============ ============
See notes to condensed consolidated financial statements.
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GOLDEN TELECOM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
------------------------------
2000 2001
------------- -------------
OPERATING ACTIVITIES
Net loss ................................................................ $ (3,334) $ (3,910)
Adjustments to Reconcile Net Loss to Net Cash Provided by
Operating Activities:
Depreciation ............................................................ 3,300 4,075
Amortization ............................................................ 3,928 5,678
Equity in (earnings) losses of ventures, net of dividends received....... 911 (583)
Foreign currency losses ................................................. 343 295
Other ................................................................... 566 386
Changes in assets and liabilities:
Accounts receivable .................................................. (2,227) 964
Accounts payable and accrued expenses ................................ 1,488 (1,278)
Other changes in assets and liabilities .............................. (2,009) (2,375)
------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES ................................. 2,966 3,252
INVESTING ACTIVITIES
Purchases of property and equipment and intangible assets ............... (6,377) (10,376)
Acquisitions, net of cash acquired ...................................... (1,226) (350)
Restricted cash ......................................................... 3,650 200
Proceeds from investments available for sale ............................ -- 54,344
Other investing ......................................................... 746 (697)
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NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES ....................... (3,207) 43,121
FINANCING ACTIVITIES
Proceeds from debt ...................................................... 23 --
Repayments of debt ...................................................... (4,280) (628)
Net proceeds from shareholder ........................................... 32 --
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NET CASH USED IN FINANCING ACTIVITIES ..................................... (4,225) (628)
Effect of exchange rate changes on cash and cash equivalents .............. (158) (113)
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Net increase (decrease) in cash and cash equivalents ...................... (4,624) 45,632
Cash and cash equivalents at beginning of period .......................... 162,722 57,889
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................................ $ 158,098 $ 103,521
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See notes to condensed consolidated financial statements.
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GOLDEN TELECOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. FINANCIAL PRESENTATION AND DISCLOSURES
Golden Telecom, Inc. ("GTI", "Golden Telecom" or the "Company") is a
provider of a broad range of telecommunications services to businesses, other
telecommunications service providers and consumers. The Company provides these
services through its operation of voice, Internet and data networks,
international gateways, local access and various value-added services in the
Commonwealth of Independent States ("CIS"), primarily in Russia, and through its
fixed line and mobile operation in Ukraine. Golden Telecom was incorporated in
Delaware on June 10, 1999 for the purpose of acting as a holding company for
Global TeleSystems, Inc.'s ("GTS") operating entities within the CIS and
supporting non-CIS holding companies (the "CIS Entities"). On September 29,
1999, GTS transferred its ownership rights in the CIS Entities to the Company in
anticipation of the Company's initial pubic offering ("IPO") which closed on
October 5, 1999.
The financial statements included herein are unaudited and have been
prepared in accordance with generally accepted accounting principles in the
United States of America ("US GAAP") for interim financial reporting and
Securities and Exchange Commission ("SEC") regulations. Certain information and
footnote disclosures normally included in complete financial statements prepared
in accordance with US GAAP and SEC rules and regulations have been condensed or
omitted pursuant to such US GAAP and SEC rules and regulations. 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 2000 audited
consolidated financial statements and the notes related thereto. The results of
operations for the three months ended March 31, 2001 may not be indicative of
the operating results for the full year.
2. POLICIES AND PROCEDURES
For the three months ended March 31, 2000 and 2001, comprehensive income for
the Company is equal to net income.
The Company's net loss per share calculation (basic and diluted) is based
upon the Company's weighted average common shares outstanding. There are no
reconciling items in the numerator or denominator of the Company's net loss per
share calculation. Warrants and stock options have been excluded from the net
loss per share calculation because their effect would be antidilutive.
In June 1998, the Financial Accounting Standards Board issued Statement on
Financial and Accounting Standards No. 133 "Accounting for Derivative
Instruments and Hedging Activities," which was amended in June 1999. The Company
adopted the new statement effective January 1, 2001. The statement requires the
Company to recognize all derivatives on the balance sheet at fair value. The
adoption of the new statement did not have a significant effect on the Company's
results of operations or financial position.
3. SHAREHOLDERS' EQUITY
Common Stock
In March 2001, 141,961 restricted shares of the Company's common stock, par
value $0.01, were issued in escrow with the Company, until the vesting date of
October 1, 2001. The restricted shares were issued in accordance with restricted
stock agreements dated October 1, 1999 concluded as part of the Company's IPO.
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GOLDEN TELECOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(unaudited)
When the 1999 GTI Equity Participation Plan (the "Equity Plan") was adopted,
the number of shares available for issuance under the Equity Plan was calculated
as 15% of the issued and outstanding shares on a fully diluted basis. Since the
adoption of the Equity Plan, the Company has issued an additional 1,679,872
shares of common stock in connection with fund raising activities and
acquisitions. In March 2001, the Compensation Committee of the Board of
Directors approved an increase in shares available for issuance under the Equity
Plan from 4,023,551 to 4,320,000 in order to preserve the 15% ratio referenced
above.
In March 2001, in connection with the finalization of the MCT Corp.
transaction, the Compensation Committee of the Board of Directors adopted a
resolution providing that the Stock Option Award Agreements executed by the
Company and certain terminated employees shall be amended to provide that the
term of the options held by the employees that transferred from GTI to MCT Corp.
shall be extended from ninety days after the employees termination date to one
year after the termination date of the employees or until their termination date
with MCT Corp., whichever occurs earlier.
4. CONTINGENCIES
Tax Matters
The Company's policy is to accrue for contingencies in the accounting period
in which a liability is deemed probable and the amount is reasonably
determinable. In this regard, because of the uncertainties associated with the
Commonwealth of Independent States Taxes ("CIS Taxes"), the Company's final CIS
Taxes may be in excess of the estimated amount expensed to date and accrued at
March 31, 2001. It is the opinion of management that the ultimate resolution of
the Company's liability for CIS Taxes, to the extent not previously provided
for, will not have a material effect on the financial condition of the Company.
However, depending on the amount and timing of an unfavorable resolution of any
contingencies associated with CIS Taxes, it is possible that the Company's
future results of operations or cash flows could be materially affected in a
particular period.
5. SEGMENT INFORMATION
LINE OF BUSINESS DATA
The Company operates in four segments within the telecommunications
industry. The four segments are: Competitive Local Exchange Carrier (CLEC)
Services using our local access overlay networks in Moscow, Kiev, and St.
Petersburg; Long Distance Services using our fiber optic and satellite-based
network throughout the CIS; Data and Internet Services using our fiber optic and
satellite-based network; and Mobile Services consisting of mobile networks in
Kiev and Odessa, Ukraine. The following tables present financial information for
both consolidated subsidiaries and equity investee ventures, segmented by the
Company's lines of businesses for the periods ended March 31, 2000 and 2001.
Transfers between lines of businesses are included in the adjustments to
reconcile segment to consolidated results. The Company evaluates performance
based on the operating income (loss) of each strategic business unit.
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GOLDEN TELECOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
ADJUSTMENTS TO RECONCILE
BUSINESS SEGMENT TO
CONSOLIDATED RESULTS
------------------------
DATA & TOTAL OF EQUITY
INTERNET LONG MOBILE CORPORATE & BUSINESS CONSOLIDATED METHOD AFFILIATE
CLEC SERVICES DISTANCE SERVICES ELIMINATIONS SEGMENT RESULTS VENTURES ADJUSTMENTS
-------- -------- -------- -------- ------------ --------- ------------ ---------- -----------
(IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, 2000
Revenue ................... $ 29,601 $ 8,502 $ 2,890 $ 7,816 $ (1,492) $ 47,317 $ 24,309 $ (27,030) $ 4,022
Operating income (loss) ... 8,834 226 (1,600) (1,489) (6,607) (636) (3,467) (3,178) 347
Identifiable assets ....... 113,535 28,608 21,828 53,753 258,384 476,108 363,197 (112,911) --
Capital expenditures ...... 4,689 6,309 1,111 1,812 374 14,295 11,710 (2,585) --
ADJUSTMENTS TO RECONCILE
BUSINESS SEGMENT TO
CONSOLIDATED RESULTS
------------------------
DATA & TOTAL OF EQUITY
INTERNET LONG MOBILE CORPORATE & BUSINESS CONSOLIDATED METHOD AFFILIATE
CLEC SERVICES DISTANCE SERVICES ELIMINATIONS SEGMENT RESULTS VENTURES ADJUSTMENTS
-------- -------- -------- -------- ------------ --------- ------------ ---------- -----------
(IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, 2001
Revenue ................... $ 33,331 $ 14,004 $ 4,397 $ 3,530 $ (1,714) $ 53,548 $ 32,320 $ (26,606) $ 5,378
Operating income (loss) ... 8,952 (1,204) (1,059) (549) (5,849) 291 (4,826) (5,104) (13)
Identifiable assets ....... 130,480 74,828 25,864 24,666 176,626 432,464 342,179 (90,285) --
Capital expenditures ...... 6,583 7,019 816 433 25 14,876 10,376 (4,500) --
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GOLDEN TELECOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
GEOGRAPHIC DATA
The following tables present financial information segmented by the
Company's geographic regions for the three month periods ended March 31, 2000
and 2001.
CORPORATE & CONSOLIDATED
RUSSIA UKRAINE ELIMINATIONS RESULTS
---------- ---------- ------------ -----------
THREE MONTHS ENDED MARCH 31, 2000
Revenue ....................... $ 16,803 $ 7,628 $ (122) $ 24,309
Long-lived assets ............. 130,035 36,799 2,821 169,655
CORPORATE & CONSOLIDATED
RUSSIA UKRAINE ELIMINATIONS RESULTS
---------- ---------- ------------ -----------
THREE MONTHS ENDED MARCH 31, 2001
Revenue ....................... $ 23,443 $ 9,338 $ (461) $ 32,320
Long-lived assets ............. 165,299 40,861 582 206,742
6. SIGNIFICANT EQUITY METHOD SUBSIDIARY INFORMATION
The following table presents summarized income statement information from
the Company's significant equity investee, EDN Sovintel LLC, as of March 31,
2000 and 2001.
THREE MONTHS ENDED
MARCH 31,
----------------------
2000 2001
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(IN THOUSANDS)
Revenues ........................... $ 22,226 $ 25,352
Gross Margin ....................... 10,505 10,567
Income from operations ............. 4,410 4,650
Net income ......................... 2,101 3,631
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GOLDEN TELECOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
7. DEBT AND CAPITAL LEASE
Some of the Company's operating companies have received debt financing
through direct loans from affiliated companies. In addition, certain operating
companies have borrowed funds under a $2.5 million back-to-back, seven-year
credit facility from a Western-owned bank licensed to operate in Russia. Under
this facility, the Company provides full cash collateral, held in London and
recorded on our balance sheet as restricted cash, for onshore loans made by the
bank to the Company's Russian registered joint ventures. Previously this was a
$22.7 million facility, which in part related to the Company's former Russian
mobile properties involved in the MCT transaction. In a second, similar
facility, the Company provides full cash collateral for a $10.0 million short
term back-to-back, revolving, credit facility from the same bank for two of the
Company's larger Russian operating companies. These two facilities replaced the
previous $30 million back to back facility that expired on September 30, 2000.
In the first quarter of 2000, the Company entered into a lease for fiber
capacity, including facilities and maintenance, from Moscow to Stockholm. The
lease has a term of ten years with an option to renew for an additional five
years. Prepayments were made to the lessor in April 2000, August 2000 and
February 2001. These prepayments have been offset in the balance sheet against
the capital lease obligation.
8. SUPPLEMENTAL CASH FLOW INFORMATION
The following table summarizes significant non-cash investing and financing
activities for the Company.
THREE MONTHS ENDED
MARCH 31,
--------------------------
2000 2001
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(IN THOUSANDS)
Issuance of common stock to affiliate of ING Barings ............ $ 360 $ --
Business acquisitions ........................................... 500 --
Capitalization of leases ........................................ 5,561 --
9. SUBSEQUENT EVENTS
On April 3, 2001 the Company announced its intention to purchase a
well-established Internet service provider (ISP) in Russia, Cityline, and 51% of
Ekaterinburg-based ISP, Uralrelcom. These potential acquisitions will establish
the Company's position as the leading ISP in Russia.
GTS currently owns approximately 61.2% of GTI's outstanding shares of common
stock. On April 2, 2001, GTS announced that it reached an agreement to sell
approximately 12.2 million shares of the Company's common stock to a group of
investors led by Alfa Bank, a leading Russia-based financial and industrial
concern ("Alfa"), and two of our current shareholders, Capital International
Global Emerging Markets Private Equity Fund ("Capital") and affiliates of
investments controlled by Barings Private Equity Partners Group ("Barings"). The
agreement is subject to a number of conditions precedent and is expected to
close in the second quarter of 2001. Upon closure, affiliates of Alfa will
acquire approximately 10.7 million, or about 43.6%, shares of GTI's common
stock, Barings will increase its ownership position in the Company to
approximately 1.9 million, or about 7.6% shares of GTI's common stock, and
Capital will increase its ownership position in the Company to 2.2 million, or
about 8.8%, shares of GTI's common stock. These purchasers have also acquired
options from GTS under which they could acquire GTS' remaining shareholding in
the Company, consisting of approximately 2.9 million, or 11.6%, shares of GTI's
common stock. Upon closure, these purchasers also acquire options from GTS
under which they can, under certain circumstances and subject to the terms and
conditions of a Standstill Agreement executed by the purchasers, GTS and the
Company on April 2, 2001, acquire GTS' remaining shareholding in the Company,
consisting of approximately 2.9 million, or 11.6%, shares of GTI's common stock.
In addition, this transaction may trigger an acceleration of up to $18.3 million
of GTI's long-term debt under change of control provisions. GTS is expected to
agree to a one-year maturity, from the date of closing of the transaction, on
$6.3 million of long-term debt due from the Company. In accordance with the
terms of other third party debt agreements, subsequent to the closure of the
transaction, the Company may be required to repay in full other outstanding
long-term debt obligations totaling $12.0 million plus accrued interest.
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ITEM 1(b). CONDENSED FINANCIAL STATEMENTS OF EDN SOVINTEL LLC. (UNAUDITED)
EDN SOVINTEL LLC
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31, MARCH 31,
2000 2001
------------ ------------
(AUDITED) (UNAUDITED)
ASSETS
CURRENT ASSETS
Cash ......................................................................... $ 4,013 $ 10,750
Accounts receivable, net of allowance for doubtful accounts of $4,981
and $5,147, respectively ................................................. 13,138 12,359
Due from affiliated companies ................................................ 524 737
Due from employees ........................................................... 578 561
Inventories .................................................................. 3,592 4,129
VAT receivable, net .......................................................... 2,325 664
Prepaid expenses and other current assets .................................... 1,763 1,997
------------ ------------
TOTAL CURRENT ASSETS ........................................................... 25,933 31,197
Property and equipment, net .................................................... 51,340 53,056
Deferred expenses .............................................................. 540 --
Other noncurrent assets ........................................................ 1,615 1,770
------------ ------------
TOTAL ASSETS ................................................................... $ 79,428 $ 86,023
============ ============
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES
Trade payables ............................................................... $ 6,922 $ 8,354
Accrued expenses ............................................................. 2,192 3,735
Due to affiliated companies .................................................. 2,117 2,610
Amount due to partner in commercial arrangement .............................. 659 --
Deferred income taxes ........................................................ 686 686
------------ ------------
TOTAL CURRENT LIABILITIES ...................................................... 12,576 15,385
Other noncurrent liabilities ................................................. 1,615 1,770
------------ ------------
TOTAL LIABILITIES .............................................................. 14,191 17,155
MEMBERS' EQUITY ................................................................ 65,237 68,868
------------ ------------
TOTAL LIABILITIES AND MEMBERS' EQUITY .......................................... $ 79,428 $ 86,023
============ ============
See notes to condensed financial statements.
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EDN SOVINTEL LLC
CONDENSED STATEMENTS OF INCOME AND MEMBERS' EQUITY
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
---------------------------
2000 2001
------------ ------------
REVENUE:
Telecommunication services ........... $ 21,152 $ 23,501
Revenue from affiliates .............. 1,074 1,851
------------ ------------
22,226 25,352
OPERATING COSTS AND EXPENSES:
Service costs ........................ 11,721 14,785
Selling, general and administrative .. 4,081 3,268
Depreciation and amortization ........ 2,014 2,649
------------ ------------
TOTAL OPERATING COSTS AND EXPENSES ..... 17,816 20,702
------------ ------------
INCOME FROM OPERATIONS ................. 4,410 4,650
OTHER INCOME (EXPENSE):
Interest income ...................... 34 54
Interest expense ..................... (90) (4)
Foreign currency (losses) gains ...... (157) 173
------------ ------------
TOTAL OTHER INCOME (EXPENSE) ........... (213) 223
------------ ------------
Income before income taxes ............. 4,197 4,873
Income taxes ........................... 2,096 1,242
------------ ------------
NET INCOME ............................. $ 2,101 $ 3,631
============ ============
Members' equity, opening balance ....... 57,065 65,237
------------ ------------
Members' equity, closing balance ....... $ 59,166 $ 68,868
============ ============
See notes to condensed financial statements.
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EDN SOVINTEL LLC
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
-----------------------------
2000 2001
------------- -------------
OPERATING ACTIVITIES
Net income ........................................................... $ 2,101 $ 3,631
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ...................................... 2,014 2,649
Provision for doubtful accounts .................................... 423 479
Foreign exchange (gain) loss ....................................... 157 (173)
Changes in operating assets and liabilities:
Accounts receivable ................................................ (190) 524
Inventories ........................................................ (56) (538)
VAT receivable, net ................................................ 458 1,779
Prepaid expenses and other assets .................................. 277 (231)
Trade payables ..................................................... (2,019) 1,080
Accrued liabilities and other payables ............................. 934 1,492
Increase (Decrease) in amounts due to affiliated companies, net .... (396) 298
------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES ............................ 3,703 10,990
INVESTING ACTIVITIES Purchases of property and
equipment ........................................................... (2,006) (4,217)
------------- -------------
FINANCING ACTIVITIES Payment to partner in
commercial arrangement .............................................. (67) (22)
------------- -------------
Effect of exchange rate changes on cash .............................. (125) (14)
------------- -------------
Net increase in cash ................................................. 1,505 6,737
Cash at beginning of period .......................................... 2,644 4,013
------------- -------------
CASH AT END OF PERIOD ................................................ $ 4,149 $ 10,750
============= =============
See notes to condensed financial statements.
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EDN SOVINTEL LLC
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. FINANCIAL PRESENTATION AND DISCLOSURES
EDN Sovintel LLC (the "Company") is a joint venture between Sovinet, which
is a wholly owned subsidiary of Golden Telecom, Inc. ("GTI") and Open Joint
Stock Company "Rostelecom". EDN Sovintel was created in 1990 to design,
construct, and operate a telecommunications network in Moscow and later expanded
its operations to other regions of Russia, including St. Petersburg, Pskov and
Kaliningrad. This network provides worldwide communications services,
principally to major hotels, business offices and mobile communication
companies.
The financial statements included herein are unaudited and have been
prepared in accordance with generally accepted accounting principles in the
United States of America ("US GAAP") for interim financial reporting and
Securities and Exchange Commission ("SEC") regulations. Certain information
and footnote disclosures normally included in complete financial statements
prepared in accordance with US GAAP and SEC rules and regulations have been
condensed or omitted pursuant to such US GAAP and SEC rules and regulations. 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 2000
audited financial statements and the notes related thereto. The results of
operations for the three months ended March 31, 2001 may not be indicative of
the operating results for the full year.
2. POLICIES AND PROCEDURES
For the three months ended March 31, 2000 and 2001, comprehensive income
for the Company is equal to net income.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities," which was amended in June 1999. The Company
adopted the new statement effective January 1, 2001. The statement requires the
Company to recognize all derivatives on the balance sheet at fair value. The
adoption of this new statement did not have a significant effect on the
Company's results of operations or financial position.
3. CONTINGENCIES
Tax Matters
The Company's policy is to accrue for contingencies in the accounting period
in which a liability is deemed probable and the amount is reasonably
determinable. In this regard, because of the uncertainties associated with the
Russian tax, including income tax and value added tax, the Company's final
Russian taxes may be in excess of the estimated amount expensed to date and
accrued at March 31, 2001. It is the opinion of management that the ultimate
resolution of the Company's Russian tax liability, to the extent not previously
provided for, will not have a material effect on the financial condition of the
Company. However, depending on the amount and timing of an unfavorable
resolution of any contingencies associated with Russian taxes, it is possible
that the Company's future results of operations or cash flows could be
materially affected in a particular period.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis relates to our financial condition and
results of operations of the Company for the three month period ended March 31,
2001 and March 31, 2000. This information should be read in conjunction with the
Company's Condensed, Consolidated Financial Statements and the notes related
thereto appearing elsewhere in the document.
OVERVIEW
We are a leading facilities-based provider of integrated telecommunications
and Internet services in major population centers throughout Russia, Ukraine and
other countries of the Commonwealth of Independent States ("CIS"). We organize
our operations into four business groups, as follows:
o Competitive Local Exchange Carrier ("CLEC") Services, using local
access overlay networks in Moscow, Kiev and St. Petersburg;
o Data and Internet Services, using a fiber optic and satellite-based
networks with more than 135 points of presence in Russia and the CIS.
Our data and Internet services product portfolio is currently comprised
of: (a) Business to Business services, such as data communications,
dedicated Internet access, web design, web-hosting, co-location and
data-warehousing: and (b) Business to Consumer services, such as
dial-up Internet access, web content and a family of Internet portals;
and
o Long Distance Services using a fiber optic and satellite-based network;
o Mobile Services using mobile networks in Kiev and Odessa, Ukraine.
Additionally, we hold a minority interest in MCT Corp. ("MCT"), which in
turn has ownership interests in mobile operations located throughout Russia and
in Uzbekistan and Tajikistan. We treat our ownership interest in MCT as an
investment and are not actively involved in the day-to-day management of the
operations.
Most of our revenue is derived from high-volume business customers and
carriers. Our business customers include large multinational companies, local
enterprises, financial institutions, hotels and government agencies. We believe
that the carriers, including mobile operators, which contribute a substantial
portion of our revenues, in turn derive a portion of their business from
high-volume business customers. Thus, we believe that the majority of our
ultimate end-users are businesses that require access to highly reliable and
advanced telecommunications facilities to sustain their operations.
We have traditionally competed for customers on the basis of network
quality, customer service and range of service offered. In the past several
years, other telecommunications operators have also introduced high-quality
services to the segments of the business market in which we operate. Competition
with these operators has intensified in the last several quarters, resulting in
declining prices, which adversely affected our revenues. In addition, some of
our competitors do not link their prices to the dollar/ruble exchange rate, so
when the ruble devalues, their prices effectively become lower than our prices.
In order to compete with these carriers in the regions outside Moscow and St.
Petersburg, we were forced to lower our tariffs, which resulted in reduced
revenues and reduced margins. Since the ruble exchange rate with the dollar has
become relatively stable during 2000, price pressures associated with
devaluation have eased considerably. We cannot be certain that the exchange rate
will remain stable in the future.
Since early 2000, we appear to have witnessed a recovery in the Russian
market, but with downward pricing pressures persisting, both because of
competitive pressures in Russia and because of a global trend toward lower
telecommunications tariffs. In early 2000, the increases in traffic volume did
not keep pace with the reduction in prices. However, in recent months our volume
increases are beginning to exceed the reduction in tariffs on certain types of
voice traffic. This is a contributory factor to the increases in our quarterly
revenue during 2000. We expect that this trend of year over year increases will
continue as long as there are improvements in the Russian economy.
Although we expect competition to continue to force the general level of
tariffs downward, we expect to mitigate partially the effects of this pressure
by seeking, where possible, further reductions in the settlement and
interconnection rates that we pay to other telecommunications operators. In
general, we expect settlement and interconnection rates to continue to decline
in line with tariffs.
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We have expanded and will continue to expand our fiber optic capacity along
our heavy traffic and high cost routes to reduce our unit transmission costs and
ensure sufficient capacity to meet the growing demand for Internet and data
services. As part of this strategy, during 2000, we acquired the rights to use
up to STM-16 fiber optic capacity on the Moscow to Stockholm route,
significantly reducing our unit cost per E-1 fiber optic link on this route.
In addition to the traditional voice and data service provision, we are
actively pursuing a strategy of developing non-traditional telecom service
offerings including those related to the Internet, such as web hosting, web
design, and vertical and horizontal Internet portal development. To this end, we
acquired InfoArt Stars and the Agama family of Web properties to add to our
Russia-On-Line Internet portal, which also incorporates some of our other
acquisitions in the year ended December 31, 2000, referat.ru, Absolute Games and
Fintek. We have seen a significant increase in our dial-up Internet subscriber
numbers and we expect the increase to continue, albeit with an increasing
emphasis on regional subscribers, as additional dialup capacity in Moscow is not
readily available.
PENDING ACQUISITIONS
On April 3, 2001 we announced our intention to purchase a well-established
Internet service provider ("ISP") in Russia, Cityline, and 51% of
Ekaterinburg-based ISP, Uralrelcom. These potential acquisitions will establish
our position as the leading ISP in Russia.
SHARES AND OWNERSHIP
In March 2001, 141,961 restricted shares of common stock, par value $0.01,
were issued in escrow, until the vesting date of October 1, 2001. The restricted
shares were issued in accordance with restricted stock agreements dated October
1, 1999 concluded as part of our Initial Public Offering ("IPO").
When the 1999 GTI Equity Participation Plan (the "Equity Plan") was adopted,
the number of shares available for issuance under the Equity Plan was calculated
as 15% of the issued and outstanding shares on a fully diluted basis. Since the
adoption of the Equity Plan, the Company has issued an additional 1,679,872
shares of common stock in connection with fund raising activities and
acquisitions. In March 2001, the Compensation Committee of the Board of
Directors approved an increase in shares available for issuance under the Equity
Plan from 4,023,551 to 4,320,000 in order to preserve the 15% ratio referenced
above.
In March 2001, in connection with the finalization of the MCT Corp.
transaction, the Compensation Committee of the Board of Directors adopted a
resolution providing that the Stock Option Award Agreements executed by the
Company and certain terminated employees shall be amended to provide that the
term of the options held by the employees that transferred from GTI to MCT Corp.
shall be extended from ninety days after the employees termination date to one
year after the termination date of the employees or until their termination
date with MCT Corp., whichever occurs earlier.
Global TeleSystems, Inc. ("GTS") currently owns approximately 61.2% of our
outstanding shares of common stock. On April 2, 2001, GTS announced that it
reached an agreement to sell approximately 12.2 million shares of our common
stock to a group of investors led by Alfa Bank, a leading Russia-based financial
and industrial concern ("Alfa"), and two of our current shareholders, Capital
International Global Emerging Markets Private Equity Fund ("Capital") and
affiliates of investments controlled by Barings Private Equity Partners Group
("Barings"). The agreement is subject to a number of conditions precedent and is
expected to close in the second quarter of 2001. Upon closure, affiliates of
Alfa will acquire approximately 10.7 million, or about 43.6%, shares of our
common stock, Barings will increase its ownership position in the company to
approximately 1.9 million, or about 7.6% shares of our common stock, and Capital
will increase its ownership position in the company to 2.2 million, or about
8.8%, of our common stock. Upon closure, these purchasers also acquire options
from GTS under which they can, under certain circumstances and subject to the
terms and conditions of a Standstill Agreement executed by the purchasers, GTS
and the Company on April 2, 2001, acquire GTS' remaining shareholding in the
Company, consisting of approximately 2.9 million, or 11.6%, shares of GTI's
common stock.
RESULTS OF OPERATIONS
Golden Telecom, Inc. ("GTI") was formed in June 1999 to be the holding
company for all of GTS's businesses in the Commonwealth of Independent States
and supporting operations. The results of our four business groups from the
operations of both our consolidated entities combined with the non-consolidated
entities where we are actively involved in the day-to-day management, are shown
in footnote 5 "Segment Information - Line of Business Data" to our consolidated
financial statements.
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In addition, we have included a discussion of EDN Sovintel LLC, our primary
non-consolidated operation, which entity is material to our business. We believe
that this discussion is helpful to develop an understanding of the factors
contributing to our overall financial condition and results of operations.
The discussion of our results of operations is organized as follows:
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000
o Consolidated Results. Results of Operations for the Three Months Ended
March 31, 2001 compared to the Results of Operations for the Three
Months Ended March 31, 2000
o Non-Consolidated Results. Results of Non-Consolidated Operations of EDN
Sovintel LLC for the Three Months Ended March 31, 2001 compared to the
Results of Non-Consolidated Operations of EDN Sovintel LLC for the
Three Months Ended March 31, 2000
CONSOLIDATED RESULTS-- CONSOLIDATED RESULTS OF OPERATIONS FOR THE THREE MONTHS
ENDED MARCH 31, 2001 COMPARED TO THE CONSOLIDATED RESULTS OF OPERATIONS FOR THE
THREE MONTHS ENDED MARCH 31, 2000
REVENUE
Our revenue increased by 33% to $32.3 million for the three months ended
March 31, 2001 from $24.3 million for the three months ended March 31, 2000. The
breakdown of revenue by business group was as follows:
CONSOLIDATED REVENUE CONSOLIDATED REVENUE
FOR THE THREE MONTHS FOR THE THREE MONTHS
ENDED MARCH 31, 2000 ENDED MARCH 31, 2001
-------------------- --------------------
(IN MILLIONS)
REVENUE
CLEC services ................... $ 9.5 $ 10.8
Data and Internet services ...... 8.1 14.5
Long distance services .......... 2.8 4.8
Mobile services ................. 4.2 3.5
Eliminations .................... (0.3) (1.3)
---------------- ----------------
TOTAL REVENUE ..................... $ 24.3 $ 32.3
CLEC Services. Revenue from CLEC Services increased by 14% to $10.8 million
for the three months ended March 31, 2001 from $9.5 million for the three months
ended March 31, 2000.
The CLEC Services division of TeleRoss revenue increased by 6% to $6.6
million for the three months ended March 31, 2001 from $6.2 million for the
three months ended March 31, 2000. This is mainly due to increases in monthly
recurring revenue partly due to an increase in numbering capacity in service,
offset by a decrease in traffic revenue, largely as a result of pricing
concessions made to its largest customer on local traffic.
The CLEC Services division of Golden Telecom BTS revenue increased by 27% to
$4.2 million for the three months ended March 31, 2001 from $3.3 million for the
three months ended March 31, 2000. The increase in revenue was due to an
increase in termination of incoming traffic from other carriers.
Data and Internet Services. Revenue from Data and Internet Services
increased by 79% to $14.5 million for the three months ended March 31, 2001 from
$8.1 million for the three months ended March 31, 2000. The increase is largely
the result of increases in Internet revenue from both dial-up and dedicated
Internet subscribers, increases in private line channel revenue, increases in
Internet traffic and other Internet related revenues.
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Long Distance Services. Revenue from Long Distance Services increased by 71%
to $4.8 million for the three months ended March 31, 2001 from $2.8 million for
the three months ended March 31, 2000. Recurring fees, traffic and equipment
revenues increased due to an increasing end-user customer base in Moscow.
Mobile Services. Revenue from Mobile Services decreased by 17% to $3.5
million for the three months ended March 31, 2001 from $4.2 million for the
three months ended March 31, 2000. Despite an increase of approximately 36% in
the number of active subscribers at Golden Telecom GSM, pricing competition has
reduced average revenue per active subscriber by 37% to approximately $31 per
month. Additionally $0.2 million of the decrease was attributable to Vostok
Mobile Novgorod no longer being consolidated as a result of the MCT transaction.
EXPENSES
The following table shows our principal expenses for the three months ended
March 31, 2001 and March 31, 2000:
CONSOLIDATED EXPENSES CONSOLIDATED EXPENSES
FOR THE THREE MONTHS FOR THE THREE MONTHS
ENDED MARCH 31, 2000 ENDED MARCH 31, 2001
-------------------- ---------------------
(IN MILLIONS)
COST OF REVENUE
CLEC services ............................. $ 3.1 $ 4.2
Data and Internet services ................ 4.0 6.8
Long distance services .................... 2.4 4.0
Mobile services ........................... 1.1 1.0
Eliminations .............................. (0.3) (1.3)
--------------- ---------------
TOTAL COST OF REVENUE ....................... 10.3 14.7
Selling, general and administrative ......... 10.2 12.7
Depreciation and amortization ............... 7.2 9.7
Equity in losses (earnings) of ventures ..... 0.9 (0.6)
Interest income ............................. (2.3) (1.5)
Interest expense ............................ 0.7 0.6
Foreign currency loss ....................... 0.4 0.3
Other non-operating expense ................. 0.1 --
Provision for income taxes .................. $ 0.0 $ 0.2
Cost of Revenue
Our cost of revenue increased by 43% to $14.7 million for the three months
ended March 31, 2001 from $10.3 million for the three months ended March 31,
2000.
CLEC Services. Cost of revenue from CLEC Services increased by 35% to $4.2
million, or 39% of revenue, for the three months ended March 31, 2001 from $3.1
million, or 33% of revenue, for the three months ended March 31, 2000.
The CLEC Services division of TeleRoss' cost of revenue increased by 31% to
$2.1 million, or 32% of revenue, for the three months ended March 31, 2001 from
$1.6 million, or 26% of revenue, for the three months ended March 31, 2000. The
increase as a percentage of revenue resulted from settlements to other operators
not decreasing in line with the pricing concessions to customers.
The CLEC Services division of Golden Telecom BTS cost of revenue increased
by 40% to $2.1 million, or 50% of revenue, for the three months ended March 31,
2001 and was $1.5 million, or 45% of revenue, for the three months ended March
31, 2000. Cost of revenue increased as a percentage of revenue due to the
increase in lower margin carriers' carrier traffic.
Data and Internet Services. Cost of revenue from Data and Internet Services
increased by 70% to $6.8 million, or 47% of revenue, for the three months ended
March 31, 2001 from $4.0 million, or 49% of revenue, for the three months ended
March 31, 2000. The decrease as a percentage of revenue was mainly due to the
operational synergies achieved from reduced transmission capacity costs.
Long Distance Services. Cost of revenue from Long Distance Services
increased by 67% to $4.0 million, or 83% of revenue, for the three months ended
March 31, 2001 from $2.4 million, or 86% of revenue, for the three months ended
March 31, 2000. The slight improvement in cost of revenue as a percentage of
revenue is partly due to an increase in end-users in the long distance traffic
mix.
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Mobile Services. Cost of revenue from Mobile Services decreased by 9% to
$1.0 million, or 29% of revenue, for the three months ended March 31, 2001 from
$1.1 million, or 26% of revenue, for the three months ended March 31, 2000. The
cost of revenue increased as a percentage of revenue due to increased
competition, which has in turn led to lower traffic and equipment margins.
Selling, General and Administrative
Our selling, general and administrative expenses increased by 25% to $12.7
million, or 39% of revenue, for the three months ended March 31, 2001 from $10.2
million, or 42% of revenue, for the three months ended March 31, 2000.
Depreciation and Amortization
Our depreciation and amortization expenses increased by 35% to $9.7 million
for the three months ended March 31, 2001 from $7.2 million for the three months
ended March 31, 2000. This increase is due to the continuing capital
expenditures of the consolidated entities and increased goodwill and intangible
asset amortization due to acquisitions.
Equity in Earnings/Losses of Ventures
The earnings after interest and tax charges from our investments in
non-consolidated ventures were $0.6 million for the three months ended March 31,
2001 up from losses of $0.9 million for the three months ended March 31, 2000.
We recognized earnings at Sovintel of $1.8 million for the three months ended
March 31, 2001, which more than offset our recognized losses in MCT Corp. In the
three months ended March 31, 2000, our recognized earnings at Sovintel were $1.0
million which were more than offset by our recognized losses of $1.9 million
from our Russian mobile ventures.
Interest Income
Our interest income was $1.5 million for the three months ended March 31,
2001 down from $2.3 million for the three months ended March 31, 2000. The
decrease in interest income mainly reflects the reduced balance of cash, cash
equivalents and investments available for sale following the use of part of the
proceeds from our IPO for acquisitions and capital expenditure.
Interest Expense
Our interest expense was $0.6 million for the three months ended March 31,
2001 down slightly from $0.7 million for the three months ended March 31, 2000.
Foreign Currency Loss
Our foreign currency loss was $0.3 million for the three months ended March
31, 2001, compared to a $0.4 million loss for the three months ended March 31,
2000. This decreased loss in part reflects the reduced level of the devaluation
of the ruble for the three months ended March 31, 2001, as compared to the three
months ended March 31, 2000.
Other Non-operating Expense
No other non-operating expense was recorded in the three months ended March
31, 2001. Our other non-operating expense was $0.1 million for the three months
ended March 31, 2000 due to losses on certain fixed assets disposals by our
operating companies.
Provision for Income Taxes
Our charge for income taxes was $0.2 million for the three months ended
March 31, 2001 compared to a negligible provision for three months ended March
31, 2000. The increase was due to limited levels of income taxes being incurred
in the Russia, Ukraine and the USA.
Net Loss and Net Loss per Share
Our net loss for the three months ended March 31, 2001 was $3.9 million,
compared to $3.3 million for the three months ended March 31, 2000.
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Our net loss per share of common stock increased to $0.16 for the three
months ended March 31, 2001, compared to $0.14 in the three months ended March
31, 2000. The increase in net loss per share of common stock was due to the
increase in net loss, partially offset by an increase in the number of weighted
average shares to 24,495,770 in the three months ended March 31, 2001, compared
to 24,060,015 in the three months ended March 31, 2000.
NON-CONSOLIDATED RESULTS -- NON-CONSOLIDATED RESULTS OF OPERATIONS FOR THE THREE
MONTHS ENDED MARCH 31, 2001 COMPARED TO THE NON-CONSOLIDATED RESULTS OF
OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000
This section is comprised of a limited discussion of the results of
operations of our principal non-consolidated entity, Sovintel, in which we own a
50% interest.
SOVINTEL
Revenue
Sovintel's revenue increased by 14% to $25.4 million for the three months
ended March 31, 2001 from $22.2 million, for the three months ended March 31,
2000. Increases in traffic volumes, particularly incoming traffic, more than
offset reductions in tariffs. Also increases in recurring fees, equipment sales
and other service offerings contributed to the increase in revenue.
Cost of Revenue
Sovintel's cost of revenue increased by 26% to $14.8 million for the three
months ended March 31, 2001 from $11.7 million for the three months ended March
31, 2000. The increase of cost of revenue to 58% of revenue from 53% of revenue
was primarily the result of increases in lower margin traffic in the revenue
mix.
Selling, General and Administrative
Sovintel's selling, general and administrative expenses decreased by 20% to
$3.3 million, or 13% of revenue, for the three months ended March 31, 2001 from
$4.1 million, or 18% of revenue for the three months ended March 31, 2000. The
decrease was largely due to a reduction in the rate of revenue related taxes
incurred, offset by a slight increase in employee related costs.
LIQUIDITY AND CAPITAL RESOURCES
Our cash, cash equivalents and investments available for sale were $103.5
million and $112.2 million as of March 31, 2001 and December 31, 2000,
respectively. Of these amounts, our cash and cash equivalents were $103.5
million and $57.9 million as of March 31, 2001 and December 31, 2000,
respectively. In the fourth quarter of 2000, we invested in money market
instruments with an original maturity greater than three months which are
classified as investments available for sale. At March 31, 2001 and December 31,
2000, investments available for sale were none and $54.3 million, respectively.
Our total restricted cash was $2.3 million and $2.5 million as of March 31,
2001 and December 31, 2000, respectively. The restricted cash is maintained in
connection with certain of our debt obligations as described below.
During the three months ended March 31, 2001, we had net cash inflows of
$3.3 million from our operating activities. During the three months ended March
31, 2000, we had net cash inflows of $3.0 million from our operating activities.
The slight increase in cash inflows was mainly due to an improvement in our
operating income, excluding depreciation and amortization, partially offset by a
reduction in accounts payable. We had net cash inflows of $43.1 million at March
31, 2001 and used $3.2 million at March 31, 2000 for investing activities.
During the three months ended March 31, 2001 we liquidated our total
investments available for sale of $54.3 million. Cash used in investing
activities was principally attributable to building our telecommunications
networks and acquisitions.
We had working capital of $93.9 million as of March 31, 2001 and $100.0
million as of December 31, 2000. At March 31, 2001, we had total debt of
approximately $19.1 million, of which $2.9 million were current maturities. At
December 31, 2000, we had total debt of approximately $19.0 million, of which
$3.3 million were current maturities. Total debt at March 31, 2001 includes
amounts that are fully
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collateralized by restricted cash. At March 31, 2001 and December 31, 2000,
$11.0 million of our long-term debt, including the current portion, was at fixed
rates.
On April 2, 2001 our majority shareholder, GTS, announced it had reached an
agreement to sell an approximately 50% interest in GTI. Upon closure, this
transaction may trigger an acceleration of up to $18.3 million of GTI's
long-term debt under change of control provisions. GTS is expected to agree to
a one-year maturity, from the date of closing of the transaction, on $6.3
million of long-term debt due from the Company. In accordance with the terms of
other third party debt agreements, subsequent to the closure of the
transaction, the Company may be required to repay in full other outstanding
long-term debt obligations totaling $12.0 million plus accrued interest.
In the first quarter of 2000, we entered into a lease for fiber capacity,
including facilities and maintenance, from Moscow to Stockholm. The lease has an
initial term of ten years with an option to renew for an additional five years.
Full prepayments were made to the lessor in April and August 2000 and February
2001. These prepayments have been offset against the lease obligation in the
financial statements of the Company.
Some of our operating companies have received debt financing through direct
loans from affiliated companies. In addition, certain operating companies have
borrowed funds under a $2.5 million back-to-back, seven-year credit facility
from a Western-owned bank licensed to operate in Russia. Under this facility, we
provide full cash collateral, held in London and recorded on our balance sheet
as restricted cash, for onshore loans made by the bank to our Russian registered
joint ventures. Previously this was a $22.7 million facility which in part,
related to our former Russian mobile properties involved in the MCT transaction.
In a second, similar facility, we provide full cash collateral for a $10.0
million short term back-to-back, revolving, credit facility from the same bank
for two of our larger Russian operating companies. These two facilities replaced
the previous $30 million back to back facility that expired on September 30,
2000. The funding level as of March 31, 2001 for all these facilities totaled
$1.8 million, of which $0.8 million was funded to our consolidated subsidiaries
and $1.0 was funded to our affiliates.
Additionally on April 3, 2001, we announced our intention to acquire
Cityline, a leading Russian Internet Service Provider (ISP) and 51% of
Ekaterinburg based ISP, Uralrelcom. These acquisitions are expected to complete
in the second quarter of 2001. Acquisitions cash flows together with capital
expenditures in the second quarter of 2001 are expected to be approximately
$38.4 million.
In order for us to compete successfully, we will require substantial capital
to continue to develop our networks and meet the funding requirements of our
operations and ventures, including losses from operations. We will also require
capital for our acquisition and business development initiatives. The net
proceeds from our IPO and our private placement will be applied to these funding
requirements. We also expect to fund these requirements through our cash flow
from operations, proceeds from additional equity and debt offerings that we may
conduct, and debt financing facilities.
In the future, we may execute especially large or numerous acquisitions,
which may require us to raise additional funds through a dilutive equity
issuance, through additional borrowings with collaterization and through the
divestment of non-core assets. In the case these especially large or numerous
acquisitions do not materialize, we expect our current sources of funding,
including the net proceeds from our IPO and the related investment, to finance
our capital requirements for the next 12 to 18 months. The actual amount and
timing of our future capital requirements may differ materially from our current
estimates because of changes and fluctuations in our anticipated acquisitions,
investments, revenue, operating costs and network expansion plans and access to
alternative sources of financing on favorable terms. However, we may not be able
to obtain additional financing on favorable terms. As a result, we may be
subject to additional or more restrictive financial covenants, our interest
obligations may increase significantly and our shareholders may be adversely
diluted. Our failure to generate sufficient funds in the future, whether from
operations or by raising additional debt or equity capital, may require us to
delay or abandon some or all of our anticipated expenditures, to sell assets, or
both, which could have a material adverse effect on our operations.
Although we have achieved positive cash flow from operations, we cannot
assure you that our operations will sustain positive operating cash flow or
achieve operating profitability in the future. If we cannot achieve and sustain
operating profitability or positive cash flow from operations, we may not be
able to meet our debt service obligations or working capital requirements, and
the value of our shares of common stock may decline.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
Certain statements contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and other parts of this document,
including, without limitation, those concerning (i) projected traffic volume;
(ii) future revenues and costs;
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(iii) changes in the Company's competitive environment; (iv) our projections
concerning our liquidity and capital resources; (v) the political and financial
situation in the markets in which we operate; and (vi) the expected closing
schedules for our business development projects, especially for Cityline and the
Uralrelcom transactions 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. Among the
key factors that have a direct bearing on the Company's results of operations,
economic performance and financial condition are the commercial and execution
risks associated with implementing the Company's business plan, the political,
economic and legal environment in the markets in which the Company operates,
increasing competitiveness in the telecommunications and Internet-related
businesses that may limit growth opportunities, and the consummation of numerous
or large acquisitions. 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.
Additional information concerning factors that could cause results to differ
materially from those in the forward looking statements are contained in the
Company's filings with the U.S. Securities and Exchange Commission ("SEC") and
especially in the Risk Factor sections therein, including, but not limited to
the Company's report on Form 10-K for the year ended December 31, 2000 and the
Company's Post Effective Amendment No.1 on Form S-3 to Registration Statement
No. 333-39260 on Form S-1. The amendment was filed with the SEC on April 27,
2001.
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.
The factors described in this report could cause actual results or outcomes
to differ materially from those expressed in any forward-looking statements of
the Company made by or on behalf of the Company, 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, management cannot assess the
impact of each such factor on the Company's 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.
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
b) Reports on Form 8-K
DATE OF REPORT SUBJECT OF REPORT
March 30, 2001 Announcement by GTI,
that GTS, the
Company's majority
stockholder, entered
into an agreement to
sell approximately
50% of its ownership
in GTI
Announcement by GTI
of the agreement to
acquire Cityline and
51% of Uralrelcom.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GOLDEN TELECOM, INC.
(Registrant)
By: /s/ David J. Wisher
------------------------------------------------
Name: David J. Wisher
Title: Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
Date: May 9, 2001
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