RNS Number:1908J
Atlantic Telecom Group PLC
30 August 2001
ATLANTIC TELECOM GROUP PLC
INTERIM RESULTS
FOR THE THREE MONTHS ENDED 30 JUNE 2001
30 August 2001
CHAIRMAN'S STATEMENT
Review
In the quarter ended 30 June 2001, we continued to make strong progress in
achieving our aim of being a leading provider of broadband, 'last mile' access
to small and medium sized businesses in Germany, the Netherlands and the UK.
Operational Update since the quarter end
Details of Atlantic's operational statistics for the quarter ended 30 June
2001 were announced on 26 July.
Our priority continues to be to maintain tight control over costs to minimise
cash outflows, while continuously reviewing all of the Group's operations to
ensure that we attain an EBITDA positive position as early as possible.
I am delighted to report that we have today completed our DSL network in the
Netherlands. Each of our 105 colocations is fully live, substantially ahead of
schedule. From today, Atlantic has the widest alternative carrier deployment
of DSL co-locations targeted at 225,000 SMEs in Amsterdam, Utrecht, Rotterdam
and The Hague. As one of the few operators to have service level agreements in
place with the incumbent, KPN, we will pledge to make 75% of connections
within 10 days. This commitment will become a valuable tool in recruiting new
customers to our broadband services.
We have seen similar success in Germany since the announcement of our first
quarter operating statistics. As previously announced, our buildout of
colocations was virtually complete in March. Since then, our focus has been on
converting these colocations to becoming fully enabled for service. At 30
June, 312 were ready for service.
We have continued to see encouraging demand in the German market even during
the normally difficult summer months, aided perhaps by reducing competition.
Since 30 June, we have continued to sign new wholesale and retail agreements,
which will contribute significant revenues over the coming year. Our retail
partner channel continues to grow at a significant rate, and will be an
important contributor to our sales going forward.
In the UK, we announced the sale of our indirect residential telephony
business to Affinity Wireless Ltd for a cash consideration of #1.8 million.
Atlantic will continue to carry the traffic from its former customer base,
resulting in anticipated revenues of approximately #16.0m in the next 12
months, and the reduction in support costs means that the traffic will make a
positive financial contribution to the Group.
Strategy
The Group's strategy of focusing our investment primarily on the SME market is
now generating strong growth in markets worth over #25bn. Atlantic continues
to focus on providing value-added services, increasingly using a portfolio of
broadband technologies, to a potential 1.3 million SMEs.
Results for the period ended 30 June 2001
Turnover for the period almost doubled to #20.1m, compared to #10.5m for the
corresponding period the previous year (which included one month's results
from the acquisition of First Telecom Group, acquired during that quarter).
Our negative earnings before interest, tax, depreciation and amortisation ('
EBITDA') showed continued improvement, at #12.5m, compared to #13.2m in the
quarter ended 31 March 2001 and #12.7m in the quarter to 30 June 2000. The
downwards trend is encouraging and demonstrates that our cost reduction
programmes, announced in January and June, are having an effect with EBITDA
losses now down almost 40% compared to the quarter ended 31 December 2000.
Our average revenues for the quarter have also remained at encouraging levels.
In Germany, monthly revenues in the quarter ended 30 June 2001 averaged at
approximately #316 per retail DSL line and #109 per wholesale DSL line
compared with #334 per retail DSL line and #93 per wholesale line in the
quarter ended 31 March 2001. These average revenues vary depending on the mix
of speeds taken up by customers, and do not necessarily reflect an ongoing
trend.
Average monthly revenue for directly connected FRA business customers in the
quarter ended 30 June 2001 was #88.58 for business customers and #35.29 for
residential customers. This compared with #85.99 for business customers and #
36.05 for residential customers in the quarter ended 30 June 2000. Average
revenue per indirect business customer in the UK for the quarter was #285.93
compared with #293.98 for the year ended 31 March 2001.
Balance sheet
At 30 June 2001 our cash balances, including restricted investments and cash
deposits, amounted to #81.9m, compared to #134.6m at 31 March 2001. The
useable cash balances, excluding the funds in escrow for the payment of
interest on our bonds, amounted to #55.5m compared to #108.0m at 31 March
2001. We also continue to have access to a vendor finance facility from
Marconi.
Our cash movements in any quarter are largely caused by our EBITDA losses,
working capital movements and cash expended on fixed assets.
Our EBITDA losses for the quarter ended 30 June 2001 showed continued
improvement, at #12.5m, compared to #13.2m in the quarter ended 31 March 2001
and #20.4m in the quarter ended 31 December 2000.
The working capital movement for the quarter includes approximately #14m for
equipment obtained under extended supplier credit terms, which matured during
the quarter. The magnitude of the movement in working capital was fully
anticipated and in the ordinary course of business and will not be repeated in
the current quarter to 30 September 2001.
The cash usage in the quarter also included #13.2m expended on fixed assets,
as we near completion of our network build programme. Capital requirements
going forwards will be materially reduced, reflecting the completion of our
European networks, and UK reorganisation.
Our networks are now substantially finished and much of the capital spend
going forward relates to customer take-up rather than network build. We have
taken steps to significantly reduce our ongoing operational cash requirements
and will continue to be vigilant in this area.
Operations Highlights during the quarter
UK Operations
In the quarter ended 30 June 2001 there was encouraging growth in the number
of directly connected business lines which increased from 10,677 at 31 March
2001 to 11,374 at 30 June 2001. Churn for directly connected business
customers of 12.95% for the quarter was down from 14.56% at 31 March 2001.
Directly connected residential lines continued to decline in the quarter from
41,202 at 31 March 2001 to 35,931 at 30 June 2001, representing a churn rate
of 23.58% for the quarter. This decline in subscriber numbers is reflects our
refocused strategy on targeting higher value business customers rather than
residential customers.
Our strategy of focusing on business customers is also reflected in the
movement in indirect line numbers in the quarter. Indirect business customer
lines increased in the quarter by 2,955 lines to 80,530 at 30 June 2001.
Residential customer lines decreased from 173,255 at 31 March 2001 to 157,201
at 30 June 2001.
Germany
There was encouraging growth in DSL customers lines sold in the quarter.
Retail SME lines installed and pending installation increased by 199 from 107
at 31 March 2001 to 306 at 30 June 2001. The number of wholesale lines
installed and pending installation increased from 282 lines at 31 March 2001
to 403 at 30 June 2001.
The completion of our DSL network and the increase in active co-locations
continues to provide us with an increased opportunity to sell our services. We
continue to build on our routes to market and 42 retail partners had been
signed up by 30 June 2001 to sell our retail SME-focused DSL services.
Moreover, we had signed framework agreements in place totalling up to 9,460
wholesale lines as at 30 June 2001, which will benefit future periods.
Holland
Our planned DSL network in Holland was over 50% complete at 30 June 2001, with
54 co-locations installed at the end of the period out of which 39 were ready
for service, an increase of 33 in the quarter. As stated earlier, the
completed DSL network has 105 co-locations with an addressable footprint of
approximately 225,000 SMEs.
Board changes
As the Board has previously announced, Atlantic is leading discussions with
certain of its stakeholders in order to seek to close the significant gap
between the market value of Atlantic's equity and bonds and the value of the
investment in our infrastructure and customers. These discussions are
continuing. Andrew A Laing, a non-executive director of Atlantic, is also
Chief Operating Officer of Aberdeen Asset Management plc, which manages funds
which hold securities in Atlantic. So as to avoid any potential conflict of
interest, the board has unanimously agreed that it would be prudent for Mr
Laing to step down from the board with immediate effect, although the board
have extended an invitation to Mr Laing to rejoin the board as soon as there
is no further potential for conflict.
Outlook
Atlantic is in the right segment of the telecommunications space: in the last
mile to the customer. We deliver the right type of value-added, attractive
services to SMEs; namely high bandwidth voice and data services.
Our oldest telecommunications network, in Glasgow, has been operational for
less than five years. Our German networks have been operational for less than
12 months, and our network in Holland has become fully operational only today.
However, all have strong technological and operational advantages in fast
growing markets where the majority of customers remain with the incumbent
operators. We believe competition will be effective and we aim to position
Atlantic to deliver a sustainable business going forward.
Graham J Duncan
Executive Chairman
29 August 2001
CONSOLIDATED SUMMARISED PROFIT AND LOSS ACCOUNT
FOR THE THREE MONTHS ENDED 30 JUNE 2001
3 months to 3 months to 12 months
to
30 June 30 June 31 March
2001 2000 2001
(unaudited) (unaudited) (audited)
#'000 #'000 #'000
TURNOVER: Continuing Operations 20,092 9,554 69,619
Discontinued Operations - 900 7,398
----------- ----------- ----------
Total Turnover 20,092 10,454 77,017
Operating costs (43,786) (28,859) (186,486)
----------- ----------- ----------
OPERATING LOSS: Continuing Operations (23,694) (17,911) (104,122)
Discontinued Operations - (494) (5,347)
----------- ----------- ----------
Group Operating Loss (23,694) (18,405) (109,469)
Exceptional Items:
Provision for diminution in value of - - (1,265)
investment
Provision for cost of fundamental - - (4,672)
restructuring
Cost of fundamental restructuring 1,670 - -
Less provision released (1,670) - -
Loss on disposal of discontinued - - (2,784)
operation
----------- ----------- ----------
Total exceptional items - - (8,721)
----------- ----------- ----------
Operating loss after exceptional items (23,694) (18,405) (118,190)
Net interest payable and similar (3,802) (2,851) (17,523)
charges
----------- ----------- ----------
LOSS ON ORDINARY ACTIVITIES BEFORE (27,496) (21,256) (135,713)
TAXATION
Tax on loss on ordinary activities - - -
----------- ----------- ----------
RETAINED LOSS FOR THE PERIOD (27,496) (21,256) (135,713)
======== ======== ========
Loss per share (12.89)p (11.34)p (65.63)p
======== ======== ========
The directors regard earnings before interest, tax, depreciation and
amortisation, which is set out below and is often used in the
telecommunications and cable industry, as an important measure of the
operating cash flow of the business.
Retained loss for the period (27,496) (21,256) (135,713)
Exceptional items - - 8,721
Depreciation and amortisation 11,227 5,658 48,134
Net interest payable and similar
Charges 3,802 2,851 17,523
---------- --------- ---------
Earnings before interest, tax, depreciation (12,467) (12,747) (61,335)
and amortisation
======== ======== ========
CONSOLIDATED BALANCE SHEET
AS AT 30 JUNE 2001
30 June 30 June 31 March
2001 2000 2001
(unaudited) (unaudited) (audited)
#'000 #'000 #'000
FIXED ASSETS
Intangible assets 353,797 369,735 359,214
Tangible assets 281,433 224,576 275,986
Investments 2,500 1,265 2,500
----------- ----------- ----------
637,730 595,576 637,700
----------- ----------- ----------
CURRENT ASSETS
Stock 9,654 4,284 9,879
Debtors : amounts falling due after more 7,881 10,895 8,597
than one year
Debtors: amounts falling due within one 29,570 26,211 31,412
year
Restricted investments 12,279 36,472 25,207
Restricted cash deposits 14,082 12,229 1,366
Cash at bank and in hand 55,547 242,069 108,003
----------- ----------- ----------
129,013 332,160 184,464
CREDITORS
Amounts falling due within one year (78,427) (90,212) (98,306)
----------- ----------- ----------
NET CURRENT ASSETS 50,586 241,948 86,158
----------- ----------- ----------
TOTAL ASSETS LESS CURRENT LIABILITIES 688,316 837,524 723,858
CREDITORS
Amounts falling due after more than one (192,350) (202,291) (197,708)
year
Provisions for liabilities and charges (3,002) - (4,672)
Equity minority interest 325 - 325
----------- ----------- ----------
493,289 635,233 521,803
========== ========= =========
CAPITAL AND RESERVES
Called up share capital 54,856 52,579 53,322
Share premium account 340,527 340,932 340,724
Reserve for shares to be issued - 31,431 31,431
Merger reserve 286,984 277,305 261,726
Other reserves 16,627 17,086 16,663
Profit and loss account (205,705) (84,100) (182,063)
----------- ----------- ----------
Shareholders' funds 493,289 635,233 521,803
========== ========= =========
CONSOLIDATED SUMMARISED CASH FLOW STATEMENT
FOR THE THREE MONTHS ENDED 30 JUNE 2001
3 months to 3 months to 12 months to
30 June 30 June 31 March
2001 2000 2001
(unaudited) (unaudited) (audited)
#'000 #'000 #'000
RECONCILIATION OF OPERATING LOSS TO
NET
CASH OUTFLOW FROM OPERATING
ACTIVITIES
Operating loss from operating (23,694) (18,405) (109,469)
activities
Depreciation of fixed assets 5,773 4,115 29,379
Amortisation of lease prepayment 716 41 2,838
Amortisation of intangible fixed 4,738 1,502 15,917
assets
Exchange loss / (gain) 880 (168) 931
Network lease prepayments - (500) (1,000)
Decrease/(increase) in stock 225 (145) (5,517)
Decrease/(increase) in debtors 2,558 (1,066) (8,986)
(Decrease)/increase in creditors (23,168) (365) 15,169
Cost of fundamental restructuring (1,670) - -
Loss/(gain) on disposal of fixed 27 - (28)
assets
----------- ----------- ----------
Net cash outflow from operating (33,615) (14,991) (60,766)
activities
----------- ----------- ----------
CASH FLOW STATEMENT
NET CASH OUTFLOW FROM OPERATING (33,615) (14,991) (60,766)
ACTIVITIES
RETURNS ON INVESTMENTS AND SERVICING 690 3,539 (15,571)
OF FINANCE
CAPITAL EXPENDITURE AND FINANCIAL (13,184) (11,047) (90,629)
INVESTMENT
ACQUISITIONS
- Purchase of subsidiaries - - (9,893)
- Expenses related to acquisitions - (2,642) (7,844)
- Bank balances at subsidiaries - 9,740 18,051
- Net cash disposed of with - (298)
subsidiary
----------- ----------- ----------
- 7,098 16
MANAGEMENT OF LIQUID RESOURCES 58,590 (152,350) (8,463)
FINANCING (18,376) (22,930) (13,404)
----------- ----------- ----------
DECREASE IN CASH (5,895) (190,681) (188,817)
======== ======== =========
NOTES TO THE CONSOLIDATED SUMMARISED CASH FLOW STATEMENT
1. ANALYSIS OF NET FUNDS / (DEBT)
At 1 April Cash Flow Non-cash Exchange At 30
2001 Items Movement June
2001
#'000 #'000 #'000 #'000 #'000
Cash at bank and in hand 18,163 (5,146) - (189) 12,828
Bank overdraft (600) (749) - - (1,349)
--------- --------- --------- ------- ---------
17,563 (5,895) - (189) 11,479
--------- --------- --------- ------- ---------
Short term deposits 89,840 (46,077) - (1,044) 42,719
Restricted cash deposits * 1,366 12,742 - (26) 14,082
Restricted current asset 25,207 (12,513) 114 (529) 12,279
investments *
Debt due after one year (192,753) 658 (267) 4,212 (188,150)
Debt due within year (520) (277) - - (797)
Finance Leases (23,101) 5,634 - - (17,467)
--------- --------- --------- ------- ---------
Net (debt) / funds (82,398) (45,728) (153) 2,424 (125,855)
===== ======= ====== ====== =======
2. RECONCILIATION OF NET CASHFLOW TO MOVEMENT IN NET (DEBT)/FUNDS
3 months 3 months 12 months
to 30 June to 30 June to March
2001 2000 2001
(unaudited) (unaudited) (audited)
#'000 #'000 #'000
Decrease in cash in the period (5,895) (190,681) (188,817)
Cash (inflow)/outflow from movement in (58,590) 152,350 8,463
liquid resources
Cash outflow from restricted deposits 12,742 12,229 1,608
Cash outflow from movement in debt 381 7,722 4,122
Cash outflow from lease financing 5,634 1,523 7,404
------------ ----------- -----------
Change in net funds resulting from cash (45,728) (16,857) (167,220)
flows
Inception of finance leases - - (688)
Exchange differences 2,424 - (373)
Acquisitions - (11,987) (11,987)
Other non-cash items (153) (267) (1,064)
------------ ----------- -----------
Movement in net debt in the period (43,457) (29,111) (181,332)
Net (debt) / funds at 1 April (82,398) 98,934 98,934
------------ ----------- -----------
Net (debt) / funds at 30 June (125,855) 69,823 (82,398)
======= ====== ======
*Restricted investments of #12 million and restricted cash of #14 million are
held in escrow by Bankers Trust Company, an independent agent to meet the next
two interest payments on the unsecured senior notes issued on 3 February 2000.
Bankers Trust Company will hold the investments to maturity when they will
distribute the interest payment to the bond holders. The investments comprise
UK and European listed Government Bonds.
NOTES TO THE INTERIM REPORT
1. Preparation of Interim Report
The interim financial information for the three months ended 30 June 2001 was
approved by the directors on 29 August 2001. It has been prepared in
accordance with relevant accounting standards on a consistent basis using
accounting policies set out in the 2001 financial statements.
The interim financial information is unaudited.
2. Financial information
The financial information set out on pages 5 to 8 does not constitute full
statutory accounts for the purposes of section 240 of the Companies Act 1985.
Comparative figures for the year ended 31 March 2001 are extracted from the
statutory financial statements, which have been delivered to the Registrar of
Companies. The report of the auditors on those financial statements was
unqualified and did not contain a statement under section 237 (2) of the
Companies Act 1985.
3. Segment Information
Geographical segments:
Turnover by origin United Germany France The Group
Kingdom Netherlands
For the quarter ended 30
June 2001
#'000 #'000 #'000 #'000 #'000
Sales to third parties 14,926 5,136 - 30 20,092
-------- ------- -------- --------- ---------
Segment operating loss (20,968) (2,616) - (110) (23,694)
-------- ------- -------- --------- ---------
Segment operating assets 586,821 27,831 - 4,492 619,144
-------- ------- -------- --------- ---------
Net (debt) / funds (131,966) 1,453 - 4,658 (125,855)
-------- ------- -------- --------- ---------
Net assets 454,855 29,284 - 9,150 493,289
-------- ------- -------- --------- ---------
Turnover by origin United Germany France The Group
Kingdom Netherlands
For the quarter ended 30 June
2000
#'000 #'000 #'000 #'000 #'000
Sales to third parties 8,220 1,334 900 - 10,454
-------- ------- ------- --------- --------
Segment operating loss (17,123) (788) (494) - (18,405)
-------- ------- ------- --------- --------
Segment operating assets / 573,068 (5,518) (2,140) - 565,410
(liabilities)
-------- ------- ------- --------- --------
Net funds / (debt) 69,434 735 (346) - 69,823
-------- ------- ------- --------- --------
Net assets / (liabilities) 642,502 (4,783) (2,486) - 635,233
-------- ------- ------- --------- --------
Turnover by origin United Germany France The Group
Kingdom Netherlands
For the year ended 31 March
2001
#'000 #'000 #'000 #'000 #'000
Sales to third parties 53,747 15,830 7,398 42 77,017
-------- ------- ------- --------- --------
Segment operating (loss) / (96,478) (7,733) (5,347) 89 (109,469)
profit
-------- ------- ------- --------- --------
Segment operating assets / 595,370 11,254 - (2,423) 604,201
(liabilities)
-------- ------- ------- --------- --------
Net (debt) / funds (90,534) 2,501 - (5,635) (82,398)
-------- ------- ------- --------- --------
Net assets 504,836 13,755 - 3,212 521,803
-------- ------- ------- --------- --------
There is no material difference between turnover by origin and turnover by
destination. Discontinued operations relates to Atlantic Telecom SA, which was
sold during March 2001.
NOTES TO THE INTERIM REPORT
4. Loss per share
The loss per share is based on the loss attributable to the Ordinary
Shareholders of #27,496,000 (30 June 2000 - loss of #21,256,000 and 31 March
2001 - loss of #135,713,000) and on the weighted average number of Ordinary
Shares in issue during the period of 213,360,171 (30 June 2000 - 187,503,281
and 31 March 2001 - 206,793,433).
At 30 June 2001, there were 75,000 Sterling and 200,000 Euro outstanding share
warrants, 10,668,011 outstanding share options in existence. Of the
outstanding share options in existence, 1,769,232 relate to the acquisition of
First Telecom Group plc; 8,898,779 relate to other share option schemes. The
shares that would be issued in respect of these warrants and options are not
treated as dilutive as their issue would decrease the loss per share.
Accordingly no diluted loss per share figure is shown.
5. Dividend
In view of the deficit on reserves the directors cannot recommend a dividend
and the loss for the period has therefore been offset against reserves.
6. Quantitive information about market risk
The Group uses financial instruments comprising borrowings, cash, liquid
resources and various items, such as trade debtors and trade creditors that
arise from its operations. The Group does not use derivatives. The main
purpose of these financial instruments is to raise finance for the Group's
operations. The Group is exposed to various market risks, including changes in
foreign currency exchange and interest rates. Market risk is the potential
loss arising from adverse changes in market rates and prices such as foreign
currency exchange and interest rates. The main risks arising from the Group's
financial instruments are interest rate risk, liquidity risk and foreign
currency risk. The Directors review and agree policies for managing each of
these risks and they are summarised below. These policies have remained
unchanged from previous years.
Short term debtors and creditors
Short term debtors and creditors have been excluded from all of the following
disclosures, other than the currency risk disclosures.
Interest rate risk
The Group's exposure to market risk for changes in interest rates relates
primarily to investments, senior notes, bank deposits and borrowings and
leasing. The Group's exposure to interest rate fluctuations is managed by the
use of both fixed and floating facilities. The Group also mixes the duration
of its deposits and borrowings to reduce the impact of interest rate
fluctuations. The floating rate assets bear interest at rates based on Euro
and UK bank base rates. The weighted period to maturity of zero coupon
financial assets is one year. The floating rate borrowings bear interest rates
based on the six month US LIBOR and UK bank base rates.
Currency risk
The Group is exposed to transaction and translation foreign exchange risk. The
Group does not enter into hedge arrangements in relation to foreign currency
transactions.
Foreign exchange differences on re-translation of assets and liabilities
denominated in foreign currencies are taken to the profit and loss account of
the Group companies and the Group. Exchange differences arising on translation
of the opening net assets and results of overseas operations are dealt with
through reserves.
Liquidity risk
The Group seeks to manage financial risk, to ensure sufficient liquidity is
available to meet foreseeable needs and to invest cash assets safely and
profitably.
7. Post Balance Sheet Event
After the Group's announcement in January 2001, in respect of the refocus of
its investment on the SME market and an associated restructure of its
operations, the Group completed the sale of its UK Indirect Residential
business on 31 August 2001 for #1.8m in cash to Affinity Wireless Limited.
Under a wholesale agreement, the Group will continue to carry the
telecommunications traffic on its networks from this customer base, as well as
from new customers that Affinity attracts to the services.
RECONCILIATION TO US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (U.S. GAAP)
3 months 3 months 12 months
ended ended ended
30 June 30 June 2000 31 March
2001 2001
#'000 #'000 #'000
Impact on net loss
Net loss per U.K. GAAP (27,496) (21,256) (135,713)
U.S. GAAP adjustments:
Development expense (1) 43 37 (350)
Amortisation expense (2) (43) (42) (171)
Stock-based compensation (3) 197 (822) 2,505
----------- ---------- -----------
Net loss per U.S. GAAP (27,299) (22,083) (133,729)
----------- ---------- -----------
Impact on net equity
Closing Shareholders' equity per U.K. GAAP 493,289 635,233 521,803
U.S. GAAP adjustments:
Goodwill (2) 4,732 4,732 4,732
Amortisation expense (2) (1,463) (1,291) (1,420)
Development expense (1) (2,903) (2,559) (2,946)
Difference in gain on disposal (2) (1,483) (1,483) (1,483)
----------- ---------- -----------
Closing Shareholders' equity per U.S. GAAP 492,172 634,632 520,686
----------- ---------- -----------
Changes in Shareholders' equity on a U.S.
GAAP basis
Shareholders' equity at beginning of 520,686 314,244 314,244
period per U.S. GAAP
Net loss (27,299) (22,083) (133,729)
Stock-based compensation (3) (197) 822 (2,505)
Foreign exchange differences (1,018) 96 91
Issuance of shares, net of related costs - 341,553 342,585
----------- ---------- -----------
Shareholders' equity at end of period per 492,172 634,632 520,686
U.S. GAAP
----------- ---------- -----------
RECONCILIATION TO US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (U.S. GAAP)
The following are descriptions of U.S. GAAP reconciling items:
(1) Under U.K. GAAP, the Group capitalises development expenditures related to
specific projects when recoverability can be assessed with reasonable
certainty and these expenditures are amortised over the licence period of the
project or its expected economic life, whichever is shorter. Under U.S. GAAP,
development expenditures are expensed in the period incurred.
(2) In 1995 the Company completed a reverse stock take-over acquisition. Under
U.K. GAAP, the acquiror, Worth Investment Trust PLC ("Worth") is considered
the continuing entity. Under U.S. GAAP, the Company is considered the
acquiror. Accordingly, under U.S. GAAP, the post reverse acquisition
historical financial statements are those of the Company and additional
goodwill is recorded in connection with the acquisition of Worth. Under U.K.
GAAP, prior to December 23, 1998 depending on the circumstances of each
acquisition, goodwill is either written off directly against reserves or
amortised through the profit and loss account over the Directors' estimate of
its useful life (not to exceed 40 years). If a subsidiary or a business is
subsequently sold or closed, any goodwill arising on acquisition that was
written off directly to reserves or that has not been amortised through the
profit or loss account is taken into account in determining the profit or loss
on sale or closure. For U.S. GAAP purposes, the Company has amortised goodwill
over 20 years.
(3) Under U.S. GAAP, the Group's Share Option Scheme results in compensation
cost which is measured by the excess of the quoted market price of the shares
over the option price per share to be paid by the employee. Compensation costs
are charged to expense over the vesting period prior to exercise with the
offsetting increase to the share premium account. Prior to 31 March 2000,
under UK GAAP, no compensation expense was recognised. During the year ended
31 March 2001, the Group adopted UITF Abstract 17 which requires the
difference between the fair value of the shares at the date of award and
amount of consideration employees are required to pay to be recognised through
the profit and loss account over the period of the performance criteria.
Additional disclosures are as follows:
1. In June 1998 the Financial Accounting Standards Board issued SFAS 133
"Accounting for Derivative Instruments and Hedging Activities". This statement
establishes accounting and reporting standards for derivative instruments and
for hedging activities. It requires that an entity recognise all derivatives
as either assets or liabilities in the statement of financial position and
measure those instruments at fair value. Subsequent to the issuance of this
statement, the Financial Accounting Standards Board issued SFAS 137
"Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 133 - an amendment of FASB Statement
No. 133" that deferred the effective date of SFAS 133 to all fiscal quarters
of all fiscal years beginning after June 15, 2000. In June 2000 Financial
Accounting Standards Board issued SFAS 138 "Accounting for Certain Derivative
Instruments and Certain Hedging Activities - an amendment of FASB Statement
No. 133" which addresses a limited number of issues causing SFAS 133
implementation difficulties. The effective date of this statement is for all
fiscal quarters of all fiscal years beginning after June 15, 2000. The Group
does not use derivatives and therefore adoption as of April 1, 2001 did not
have a material effect on the financial position or the results of operations.
2. The SEC staff has issued Staff Accounting Bulletin SAB 101, 'Revenue
Recognition in Financial Statements', to provide registrants with the staff's
position on the requirements for revenue recognition under generally accepted
accounting principles (U.S. GAAP). To recognise revenue in the financial
statements, U.S. GAAP requires that the revenue be realised or realisable and
earned. That generally occurs when all of the following criteria are met: (1)
persuasive evidence that an arrangement exists (2) delivery has occurred or
services have been rendered and (3) the price is fixed or determinable. We
have adopted SAB 101 which does not have a material effect on Atlantic Telecom
Group's financial position or results of operations.
RECONCILIATION TO US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (U.S. GAAP)
3. On July 20, 2001, the Financial Accounting Standards Board issued Statement
of Financial Standard (SFAS) 141, "Business Combinations" and SFAS 142,
"Goodwill and Intangible Assets". SFAS 141 is effective for all business
combinations completed after June 30, 2001. SFAS 142 is effective for fiscal
years beginning after December 15, 2001; however, certain provisions of this
Statement apply to goodwill and other intangible assets acquired between July
1, 2001 and the effective date of SFAS 142. Major provisions of these
statements and their effective dates for the Company are as follows:
* all business combinations initiated after June 30, 2001 must use the
purchase method of accounting. The pooling of interest method of
accounting is prohibited except for transactions initiated before July 1,
2001;
* intangible assets acquired in a business combination must be recorded
separately from goodwill if they arise from contractual or other legal
rights or are separable from the acquired entity and can be sold,
transferred, licensed, rented or exchanged, either individually or as part
of a related contract, asset or liability;
* goodwill, as well as intangible assets with indefinite lives, acquired
after June 30, 2001, will not be amortized. Effective April 1, 2002, all
previously recognized goodwill and intangible assets with indefinite lives
will no longer be subject to amortization;
* effective April 1, 2002, goodwill and intangible assets with indefinite
lives will be tested for impairment annually and whenever there is an
impairment indicator;
* all acquired goodwill must be assigned to reporting units for purposes
of impairment testing and segment reporting.
The Company will continue to amortize goodwill and intangible assets
recognized prior to July 1, 2001, under its current method until April 1,
2002, at which time annual and quarterly goodwill amortization of #18,562 and
#4,641 will no longer be recognized. By June 30, 2002, the Company will have
completed a transitional impairment test of all goodwill. Impairment losses,
if any, resulting from the transitional testing will be recognized in the
quarter ended June 30, 2002, as a cumulative effect of a change in accounting
principle.
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