________________________________________________________________________
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, 2000
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)
19 Estate Thomas/Havensight
P.O. Box 12030
St. Thomas, U.S. Virgin Islands 00801
(340) 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, 2000, the registrant had outstanding 4,942,124 shares
of its common stock ($.01 par value).
________________________________________________________________________
<PAGE>
<TABLE>
ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Columnar Amounts in Thousands)
- ----------------------------------------------------------------------------------------------------
<CAPTION>
----------------------------
December 31, March 31,
1999 2000
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $31,463 $35,396
Accounts receivable, net 20,512 16,075
Materials and supplies 4,853 5,130
Prepayments and other current assets 4,285 4,426
---------- ----------
Total current assets 61,113 61,027
---------- ----------
Fixed assets:
Property, plant and equipment 66,739 70,317
Less accumulated depreciation (10,288) (12,554)
---------- ----------
Total fixed assets, net 56,451 57,763
---------- ----------
Uncollected surcharges, net of current portion 1,428 1,329
Investment in and advances to
Bermuda Digital Communications, Ltd. 4,710 4,879
Other assets 7,746 9,358
---------- ----------
Total assets $131,448 $134,356
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $7,905 $8,187
Accrued taxes 7,823 9,477
Advance payments and deposits 1,353 1,452
Other current liabilities 4,651 4,205
Current portion of long-term debt 3,410 3,401
---------- ----------
Total current liabilities 25,142 26,722
Deferred income taxes 3,032 3,552
Long-term debt, excluding current portion 7,969 7,113
---------- ----------
Total liabilities 36,143 37,387
---------- ----------
Minority interests 20,371 20,847
---------- ----------
Contingencies and commitments (Notes 7 and 8)
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; 5,151,424 shares issued and 4,659,000
and 4,942,124 outstanding, respectively 49 52
Treasury stock, at cost (1,418) (1,893)
Paid-in capital 54,263 55,652
Retained earnings 22,040 22,311
---------- ----------
Total stockholders' equity 74,934 76,122
---------- ----------
Total liabilities and stockholders' equity $131,448 $134,356
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
condensed financial statements.
2
<PAGE>
<TABLE>
ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND 2000
(Columnar Amounts in Thousands, except per share data)
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
Three months ended March 31,
----------------------------
1999 2000
---------- ----------
(Unaudited)
<S> <C> <C>
Telephone operations
Revenues:
Local exchange service revenues $1,943 $2,541
International long-distance revenues 18,452 16,117
Other revenues 346 478
---------- ----------
Total revenues 20,741 19,136
---------- ----------
Operating expenses:
International long-distance expenses 9,410 6,676
Telephone operating expenses 5,093 5,256
General and administrative expenses 1,365 1,128
---------- ----------
Total operating expenses 15,868 13,060
---------- ----------
Income from telephone operations 4,873 6,076
---------- ----------
Other operations:
Revenues of other operations 332 748
Expenses of other operations 460 916
---------- ----------
Loss from other operations (128) (168)
---------- ----------
Other income (expense):
Interest expense (480) (435)
Interest income 550 627
Other income (expense), net (105) 46
---------- ----------
Other income (expense), net: (35) 238
---------- ----------
Income before income taxes and minority interests 4,710 6,146
Income taxes 2,418 3,024
---------- ----------
Income before minority interests 2,292 3,122
Minority interests (279) (476)
---------- ----------
Net income $2,013 $2,646
========== ==========
Net income per share:
Basic and diluted $0.42 $0.56
========== ==========
Weighted average common stock outstanding:
Basic and diluted 4,757 4,721
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
condensed financial statements.
3
<PAGE>
<TABLE>
ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999, AND 2000
(Columnar Amounts in Thousands)
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
Three months ended March 31,
1999 2000
----------------------------
(Unaudited)
<S> <C> <C>
Net cash flows provided by operating activities: $3,913 $9,718
--------- ---------
Cash flows from investing activities:
Capital expenditures (1,898) (1,888)
Advances to Bermuda Digital Communications, Ltd. (84) (182)
--------- ---------
Net cash flows used in investing activities (1,982) (2,070)
--------- ---------
Cash flows from financing activities:
Repayment of long-term debt (877) (865)
Purchase of common stock (1,776) (475)
Cash paid in conjunction with Acquisition of Antilles Wireless - (1,500)
Dividends declared on common stock (699) (875)
--------- ---------
Net cash flows used in financing activities (3,352) (3,715)
--------- ---------
Net change in cash and cash equivalents (1,421) 3,933
Cash and cash equivalents, beginning of period 35,116 31,463
--------- ---------
Cash and cash equivalents, end of period $33,695 $35,396
========= =========
Supplemental cash flow information:
Interest paid $366 $281
========= =========
Income taxes paid $1,079 $1,133
========= =========
Supplemental non cash information:
Depreciation and Amortization Expense $1,333 $1,473
========= =========
Issuance of common stock in conjunction with acquisition of Antilles Wireless - $3
========= =========
Additional paid in capital realized with issuance of Common Stock - $1,389
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
condensed financial statements.
4
<PAGE>
Atlantic Tele-Network, Inc. and Subsidiaries
Notes to Consolidated Condensed
Financial Statements
Three Months Ended March 31, 1999 and 2000
1. ORGANIZATION AND BUSINESS OPERATIONS
Atlantic Tele-Network, Inc. (the "Company" or "ATN"), a Delaware
corporation, is engaged principally through its 80%-owned subsidiary, Guyana
Telephone & Telegraph Company, Limited ("GT&T"), in providing
telecommunications services, including local telephone service, long-distance
services, and cellular service in the Cooperative Republic of Guyana
("Guyana") and international telecommunications service to and from Guyana.
The Company also owns the entire equity interest in Wireless World, LLC
("Wireless World") which holds MMDS and LMDS licenses for the U.S. Virgin
Islands and is engaged in the U.S. Virgin Islands in the internet service
provider, specialized mobile radio and paging businesses and the wireless
cable television business. The Company also owns an 80% interest in Digicom
S.A. ("Digicom"), a Haitian corporation principally engaged in dispatch radio,
mobile telecommunications, and paging, and a 30% interest in Bermuda Digital
Communications, Ltd. ("BDC"), a Bermuda corporation which operates under the
name "Cellular One" and is the sole cellular and PCS competitor in Bermuda to
the Bermuda Telephone Company. ATN provides management, technical, financial,
regulatory, and marketing services for GT&T, Digicom, BDC, and Wireless World
for a management fee equal to 6% of revenues.
2. BASIS OF PRESENTATION
The consolidated condensed balance sheet of ATN and susidiaries at
December 31, 1999 has been taken from audited financial statements at that
date. All of the other accompanying consolidated condensed financial
statements are unaudited. These consolidated condensed financial statements
have been prepared by the management of ATN in accordance with the rules and
regulations of the Securities and Exchange Commission ("SEC"). Accordingly,
certain information and footnote disclosures usually found in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. In the opinion of the management of
the Company, all adjustments (consisting only of normal recurring adjustments)
considered necessary for fair presentation of the consolidated condensed
financial statements have been included, and the accompanying condensed
consolidated financial statements present fairly the financial position and
the results of operations for the interim periods presented. The consolidated
condensed financial statements should be read in conjunction with the
consolidated financial statements and related footnotes included in the
Company's 1999 Annual Report on Form 10-K, as filed with the SEC.
3. USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
5
<PAGE>
4. NET INCOME PER SHARE
In accordance with SFAS No. 128, "Earnings Per Share," basic net income
per share is computed by dividing net income available to common shareholders
by the weighted-average number of common shares outstanding during the period
and does not include any other potentially dilutive securities. Diluted net
income per share gives effect to all potentially dilutive securities. There is
no difference between basic net income per share and diluted net income per
share for any period presented as the Company's only dilutive security, stock
options, was antidilutive to the calculation as of March 31, 1999 and as of
March 31, 2000.
5. NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued SFAS No. 133 and SFAS
No. 137, "Accounting for Derivative Instruments and Hedging Activities," which
must be adopted by January 2001. These statements establish accounting and
reporting standards for derivative instruments including certain derivative
instruments embedded in other contracts and for hedging activities. SFAS
No. 133 and SFAS No. 137 are not to be applied retroactively to financial
statements of prior periods. The Company expects no material impact to its
financial position upon adoption of SFAS No. 133 and SFAS No. 137.
6. ACQUISITIONS
In October 1999, Wireless World acquired the internet service provider
business and certain other assets of VI Access from Ackley Caribbean
Enterprises, Inc. for a purchase price of $875,000 in cash and 100,000 shares
of ATN common stock and in March 2000, Wireless World acquired the specialized
mobile radio and paging business of Ackley Caribbean Enterprises for $625,000
in cash. These acquisitions have been accounted for as purchases in accordance
with APB Opinion No. 16. The purchase price allocation for these acquisitions
is preliminary and further refinements are likely to be made based on the
completion of final valuation studies. The excess of the cost over the
estimated fair value of the net tangible assets acquired amounts to
approximately $1.4 million and has been included in other assets in the
accompanying consolidated condensed balance sheets and is being amortized on a
straight-line basis over ten years.
Effective March 31, 2000, Wireless World acquired the assets and business
of Antilles Wireless Cable T.V. Company ("Antilles Wireless") for a
consideration of 242,424 shares of ATN common stock and $1.5 million in cash.
Antilles Wireless held LMDS and MMDS licenses for the U.S. Virgin Islands and
provided wireless cable T.V. services there. The entire equity interest in
Antilles Wireless was owned by Cornelius B. Prior Jr., the chief executive
officer and majority shareholder of the Company. In accordance with AICPA
Interpretation No. 39 of Accounting Principle Bulletin 16, the assets and
liabilities acquired from Antilles Wireless have been recorded at Antilles
Wireless' cost similar to a pooling of interests transaction, and the cash
portion of the consideration has been treated as analogous to a cash dividend.
Operating results prior to March 31, 2000 are not material and have not been
reflected in these financial statements.
6
<PAGE>
7. REGULATORY MATTERS
GT&T is subject to regulation in Guyana under the provisions of its
License and under the Guyana Public Utilities Commission Act of 1999 ("PUC
law") and the Guyana Telecommunications Act of 1990 ("Telecommunications
Law"). GT&T also has certain significant rights and obligations under the
agreement pursuant to which the Company acquired its interest in GT&T in 1991.
Since December 31, 1997, GT&T has had pending before the PUC an
application for a significant increase in rates for local and outbound
international long-distance service so as to enable GT&T to earn a 15% return
on its rate base.
In January 1999, after the chairman of the PUC held a press conference
which dealt extensively with the rate issues under consideration by the PUC,
GT&T applied to the Guyana High Court for an order prohibiting the chairman
from further participation in the rate case on the grounds that this press
conference and his statements at the press conference revealed a
predetermination and bias by the chairman against GT&T on the pending issues.
In response to this application, in March 2000, the Guyana High Court issued
the requested order of prohibition against the chairman. The chairman and the
PUC have filed an appeal from the High Court's decision and it is unclear at
the date of this report whether or when the Commission will proceed with
hearings in the rate case.
In April 1999, the PUC furnished to GT&T a preliminary report of the
PUC's staff to the Commissioners for a response by GT&T. In this report, the
staff challenged GT&T's computation of rate base and expense in several
respects and concluded with a recommendation that the temporary rates
currently in effect for local service should be reduced by approximately
$2.7 million, rather than being increased as GT&T is seeking. GT&T has filed a
response to the PUC disputing the staff's conclusions. GT&T and the Company
are also involved in discussions with officials at the highest levels in the
Guyana government seeking to resolve all outstanding PUC and Guyana tax issues
affecting GT&T. There can be no assurance as to how or when any or all of
these issues will be resolved.
7
<PAGE>
In 1997, after the Guyana High Court voided a PUC order of October 1995
reducing GT&T's rates for outbound long distance calls to various countries,
GT&T put into effect a surcharge to recover the approximately $9.5 million of
lost revenues from the period of October 1995 to the date of the High Court's
order. The Guyana Consumer Advisory Bureau, a non-governmental group,
instituted a suit challenging GT&T's rights to institute this surcharge
without PUC approval, and in the fourth quarter of 1999, the Guyana High Court
ruled that GT&T should have first obtained PUC's permission for such
surcharge. Substantially all of the $9.5 million of lost revenues were
collected prior to the court's ruling, and it is unclear whether GT&T will be
required to make any refund since the High Court did not rule on GT&T's
contention that it was entitled to recover these lost revenues.
In October 1997, the PUC ordered GT&T to increase the number of telephone
lines in service to a total of 69,278 lines by the end of 1998, 89,054 lines
by the end of 1999, and 102,126 by the end of the year 2000 to allocate and
connect an additional 9,331 telephone lines before the end of 1998 and to
provide to subscribers who request them facilities for call diversion, call
waiting, reminder call, and three-way calling by the end of the year 1998. In
issuing this order, the PUC did not hear evidence or make any findings on the
cost of providing these lines and services, the adjustment in telephone rates
which may be necessary to give GT&T a fair return on its investment, or the
ways and means of financing the requirements of the PUC's order. GT&T has
filed a motion against the PUC's order in the Guyana High Court and has
appealed the order on different grounds to the Guyana Court of Appeal. No stay
currently exists against this order.
In February 2000, GT&T received notices of five separate hearings from
the PUC relating to various issues, including GT&T's failure to comply with
the October 1997 order to increase the number of lines in service and
information requests on the amount of surcharges collected by GT&T as a result
of the High Court's voiding of the PUC's October 1995 rate reduction order.
GT&T has filed with the Guyana High Court a petition to bar the Chairman of
the PUC on the grounds of bias from participating in any matters involving
GT&T.
In July 1998, the PUC gave notice that it would hold a public hearing on
August 25, 1998 in respect of the following matters: (i) "the validity of the
grant of monopoly rights to any owner or provider of services in the public
utility sector, having regard to the laws in force in Guyana at the relevant
time" and (ii) "whether the Commission has power to request the Government to
issue a license to a new provider of services in the public utility sector,
where the existing provider in that sector fails to refuse to meet reasonable
demands for service in that public utility sector." While the PUC's notice did
not name GT&T as the service provider in question, the Company believes that
GT&T is the service provider which will be the subject of the hearing. This
intended hearing has been stayed by an order issued by the Guyana High Court
on an application by GT&T pending a hearing on the merits of GT&T's
application.
On October 30, 1998, the U.S. Federal Trade Commission ("FTC") issued for
comment a proposed rule which would expand the definition of "pay per call"
services to include audiotext services, such as those which GT&T terminates in
Guyana. If adopted in its present form, the FTC's proposed rule would require,
among other things, that a caller must receive a short preamble at the
beginning of the call advising the caller of the cost of the call and
permitting the caller to terminate the call without charge if terminated
immediately. Although GT&T has not completed its study of the ways and means
of possibly complying with this requirement, it may be technically impossible
for recipients of international audiotext traffic, such as GT&T, to separate
audiotext traffic from other incoming international traffic and permit a free
preamble for audiotext calls. The FTC's proposed rule would have the effect of
prohibiting a local telephone company from disconnecting a subscriber's
telephone service for failure to pay charges for an international audiotext
call. This requirement currently applies to area code 900 domestic audiotext,
8
<PAGE>
but not to international audiotext, and provides a collection advantage for
international audiotext over domestic audiotext. The proposed rule would also
include several requirements which, if adopted, could make it more difficult
to bill and collect for international audiotext calls. If the proposed
regulations are adopted, the provisions described above may have a significant
adverse impact on international audiotext traffic from the United States to
Guyana and other non-U.S. termination points.
The Federal Communication Commission (the "FCC") has issued a Report and
Order in a rule making proceeding in which it adopted mandatory international
accounting and settlement rate benchmarks for many countries. The FCC adopted
a mandatory settlement rate benchmark of $.23 per minute for low-income
countries such as Guyana and required that settlement rates between the U.S.
and low-income countries be reduced to $.23 per minute by January 1, 2002. The
current settlement rate is $.85 per minute. The FCC stated in the Report and
Order that it expects U.S. licensed carriers to negotiate proportionate annual
reductions prior to 2002. In accordance with this FCC policy, AT&T sought a
reduction in the settlement rate for traffic between Guyana and the United
States. GT&T declined to agree to such a reduction, and effective December 31,
1999, GT&T's operating agreement and all direct circuits with AT&T were
terminated. In anticipation of the termination of the AT&T agreement, GT&T has
sought to bring on circuits with other carriers to handle the traffic
previously received from AT&T and to restructure its operating agreements with
carriers around the world so that GT&T will receive approximately $.85 per
minute as a termination fee for international traffic from all countries, with
the exception of Canada and certain Caribbean countries which will continue to
be able to send normal volumes of traffic to GT&T at the lower rates which
traditionally have been in effect with these countries. It is likely, however,
that international settlement rates between Guyana and the United States and
other countries around the world will decline significantly on or prior to
January 1, 2002. Any significant reduction in the settlement rates for the
United States--Guyana traffic could have a significant adverse impact on
GT&T's earnings. While such an event would provide GT&T with basis to seek a
rate increase from the PUC so as to permit GT&T to earn its contractually
provided 15% rate of return, there can be no assurances as to when or whether
GT&T would receive such a rate increase.
9
<PAGE>
8. CONTINGENCIES AND COMMITMENTS
The Company is subject to lawsuits and claims which arise out of the
normal course of business, some of which involve claims for damages and taxes
that are substantial in amount. The Company believes, except for the items
discussed below for which the Company is currently unable to predict the
outcome, the disposition of claims currently pending will not have a material
adverse effect on the Company's financial position or results of operations.
Upon the acquisition of GT&T in January 1991, ATN entered into an
agreement with the government of Guyana to significantly expand 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 government agreed to permit rate increases in the event
of currency devaluation within the three-year period, but GT&T was unable to
get timely increases when the Guyana currency suffered a sharp decline in
March 1991. The Plan was modified in certain respects, and the date for
completion of the Plan was extended to February 1995. Since 1995, the PUC has
had pending a proceeding initiated by the Minister of Telecommunications of
Guyana with regard to the failure of GT&T to complete the Plan by February
1995. It is GT&T's position that its failure to receive timely rate increases,
to which GT&T was entitled to compensate for the devaluation of currency which
occurred in 1991, provides legal justification for GT&T's delay in completing
the Plan. If the PUC were to find that GT&T was not excused from fulfilling
the terms of the Plan by February 1995, GT&T could be subject to monetary
penalties, cancellation of the license, or other action by the PUC or the
government which could have a material adverse effect on the Company's
business and prospects. The requirements of the Plan have now been
substantially completed.
In April 2000, private parties initiated a lawsuit in the Guyana High
Court against the Company and GT&T which seeks to invalidate the 1990
agreement between the government of Guyana and ATN pursuant to which GT&T
received an exclusive license to provide telephone service in Guyana. The suit
charges that the agreement is in conflict with provisions of the laws of
Guyana which prohibit monopolies, and with the Guyana constitution. At the
date of this report neither ATN nor GT&T, have been served with the lawsuit.
In May 1997, GT&T received a letter from the Commissioner of Inland
Revenue indicating that GT&T's tax returns for 1992 through 1996 had been
selected for an audit under the direct supervision of the Trade Minister with
particular focus on the withholding tax on payments to international audiotext
providers. In March and April 1997, the Guyanese Trade Minister publicly
announced that he had appointed a task force to probe whether GT&T should pay
withholding taxes on fees paid by GT&T to international audiotext providers.
The Minister announced that if GT&T were found guilty of tax evasion, it could
owe as much as $40 million in back taxes. In July 1997, GT&T applied to the
Guyana High Court for an order prohibiting this audit on the grounds that the
decision of the Minister of Trade to set up this task force and to control and
10
<PAGE>
direct its investigation was beyond his authority, violated the provisions of
the Guyanese Income Tax Act, interfered with the independence of the
Commissioner of Inland Revenue, and was done in bad faith. The court issued an
order effectively staying the audit pending a determination by the court of
the merits of GT&T's application.
In June 1997, GT&T received an assessment of the current equivalent of
approximately $3 million from the Commissioner of Inland Revenue for taxes for
1996 based on the disallowance as a deduction for income tax purposes of
five-sixths of the advisory fees payable by GT&T to the Company and for the
timing of the taxation on certain surcharges to be billed by GT&T. The
deductibility of these advisory fees and the deferral of these surcharges
until they are actually billed had been upheld for an earlier year in a
decision of the High Court in August 1995. In July 1997, GT&T applied to the
High Court for an order prohibiting the Commissioner of Inland Revenue from
further proceeding with this assessment on the grounds that the assessment was
arbitrary and unreasonable and capriciously contrary to the August 1995
decision of the Guyana High Court, and GT&T obtained an order of the High
Court effectively prohibiting any action on the assessment pending the
determination by the Court of the merits of GT&T's application.
In November 1997, GT&T received assessments of the current equivalent of
approximately $11 million from the Commissioner of Inland Revenue for taxes
for the years 1991 through 1996. It is GT&T's understanding that these
assessments stem from the same audit commenced in May 1997 which the Guyana
High Court stayed in its July 1997 order referred to above. Apparently because
the audit was cut short as a result of the High Court's July 1997 order, GT&T
did not receive notice of and an opportunity to respond to the proposed
assessments as is the customary practice in Guyana, and substantially all of
the issues raised in the assessments appear to be based on mistaken facts.
GT&T has applied to the Guyana High Court for an order prohibiting the
Commissioner of Inland Revenue from enforcing the assessments on the grounds
that the origin of the audit with the Minister of Trade and the failure to
give GT&T notice of and opportunity to respond to the proposed assessments
violated Guyana law. The Guyana High Court has issued an order effectively
prohibiting any action on the assessments pending the determination by the
Court of the merits of GT&T's application.
11
<PAGE>
Atlantic Tele-Network, Inc. and Subsidiaries
Management Discussion and Analysis of Financial
Conditions and Results of Operations
Forward Looking Statements and Analysts' Reports
This report contains forward looking statements within the meaning of the
federal securities laws, including statements concerning future rates,
revenues, costs, capital expenditures, and financing needs and availability
and statements of management's expectations and beliefs. Actual results could
differ materially from these statements as a result of many factors, including
future economic and political conditions in Guyana, the matters discussed in
the Regulatory Considerations section of Management's Discussion and Analysis
of Financial Condition and Results of Operations in this Report and matters
discussed in the Company's Form 10K Annual Report for the fiscal year ended
December 31, 1999.
Investors should also be aware that while the Company does, from time to
time, communicate with securities analysts, it is against the Company's policy
to disclose to them any material non-public information or other confidential
information. Accordingly, shareholders should not assume that the Company
agrees with any statement or report issued by an analyst irrespective of the
content of the statement or report. Furthermore, the Company has a policy
against issuing or confirming financial forecasts or projections issued by
others. Thus, to the extent that reports issued by securities analysts contain
any projections, forecasts or opinions, such reports are not the
responsibility of the Company.
Introduction
The Company's revenues and income from operations are derived principally
from the operations of its 80% owned telephone subsidiary, Guyana Telephone &
Telegraph Company, Ltd. ("GT&T"). GT&T derives substantially all of its
revenues from local exchange, cellular and international telephone services.
The Company also owns a 80% interest (acquired in June 1998) in Digicom S.A.,
a Haitian corporation principally engaged in dispatch radio, mobile
telecommunications and paging and a 30% interest (acquired in July 1998) plus
warrants which would enable the Company to increase that interest to 45%, in
certain circumstances, in Bermuda Digital Communications, Ltd., a Bermuda
corporation which operates under the name "Cellular One" and is the sole
cellular and PCS competitor to the Bermuda Telephone Company. Wireless World,
LLC, a wholly owned subsidiary of the Company, owns VIAccess, the largest
internet service provider in the U.S. Virgin Islands, and is also engaged in
the specialized mobile radio and paging businesses (all acquired in October
1999 or March 2000). On March 31, 2000, Wireless World, LLC. acquired Antilles
Wireless Cable T.V. Company, which holds MMDS and LMDS licenses for the U.S.
Virgin Islands and provides wireless cable television services there.
The principal components of operating expenses for the Company are
international long-distance expenses, telephone operating expenses, and
general and administrative expenses. 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. Telephone operating expenses
consist of plant specific operations, plant non-specific (which includes
depreciation and amortization), customer operations, corporate operations
expenses of GT&T, and taxes other than income taxes. General and
administrative expenses consist principally of expenses of the parent company.
12
<PAGE>
RESULTS OF OPERATIONS
Three Months ended March 31, 1999 and 2000
Net income for the first quarter of 2000 was $2.6 million, or $0.56 per
share, on operating revenues of $19.1 million, as compared to net income of
$2.0 million, or $0.42 per share on operating revenues of $20.7 million in the
first quarter of 1999.
Telephone operating revenues were $19.1 million for the quarter ended
March 31, 2000 compared to $20.7 million for the quarter ended March 31, 1999;
a decrease of $1.6 million or 7.7%. Revenues in 1999 include a reduction of
approximately $1.5 million due to an apparent re-origination of international
long-distance traffic through France Telecom via AT&T, which management
suspects actually originated substantially in the United States and the United
Kingdom and would have normally been settled at a higher rate.
Inbound sent paid and outcollect international long-distance revenues,
which have the highest margin of all international long-distance revenues,
increased by $1.4 million for the quarter ended March 31, 2000 over the
corresponding period of 1999, principally due to an increase in inbound
minutes of traffic of approximately 2.2 million minutes or 17%. Audiotext
revenues, which have a lower profit margin than inbound sent paid and
outcollect international long-distance revenues, declined in 2000 compared to
1999 as a result of a reduction of 5.4 million minutes or 45% in audiotext
traffic over 1998. Outbound long-distance revenues, also increased in 2000
over 1999 by approximately $255,000. This increase was due to a 15% increase
in outbound international minutes.
The Company expects that audiotext traffic volumes will continue to
decline, although the Company is unable to predict future audiotext revenues
and traffic volumes with any degree of certainty. On April 28, 2000 MCI World
Com notified GT&T that starting May 1, 2000 MCI will no longer carry audiotext
traffic. MCI is the principal carrier of traffic from the U.S. to GT&T and the
only U.S. carrier with which GT&T currently has direct circuits. The Company
is inquiring as to whether MCI's action is a breach of the operating agreement
with MCI. Audiotext traffic contributed approximately $490,000 or $0.10 per
share to ATN's net income for the quarter ended March 31, 2000, and MCI
carried about 50% of that traffic.
Local exchange revenue increased $598,000 or 31% as a result of as a
result of increased domestic metered traffic, a 5% increase in lines in
service and increased cellular telephone revenues.
Operating expenses were $13.1 million for the first quarter of 2000 as
compared to $15.9 million for the corresponding period in 1999, a decrease of
$2.8 million or 17.7%. This decrease was principally due to a $2.7 million
decrease in international long-distance traffic expenses as a result of
reduced audiotext traffic minutes and revenues.
Telephone operating expenses were approximately 68% of telephone
operating revenues for the three months ended March 31, 2000 as compared to
77% for the same period of the prior year. This decrease is principally the
result of increased inbound international traffic revenues (which have no
direct operating expenses) and decreased audiotext which have a significantly
higher cost.
13
<PAGE>
Income from telephone operations for the three months ended March 31,
2000 was $6.1 million as compared to $4.9 million for the corresponding period
of 1999. This represents an increase of $1.2 million or 25% for the three
months ended March 31, 2000 over the corresponding period of the prior year.
This change is principally a result of the factors affecting revenues and
operating expenses discussed above.
Other operations revenues and expenses represent the operations of
Digicom S.A. and Wireless World, LLC. and are not material.
The Company's effective tax rate for the three months ended March 31,
2000 was 49% as compared to 51% for the corresponding period of the prior
year.
The minority interest in earnings consists primarily of the Guyana
government's 20% interest in GT&T.
Regulatory and Tax Issues
The Company is involved in a number of regulatory and tax proceedings.
See notes 7 and 8 to the Company's Consolidated Condensed Financial Statements
included in this Report. A material and adverse outcome in one or more of
these proceedings could have a material adverse impact on the Company's
financial condition and future operations.
Liquidity and Capital Resources
The Company believes its existing liquidity and capital resources are
adequate to meet current operating and capital needs, although some external
financing may be required for contemplated expansion of Wireless World's
operations. The Company's current primary source of funds at the parent
company level is advisory fees from GT&T. If and when the tax and regulatory
issues discussed in Notes 7 and 8 to the Consolidated Condensed Financial
Statement included in this Report are resolved, the Company anticipates that
GT&T may begin paying dividends to its stockholders, the Company and the
Government of Guyana. These tax and regulatory issues 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.
If and when the Company settles outstanding tax and regulatory issues
with the Guyana government and the PUC, GT&T may require additional external
financing to enable GT&T to further expand its telecommunications facilities.
The Company has not estimated the cost to comply with the October 1997 PUC
order to increase the number of telephone lines in service, but believes such
a project would require significant capital expenditures that would require
external financing. There can be no assurance that the Company will be able to
obtain any such financing.
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
believes that the majority of GT&T's revenues will continue to be denominated
in U.S. dollars or other hard currencies. However, as a result of the rate
increases recently awarded to and currently sought by GT&T and the efforts of
the U.S. FCC, AT&T and carriers in other countries to reduce international
accounting rates, it is likely that an increasing portion of the Company's
revenues will be earned in Guyana currency. While there are no legal
restrictions on the conversion of Guyana currency into U.S. dollars or other
14
<PAGE>
hard currencies, or on the expatriation of Guyana currency or foreign currency
from Guyana, there is little liquidity in the foreign currency markets in
Guyana. While the Company believes that it has, and will continue to have,
adequate cash flows denominated in hard currency to meet its current
operating, debt service and capital requirements, there can be no assurance
that GT&T will be able to convert its Guyana currency earnings into hard
currency to meet such obligations. At March 31, 2000, approximately
$8.2 million of the Company's total cash balances consisted of balances
denominated in Guyana dollars.
The Company is currently exploring several opportunities to acquire
communications properties or licenses in the Caribbean and elsewhere. Such
acquisitions may require external financing. 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.
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, the
Guyana dollar declined in value to approximately 142 to the U.S. dollar, and
it remained relatively stable at approximately that rate through 1997. In
1998, the Guyana dollar declined in value to approximately 180 to the U.S.
dollar. Through March 31, 2000 the rate of exchange has remained at
approximately 180 to the U.S. dollar.
The effect of devaluation and inflation on the Company's financial
results has not been significant in the periods presented.
15
<PAGE>
Atlantic Tele-Network, Inc. and Subsidiaries
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.
16
<PAGE>
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: May 10, 2000 /s/ Cornelius B. Prior, Jr.
- ------------------ --- -----------------------
Cornelius B. Prior, Jr.
Secretary
Date: May 10, 2000 /s/ Steven M. Ross
- ------------------ --- --------------
Steven M. Ross
Chief Accounting Officer
17
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