-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IMTK3De+d6PyDW0k2eHMi3as3e2DJFBMQQVk642+NCA8sfcgG5qB2ytnYkFZmNXu Fa9xaUNMYMkBrfclRbt0sQ== 0000879585-97-000013.txt : 19970815 0000879585-97-000013.hdr.sgml : 19970815 ACCESSION NUMBER: 0000879585-97-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATLANTIC TELE NETWORK INC /DE CENTRAL INDEX KEY: 0000879585 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 470728886 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12593 FILM NUMBER: 97660889 BUSINESS ADDRESS: STREET 1: CHASE FINANCIAL CENTER STREET 2: P O BOX 1730 CITY: ST CROIX US STATE: VI ZIP: 00821 BUSINESS PHONE: 8097778000 MAIL ADDRESS: STREET 1: PO BOX 1730 CITY: CHRISTIANSTED STATE: VI ZIP: 00821 10-Q 1 ATN 10Q ________________________________________________________________________ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter ended June 30, 1997 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-19551 Atlantic Tele-Network, Inc. (exact name of issuer as specified in its charter) Delaware 47-072886 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) Chase Financial Center P.O. Box 1730 St. Croix, U.S. Virgin Islands 00821 (809) 777-8000 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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ____ As of June 30, 1997, the registrant had outstanding 12,272,500 shares of its common stock ($.01 par value). ________________________________________________________________________ ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (Columnar Amounts in Thousands) - ---------------------------------------------------------------------------------------------------------------------------
December 31, June 30, ASSETS 1996 1997 (Unaudited) Current assets: ------------ ------------ Cash $ 11,540 $ 11,441 Accounts receivable, net 63,660 56,092 Materials and supplies 9,658 9,427 Prepayments and other current assets 4,110 6,195 ------------ ------------ Total current assets 88,968 83,155 Fixed assets: Property, plant and equipment 328,895 336,761 Less accumulated depreciation (117,031) (124,058) Franchise rights and cost in excess of underlying book value, less accumulated amortization of $11,170,000 and $11,870,000 40,132 39,432 ------------ ------------ Net fixed assets 251,996 252,135 Property costs recoverable from future revenues 22,905 22,250 Uncollected authorized rate increases 3,119 2,920 Other assets 15,846 16,322 ------------ ------------ $382,834 $376,782 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable $ 17,153 $ 15,722 Accounts payable 25,021 20,377 Accrued taxes 2,457 1,970 Advance payments and deposits 2,701 3,065 Other current liabilities 8,231 6,737 Current portion of long-term debt 12,942 12,936 ------------ ------------ Total current liabilities 68,505 60,807 Deferred income taxes and tax credits 33,066 22,059 Long-term debt, excluding current portion 109,737 104,173 Pension and other long-term liabilities 6,702 6,453 Minority interest 15,033 15,341 Contingencies and commitments (Note E) Stockholders' equity: Preferred stock, par value $.01 per share; 10,000,000 shares authorized; - - none issued and outstanding Common stock, par value $.01 per share; 20,000,000 shares authorized; 12,272,500 shares issued and outstanding 123 123 Paid-in capital 81,852 81,852 Retained earnings 67,816 85,974 ------------ ------------ Total stockholders' equity 149,791 167,949 ------------ ------------ $ 382,834 $ 376,782 ============ ============
See notes to consolidated condensed financial statements. 2 ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Amounts in Thousands, Except Per Share Data) - ---------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited) Three Months Ended Six Months Ended June 30, June 30, ------------------------------------------------------ 1996 1997 1996 1997 Telephone Operations: Revenues: Local exchange service $ 6,278 $ 7,193 $ 12,589 $ 14,476 Access charges 3,712 4,407 7,076 8,599 International long-distance revenues 38,232 26,255 73,473 57,117 Universal Service Fund 2,802 3,451 5,604 7,042 Billing and other revenues 1,275 1,290 2,304 2,820 Directory advertising 644 427 1,293 914 ----------- ----------- ----------- ----------- Total revenues 52,943 43,023 102,339 90,968 Expenses: Plant specific operations 4,152 4,169 7,869 7,990 Plant nonspecific operations 5,212 5,410 10,135 11,853 Customer operations 1,630 1,692 3,224 3,306 Corporate operations 3,206 3,122 6,127 6,111 International long-distance expenses 23,989 18,339 46,294 38,593 Taxes other than income 712 862 1,628 1,756 ----------- ----------- ----------- ----------- Total expenses 38,901 33,594 75,277 69,609 Income from telephone operations 14,042 9,429 27,062 21,359 Other Operations: Revenues: Cellular services 1,581 997 3,219 2,146 Product sales and rentals 1,358 1,304 2,644 2,334 ----------- ----------- ----------- ----------- Total revenues 2,939 2,301 5,863 4,480 Expenses of other operations 2,103 2,010 4,177 3,870 ----------- ----------- ----------- ----------- Income from other operations 836 291 1,686 610 Non-operating Revenues and Expenses: Interest expense (2,862) (2,745) (5,730) (5,317) Interest income 85 69 227 158 Other revenues and expenses (2,464) (3,288) (6,906) (4,956) ----------- ----------- ----------- ----------- Non-operating revenues and expenses, net (5,241) (5,964) (12,409) (10,115) ----------- ----------- ----------- ----------- Income before income taxes and minority interest 9,637 3,756 16,339 11,854 Income taxes 3,952 (9,521) 6,876 (6,612) ----------- ----------- ----------- ----------- Income before minority interest 5,685 13,277 9,463 18,466 Minority interest (680) (1) (1,272) (308) ----------- ----------- ----------- ----------- Net income $ 5,005 $ 13,276 $ 8,191 $ 18,158 =========== =========== =========== =========== Net income per share $ 0.41 $ 1.08 $ 0.67 $ 1.48 =========== =========== =========== =========== Weighted average shares outstanding 12,273 12,273 12,273 12,273 =========== =========== =========== ===========
See notes to consolidated condensed financial statements. 3 ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Amounts in Thousands) - -------------------------------------------------------------------------------------------------------------------
(Unaudited) Six Months Ended June 30, ---------------------------------- 1996 1997 Net cash flows provided by operating activities $20,992 $17,221 Cash flows from investing activities: Capital expenditures (28,839) (10,319) ----------- ------------ Net cash used in investing activities (28,839) (10,319) Cash flows from financing activities: Repayment of long-term debt (10,033) (5,570) Net borrowings (repayments) on notes 8,808 (1,431) ----------- ------------ Net cash flows provided (used) by financing activities (1,225) (7,001) ----------- ------------ Net increase (decrease) in cash (9,072) (99) Cash, Beginning of Period 18,822 11,540 ----------- ------------ Cash, End of Period $9,750 $11,441 =========== ============ Supplemental cash flow information: Interest paid $5,797 $5,233 =========== ============ Income taxes paid $8,523 $3,683 =========== ============ Depreciation and Amortization Expense $9,154 $10,920 =========== ============
See notes to consolidated condensed financial statements. 4 Atlantic Tele-Network, Inc. and Subsidiaries Notes to Consolidated Condensed Financial Statements Three and Six Months Ended June 30, 1996 and 1997 A. GENERAL SIGNIFICANT ACCOUNTING POLICIES The consolidated balance sheet of Atlantic Tele-Network, Inc. and subsidiaries (the "Company") at December 31, 1996 has been taken from audited financial statements at that date. All other consolidated condensed financial statements contained herein have been prepared by the Company and are unaudited. The consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1996. The unaudited interim consolidated condensed financial statements furnished herein reflect all adjustments, which are, in the opinion of management, necessary to fairly present the financial results for the interim periods presented. The results for the three and six months ended June 30, 1996 and 1997 are not necessarily indicative of the operating results for the full year not yet completed. B. PROPERTY COSTS RECOVERABLE FROM FUTURE REVENUES On September 15, 1995, Hurricane Marilyn struck the Virgin Islands causing extensive damage to the outside telephone plant of Vitelco. None of the damage was covered by insurance. The historical cost of the facilities damaged or destroyed by Hurricane Marilyn was approximately $26.3 million with associated accumulated depreciation of approximately $9.1 million. These costs have been removed from the property accounts and along with certain excess maintenance costs and costs of removal of $7.1 million have been classified as property costs recoverable from future revenues because the Company anticipates that future revenue in an amount at least equal to the capitalized cost will result from inclusion of these costs in allowable costs for rate making purposes. Vitelco has received approval from the Federal Communications Commission to include the interstate portion of these costs in its rate base and amortize them over a five year period. In May 1997, Vitelco received approval from the Virgin Islands Industrial Development Commission for a five year exemption (commencing October 1, 1998) from 90% of Virgin Islands income taxes and 100% of Virgin Islands gross receipts, excise and property taxes to assist in recovering the intrastate portion of the hurricane related costs. C. ACCOUNTING FOR INCOME TAXES As discussed in Note B above, Vitelco received approval from the Virgin Islands Industrial Development Commission in May 1997 for a five year exemption (commencing October 1, 1998) from 90% of Virgin Islands income taxes and 100% of Virgin Islands gross receipts, excise and property taxes. In accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", the Company has adjusted its deferred tax assets and liabilities to reflect the change in the tax rates applicable to Vitelco during the benefit period. This change has resulted in the Company recording a non-recurring credit to income tax expense of approximately $10.9 million in the three and six months ended June 30, 1997. 5 D. REGULATORY MATTERS In October 1995, the Guyana Public Utilities Commission ("PUC") issued an order that rejected the request of GT&T for substantial increases in all telephone rates and temporarily reduced rates for outbound long-distance calls to certain countries. In most cases, the existing rates were already less than GT&T's payment obligations to foreign carriers. In January 1997, on an appeal by GT&T, the Guyana High Court voided the PUC's order in regard to rates and the rates were returned to the rates in existence in October 1995. The lost revenue was approximately $10 million for the period when the order was effective. GT&T is presently seeking to put into effect a surcharge on long distance rates designed to recover these lost revenues over a period of 18 months. GT&T initially instituted such a surcharge effective May 1, 1997, but temporarily withdrew it when the Guyana Consumers Advisory Bureau (a non-governmental group in Guyana) instituted a suit to block it. The PUC has appealed the January 1997 decision of the Guyana High Court to the Guyana Court of Appeals, and in May 1997 the Consumer Advisory Bureau sought an injunction from the Guyana High Court restoring telephone rates to those imposed by the PUC in its October 1995 order. The PUC's appeal and the Consumer Advisory Bureau's application are still pending. In January 1997, the PUC ordered GT&T to cease paying advisory fees to the Company and to recover from the Company approximately $25 million of such fees paid by GT&T to the Company since January 1991. GT&T has appealed the PUC's order to the Guyana High Court and obtained a stay of the PUC's order pending determination of that appeal. At December 31, 1996, GT&T owed the Company approximately $23 million for advances made from time to time for the working capital and capital expenditure needs of GT&T. GT&T's indebtedness to the Company was evidenced by a series of promissory notes. In March 1997, the PUC voided all of the promissory notes then outstanding for failure to comply with certain provisions of the PUC law. The PUC ordered that no further payments be made on any of the outstanding notes and that GT&T recover from the Company all amounts theretofore paid. The order also provided that the PUC would be willing to authorize the payment of any amounts properly proven to the satisfaction of the PUC to be due and payable from GT&T to the Company. GT&T has appealed the PUC's order to the Guyana High Court and obtained a stay of the PUC's order pending determination of that appeal. In late April 1997, the PUC applied to the Guyana High Court for orders prohibiting GT&T from paying any monies to the Company on account of intercompany debt, advisory fees or otherwise pending the determination of GT&T's appeals from the January 1997 and March 1997 orders mentioned above. The PUC's application is still pending. 6 E. CONTINGENCIES AND COMMITMENTS The Company previously had no insurance coverage for its outside plant for damages caused by wind storms. Effective June 1997, the Company has obtained such insurance coverage in the amount of $30 million per storm and $55 million in the aggregate. Upon the acquisition of GT&T in January 1991, GT&T entered into an agreement with the government of Guyana to expand significantly GT&T's existing facilities and telecommunications operations and to improve service within a three-year period pursuant to an expansion and service improvement plan (the "Plan"). The Plan was modified in certain respects and the date for completion of the Plan was extended to February 1995. The government has referred to the PUC the failure of GT&T to complete the Plan by February 1995. The PUC has scheduled a hearing on this matter for August 1997. Failure to timely fulfill the terms of the Plan could result in monetary penalties, cancellation of the License, or other action by the PUC or the government which could have a material adverse affect on the Company's business and prospects. F. SPLIT-UP TRANSACTION The Company has filed a Registration Statement dated August 12, 1997, which includes a Proxy Statement-Prospectus to consider and vote upon a proposed transaction to divide the Company into two separate publicly-owned companies ( the "Transaction"). Emerging Communications, Inc. (ECI) will contain all the outstanding stock of Atlantic Tele-Network Co. (ATN-VI), which owns and conducts the Company's business and operations in the U.S. Virgin Islands, and certain other assets and liabilities. The Company will retain its business and operations in Guyana and certain other assets and liabilities. The Transaction is conditioned upon, among other things, approval of the Transaction by the holders of a majority of the outstanding shares of the Company Common Stock, completion of $17.4 million of long-term financing by ECI or ATN-VI, receipt from the Internal Revenue Service of a tax ruling to the effect that the transfer of assets and liabilities to ECI and the distribution of ECI common stock to shareholders of the Company will be tax free for federal income tax purposes to the Company and its shareholders, the listing of ECI Common Stock on the American Stock Exchange and the continued listing of the Company Common Stock on the American Stock Exchange and the absence of any material adverse change in the business of the Companies. 7 Atlantic Tele-Network, Inc. and Subsidiaries Management Discussion and Analysis of Financial Conditions and Results of Operations Introduction The Company's revenues and income from continuing operations are derived principally from the operations of its telephone subsidiaries, Vitelco and GT&T. Vitelco derives most of its revenues from local telephone and long-distance access services. GT&T derives almost all of its revenues from international telephone services. Other operations in the Company's Consolidated Statements of Operations include: VitelCellular, which provides cellular telephone service in the U.S. Virgin Islands; and Vitelcom, which supplies customer premises equipment in the U.S. Virgin Islands. The principal components of operating expenses for the Company's telephone operations are plant specific operations expenses, plant non-specific operations expenses, customer operations expenses, corporate operations expenses, long-distance expenses and taxes other than income taxes. These categories are consistent with FCC accounting practices. Plant specific operations expenses relate to support and maintenance of telephone plant and equipment and include vehicle expense, land and building expense, central office switching expense and cable and wire expense. Plant non-specific operations expenses consist of depreciation charges for telephone plant and equipment and expenses related to telephone plant and network administration, engineering, power, materials and supplies, provisioning and plant network testing. Customer operations expenses relate to marketing, providing operator services for call completion and directory assistance, and establishing and servicing customer accounts. Corporate operations expenses include Vitelco's and GT&T's expenses for executive management and administration, corporate planning, accounting and finance, external relations, personnel, labor relations, data processing, legal services, procurement and general insurance. International long-distance expenses consist principally of charges from international carriers for outbound international calls from Guyana and payments to audiotext providers from whom GT&T derives international audiotext traffic. Taxes other than income taxes include gross receipts taxes, property taxes, and other miscellaneous taxes. RESULTS OF OPERATIONS Three and Six Months ended June 30, 1996 and 1997 Revenues from telephone operations for the three months ended June 30, 1997 were $43.0 million as compared to $52.9 million for the corresponding period of the prior year, a decrease of $9.9 million, or 19%. Revenues from telephone operations for the six months ended June 30, 1997 were $91.0 million as compared to $102.3 million for the corresponding period of the prior year, a decrease of $11.4 million, or 11%. The decreases were principally due to a $12.7 and $19.1 million decrease in audiotext traffic revenues at GT&T for the three and six months ended June 30, 1997, respectively. 8 GT&T's volume of audiotext traffic peaked in August 1995 at slightly in excess of 10 million minutes per month and fluctuated between 9 and 10 million minutes per month in 1996. Through the first six months of 1997, the volume of audiotext traffic has averaged about 12% less than in the comparable period of 1996. During the three and six months ended June 30, 1997, revenues from audiotext traffic were adversely impacted by changes in the traffic mix, reduction in some accounting rates, the strength of the U.S. dollar against certain foreign currencies, chargebacks from certain foreign carriers, and a foreign carrier's mislabeling of the origin of certain traffic. As a result of the above items, GT&T's revenues from audiotext traffic in the first six months of 1997 were approximately 35% less than in the comparable period of 1996 and GT&T's profit margins from this traffic also declined significantly. Vitelco's telephone operations revenues increased $1.9 and $4.7 million for the three and six months ended June 30, 1997, respectively. These increases are primarily the result of the recovery from Hurricane Marilyn in September 1995 and an increase in Universal Service Fund revenues of $649,000 and $1.4 million for the three and six months ended June 30, 1997, respectively, as a result of increased investment in net fixed assets. At June 30, 1997 Vitelco had 61,055 lines in service compared to 58,824 at the corresponding date in the prior year. This revenue increase at Vitelco was more than offset by decreases of $13.2 and $19.0 million for the three and six months ended June 30, 1997, respectively in international inbound long distance revenues at GT&T principally due to lower audiotext revenues, as a result of items previously discussed. Offsetting this was an increase of $1.2 and $2.6 million in GT&T's unprofitable international outbound revenues. In January 1997, the Guyana High Court voided a Guyana PUC order of October 1995 which had substantially reduced outbound rates in 1996, and permitted GT&T to restore its rates for outbound traffic to their pre-October 1995 level. Consolidated telephone operating expenses for the three months ended June 30, 1997 were $33.6 million, a decrease of $5.3 million or 14%, from consolidated telephone operating expenses of $38.9 million for the corresponding period of the prior year. Consolidated telephone operating expenses for the six months ended June 30, 1997 were $69.6 million, a decrease of $5.7 million or 8%, from consolidated telephone operating expenses of $75.3 million for the corresponding period of the prior year. These decreases were due principally to decreases in audiotext and outbound traffic expenses at GT&T of $5.7 million and $7.7 million for the three and six months ended June 30, 1997, respectively, due to decreased traffic volumes. Offsetting these decreases were increases in plant non-specific expenses which increased as a result of increased plant in service. As a percentage of revenues from telephone operations, consolidated telephone operating expenses increased to approximately 78% and 77% for the three and six month period ended June 30, 1997, respectively, from approximately 73% and 74% for the corresponding periods of 1996. Income from telephone operations decreased $4.6 and $5.7 million for the three and six months ended June 30, 1997. These changes occurred principally as a result of factors affecting revenues from telephone operations and consolidated telephone operating expenses discussed above. GT&T's contribution to income from telephone operations decreased by $6.5 million, or 67%, and $9.2 million, or 49%, for the three and six months ended June 30, 1997 respectively, while Vitelco's contribution to income from telephone operations increased by $1.9 million, or 43%, and $3.5 million, or 48%, for the same periods. 9 Income before income taxes and minority interest decreased $5.9 and $4.5 million for the three and six months ended June 30, 1997 respectively. The significant factors that contributed to these increases were: (i) the $4.6 and $5.7 million decrease in income from telephone operations discussed above; (ii) $545,000 and $1.1 million decreases in income from other operations, principally from decreased cellular operations; (iii) $101,000 and $344,000 decreases in net interest expense due to reduced debt; (iv) a $824,000 increase and a $2.0 million decrease for the three and six months, respectively in other non operating revenues and expenses. The increase for the three months ended June 30, 1997 is principally due to a charge of approximately $1.3 million related to the suspension of the acquisition of the Congo national phone system, offset by reductions of certain corporate expenses. The decrease for the six months ended June 30, 1997 was principally due to a non-recurring charge of $2.8 million in the first three months of 1996 for the companies obligation to reimburse its two Co-Chief Executive Officers for certain litigation expenses in connection with a management dispute settled in February 1996, offset by the increase in the three months ended June 30, 1997 previously discussed. As discussed in Note C to the Consolidated Condensed Financial Statements, Vitelco received approval from the Virgin Islands Industrial Development Commission for a five year exemption (commencing October 1, 1998) from 90% of Virgin Islands income taxes and 100% of Virgin Islands gross receipts, excise and property taxes. In accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", the Company has adjusted its deferred tax assets and liabilities to reflect the change in the tax rates applicable to Vitelco during the benefit period. This change has resulted in the Company recording a non-recurring credit to income tax expense of approximately $10.9 million in the three and six months ended June 30, 1997. The effect of the tax exemption on future current taxes payable during the benefit period will be reflected in the Company's financial statements during the benefit period. There can be no assurance that the Virgin Islands Public Service Commission will not, as a result of this tax exemption, seek to reduce Vitelco's rates. Before giving effect to the change in deferred taxes discussed above, the Company's effective tax rate for the three and six months ended June 30, 1997 was 36.7% and 36.2% as compared to 41.0% and 42.1% for the corresponding periods of the prior year. The lower effective tax rates are primarily attributable to significantly lower earnings at GT&T. The minority interest in earnings consists primarily of the Guyana government's 20% interest in GT&T. 10 Regulatory Considerations Upon the acquisition of GT&T in January 1991, GT&T entered into an agreement with the government of Guyana to expand significantly GT&T's existing facilities and telecommunications operations and to improve service within a three-year period pursuant to an expansion and service improvement plan (the "Plan"). The Plan was modified in certain respects and the date for completion of the Plan was extended to February 1995. The government has referred to the Guyana Public Utilities Commission ("PUC") the failure of GT&T to complete the Plan by February 1995. The PUC has scheduled a hearing on this matter for August 1997. Failure to timely fulfill the terms of the Plan could result in monetary penalties, cancellation of the License, or other action by the PUC or the government which could have a material adverse affect on the Company's business and prospects. In October 1995, the PUC issued an order that rejected the request of GT&T for substantial increases in all telephone rates and temporarily reduced rates for outbound long-distance calls to certain countries. In most cases, the existing rates were already less than GT&T's payment obligations to foreign carriers. In January 1997, on an appeal by GT&T, the Guyana High Court voided the PUC's order in regard to rates and the rates were returned to the rates in existence in October 1995. The lost revenue was approximately $10 million for the period when the order was effective. GT&T is presently seeking to put into effect a surcharge on long distance rates designed to recover these lost revenues over a period of 18 months. GT&T initially instituted such a surcharge effective May 1, 1997, but temporarily withdrew it when the Guyana Consumers Advisory Bureau (a non-governmental group in Guyana) instituted a suit to block it. The PUC has appealed the January 1997 decision of the Guyana High Court to the Guyana Court of Appeals, and in May 1997, the Consumer Advisory Bureau sought an injunction from the Guyana High Court restoring telephone rates to those imposed by the PUC in its October 1995 order. The PUC's appeal and the Consumer Advisory Bureau's application are still pending. In January 1997, the PUC ordered GT&T to cease paying advisory fees to the Company and to recover from the Company approximately $25 million of such fees paid by GT&T to the Company since January 1991. GT&T has appealed the PUC's order to the Guyana High Court and obtained a stay of the PUC's order pending determination of that appeal. At December 31, 1996, GT&T owed the Company approximately $23 million for advances made from time to time for the working capital and capital expenditure needs of GT&T. GT&T's indebtedness to the Company was evidenced by a series of promissory notes. In March 1997, the PUC voided all of the promissory notes then outstanding for failure to comply with certain provisions of the PUC law. The PUC ordered that no further payments be made on any of the outstanding notes and that GT&T recover from the Company all amounts theretofore paid. The order also provided that the PUC would be willing to authorize the payment of any amounts properly proven to the satisfaction of the PUC to be due and payable from GT&T to the Company. GT&T has appealed the PUC's order to the Guyana High Court and obtained a stay of the PUC's order pending determination of that appeal. In late April 1997, the PUC applied to the Guyana High Court for orders prohibiting GT&T from paying any monies to the Company on account of intercompany debt, advisory fees or otherwise pending the determination of GT&T's appeals from the January 1997 and March 1997 orders mentioned above. The PUC's application is still pending. 11 As a result of the decline in GT&T's revenues and profits from audiotext traffic in 1997 as previously discussed, GT&T is preparing to file an application with the PUC for a significant increase in local and outbound international rates. There can be no assurance as to whether or when GT&T will receive any such rate increase. Liquidity and Capital Resources The Company depends upon funds received from subsidiaries to meet its capital needs, including servicing existing debt and its ongoing program of seeking to acquire telecommunications licenses and businesses. The major sources of funds for the Company has been advisory fees received from GT&T and interest payments by GT&T and ATN-VI on intercompany debt. The Company has filed a Registration Statement dated August 12, 1997, which includes a Proxy Statement-Prospectus to consider and vote upon a proposed transaction to divide the Company into two separate publicly-owned companies ( the "Transaction"). Emerging Communications, Inc. (ECI) will contain all the outstanding stock of Atlantic Tele-Network Co. (ATN-VI), which owns and conducts the Company's business and operations in the U.S. Virgin Islands, and certain other assets and liabilities. The Company will retain its business and operations in Guyana and certain other assets and liabilities. The Transaction is conditioned upon, among other things, approval of the Transaction by the holders of a majority of the outstanding shares of the Company Common Stock, completion of $17.4 million of long-term financing by ECI or ATN-VI, receipt from the Internal Revenue Service of a tax ruling to the effect that the transfer of assets and liabilities to ECI and the distribution of ECI common stock to shareholders of the Company will be tax free for federal income tax purposes to the Company and its shareholders, the listing of ECI Common Stock on the American Stock Exchange and the continued listing of the Company Common Stock on the American Stock Exchange and the absence of any material adverse change in the business of the Companies. As a result of the Transaction, the Company's liquidity and capital resources may change significantly, and the Company might have fewer resources and significantly reduced operations. The Company's primary sources of funds will be advisory fees, repayment of loans, and interest from GT&T. The PUC orders in January and March 1997, discussed above under "Regulatory Considerations", could have a material adverse impact on the Company's liquidity. GT&T is not subject to any contractual restrictions on the payment of dividends. However, GT&T's own capital needs and debt service obligations have precluded GT&T from paying any significant funds to the Company other than the advisory fees and interest on intercompany debt mentioned above. If and when the Company settles outstanding issues with the Guyana government and the PUC with regard to GT&T's Expansion Plan and its rates for service, GT&T may require additional external financing to enable GT&T to further expand its telecommunications facilities. There can be no assurance that the Company will be able to obtain any such financing. 12 The continued expansion of GT&T's network is dependent upon the ability of GT&T to purchase equipment with U.S. dollars. A portion of GT&T's taxes in Guyana may be payable in U.S. dollars or other hard currencies. The Company anticipates that GT&T's foreign currency earnings will enable GT&T to service its debt and pay its hard currency tax obligations. There are no Guyana legal restrictions on the conversion of Guyana's currency into U.S. dollars or on the expatriation of foreign currency from Guyana. Until the effective date of the Transaction, other potential sources of funds to the Company are from repayment of loans or dividends from ATN - VI. However, the RTFC Loan limits the payment of dividends by ATN - VI unless ATN - - VI meets certain financial ratios (which were not met at June 30, 1997). Consequently ATN - VI was restricted from paying dividends at that date. At June 30, 1997, the Company also holds a note of ATN - VI in the amount of approximately $24 million which may be repaid by ATN - VI in whole or in part without regard to the limit on the payment of dividends by ATN - VI. ATN - VI's ability to service its debt is dependent on funds from its parent or its subsidiaries . The RUS loan and applicable RUS regulations restrict Vitelco's ability to pay dividends based upon certain net worth tests except for limited dividend payments authorized when specific security instrument criteria are unable to be met. Settlement agreements made in 1989 and 1991 with the U.S. Virgin Islands Public Service Commission (PSC) also contain certain restrictions on dividends by Vitelco which, in general, are more restrictive than those imposed by the RUS. Dividends by Vitelco are generally limited to 60% of its net income, although additional amounts are permitted to be paid for the sole purpose of servicing ATN-VI's debt to the RTFC. Under the above restrictions, at June 30, 1997, Vitelco's dividend paying capacity was approximately $8.4 million in excess of the amounts permitted for servicing ATN-VI debt. The RTFC Loan and RUS Loan agreements also require, among other things, maintenance of minimum debt service and times interest earned coverage and restrictions on issuance of additional long-term debt. As of June 30, 1997, the Company was in compliance with all covenants contained in its long-term debt agreements. 13 At June 30, 1997, Vitelco had outstanding $5 million of borrowings under a $5 million line of credit with the RTFC expiring in March 2000, and an additional $5 million under a $15 million line of credit with the RTFC expiring in October 1997. These borrowings were incurred to finance part of the costs of repairing damage to Vitelco's telephone plant caused by Hurricane Marilyn in September 1995. Vitelco has also received approval from the RUS for $35.7 million of long-term financing, which may be used to repay Vitelco's outstanding line of credit borrowings from the RTFC. Borrowings under Vitelco's $5 million line of credit are required to be repaid within 12 months of the date of the borrowing, but may be repaid from the proceeds of borrowings under the $15 million line of credit. Borrowings under Vitelco's $15 million line of credit will mature on October 31, 1997, at which date, if long-term loan funds from RUS have not yet been made available to Vitelco, Vitelco will have the option of rolling the outstanding amount borrowed under that line of credit into a 15-year term loan from RTFC having terms substantially similar to those contained in Vitelco's existing long-term loan from the RTFC. The Company's short term bank credit facility, under which the Company has $5.5 million of loans outstanding, expired on October 1, 1994. The bank has orally agreed to renew this facility until October 1, 1997 and to waive the prohibition on borrowing under the facility during the first thirty days of the renewal period. Impact of Devaluation and Inflation Although the majority of GT&T's revenues and expenditures are transacted in U.S. dollars or other hard currencies, the results of operations nevertheless may be affected by changes in the value of the Guyana dollar. From February 1991 until early 1994, the Guyana dollar remained relatively stable at the rate of approximately 125 to the U.S. dollar. In 1994, however, the Guyana dollar has declined in value to the current rate of approximately 142 to the U.S. dollar, and it has remained relatively stable at approximately that rate since 1994. The effect of inflation on the Company's financial results of telephone operations in the U.S. Virgin Islands has not been significant in recent years. The effect of inflation on the cost of providing telephone service in the U.S. Virgin Islands has generally been offset (without any increase in local subscribers' rates) by increased revenues resulting from growth in the number of subscribers and from regulatory cost recovery practices in determining access revenues. 14 Atlantic Tele-Network, Inc. and Subsidiaries Part II- Other Information Item 1. Legal Proceedings Not applicable. Item 2. Changes in Securities Not applicable. Item 3. Defaults Upon Senior Securities Not applicable. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. Item 5. Other Information Not applicable. Item 6. Exhibits and Reports on Form 8-K Not applicable. 15 Atlantic Tele-Network, Inc. and Subsidiaries Signatures Pursuant to the Securities Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Atlantic Tele-Network, Inc. ---------------------------- Date: August 14, 1997 /s/ Craig A. Knock - --------------------- --------------------- Craig A. Knock Chief Financial Officer and Vice-President signing both in his capacity as Vice-President on behalf of the Registrant and as Chief Financial Officer of the Registrant EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ACCOMPANYING FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. *** (COLUMNAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) *** 6-MOS DEC-31-1997 JUN-30-1997 11,441 0 56,092 0 9,427 83,155 376,193 124,058 376,782 60,807 104,173 0 0 123 167,826 376,872 95,448 95,448 73,479 73,479 4,956 0 5,317 11,854 (6,612) 18,158 0 0 0 18,158 1.48 1.48
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