________________________________________________________________________
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 March 31, 1998
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-13385
Emerging Communications, Inc.
(exact name of issuer as specified in its charter)
Delaware 66-0547028
(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 March 31, 1998, the registrant had outstanding 10,959,131 shares of
its common stock ($.01 par value).
________________________________________________________________________
<PAGE>
<TABLE>
EMERGING COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Columnar Amounts in Thousands)
- --------------------------------------------------------------
<CAPTION>
December 31, March 31,
ASSETS 1997 1998
(Unaudited)
<S> <C> <C>
Current assets: ----------- ----------
Cash $ 4,013 $ 5,342
Accounts receivable, net 14,548 13,254
Materials and supplies 6,241 6,031
Prepayments and other current assets 4,396 2,627
---------- ----------
Total current assets 29,198 27,254
Fixed assets:
Property, plant and equipment 237,825 240,139
Less accumulated depreciation (111,296) (114,982)
Franchise rights and cost in excess of
underlying book value, less accumulated
amortization of $10,112,000 and $10,346,000 27,567 27,333
---------- ----------
Net fixed assets 154,096 152,490
Property costs recoverable from future revenues, less
accumulated amortization of $2,715,000 and $3,038,000 21,596 21,273
Other assets 19,418 20,958
---------- ----------
$ 224,308 $ 221,975
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable 19,280 24,300
Accounts payable 14,169 7,926
Accrued taxes 1,087 1,040
Advance payments and deposits 2,072 2,192
Other current liabilities 5,863 5,157
Current portion of long-term debt 8,947 9,152
---------- ----------
Total current liabilities 51,418 49,767
Deferred income taxes and tax credits 2,774 2,833
Long-term debt, excluding current portion 105,138 102,616
Pension and other long-term liabilities 6,208 6,050
Contingencies and commitments (Note D)
Stockholders' equity:
Preferred stock, par value $.01 per share; 10,000,000 -
shares auth-rized; none issued and outstanding
Common stock, par value $.01 per share; 20,000,000
shares authorized; 10,959,131 shares issued and outstanding 110 110
Paid-in capital 59,633 59,633
Pension liability (973) (973)
Retained earnings - 1,939
---------- ----------
Total stockholders' equity 58,770 60,709
---------- ----------
$ 224,308 $ 221,975
========== ==========
</TABLE>
See notes to consolidated condensed financial statements.
2
<PAGE>
<TABLE>
EMERGING COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Columnar Amounts in Thousands, Except Per Share Data)
- ----------------------------------------------------------------------------------------------
<CAPTION>
(Unaudited)
Three Months Ended
March 31,
-----------------------------
1997 1998
<S> <C> <C>
Revenues:
Telephone operations $ 47,945 $ 15,884
Cellular services 1,149 883
Product sales and rentals 1,030 1,389
--------- ---------
Total revenues 50,124 18,156
Expenses:
Telephone operations 36,015 10,488
Cellular services and product sales and rental expenses 1,860 1,822
General and administrative expenses 1,668 1,103
--------- ---------
Total operating expenses 39,543 13,413
Income from operations 10,581 4,743
Other income and expense:
Interest expense (2,572) (1,679)
Interest income 89 34
--------- ---------
Total other income and expense (2,483) (1,645)
--------- ---------
Income before income taxes and minority interest 8,098 3,098
Income taxes 2,909 1,159
--------- ---------
Income before minority interest 5,189 1,939
Minority interest (307) -
--------- ---------
Net income $ 4,882 $ 1,939
========= =========
Net income per share $ 0.40 $ 0.18
========= =========
Weighted average shares outstanding 12,273 10,959
========= =========
</TABLE>
See notes to consolidated condensed financial statements.
3
<PAGE>
<TABLE>
EMERGING COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Columnar Amounts in Thousands)
- --------------------------------------------------------------
<CAPTION>
(Unaudited)
Three Months Ended
March 31,
-----------------------------
1997 1998
<S> <C> <C>
Net cash flows provided by operating activities $ 8,570 $ 1,114
Cash flows from investing activities:
Capital expenditures (5,081) (2,488)
---------- ----------
Net cash used in investing activities (5,081) (2,488)
Cash flows from financing activities:
Repayment of long-term debt (2,221) (2,317)
Net borrowings (repayments) on notes (343) 5,020
---------- ----------
Net cash flows (used) provided by financing activities (2,564) 2,703
---------- ----------
Net increase in cash 925 1,329
Cash, Beginning of Period 11,540 4,013
---------- ----------
Cash, End of Period $ 12,465 $ 5,342
========== ==========
Supplemental cash flow information:
Interest paid $ 2,606 $ 2,738
========== ==========
Income taxes paid $ 2,219 $ -
========== ==========
Depreciation and Amortization Expense $ 6,003 $ 5,029
========== ==========
</TABLE>
See notes to consolidated condensed financial statements.
4
<PAGE>
Emerging Communications, Inc. and Subsidiaries
Notes to Consolidated Condensed
Financial Statements
Three Months Ended March 31, 1997 and 1998
A. GENERAL
SIGNIFICANT ACCOUNTING POLICIES
On December 30, 1997, Atlantic Tele-Network, Inc. (ATN) split-off into
two separate public companies (the Transaction). One, a new company, Emerging
Communications, Inc. and subsidiaries (EmCom or the Company) contains all of
the predecessors telephone operations in the U.S. Virgin Islands. The other,
ATN, continues to own the business and operations in Guyana. Since Emerging
Communications, Inc. was the larger of the two entities, ATN was the split-off
entity and EmCom was deemed the successor company. Consequently, the
historical financial statements of EmCom prior to the split-off reflect those
of the consolidated group (ATN's historical financial statements) and include
the operations in Guyana prior to the split-off.
The consolidated condensed balance sheet of Emerging Communications, Inc.
and subsidiaries at December 31, 1997 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, 1997.
The unaudited interim consolidated condensed financial statements
furnished herein reflect all adjustments, (consisting only of normal recurring
accruals) which are, in the opinion of management, necessary to fairly present
the financial results for the interim periods presented. The results for the
three months ended March 31, 1997 and 1998 are not necessarily indicative of
the operating results for the full year not yet completed.
Reclassification - Certain reclassifications have been made to the 1997
amounts to conform to the 1998 presentation.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131 entitled Disclosures About Segments of an Enterprise and Related
Information (SFAS No. 131). This statement utilizes the "management approach"
for segment reporting which is based on the way that the chief operating
decision maker organizes segments within a company for making operating
decisions and assessing performance. SFAS No. 131 requires disclosures for
each segment that are similar to those required under current standards with
the addition of quarterly disclosure requirements and more specific and
detailed geographic disclosures especially by countries as opposed to broad
geographic regions. This statement is effective for fiscal years beginning
after December 31, 1997, or January 1, 1998 for the Company. However, the
provisions of this statement are not required for the interim reporting
periods in the first year of implementation. The provisions of this statement,
which are of a disclosure nature, will not have a material impact on the
financial statements.
5
<PAGE>
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 "FCC" 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 "IDC" 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. The Company believes that it is probable that future revenue in an
amount at least equal to the intrastate portion of these costs will result
from inclusion of these costs in allowable costs for rate making purposes. The
Company has deferred the intrastate portion of these costs and anticipates
amortizing them over the same period as the IDC tax benefit. On October 9,
1997, the Virgin Islands Public Service Commission instituted a proceeding to
determine whether Vitelco's rates were just and reasonable in light of this
tax rebate. There can be no assurance as to the outcome of this proceeding.
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.
D. CONTINGENCIES AND COMMITMENTS
In connection with the split-off Transaction, the Company believes it has
certain claims against ATN, and ATN may, in turn, have claims against the
Company. Due to the preliminary nature of the situation, management and legal
counsel are unable to predict the ultimate resolution of these matters.
The Company has various litigation cases and claims in the normal course
of business the resolution of which, in the opinion of management, is not
expected to have a material effect on the financial statements.
E. COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS
No. 130) . Statement of Financial Accounting Standards No. 130 establishes
standards for the display of comprehensive income and its components in a full
set of financial statements. There was no material difference between net
income and comprehensive income for the three months ended March 31, 1997 and
1998.
6
<PAGE>
.
Emerging Communications, Inc. and Subsidiaries
Management Discussion and Analysis of Financial
Conditions and Results of Operations
Split-Off Transaction
On December 30, 1997, Atlantic Tele-Network, Inc. ("ATN") split off into
two separate public companies pursuant to the split-off Transaction. One
company, EmCom contains all the predecessors telephone operations in the U.S.
Virgin Islands. The other, ATN, continues to own the business and operations
in Guyana. Because EmCom was the larger of the two entities, ATN was deemed
the split-off entity and EmCom was deemed the successor company. Consequently,
the historical financial statements of EmCom prior to the split-off
Transaction reflect those of the consolidated group and include the operations
in Guyana.
The split-off Transaction was a non pro-rata split off and was accounted
for at fair value as evidenced by the market capitalization of ATN subsequent
to the split-off Transaction. Accordingly, the loss on fair valuation of the
net assets of ATN was included in the consolidated statement of operations for
the year ended December 31, 1997.
As a result of the split-off, EmCom no longer includes the operations or
financial results of the Guyana subsidiary GT&T in its current year financial
statements.
Introduction
The Company's revenues and income from continuing operations have been
derived principally from the operations of its telephone subsidiaries, Vitelco
and, prior to the split-off Transaction, 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. The holding
company for EmCom's United States Virgin Islands operations is Atlantic
Tele-Network, Co. ("ATN-VI"). Other operations in the Company's Consolidated
Condensed Statements of Operations include: Vitelcom Cellular, Inc. d/b/a
VitelCellular, which provides cellular telephone service in the U.S. Virgin
Islands; and, until it merged into ATN-VI, Vitelcom, which supplies customer
premises equipment in the U.S. Virgin Islands.
RESULTS OF OPERATIONS
Three Months ended March 31, 1997 and 1998
Operating revenues for the three months ended March 31, 1998 were $18.1
million as compared to $50.1 million for the corresponding period of the prior
year, a decrease of $32.0 million. The decrease was due principally to the
split-off Transaction since revenues for the three months ended March 31, 1997
included approximately $31.8 million in revenues related to GT&T's telephone
operations. After giving effect to the split-off Transaction, the revenues of
the operations retained by the Company decreased approximately $226,000 or 1%
from revenues for the same period last year.
7
<PAGE>
Revenues from telephone operations decreased approximately $319,000, or
2% compared to revenues for the same period last year. This decrease is
principally due to a decline in Universal Service Fund revenues offset by
increases in revenues from local exchange service, access charges, and billing
and collection services attributable to increased subscriber access lines.
Revenues from cellular services declined approximately $266,000, or 23%
as compared to revenues for the same period last year due to decreases in
subscribers and average revenues per subscriber. Revenues from product sales
and rentals increased $359,000, or 35% compared to revenues for the same
period last year as a result of completing several projects in the first
quarter of 1998.
Operating expenses for the three months ended March 31, 1998 were $13.4
million as compared to $39.5 million for the corresponding period of the prior
year, a decrease of $26.1 million, or 66%. This decrease was due principally
to the inclusion of approximately $26.4 million of operating expenses related
to GT&T and ATN, Inc. for the period ended March 31, 1997. As a result of the
split-off Transaction, GT&T and ATN, Inc. are no longer part of the Company's
operations.
After giving effect to the split-off Transaction, operating expenses were
$13.4 million for the three months ended March 31, 1998, a $400,000 or 3%
increase as compared to $13.0 million for the corresponding period of the
prior year. This increase is principally due to a $182,000 increase in
expenses of telephone operations and a $243,000 increase in general and
administrative expenses.
As a percentage of revenues from telephone operations, after giving
effect to the split-off Transaction, operating expenses were approximately 74%
and 71% for the three months ended March 31, 1998 and 1997, respectively.
Income from operations for the three months ended March 31, 1998 was $4.7
million, a $5.8 million decrease compared to income from operations for the
same period last year. However, after giving effect to the split-off
Transaction, income from operations decreased $613,000 or 11% for the three
months ended March 31, 1998 as compared to the same period last year. This
decrease is attributable to the $226,000 or 1% decrease in revenues combined
with the approximate $400,000 or 3% increase in operating expenses as
discussed herein.
Net interest expense for the three months ended March 31, 1998 was $1.6
million as compared to $2.5 million for the corresponding period of the prior
year, a decrease of $838,000. After giving effect to the split-off
Transaction, net interest expense increased approximately $100,000 as a result
of as increase in outstanding debt. Income before taxes and minority interest
decreased $5.0 million to $3.1 million for the first three months of 1998.
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. 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.
On October 9, 1997 the Virgin Islands Public Service Commission ("PSC")
instituted a proceeding to determine whether Vitelco's rates were just and
reasonable in light of this tax rebate. There can be no assurance as to the
outcome of this proceeding.
Before giving effect to the change in deferred taxes discussed above, the
Company's effective tax rate for the three months ended March 31, 1998 was
37.4% as compared to 35.9% for the corresponding period of the prior year.
The minority interest in earnings for the three months ended March 31,
1997 consists of the Guyana government's 20% interest in GT&T and Comsat
Mobile Investments, Inc.'s (a subsidiary of Communications Satellite
Corporation) 10% interest in VitelCellular. As a result of the split-off
Transaction, the minority interest held in GT&T is no longer included in the
operations of the Company. Additionally, on February 13, 1998, ATN-VI
purchased the 10% minority interest held in VitelCellular. The minority
interest in earnings up to the date of ATN-VI's acquisition of 10% minority
interest is immaterial.
8
<PAGE>
Liquidity and Capital Resources
The Company depends upon funds received from subsidiaries to meet its
capital needs, including servicing debt and financing any future acquisitions.
As a result of the split-up of ATN into two separate public companies, the
Company's capital resources have changed significantly, and the Company has
fewer resources and significantly reduced operations for the near term.
However, the Company believes existing liquidity and capital resources will be
adequate to meet current operating needs.
In connection with the split-off Transaction, EmCom assumed approximately
$5.5 million of bank debt of ATN, of which $5.5 million was outstanding at
March 31, 1998 under a short-term credit facility which matures October 1,
1998. The Company's primary sources of funds are management fees, repayment of
loans, interest from ATN-VI and dividends from ATN-VI.
In connection with the split-off Transaction, ATN-VI borrowed
approximately $17.4 million, net, from the Rural Telephone Finance Cooperative
("RTFC") under a 15 year credit facility (the "1997 RTFC Credit Facility"). This
facility provides for quarterl payments of principal and interest of
approximately $500,000. At March 31, 1998, $17.2 million, net, was outstanding
under this credit facility, which bears interest at a variable rate, which was
6.65% at March 31, 1998. In addition to the 1997 RTFC Credit Facility, ATN-VI
had other outstanding borrowings from the RTFC of $15.6 million, net, at March
31, 1998, of which $1.3 million bears interest at a variable rate, which was
6.65% at March 31, 1998, and $14.3 million bears interest at a fixed rate of
8%.
ATN-VI's loan agreements with the RTFC limit the payment of dividends by
ATN-VI to EmCom unless ATN-VI meets certain financial ratios, which were met
at March 31, 1998, and, after payment of the dividend ATN-VI's stockholders
equity is greater than 30% of total assets. ATN-VI's loan agreements with the
RTFC contain covenants that restrict ATN-VI from, among other things: (i) with
certain exceptions, engaging in consolidations, mergers and sales of assets;
(ii) with certain exceptions, creating, incurring, assuming or suffering to
exist other indebtedness; (iii) with certain exceptions, making investments or
loans in any other person or entity; (iv) acquiring assets or capital stock of
other entities except for certain permitted acquisitions; and (v) redeeming,
retiring or purchasing capital stock of ATN-VI without, in each case, the
prior written approval of RTFC.
9
<PAGE>
ATN - VI's ability to service its debt or to pay dividends will be
primarily dependent on funds from its parent or its subsidiaries, primarily
Vitelco. Vitelco's loan agreement with the RUS (the "RUS Loan Agreement") 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 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, if the equity ratio, as defined, is below 40% 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 March 31, 1998,
Vitelco's dividend paying capacity was approximately $.7 million.
At March 31, 1998, Vitelco had an outstanding balance under the RUS Loan
Agreement of $53.7 million, which bears interest at a fixed rate of 5%. The
RUS Loan Agreement calls for fixed monthly principal and interest payments of
$7.04 per $1,000 of loan balance with any remaining balance due May 2012. The
RUS Loan Agreement contains covenants, which, with certain exceptions restrict
Vitelco from: (i) engaging in mergers and consolidations; (ii) selling,
leasing or transferring any capital assets; (iii) entering into any contract
for the management of its business or operations or maintenance of its
properties; (iv) declaring or paying dividends, unless certain criteria are
met; (v) guaranteeing or incurring additional indebtedness; and (vi) making
investments except as otherwise permitted.
At March 31, 1998, Vitelco has outstanding borrowings from the RTFC of
$37.6 million, of which $9.9 million was owing under a term loan which bears
interest at a fixed rate of 9.75% (the "9.75% Term Loan"), $9.5 million was
owing under a term loan which bears interest at a fixed rate of 8% (the "8%
Term Loan"), $5 million was owing under a $5 million revolving line of credit
with an interest rate of 7.25% and $13.2 million was owing under a $15 million
revolving loan of credit with an interest rate of 7.25%. The $5 million line
of credit with the RTFC expires in March 2000, and the $15 million line of
credit with the RTFC expires in October 1998. 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, 1998, 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 RTFC.
10
<PAGE>
Vitelco's Loan agreements with the RTFC require, among other things,
ATN-VI and Vitelco to maintain certain financial ratios. Vitelco may incur
additional debt with RUS without prior approval from RTFC if Vitelco maintains
certain financial ratios. Vitelco's loan agreement contains covenants, which,
with certain exceptions, restrict: (i) Vitelco from entering into any business
venture with respect to business in which it is not currently engaged and
ATN-VI from entering into any business venture other than as a holding company
for its subsidiaries; (ii) ATN-VI from selling and permitting any liens upon
the capital stock of Vitelco; (iii) ATN-VI from incurring additional
indebtedness; (iv) ATN-VI from declaring or paying any dividends, unless
certain criteria are met; (v) ATN-VI and Vitelco from engaging in mergers or
consolidations; (vi) ATN-VI from making or committing to make any investment
in any person except as otherwise permitted; (vii) ATN-VI from creating,
assuming, incurring or suffering to exist any lien upon any of its property or
assets or the property or assets of Vitelco; (viii) ATN-VI from forming or
acquiring any subsidiaries; and (ix) ATN-VI from permitting any subsidiary to
sell or transfer any asset for purposes of effecting a lease.
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 March 31, 1998,
the Company was in compliance with all covenants contained in its long-term
debt agreements.
While the Company believes capital resources are adequate to meet current
operations, the Company is also exploring several opportunities to acquire
cellular licenses, cable television properties or land line telephone
companies in the Caribbean and developing countries. There can be no assurance
as to whether, when or on what terms the Company will be able to acquire any
of the businesses or licenses it is currently seeking or whether it will
obtain financing to do so.
Impact of Inflation
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.
11
<PAGE>
Year 2000 Compliance
The inability of computer hardware, software and other equipment
utilizing microprocessors to recognize and properly process data fields
containing a 2-digit year is commonly referred to as the Year 2000 Compliance
issue. As the year 2000 approaches, such systems may be unable to accurately
process certain date-based information.
The Company is identifying all significant applications in its systems
that will require modification or replacement to ensure Year 2000 Compliance.
Internal and external resources are being used to make the required
modifications and replacements and test Year 2000 Compliance. The modification
process of all significant applications is under way. The Company plans on
completing the testing process of all significant applications by December 31,
1998.
In addition, the Company is planning to communicate with others with whom
it does significant business to determine their Year 2000 Compliance readiness
and the extent to which the Company is vulnerable to any third party Year 2000
issues. However, there can be no guarantee that the systems of other companies
on which the Company's systems rely will be timely converted, or that a
failure to convert by another company, or a conversion that is incompatible
with the Company's systems, would not have a material adverse effect on the
Company.
The total cost to the Company of these Year 2000 Compliance activities
has not been and is not anticipated to be material to its financial position
or results of operations in any given year. These costs and the date on which
the Company plans to complete the Year 2000 modification and testing processes
are based on management's best estimates, which were derived utilizing
numerous assumptions of future events including the continued availability of
certain resources, third party modification plans and other factors, However,
there can be no guarantee that these estimates will be achieved and actual
results could differ from those plans.
12
<PAGE>
Emerging Communications, 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.
13
<PAGE>
Emerging Communications, 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.
EMERGING COMMUNICATIONS, INC.
Date: May 14, 1998 /s/ James J. Heying
- -------------------- -----------------------------
James J. Heying
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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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) ***
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 5,342
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0
0
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</TABLE>
