<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO
RULE 13A-16 OR 15D-16 UNDER THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE THREE MONTHS ENDED MARCH 31, 1999
FLAG LIMITED
(Exact name of Registrant as specified in its charter)
EMPORIUM BUILDING
69 FRONT STREET
HAMILTON HM12, BERMUDA
(Address of principal executive office)
Indicate by check mark whether the Registrant files or will file annual reports
under cover of Form 20-F or Form 40-F
Form 20-F /X/ Form 40-F / /
Indicate by check mark whether the Registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g-2(b) under the Securities Exchange Act of 1934
Yes / / No /X/
This report ("Quarterly Report") sets forth certain information regarding the
financial condition and results of operations of FLAG Limited, a Bermuda company
(the "Company"), for the fiscal quarter ended March 31, 1999. This Quarterly
Report contains a review of the Company's unaudited financial information and
analysis for the first quarter, as well as certain other information.
The following unaudited financial statements, in the opinion of the Company's
management, reflect all adjustments (which include only normal recurring
adjustments) necessary for a fair presentation of the financial position, the
results of operations and cash flows for the periods presented.
Certain capitalized terms contained herein have the meaning given to them in the
Company's Annual Report filed on Form 20-F on March 31, 1999.
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<PAGE>
FLAG LIMITED
FORM 6-K
INDEX
PAGE
PART I FINANCIAL INFORMATION ................................................1
ITEM 1: FINANCIAL STATEMENTS..................................................1
1.A Consolidated Balance Sheets......................................1
1.B Consolidated Statements of Operations............................2
1.C Consolidated Statement of Comprehensive Income...................3
1.D Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1999 and 1998....................................4
1.E Notes to Consolidated Financial Statements.......................6
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.............................................7
PART II MORE INFORMATION.....................................................12
ITEM 1: LEGAL PROCEEDINGS....................................................12
ITEM 2: CHANGES IN SECURITIES................................................12
ITEM 3: DEFAULTS UPON SENIOR SECURITIES......................................12
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................12
ITEM 5: OTHER INFORMATION....................................................12
ITEM 6: EXHIBITS AND REPORTS FILED ON FORM 6-K...............................13
SIGNATURES....................................................................14
<PAGE>
PART I
ITEM 1.A
FLAG LIMITED
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1999 AND DECEMBER 31, 1998
(EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1999 1998
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS:
Current assets:
Cash $ 1,484 $ 3,024
Accounts receivable, net of allowance for doubtful accounts
of $8,630 (1998 - $8,630) 41,714 70,211
Prepaid expenses and other assets 3,783 2,879
----------- -----------
46,981 76,114
Accounts receivable 20,838 20,854
Funds held by collateral trustee or in escrow 174,185 255,366
Construction in progress 23,231 11,494
Capacity available for sale 1,074,818 1,095,099
Capitalized financing costs, net of accumulated
amortization of $1,909 (1998 - $1,498) 11,941 12,352
Fixed assets, net 4,428 4,487
----------- -----------
$ 1,356,422 $ 1,475,766
=========== ===========
LIABILITIES:
Current liabilities:
Accrued construction costs $ 92,448 $ 146,165
Accrued liabilities 18,180 33,214
Accounts payable 8,226 6,018
Income taxes payable 6,677 6,453
Due to affiliate 1,123 1,843
Deferred revenue 19,215 39,121
----------- -----------
145,869 232,814
8 1/4% senior notes, due 2008, net of unamortized
discount of $5,173 (1998 - $5,321) 424,827 424,679
Long-term debt 241,500 271,500
Deferred revenue and other 82,005 84,415
Deferred taxes 3,500 3,562
----------- -----------
897,701 1,016,970
SHAREHOLDERS' EQUITY:
Class A common shares, $.0001 par value -- 13
Class B common shares, $.0001 par value 64 57
Additional paid-in capital 504,387 504,381
Foreign currency translation adjustment (544) (704)
Deficit (45,186) (44,951)
----------- -----------
458,721 458,796
----------- -----------
$ 1,356,422 $ 1,475,766
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
<PAGE>
PART I
ITEM 1.B
FLAG LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
REVENUES:
Capacity sales, net of discounts $ 27,214 $ 27,954
Standby maintenance and restoration revenue 7,367 5,145
------------- -------------
34,581 33,099
SALES AND OTHER OPERATING COSTS:
Cost of capacity sold 8,757 12,560
Operations and maintenance 7,268 9,070
Sales and marketing 1,910 764
General and administrative 4,768 4,914
------------- -------------
22,703 27,308
OPERATING INCOME 11,878 5,791
INTEREST EXPENSE 14,504 16,720
INTEREST INCOME 2,648 4,281
------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES 22 (6,648)
PROVISION FOR INCOME TAXES 257 746
------------- -------------
LOSS BEFORE EXTRAORDINARY ITEM (235) (7,394)
EXTRAORDINARY ITEM -- 59,839
------------- -------------
NET LOSS (235) (67,233)
CUMULATIVE PAY-IN-KIND PREFERRED DIVIDENDS -- 1,508
REDEMPTION PREMIUM AND WRITE-OFF OF DISCOUNT ON
PREFERRED SHARES -- 8,500
------------- -------------
NET LOSS APPLICABLE TO COMMON SHAREHOLDERS $ (235) $ (77,241)
============= =============
Basic and diluted income (loss) per common share - Class A $ -- $ (0.06)
Basic and diluted income (loss) per common share - Class B $ -- $ (0.17)
Weighted average common shares outstanding - Class A -- 132,000,000
Weighted average common shares outstanding - Class B 635,796,330 396,890,512
</TABLE>
The accompanying notes are an integral part of these
financial statements.
2
<PAGE>
PART I
ITEM 1.C
FLAG LIMITED
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
1999 1998
-------- --------
NET LOSS $ (235) $(77,241)
Foreign currency translation adjustment 160 --
-------- --------
COMPREHENSIVE LOSS $ (75) $(77,241)
======== ========
The accompanying notes are an integral part of these
financial statements.
3
<PAGE>
PART I
ITEM 1.D
FLAG LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss applicable to common shareholders $ (235) $ (77,241)
Adjustments to reconcile net loss to net cash provided by
(used in) operation activities:
Pay-in-kind preferred dividends -- 1,508
Preferred share redemption premium -- 8,500
Amortization of financing costs 411 2,152
Loss on debt refinancing -- 59,839
Provision for doubtful accounts -- 819
Senior debt discount 148 148
Depreciation 332 115
Deferred taxes -- 137
Add (deduct) net changes in operating assets and liabilities:
Accounts receivable 28,498 48,747
Prepaid expenses and other assets (931) 465
Capacity available for sale 9,281 12,559
Accounts payable and accrued liabilities (12,600) 1,856
Income taxes payable 244 523
Due to affiliate (720) (803)
Deferred revenue and other (22,316) (17,934)
-------- ---------
Net cash provided by operating activities 2,112 41,390
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Financing costs incurred -- (13,389)
Net proceeds from issuance of 8 1/4% senior notes -- 424,088
Proceeds from long-term debt -- 320,000
Repayment of long-term debt (30,000) (615,087)
Redemption of preferred shares -- (139,454)
Decrease (increase) in funds held by collateral trustee or in escrow 81,181 157,463
-------- ---------
Net cash provided by financing activities 51,181 133,621
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for construction (54,454) (176,248)
Purchase of fixed assets, net (351) (612)
-------- ---------
Net cash used in investing activities (54,805) (176,860)
-------- ---------
NET INCREASE (DECREASE) IN CASH: (1,512) (1,849)
Effect of foreign currency movements (28) --
CASH, beginning of period 3,024 2,490
-------- ---------
CASH, end of period $ 1,484 $ 641
======== =========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
4
<PAGE>
PART I
ITEM 1.D (CONTINUED)
FLAG LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
SUPPLEMENTAL INFORMATION ON NON-CASH
OPERATING ACTIVITIES:
Decrease in capacity available for sale $ 20,281 $ 12,559
Decrease in accrued construction costs (11,000) --
-------- --------
Cost of capacity sold $ 9,281 $ 12,559
======== ========
SUPPLEMENTAL INFORMATION ON NON-CASH
INVESTING ACTIVITIES:
Increase in construction in progress $ 11,737 $ 71
Decrease in accrued construction costs 42,717 176,177
-------- --------
Cash paid for construction $ 54,454 $176,248
======== ========
SUPPLEMENTAL INFORMATION DISCLOSURE OF
CASH FLOW INFORMATION:
Interest expense for period $ 14,504 $ 18,720
Amortization of financing costs (559) (2,300)
Decrease (increase) in accrued interest payable 8,898 (10,291)
-------- --------
Interest paid $ 22,843 $ 4,129
======== ========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
5
<PAGE>
PART I
ITEM 1.E
FLAG LIMITED
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1999 AND 1998
(EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
1. GENERAL
The interim consolidated financial statements presented herein have
been prepared on the basis of U.S. generally accepted accounting
principles and include the accounts and balances of the Company and its
wholly-owned subsidiaries. All significant intercompany transactions
have been eliminated in consolidation. In the opinion of management,
the unaudited consolidated financial statements reflect all adjustments
(consisting of normal recurring accruals) necessary for a fair
presentation of the results of operations for the quarters ended March
31, 1999 and 1998, the balance sheets as of March 31, 1999 and December
31, 1998, and the cash flows for the three month periods ended March
31, 1999 and March 31, 1998. These interim consolidated financial
statements should be read in conjunction with the audited consolidated
financial statements for the year ended December 31, 1998. The results
of operations for any interim period are not necessarily indicative of
results for the full year.
2. NET INCOME (LOSS) PER COMMON SHARE
In February 1999, the shareholders of all Class A common shares in the
Company converted their shares into Class B common shares of equivalent
value. Basic net loss per Class B common share in 1999 is based on
dividing the net loss by the number of Class B common shares
outstanding for the period as if the exchange had occurred on
January 1, 1999. The basic net loss per Class A common share and
Class B common share in 1998 are based on dividing net loss applicable
to Class A and Class B shareholders by the weighted average number of
common shares outstanding during the period.
3. CONTINGENCIES
The Company is involved in litigation from time to time in the ordinary
course of business. In management's opinion, the litigation in which
the Company is currently involved, individually and in the aggregate,
is not material to the Company's financial condition, results of
operations or cash flows.
4. PENDING ACCOUNTING STANDARD
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities", ("SFAS 133") which is for periods
beginning after June 15, 1999. Management does not expect the impact of
the adoption of SFAS 133 on the Company's financial position or results
of operations to be material.
6
<PAGE>
PART I
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 1999 COMPARED WITH THE QUARTER ENDED MARCH 31, 1998
RESULTS OF OPERATIONS
REVENUES
Total revenue recognized by the Company during the quarter ended March 31, 1999,
was $34.6 million compared to $33.1 million in total revenue for the quarter
ended March 31, 1998.
Revenue recognized from the sale of capacity was $27.2 million for the quarter
ended March 31, 1999 compared to $28.0 million during the quarter ended March
31, 1998. As of March 31, 1999, the Company had entered into sales transactions
with 82 international telecommunication carriers compared to 68 as of March 31,
1998.
Revenue recognized from standby maintenance fees was $6.7 million for the
quarter ended March 31, 1999 compared to $5.1 million for the quarter ended
March 31, 1998. The increase in standby maintenance revenue of $1.6 million for
the quarter ended March 31, 1999 is a result of the increase in capacity sales
on the FLAG System. The Company also generated revenues from restoration
services during the quarter ended March 31, 1999. Revenues from these services,
provided to alternate cable systems on a non-reciprocal basis, were $.7 million.
No revenues were recognized in respect of restoration services in the quarter
ended March 31, 1998.
OPERATING EXPENSES
For the quarter ended March 31, 1999, the Company recorded $8.8 million in
respect of the cost of capacity sold compared to $12.6 million recorded in the
quarter ended March 31, 1998. The gross profit on capacity sales of 67.8% for
the quarter ended March 31, 1999, compares to a gross profit of 55.1% realized
in the quarter March 31, 1998. The increase in margin is a result of sales of
capacity in the quarter ended March 31, 1999 on segments having a higher gross
margin than the segments on which capacity was sold during the quarter ended
March 31, 1998. Cost of sales percentages used are a function of the allocated
cost of constructing the FLAG System and management's current best estimate of
future capacity sales and third party market forecasts of capacity sales.
Changes in management's estimate of future capacity sales revenues, including
the expected sales value per unit, will result in prospective changes to cost of
sales.
In connection with certain sales, the Company has entered into price protection
arrangements entitling the relevant customers to capacity credits if the Company
lowers its list prices prior to December 31, 1999. In the period the Company
lowers its prices, the Company records a provision for cost of sales based on
the estimated cost value of the additional capacity granted. No adjustment was
made to the Company's list prices in 1999 or 1998 and accordingly no such
provision was recorded in the quarters ended March 31, 1999 and March 31, 1998
respectively. Currently, the Company does not plan to offer price protection on
future sales of capacity.
During the quarter ended March 31, 1999 the Company incurred $7.3 million in
operations and maintenance costs compared to $9.1 million for the quarter ended
March 31, 1998. Operations and maintenance expenses
7
<PAGE>
relate primarily to the provision of standby maintenance under Maintenance
Zone Agreements as well as Company salaries and overheads directly associated
with operations and maintenance activities. The decrease in operations and
maintenance costs are largely a result of the termination of the Program
Management Services Agreement with BANSC in May 1998.
During the quarter ended March 31, 1999, $1.9 million in sales and marketing
costs were incurred compared to $.8 million incurred during the quarter ended
March 31, 1998. Sales and marketing costs are comprised of all sales and
marketing activities that are directly undertaken by the Company. The increase
in sales and marketing costs in the quarter ended March 31, 1999 over the
quarter ended March 31, 1998 is due to employment and related costs associated
with the Company fully undertaking all sales and marketing activities which were
previously managed by BANS under the Marketing Services Agreement during the
quarter ended March 31, 1998.
In May 1998, the Company and BANS agreed to terminate the Marketing Services
Agreement which appointed BANS as the exclusive sales agent for the Company
throughout the world. Sales commissions incurred under the Sales and
Marketing Services Agreement prior to its termination are expensed at the
time the related revenue is recognized. Commissions on sales capacity credits
or half-MIUs where there has been no match of a correspondent carrier are
reflected as a prepaid expense at the time incurred and expensed when the
related revenue is recognized.
During the quarter ended March, 31, 1999, $4.8 million of general and
administrative expenses were incurred compared to $4.9 million during the
quarter ended March 31, 1998. Increases in depreciation, staff, and office
related costs incurred in the quarter ended March 31, 1999 were offset by a
reduction in bad debt expense and costs associated with the transition of the
Company from a development stage company to an operating company which were
incurred in the quarter ended March 31, 1998.
INTEREST EXPENSE AND INTEREST INCOME
Interest expense on borrowings decreased from $16.7 million for the quarter
ended March 31, 1998 to $14.5 million for the quarter ended March 31, 1999. The
decrease in interest expense of $2.2 million is attributable to a reduction in
the Company's long term debt facility from $320 million as at March 31, 1998 to
$241.5 million as at March 31, 1999 combined with a $1.7 million reduction in
amortized financing costs and discounts from $2.3 million for the quarter ended
March 31, 1998 to $.6 million for the quarter ended March 31, 1999.
Interest income of $2.6 million was earned during the quarter ended March 31,
1999 compared to $4.3 million earned during the quarter ended March 31, 1998.
Interest was earned on cash balances and short term investments held by the
Collateral Trustee or in escrow arising from ongoing business operations.
PROVISION FOR TAXES
The provision for taxes was $.3 million for the quarter ended March 31, 1999
compared to $.7 million for the quarter ended March 31, 1998. The tax provisions
for periods consists of taxes on income derived from capacity sales and standby
maintenance revenue from customers in certain jurisdictions along the FLAG Route
where the Company is deemed to have a taxable presence or is otherwise subject
to tax. As at the present time, no income, profit, capital or capital gains
taxes are levied in Bermuda. In the event that such taxes are levied, the
Company has received an undertaking from the Bermuda Government exempting it
from all such taxes until March 28, 2016.
8
<PAGE>
EXTRAORDINARY ITEM
In connection with the Refinancing that took place on January 30, 1998, the
Company recorded an extraordinary loss of $59.8 million in the statement of
operations for the quarter ended March 31, 1998. The loss on refinancing
represents the write-off of unamortized deferred financing costs related to the
Old Credit Facility. There were no costs in respect of the financing recorded in
the quarter ended March 31, 1999.
In addition, in connection with the Refinancing in January 1998, the Company
redeemed the Preferred Stock at a redemption price of 105% of the liquidation
preference. The excess of the redemption value over the carrying value of the
Preferred Stock on the date of the redemption of $8.5 million has been reflected
as a decrease in additional paid-in capital in the quarter ended March 31, 1998.
There were no costs of this nature recorded in the quarter ended March 31,
1999.
NET LOSS AND NET LOSS APPLICABLE TO COMMON SHAREHOLDERS
For the quarter ended March 31, 1999 the Company recorded a net loss of $.2
million compared to net loss of $67.2 million for the quarter ended March 31,
1998. This is attributable to an increase in operating income of $6.1
million, a decrease in interest expense of $2.2 million, a $.5 million
decrease in tax expense and the reduction of the extraordinary loss on
refinancing of $59.8 million offset by a reduction in interest income of $1.6
million.
The net loss applicable to common shareholders for the quarter ended March 31,
1998 was $.2 million compared to a net loss for the quarter ended March 31, 1998
of $77.2 million.
Basic and diluted loss per common share was nil for the quarter ended March
31, 1999 compared to a net loss per Class A common share of $(0.06) and a net
loss per Class B common share of $(0.17) for the quarter ended March 31,
1998. This reflects the reduction in net loss from $(77.2) million for the
quarter ended March 31, 1998 to $(.2) million for the quarter ended
March 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
On January 30, 1998, the Company completed a refinancing which resulted in the
repayment of all outstanding borrowings under the Old Credit Facility and the
redemption of the Series A Preferred Shares. The refinancing consisted of $370.0
million of bank credit facilities and $430.0 million of 8 1/4% Senior Notes
maturing January 30, 2008.
Upon consummation of the Refinancing on January 30, 1998, the remaining
amount of unamortized capitalized financing costs related to the Old Credit
Facility of $59.8 million was written off as a component of the loss on
refinancing in the statement of operations. Also in connection with the
Refinancing, the Company recorded a reduction to additional paid in capital
of $8.5 million representing the excess of the $139.5 million paid to redeem
the Preferred Stock over the $131.0 million carrying value of the Preferred
Stock on the date of redemption.
The bank credit facilities include a seven year $320.0 million term loan
facility and a $50.0 million revolving credit facility. On January 30, 1998, the
Company borrowed $320.0 million under the term loan facility. During the year
ended December 31, 1998, the Company repaid $48.5 million of the term loan
facility and during the quarter ended March 31, 1999 the Company repaid a
further $30.0 million, resulting in a balance remaining of $241.5 million as of
March 31, 1999.
9
<PAGE>
Borrowings under the bank credit facility bear interest at LIBOR plus 190 to
212.5 basis points. At the end of March 1998, the Company entered into two
interest rate swap agreements to manage the Company's exposure to interest rate
fluctuations on the bank credit facility. Under the swap agreements, the Company
pays a fixed rate of 5.6% on a notional amount of $60.0 million and a fixed rate
of $5.79% on a notional amount of $100.0 million and the counterparty pays the
floating rate based on LIBOR. The swap agreements terminate in January and July
2000 respectively, unless extended an additional one year and six months
respectively at the option of the counterparty.
The net cash amount received or paid on interest rate hedging instruments is
recognized as an adjustment to interest cost on the related debt.
The Company believes that it will have no need for additional borrowing
facilities. The Company intends to finance future operations through proceeds
from the sale or lease of capacity, revenues from billings of standby
maintenance charges and restoration services, investment income on cash and
investment balances, borrowings under the revolving credit facility, if any,
and available funds in reserve account.
As of March 31, 1999 and December 31, 1998, the Company had working capital
deficits of $98.9 million and $156.7 million respectively. The working capital
deficit was primarily a result of the current accounts payable to the
Contractors which is classified as a current liability but for which the
associated funds held in escrow are classified as a non-current asset and are
hence excluded from the measure of working capital.
Total cash provided by operating activities and used in investing activities
during the quarter ended March 31, 1999 was $2.1 million and $54.8 million
respectively. As of March 31, 1999, cash on deposit with the Collateral Trustee
or in escrow had decreased to $174.2 million from $255.4 million at December 31,
1998, primarily as a result of the repayment of a portion of the term loan
facility and payments to the Contractors.
Total cash provided by operating and used in investing activities during the
quarter ended March 31, 1998 was $41.4 million and $176.9 million
respectively. These expenditures were funded by the collection of accounts
receivable and proceeds from the Refinancing.
ASSETS
The Company's major assets is the telecommunications capacity available for sale
on the FLAG System, which accounts for approximately $1.075 billion of assets as
of March 31, 1999 ($1.095 billion as of December 31, 1998). The Company's fixed
assets consist primarily of office furniture, leasehold improvements, computer
equipment and autos. Other assets are primarily intangible such as capitalized
financing costs.
The Company is currently extending the FLAG System to Saudi Arabia and Jordan
and this is expected to cost approximately $53 million.
YEAR 2000
During 1999 the Company has continued its evaluation of the risks created by
the Year 2000 problem. The Company is currently in the process of obtaining
certificates of Year 2000 compliance from its suppliers for the equipment
used in its systems. In addition, overall system tests are being conducted
under laboratory conditions during the second quarter of 1999. Following
this, the live FLAG Cable System test is expected to be conducted in the
third quarter of 1999.
While the Company believes that it is taking the necessary steps to resolve
its Year 2000 issues in a timely manner, there can be no assurance that the
Company will not have any Year 2000 problems. If any such problems occur, the
Company will work to solve them as quickly as possible. At present, the
Company does not expect that such problems related to the Company's internal
IT and non-IT systems will have a material adverse effect on its business.
The failure, however, of one or more of the Landing Parties to be Year 2000
compliant could have a material adverse effect on the Company.
10
<PAGE>
SAFE HARBOR STATEMENT UNDER
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The statements included in this Quarterly Report regarding future financial
performance and results and the other statements that are not historical
facts are forward-looking statements. The words "believes," "intends,"
"expects," "anticipates," "projects," "estimates," "predicts" and similar
expressions are also intended to identify forward-looking statements. Such
statements reflect various assumptions by the Company concerning anticipated
results and are subject to significant business, economic and competitive
risks, uncertainties and contingencies, including, without limitation, the
risks, uncertainties and contingencies described in registration statements,
reports and other documents filed by the Company from time to time with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended, and the Securities Exchange Act of 1934, as amended. Accordingly,
there can be no assurance that such statements will be realized. Such risks,
uncertainties and contingencies could cause the Company's actual results for
the quarter ended March 31, 1999 and beyond to differ materially from those
expressed in any forward-looking statements made by, or on behalf of, the
Company. The Company makes no representation or warranty as to the accuracy
or completeness of such statements contained in this Quarterly Report.
11
<PAGE>
PART II
ITEM 1: LEGAL PROCEEDINGS
The Company is involved in litigation from time to time in the ordinary course
of business. In management's opinion, the litigation in which the Company is
currently involved, individually and in the aggregate, is not material to the
Company's financial condition, results of operations or cash flows.
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
At a meeting of the Company held by way of a conference call on February 15,
1999, the shareholders of the Company unanimously approved the amended
Bye-Laws of the Company. On February 26, 1999, the shareholders of the
Company unanimously passed a resolution appointing John Hossenlopp and Steven
Smith to serve, and Andres Bandes to continue to serve, on its Board of
Directors until re-elected or their successors are appointed at the next
annual general meeting.
ITEM 5: OTHER INFORMATION
On February 26, 1999, the Company was part of a reorganization whereby
FLAG Telecom Holdings Limited ("FTHL"), a Bermuda company, became the holding
company for the FLAG Telecom group of companies. Pursuant to this
reorganization, all of the Class A common shares of the Company were converted
to Class B common shares and the shareholders of the Company transferred to FTHL
418,259,688 Class B common shares of the Company in exchange for an equal number
of shares in FTHL. As a result of this reorganization, FTHL held 65.79% of the
share capital of the Company with the balance of 34.21% being held by Bell
Atlantic Network Systems Company.
FTHL also has an indirect 50% interest in FLAG Atlantic Limited ("FAL"), a
joint venture company set up to build, own and operate a transatlantic fiber
optic cable system connecting the U.S., U.K. and France. Global Telesystems
Group, Inc. owns the remaining interest in the venture. The transatlantic
cable system would be designed to carry voice, high-speed data and video
traffic with an initial capacity of 160 Gbps and with designed upgrades in
160 Gbps increments to 1.28 terabits per second. The system would consist of
three self-healing rings including (i) a ring among two Landing Stations on
Long Island and two points of presence in New York City; (ii) a northern
Atlantic cable from Long Island to England and a southern Atlantic cable from
Long Island to France; and (iii) a ring in Europe among the Landing Stations
in England and France and points of presence in London and Paris. The fiber
optic link will be based on Synchronous Digital Hierarchy and use dense wave
division multiplexing technology. The project is subject to financing, the
execution of related agreements and other conditions.
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ITEM 6: EXHIBITS AND REPORTS FILED ON FORM 6-K
Not Applicable.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FLAG LIMITED
By: /s/ James P. Campbell
-----------------------------
James P. Campbell
CHIEF FINANCIAL OFFICER
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