AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 7, 1999
REGISTRATION NO. 333-[ ]
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.*
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 6719 91-1921377
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
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510 L. STREET, SUITE 500, ANCHORAGE, ALASKA 99501 (907) 297-3000
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
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MICHAEL E. HOLMSTROM WITH COPIES OF ALL COMMUNICATIONS TO:
SENIOR VICE PRESIDENT AND ELLIOTT V. STEIN, ESQ.
CHIEF FINANCIAL OFFICER WACHTELL, LIPTON, ROSEN & KATZ
ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC. 51 WEST 52ND STREET
510 L. STREET, SUITE 500 NEW YORK, NEW YORK 10019
ANCHORAGE, ALASKA 99501 (212) 403-1000
(907) 297-3000
(Name, Address, Including Zip Code, and Telephone
Number, Including Area Code, of Agent for Service)
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: Upon
consummation of the Exchange Offer referred to herein.
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If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
CALCULATION OF REGISTRATION FEE
PROPOSED PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER NOTE OFFERING PRICE(1) FEE(2)
9 3/8% Senior Subordinated Notes due 2009........ $150,000,000 100% $150,000,000 $41,700
Guarantees of the Senior Subordinated Notes due
2009 (3)....................................... (3) (3) (3) (3)
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Calculated pursuant to Rule 457 under the Securities Act.
(3) Pursuant to Rule 457(n) under the Securities Act, no registration fee is
required with respect to the guarantees.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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*TABLE OF ADDITIONAL REGISTRANTS
STATE OR OTHER
JURISDICTION OF PRIMARY STANDARD I.R.S.
INCORPORATION INDUSTRIAL EMPLOYEE
OR CLASSIFICATION IDENTIFICATION
NAME ORGANIZATION NUMBER NUMBER
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ALEC Holdings, Inc. ..................................................... Delaware 6719 52-2126573
ALEC Acquisition Sub Corp. .............................................. Delaware 6719 91-1925600
Alaska Communications Systems, Inc. ..................................... Delaware 4813 52-2124846
Telephone Utilities of the Northland, Inc. .............................. Alaska 4813 91-1336980
Telephone Utilities of Alaska, Inc. ..................................... Alaska 4813 91-1112844
PTI Communications of Alaska, Inc. ...................................... Alaska 4813 91-1557266
Pacific Telecom Cellular of Alaska, Inc. ................................ Alaska 4812 91-1460904
Pacific Telecom of Alaska PCS, Inc. ..................................... Alaska 4812 72-1440321
MACtel, Inc. ............................................................ Alaska 4812 92-0156992
ATU Long Distance, Inc. ................................................. Alaska 4812 92-0158899
ATU Communications, Inc. ................................................ Alaska 6719 92-0168430
MACtel License Sub, Inc. ................................................ Delaware 4812 91-1934311
MACtel Fairbanks, Inc. .................................................. Alaska 4812 92-0168427
MACtel Fairbanks License Sub, Inc. ...................................... Delaware 4812 91-1934312
Prudhoe Communications, Inc. ............................................ Alaska 6719 92-0089549
Peninsula Cellular Services, Inc. ....................................... Alaska 4812 92-0168429
PTINet, Inc. ............................................................ Delaware 4812 91-1934308
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* The address, including zip code and telephone number, including area code,
of the principal executive offices of these additional registrants is 510 L.
Street, Suite 500, Anchorage, Alaska 99501, (907) 297-3000.
PROSPECTUS
SUBJECT TO COMPLETION DATED JULY 7, 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES OR ACCEPT ANY OFFER TO BUY THESE SECURITIES UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE
IS NOT PERMITTED.
ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
OFFER TO EXCHANGE
ALL 9 3/8% SENIOR SUBORDINATED NOTES DUE 2009 ($150,000,000 PRINCIPAL AMOUNT)
FOR
9 3/8% SENIOR SUBORDINATED NOTES DUE 2009 ($150,000,000 PRINCIPAL AMOUNT)
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1999,
UNLESS EXTENDED.
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TERMS OF THE EXCHANGE OFFER:
- - We will issue up to $150,000,000 aggregate principal amount of exchange notes.
- - We will exchange exchange notes for all old notes that are validly tendered
and not withdrawn prior to the expiration of the exchange offer.
- - You may withdraw tenders of old notes at any time prior to the expiration of
the exchange offer.
- - The exchange of old notes for exchange notes will not be a taxable transaction
for U.S. federal income tax purposes, but you should see the discussion under
the caption "Federal Income Tax Considerations" on page 147 for more
information.
- - We will not receive any cash proceeds from the exchange offer.
- - The terms of the exchange notes are substantially identical to those of the
old notes, except that the transfer restrictions and registration rights
relating to the old notes do not apply to the exchange notes.
- - We do not intend to list the exchange notes on any national securities
exchange, and no public market for the exchange notes is anticipated.
- - The old notes are, and the exchange notes will be, unconditionally guaranteed
by ALEC Holdings, Inc., our parent, and each of our wholly owned subsidiaries.
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SEE "RISK FACTORS" BEGINNING ON PAGE 18 FOR A DISCUSSION OF FACTORS THAT YOU
SHOULD CONSIDER BEFORE TENDERING YOUR OLD NOTES.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this prospectus is , 1999.
TABLE OF CONTENTS
PAGE
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Summary....................................... 1
Risk Factors.................................. 18
The Exchange Offer............................ 30
The Acquisitions.............................. 40
Use of Proceeds............................... 41
Capitalization................................ 41
Selected Historical Combined Financial
Data--PTI Alaska............................ 42
Selected Historical Financial Data--ATU....... 44
Unaudited Pro Forma Combined Financial and
Operating Data.............................. 46
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................. 51
Industry Overview............................. 68
Business...................................... 70
Regulation.................................... 80
PAGE
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Management.................................... 86
Ownership of Capital Stock.................... 93
Insider Relationships and Related Party
Transactions................................ 95
Description of Other Indebtedness............. 96
Description of the Exchange Notes............. 100
Exchange and Registration Rights Agreement.... 140
Book-Entry, Delivery and Form................. 144
Federal Income Tax Considerations............. 148
Plan of Distribution.......................... 151
Available Information......................... 152
Experts....................................... 153
Validity of the Exchange Notes................ 153
Index to Financial Statements................. F-1
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FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements, including, in
particular, statements about our plans, strategies and prospects under the
captions "Summary," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" (particularly under the subheadings "Liquidity and
Capital Resources" and "Outlook") and "Business." We have based these
forward-looking statements on our current assumptions, expectations and
projections about future events. When used in this prospectus, the words
"believe," "anticipate," "intend," "estimate," "expect," "project" and similar
expressions are intended to identify forward-looking statements, although not
all forward-looking statements contain such words. These forward-looking
statements speak only as of the date of this prospectus. Neither we nor the
initial purchasers undertake any obligation to update or revise publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise. Although management believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to be correct or that savings or
other benefits anticipated in the forward-looking statements will be achieved.
Important factors, some of which may be beyond our control, that could cause
actual results to differ materially from management's expectations ("cautionary
statements") are disclosed in this prospectus, including in conjunction with the
forward-looking statements included in this prospectus and under "Risk Factors."
Prospectus purchasers are cautioned not to place undue reliance on these
forward-looking statements. All subsequent written and oral forward-looking
statements attributable to us are expressly qualified in their entirety by the
cautionary statements. See "Risk Factors." These forward-looking statements are
subject to risks, uncertainties and assumptions about us, including, among other
things:
- our substantial debt and significant debt service obligations;
- our ability to integrate our recent acquisitions of PTI Alaska and ATU;
- developments in, or changes to, the laws and regulations governing our
telecommunications business;
- our ability to improve existing operations;
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- the increasingly competitive nature of the telecommunications industry;
- changes in technology;
- our ability to keep key personnel required to operate the business;
- the potential effect of year 2000 compliance issues; and
- changes in economic conditions in Alaska.
ADDITIONAL INFORMATION
This prospectus incorporates important business and financial information
about us from documents that are not included in or delivered with this
document. You can obtain documents incorporated by reference in this prospectus
(other than exhibits to those documents) by requesting them in writing or by
telephone from us at the following address:
Alaska Communications Systems Holdings, Inc.
510 L. Street, Suite 500
Anchorage, Alaska 99501
Attention: Michael E. Holmstrom
Telephone: (907) 297-3000
You will not be charged for any documents that you request. If you would
like to request documents, please do so by , 1999 in order to
receive them before the exchange offer expires on , 1999.
ii
SUMMARY
THE FOLLOWING SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE IN
THIS PROSPECTUS. THIS SUMMARY IS NOT COMPLETE AND MAY NOT CONTAIN ALL OF THE
INFORMATION THAT YOU SHOULD CONSIDER BEFORE EXCHANGING YOUR OLD NOTES FOR
EXCHANGE NOTES, AND YOU ARE ENCOURAGED TO READ THIS PROSPECTUS IN ITS ENTIRETY.
THIS PROSPECTUS INCLUDES SPECIFIC TERMS OF THE EXCHANGE NOTES WE ARE OFFERING,
AS WELL AS INFORMATION ABOUT OUR BUSINESS AND DETAILED FINANCIAL DATA.
UNLESS OTHERWISE INDICATED, REFERENCES IN THIS PROSPECTUS TO THE "COMPANY,"
"WE," "OUR" AND "US" REFER TO ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC., ITS
PREDECESSORS AND ITS WHOLLY OWNED SUBSIDIARIES AS A COMBINED ENTITY. "PTI
ALASKA" REFERS TO THE ALASKAN TELECOMMUNICATIONS PROPERTIES (OTHER THAN THE
CELLULAR PROPERTIES IN FAIRBANKS, ALASKA) THAT WE ACQUIRED FROM CENTURY
TELEPHONE ENTERPRISES, INC. ("CENTURY"), INCLUDING ITS PREDECESSORS AND WHOLLY
OWNED SUBSIDIARIES. "ATU" REFERS TO ANCHORAGE TELEPHONE UTILITY. "HOLDINGS"
REFERS TO ALEC HOLDINGS, INC., OUR PARENT COMPANY.
OUR COMPANY
We are the leading diversified, full-service telecommunications provider in
Alaska, offering local telephone, wireless, long distance and internet services
to business and residential customers throughout the state. We have over $875
million invested in our network, a state-of-the-art telecommunications
infrastructure that includes over 485 miles of fiber optic cable and 176
switching facilities.
- LOCAL TELEPHONE. With over 300,000 access lines, we are the 16th largest
local exchange carrier, or LEC, in the U.S. and the leading LEC in Alaska.
We provide service to 75% of the Alaskan population and to all of the
state's major population centers, including Anchorage, Juneau and
Fairbanks. There are no Regional Bell Operating Companies, or RBOCs, in
Alaska.
- WIRELESS. We are the largest and only statewide provider of wireless
services in Alaska, currently serving over 66,000 subscribers. Our service
areas cover all major population centers and highway corridors.
- LONG DISTANCE AND INTERNET. We provide long distance services to
approximately 26,000 customers, primarily in Anchorage, and internet
access services to approximately 16,000 customers throughout the state.
We have achieved strong operating results through stable internal growth and
strategic acquisitions. For the year ended December 31, 1998, we would have had
pro forma combined revenues of $254 million, operating income of $40 million, a
net loss of $16 million and EBITDA (as defined) of $102 million.
We believe that the outlook for continued growth in our local telephone
business is favorable due to the fundamentals of the LEC business, including:
(1) continued demand for core telephone services and enhanced service offerings,
such as voice mail and call waiting, (2) access line growth due to higher
consumer bandwidth needs for internet, data and video usage and (3) favorable
regulatory environments. We intend to leverage our strength in our core local
telephone business to grow our wireless, long distance and internet businesses.
COMPANY BACKGROUND
We were formed in 1998 by Fox Paine & Company, LLC ("Fox Paine"), members of
the former senior management team of Pacific Telecom, Inc. and other experienced
telecommunications industry executives to acquire PTI Alaska and ATU.
PTI ALASKA. PTI Alaska is the incumbent provider of local telephone
services to over 131,000 access lines in Juneau, Fairbanks and more than 70
rural communities in Alaska. PTI Alaska also provides cellular service to
approximately 3,000 subscribers, primarily in Juneau, and owns 10
1
megahertz ("MHz") personal communications services, or PCS, licenses covering
Anchorage, Juneau and Fairbanks. In addition, PTI Alaska provides internet
services to approximately 16,000 customers statewide.
ATU. ATU is the largest LEC in Alaska, and is the incumbent provider of
local telephone services to over 168,000 access lines, primarily in Anchorage.
ATU also provides cellular service to over 63,000 subscribers primarily in
Anchorage and Fairbanks under the MACtel brand name. MACtel is the leading
cellular provider in Alaska and has achieved a penetration rate of approximately
16% in its service areas. ATU began providing long distance service on a resale
basis in the fall of 1997 and serves approximately 26,000 customers, primarily
in Anchorage.
ALASKAN TELECOMMUNICATIONS MARKET
The Alaskan telecommunications market is characterized by its large
geographical size and widely dispersed population centers. Over 60% of the
state's population resides in its three largest cities: Anchorage, Juneau and
Fairbanks. Alaska lacks a well developed ground transportation infrastructure,
and most of the state's communities are accessible only by air or water. As a
result, Alaskans are particularly dependent on telecommunications services to
access resources and information unavailable in their communities.
The demographic characteristics of Alaska provide opportunities for growth
of telecommunications services. Alaska has the highest median household income
in the U.S. In addition, Alaskans benefit from the absence of state personal
income taxes. The population in Alaska has been growing at a compound annual
rate of 1.3% over the last ten years, compared to 1.0% for the U.S. as a whole.
COMPETITIVE STRENGTHS
We believe we are well positioned to capitalize on significant opportunities
in the rural telecommunications marketplace given our competitive strengths:
LEADING COMPETITIVE POSITION. We are the leading diversified, full-service
telecommunications provider in Alaska.
- We are the incumbent LEC in our local service areas. With the exception of
Anchorage, we are the only LEC in our service areas and do not presently
experience meaningful competition from either facilities-based providers
or resellers of our local telephone services.
- We are the only statewide wireless provider, serving all major population
centers and highway corridors. We are also the preeminent wireless
provider in Alaska, serving the largest number of subscribers.
- We are a statewide internet service provider.
STRONG, PREDICTABLE CASH FLOW. Our businesses have historically exhibited
stable operating results and strong cash flow margins. Our local telephone
businesses, which represent approximately 85% of our combined revenues, are
subject to state and federal regulations that allow us to charge rates that give
us the opportunity to recover our costs and earn a reasonable rate of return on
the capital invested in our network. Historically, PTI Alaska has experienced
consistent access line growth of approximately 6% annually, and stable EBITDA
margins of approximately 46%. ATU, operating as a government-owned utility, has
achieved stable EBITDA margins of approximately 37%. We expect stable growth in
our combined telecommunications businesses, with consistent increases in EBITDA.
SIGNIFICANT NETWORK INVESTMENT. We have over $875 million invested in our
network, a state-of-the-art telecommunications infrastructure that includes over
485 miles of fiber optic cable and
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176 switching facilities. Our network incorporates the latest generic software
upgrades, facilitating efficient deployment of network enhancements and allowing
us to offer our customers a broad range of enhanced communications services.
Management believes that substantial time and capital would be required for a
competitor to build a comparable network.
STRONG LEADERSHIP. Members of management have, on average, over 25 years of
telecommunications experience, the majority of which was spent either with
Pacific Telecom, of which PTI Alaska was a part, or ATU, and have a demonstrated
track record of acquiring, integrating and operating telecommunications
companies. Management is led by Charles E. Robinson, our Chairman, President and
Chief Executive Officer, who built the former Pacific Telecom business into a
leading telecommunications service provider to suburban and rural communities in
Alaska and the Pacific Northwest, and completed the sale of Pacific Telecom to
Century for $2.2 billion in 1997. Between 1992 and 1997, revenues and EBITDA
generated by Pacific Telecom's local telephone business grew at 17% and 22%
compound annual rates, respectively. Management has significant experience
operating local, data, wireless and cable television businesses. Members of
management, including Mr. Robinson, also operated Alascom, Inc., Alaska's
largest long distance provider, until its sale to AT&T in 1995. Management
intends to implement a strategic plan that makes use of its extensive
telecommunications experience to maximize the benefits of integrating the
operations of PTI Alaska and ATU.
Fox Paine, which beneficially owns approximately 98% of the equity of
Holdings, is a private equity investment firm that manages a $500 million
investment fund. Fox Paine was founded in 1997 by Saul A. Fox and W. Dexter
Paine, III, former senior partners of Kohlberg, Kravis & Roberts and Kohlberg &
Company. Fox Paine's principals have over 26 years' combined experience in
identifying exceptional management teams and successfully executing corporate
acquisitions. In their previous positions, Fox Paine's principals directed the
investment of over $700 million of equity in 17 transactions with an aggregate
value of $3.4 billion.
BUSINESS STRATEGY
The principal elements of our business strategy include:
CAPITALIZE ON GROWTH OPPORTUNITIES. We intend to capitalize on growth
opportunities by expanding our offerings of enhanced services, wireless
services, long distance services, data services and internet access services and
by marketing these services under a common branding strategy. We believe that
our statewide presence and history of providing quality service will allow us to
achieve greater brand awareness and service penetration than our competitors.
- ACCESS LINE GROWTH. We intend to focus our sales and marketing efforts to
capitalize on continued growth in access line demand. We also intend to
stimulate additional demand for access lines through the provision of
advanced high-speed data services, such as digital subscriber lines and
integrated services digital networks, or ISDN, in our major markets.
- ENHANCED SERVICES. We intend to market enhanced services, such as call
waiting, caller ID and voice mail. Customer penetration of enhanced
services (the number of enhanced services divided by the number of access
lines) in our service areas is approximately 82%, while other LECs in the
U.S. have achieved penetration levels of 100% to 120%, on average.
Increasing penetration rates will improve revenue per customer that, due
to the fixed cost nature of the LEC business, are expected to result in
increasing EBITDA.
- WIRELESS SERVICES. As the only statewide cellular service provider in
Alaska, we believe our cellular operations represent a significant growth
opportunity. Our cellular operations currently penetrate only 8% of the
population, or POPs, in our Fairbanks and southeast Alaska service areas,
compared with MACtel's 18% penetration rate in Anchorage. We also plan to
complete the digital conversion of our entire cellular network by the end
of 1999. After this conversion, we
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will be able to offer our customers enhanced digital cellular services and
features. We believe that the market for wireless services will continue
to grow with the growth in the wireless industry as a whole.
- LONG DISTANCE SERVICES. As the incumbent LEC in our service areas, we are
well positioned to offer long distance services to our existing customers.
Management intends to leverage the long distance experience it gained
while operating the largest long distance provider in Alaska, to improve
the long distance operations at ATU and to expand ATU's long distance
business in PTI Alaska's service areas. In connection with the settlement
of a number of outstanding disputes we recently purchased fiber capacity
between Alaska's major population centers and between Alaska and the
contiguous 48 states of the U.S. This capacity will allow us both to
improve the quality of our service offerings and realize future operating
cost efficiencies. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations-- Recent Developments."
IMPROVE OPERATING EFFICIENCIES. We intend to use our operating, regulatory,
marketing and management expertise to improve operations and profitability. The
operations of PTI Alaska and ATU have several redundancies, such as material
management, purchasing, network planning/engineering and customer care centers,
that we intend to consolidate to enhance operating efficiencies. We also intend
to support the general and administrative requirements of PTI Alaska and ATU on
a common basis.
PURSUE SELECTIVE STRATEGIC ACQUISITIONS. We will pursue selective regional
acquisitions in Alaska and the western U.S. as opportunities arise. During the
last five years, RBOCs and GTE Corporation have made significant divestitures
and recently announced plans for additional divestitures of their rural
telecommunications properties to allow them to focus on urban markets.
Additionally, according to the United States Telephone Association, there are
approximately 1,300 independent telephone companies in the U.S. with fewer than
25,000 access lines. We believe that these industry dynamics will provide
opportunities for growth through acquisitions.
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SOURCES AND USES
On August 18, 1998, we announced our agreement to acquire the capital stock
of PTI Alaska from Century. Under our agreement with Century, as amended, we
acquired PTI Alaska for $411.8 million. Under our agreement with the
Municipality of Anchorage dated October 20, 1998, we acquired substantially all
of the assets and liabilities of ATU from the Municipality of Anchorage for
$263.6 million. We completed both of these acquisitions on May 14, 1999. See
"The Acquisitions."
The table below outlines the sources and uses of funds for the acquisitions
and the related expenses:
AMOUNT
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(DOLLARS IN
MILLIONS)
SOURCES:
Revolving credit facility(a).............................................. $ 6.7
Term loan facilities(b)................................................... 435.0
9 3/8% Senior subordinated notes due 2009................................. 150.0
Equity contributions(c)................................................... 146.2
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Total sources........................................................... $ 737.9
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USES:
Purchase of PTI Alaska(d)................................................. $ 411.8
Purchase of ATU........................................................... 263.6
Working capital(e)........................................................ 14.1
Transaction fees and expenses............................................. 48.4
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Total uses.............................................................. $ 737.9
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- ------------------------------
(a) The revolving credit facility allows for total borrowings of up to $75.0
million, of which $66.3 million remains available. See "Description of Other
Indebtedness--The Senior Credit Facility."
(b) The term loan facilities are comprised of $150.0 million of term loan A
facility, $150.0 million of term loan B facility and $135.0 million of term
loan C facility.
(c) The equity contributions consist of $121.2 million of common equity
contributed by Fox Paine Capital Fund, L.P. (the "Fund"), members of
management and other investors to Holdings and $25.0 million in aggregate
gross proceeds of discount debentures and warrants issued by Holdings, all
of which was contributed to us by Holdings as common equity.
(d) Includes the repayment of existing indebtedness of PTI Alaska. See "The
Acquisitions."
(e) Working capital was used to fund in part the purchase of $19.5 million of
fiber capacity.
5
SUMMARY OF TERMS OF THE EXCHANGE OFFER
On May 14, 1999, we completed the private offering of the old notes. We
entered into an exchange and registration rights agreement with the initial
purchasers in the private offering in which we agreed to deliver to you this
prospectus as part of the exchange offer and agreed to complete the exchange
offer within 180 days after the date of original issuance of the old notes. You
are entitled to exchange in the exchange offer your old notes for exchange notes
which are identical in all material respects to the old notes except:
- the exchange notes have been registered under the Securities Act;
- the exchange notes are not entitled to some registration rights which are
applicable to the old notes under the exchange and registration rights
agreement; and
- contingent interest rate provisions, except for those relating to our
failure to keep effective a shelf registration statement, are no longer
applicable.
THE EXCHANGE OFFER........... We are offering to exchange up to $150,000,000 aggregate
principal amount of old notes for up to $150,000,000
aggregate principal amount of exchange notes. You may
exchange old notes only in integral multiples of $1,000.
RESALE....................... Based on an interpretation by the staff of the Securities
and Exchange Commission set forth in no-action letters
issued to third parties, we believe that the exchange notes
issued pursuant to the exchange offer in exchange for old
notes may be offered for resale, resold and otherwise
transferred by you (unless you are an "affiliate" of us
within the meaning of Rule 405 under the Securities Act)
without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that you
are acquiring the exchange notes in the ordinary course of
your business and that you have not engaged in, do not
intend to engage in, and have no arrangement or
understanding with any person to participate in, a
distribution of the exchange notes.
Each participating broker-dealer that receives exchange
notes for its own account pursuant to the exchange offer in
exchange for old notes that were acquired as a result of
market-making or other trading activity must acknowledge
that it will deliver a prospectus in connection with any
resale of the exchange notes. See "Plan of Distribution."
Any holder of old notes who:
- is an affiliate of us;
- does not acquire exchange notes in the ordinary course of
its business; or
- tenders in the exchange offer with the intention to
participate, or for the purpose of participating, in a
distribution of exchange notes
cannot rely on the position of the staff of the SEC stated
in Exxon Capital Holdings Corporation, Morgan Stanley & Co.
Incorporated or similar no-action letters and, in the
absence of an exemption,
6
must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with the
resale of the exchange notes.
EXPIRATION OF THE EXCHANGE
OFFER; WITHDRAWAL OF
TENDER..................... The exchange offer will expire at 5:00 p.m., New York City
time, on , 1999, or a later date and time to
which we extend it. We do not currently intend to extend the
expiration of the exchange offer. You may withdraw your
tender of old notes pursuant to the exchange offer at any
time before expiration of the exchange offer. Any old notes
not accepted for exchange for any reason will be returned
without expense to you promptly after the expiration or
termination of the exchange offer.
CONDITIONS TO THE EXCHANGE
OFFER...................... The exchange offer is subject to customary conditions, which
we may waive. Please read the section under the caption "The
Exchange Offer--Conditions" of this prospectus for more
information regarding the conditions to the exchange offer.
PROCEDURES FOR TENDERING
OUTSTANDING NOTES.......... If you wish to participate in the exchange offer, you must:
- complete, sign and date the accompanying letter of
transmittal, or a facsimile of the letter of transmittal,
according to the instructions contained in this prospectus
and the letter of transmittal; and
- mail or otherwise deliver the letter of transmittal, or a
facsimile of the letter of transmittal, together with your
old notes and any other required documents, to the
exchange agent at the address set forth on the cover page
of the letter of transmittal.
If you hold old notes through The Depository Trust Company
("DTC") and wish to participate in the exchange offer, you
must comply with the Automated Tender Offer Program
procedures of DTC, by which you will agree to be bound by
the letter of transmittal. By signing, or agreeing to be
bound by, the letter of transmittal, you will represent to
us that, among other things:
- you acquired your old notes in the ordinary course of your
business;
- you have no arrangement or understanding with any person
or entity to participate in a distribution of the exchange
notes;
- if you are a broker-dealer that will receive exchange
notes for your own account in exchange for old notes that
were acquired as a result of market-making activities,
that you will deliver a prospectus, as required by law, in
connection with any resale of those exchange notes; and
- you are not an "affiliate," as defined in Rule 405 of the
Securities Act, of us or, if you are an affiliate, that
you will comply with any applicable registration and
prospectus delivery requirements of the Securities Act.
7
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS.......... If you are a beneficial owner of old notes which are
registered in the name of a broker, dealer, commercial bank,
trust company or other nominee, and you want to tender old
notes in the exchange offer, you should contact the
registered holder promptly and instruct the registered
holder to tender on your behalf. If you wish to tender on
your own behalf, you must, before completing and executing
the letter of transmittal and delivering your old notes,
either make appropriate arrangements to register ownership
of the old notes in your name or obtain a properly completed
bond power from the registered holder. The transfer of
registered ownership may take considerable time and may not
be able to be completed before expiration of the exchange
offer.
GUARANTEED DELIVERY
PROCEDURES................. If you wish to tender your old notes and your old notes are
not immediately available or you cannot deliver your old
notes, the letter of transmittal or any other documents
required by the letter of transmittal or comply with the
applicable procedures under the DTC's Automated Tender Offer
Program, before expiration of the exchange offer, you must
tender your old notes according to the guaranteed delivery
procedures set forth under the caption "The Exchange
Offer--Guaranteed delivery procedures."
EFFECT ON HOLDERS OF
OUTSTANDING NOTES.......... By making the exchange offer and by accepting for exchange
all validly tendered old notes under the exchange offer, we
will have fulfilled a covenant contained in the registration
rights agreement. Accordingly, there will be no increase in
the interest rate on the old notes under the circumstances
described in the registration rights agreement. If you are a
holder of old notes and you do not tender your old notes in
the exchange offer, you will continue to hold your old notes
and will be entitled to all the rights and subject to all
the limitations applicable to the old notes in the
indenture, except for any rights under the registration
rights agreement that terminate upon the completion of the
exchange offer.
The trading market for old notes could be adversely affected
if some but not all of the old notes are tendered and
accepted in the exchange offer.
CONSEQUENCES OF FAILURE TO
EXCHANGE................... All untendered old notes will remain subject to the
restrictions on transfer provided for in the old notes and
in the indenture. In general, the old notes may not be
offered or sold, unless registered under the Securities Act,
except pursuant to an exemption from, or in a transaction
not subject to, the Securities Act and applicable state
securities laws. Other than in connection with the exchange
offer, we do not currently anticipate that we will register
the old notes under the Securities Act.
FEDERAL INCOME TAX
CONSIDERATIONS............. The exchange of old notes for exchange notes in the exchange
offer
8
will not be a taxable event for U.S. federal income tax
purposes. See "Federal Income Tax Considerations."
USE OF PROCEEDS.............. We will not receive any cash proceeds from the issuance of
exchange notes pursuant to the exchange offer.
EXCHANGE AGENT............... IBJ Whitehall Bank & Trust Company is the exchange agent for
the exchange offer. The address and telephone number of the
exchange agent are set forth under the caption "The Exchange
Offer-- Exchange agent" of this prospectus.
9
SUMMARY OF TERMS OF THE EXCHANGE NOTES
ISSUER....................... Alaska Communications Systems Holdings, Inc.
SECURITIES OFFERED........... $150,000,000 aggregate principal amount of 9 3/8% Senior
Subordinated Notes due 2009.
MATURITY..................... May 15, 2009.
INTEREST PAYMENT DATES....... May 15 and November 15 of each year, commencing on November
15, 1999.
OPTIONAL REDEMPTION.......... On or after May 15, 2004, we may redeem some or all of the
exchange notes at the redemption prices listed under the
caption "Description of the Exchange Notes--Optional
Redemption."
Before May 15, 2002, we may redeem up to 35% of the exchange
notes with the proceeds of sales of equity in our Company or
Holdings at the redemption price listed under the caption
"Description of the Exchange Notes--Optional Redemption."
CHANGE OF CONTROL............ If we experience a change of control, you will have the
right to require us to repurchase your exchange notes at a
price equal to 101% of the principal amount of the exchange
notes, together with accrued and unpaid interest, if any, to
the date of repurchase. See "Description of the Exchange
Notes--Change of Control."
GUARANTEES................... The exchange notes will be fully and unconditionally
guaranteed on an unsecured senior subordinated basis by
Holdings, our subsidiaries and our future domestic
subsidiaries. If we fail to make payments on the exchange
notes, Holdings and our guarantor subsidiaries must make
them instead.
RANKING...................... The exchange notes will be unsecured and:
- subordinate to all of our existing and future senior debt;
- rank equally with all of our other senior subordinated
debt; and
- rank senior to all of our existing and future subordinated
debt.
Similarly, the guarantees of the exchange notes provided by
Holdings and our guarantor subsidiaries will be unsecured
and:
- subordinate to all of the guarantors' existing and future
senior debt, including, for Holdings, its discount
debentures;
- rank equally with all of the guarantors' other senior
subordinated debt; and
- rank senior to all of the guarantors' existing and future
subordinated debt.
Assuming we had completed the acquisitions of PTI Alaska and
ATU, made the initial borrowings under our senior credit
facility and completed the offering of the old notes on
March 31, 1999:
- we would have had $441.7 million of senior debt;
10
- our guarantor subsidiaries would have had $7.5 million of
senior debt;
- we would not have had any senior subordinated debt other
than the old notes, and Holdings and our guarantor
subsidiaries would not have had any senior subordinated
debt, other than the guarantees of the old notes; and
- we, Holdings and our guarantor subsidiaries would not have
had any subordinated debt.
RESTRICTIVE COVENANTS........ We will issue the exchange notes under an indenture with IBJ
Whitehall Bank & Trust Company, as the trustee. The
indenture will, among other things, restrict our ability and
the ability of our subsidiaries and future subsidiaries, to:
- incur debt;
- make investments;
- pay dividends on stock or purchase stock;
- sell assets or stock of our subsidiaries;
- engage in transactions with our affiliates;
- engage in mergers, consolidations and sales of assets; and
- engage in business activities that are unrelated to our
current business.
The indenture will also limit the extent to which we can
permit restrictions on the ability of our subsidiaries to
pay dividends and make other distributions.
See "Description of the Exchange Notes--Restrictive
Covenants."
ABSENCE OF ESTABLISHED MARKET
FOR THE NOTES.............. The exchange notes are a new issue of securities, and there
is no established trading market for the exchange notes. The
exchange notes have been designated for trading in the
Private Offerings, Resales and Trading through Automated
Linkages ("PORTAL") market. However, we do not intend to
apply for the exchange notes to be listed on any securities
exchange or to arrange for quotation on any automated dealer
quotation system. The initial purchasers in the private
placement of the old notes have advised us that they intend
to make a market in the exchange notes and any new notes
issued in exchange for the exchange notes, but they are not
obligated to do so. The initial purchasers may discontinue
any market making in the exchange notes or any new notes
issued in exchange for the exchange notes at any time in
their sole discretion. We cannot assure you that a liquid
market will develop for the exchange notes.
11
RISK FACTORS
You should consider carefully all of the information in this prospectus. In
particular, you should evaluate the specific factors under the caption "Risk
Factors" before deciding to exchange your old notes for exchange notes.
* * * * *
We are located at 510 L. Street, Suite 500, Anchorage, Alaska 99501. Our
telephone number is (907) 297-3000.
12
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL AND OPERATING DATA
The following summary unaudited pro forma combined financial and operating
data are based on the financial statements of PTI Alaska and ATU, as adjusted to
illustrate the estimated effects of:
- the acquisition of PTI Alaska;
- the acquisition of ATU;
- the purchase of fiber capacity for $19.5 million; and
- the financings necessary to complete these acquisitions,
as if these transactions had occurred on January 1, 1998 for the Operating Data
and Other Financial Data and on December 31, 1998 and March 31, 1999 for the
Other Data and Balance Sheet Data.
The summary unaudited pro forma combined financial and operating data do not
purport to be indicative of what our financial position or results of operations
would actually have been had these transactions been completed on the dates
indicated or to project our results of operations for any future period. See
"Unaudited Pro Forma Combined Financial and Operating Data."
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1998 MARCH 31, 1999
----------------- ---------------
(DOLLARS IN THOUSANDS)
OPERATING DATA:
Operating revenue............................................................. $ 254,101 $ 64,306
Operating expenses............................................................ 214,507 53,860
-------- ---------------
Operating income.............................................................. 39,594 10,446
Interest expense.............................................................. (53,698) (13,425)
Other income (expense)(a)..................................................... (1,514) 71
-------- ---------------
Loss before income taxes...................................................... (15,618) (2,908)
Income taxes.................................................................. -- --
-------- ---------------
Net loss...................................................................... $ (15,618) $ (2,908)
-------- ---------------
-------- ---------------
OTHER FINANCIAL DATA:
Net cash provided by operating activities(b).................................. $ 53,817 15,808
Net cash used by investing activities(b)...................................... (32,323) (3,907)
Net cash used by financing activities(b)...................................... (40,350) (18,903)
EBITDA (as defined)(c)........................................................ 102,246 $ 26,533
Adjusted EBITDA(d)............................................................ 106,109 27,045
Pro forma cash interest expense(e)............................................ 49,948 12,487
Capital expenditures.......................................................... 56,443 5,583
Depreciation and amortization................................................. 61,221 15,507
Ratio of earnings to fixed charges(f)......................................... N/A N/A
Ratio of Adjusted EBITDA to pro forma cash interest expense................... 2.1x 2.2x
Ratio of total debt to Adjusted EBITDA........................................ 5.6x 22.2x
OTHER DATA (END OF PERIOD):
Access lines in service(g).................................................... 300,394 304,619
Cellular subscribers.......................................................... 66,572 67,196
Cellular penetration.......................................................... 14.5% 14.6%
BALANCE SHEET DATA (END OF PERIOD):
Total assets.................................................................. $ 796,007 $ 791,882
Long-term debt including current portion...................................... 599,245 599,245
Stockholder's equity.......................................................... 146,155 146,155
- ------------------------------
(a) "Other income (expense)" includes the (1) net operating results of PTI
Alaska's and ATU's equipment sales and rental, payphone and internet
businesses and (2) equity in earnings (losses) of minority investments. For
the year ended December 31, 1998, these amounts represented earnings of
$1,431,000 and losses of $2,945,000, respectively. For the three months
ended March 31, 1999, these amounts represented earnings of $580,000 and
losses of $509,000, respectively.
(b) Net cash data includes information from ATU financial statements prepared
according to Governmental Accounting Standards.
13
(c) "EBITDA" is net income before interest expense, interest income, income
taxes, depreciation and amortization, and equity in earnings (loss) of
minority investments (which was $(2,945,000) for the year ended December 31,
1998 and $(509,000) for the three months ended March 31, 1999). EBITDA
includes the net operating results of equipment sales and rental, payphone
and internet businesses and the estimated annual management fee to be paid
to Fox Paine. EBITDA is not intended to represent cash flow from operations
as defined by GAAP and should not be considered as an alternative to net
income as an indicator of our operating performance or cash flows. EBITDA is
included in this prospectus because management believes it provides
additional information with respect to our ability to satisfy its debt
service, capital expenditure and working capital requirements. While EBITDA
is frequently used as a measure of operations and the ability of a company
to meet debt service requirements, it is not necessarily comparable to other
similarly titled captions of other companies due to the differences in
methods of calculation.
(d) "Adjusted EBITDA" is EBITDA increased by (1) the net effect of the
elimination of one-time duplicative administrative charges resulting from
Century's acquisition of Pacific Telecom, and the related loss of revenues,
in the amount of $1,399,000 for the year ended December 31, 1998, (2)
unrealized access revenues in the amount of $417,000 for the year ended
December 31, 1998 that were not recovered in 1998 but are being recovered in
1999 and in future years and (3) the net effect of reduced operating
expenses, primarily leased circuit expenses, partially offset by higher
maintenance expenses, that would have been experienced had the purchase of
fiber capacity occurred on January 1, 1998, in the amount of $2,047,000 for
the year ended December 31, 1998 and $512,000 for the three months ended
March 31, 1999.
(e) "Pro forma cash interest expense" is defined as interest expense exclusive
of amortization of deferred financing costs.
(f) For purposes of computing this ratio, earnings consist of earnings before
extraordinary items, income taxes and fixed charges. Fixed charges consist
of interest expense, amortization of deferred financing fees and the
component of rental expense believed by management to be representative of
the interest factor thereon. Earnings were inadequate to cover fixed charges
by $15,618,000 for the year ended December 31, 1998 and by $2,908,000 for
the three months ended March 31, 1999.
(g) "Access lines in service" includes all revenue producing lines, whether
connected to retail or wholesale customers.
14
SUMMARY HISTORICAL COMBINED FINANCIAL DATA--PTI ALASKA
The following table sets forth summary historical combined financial data of
PTI Alaska. The summary historical combined financial data for each of the three
years in the period ended December 31, 1998 and as of December 31, 1997 and 1998
have been derived from the audited combined financial statements and the notes
thereto of PTI Alaska included elsewhere in this prospectus. The summary
historical combined financial data for each of the two years in the period ended
December 31, 1995 and as of December 31, 1994, 1995 and 1996 have been derived
from the unaudited combined financial statements of PTI Alaska which are not
included in this prospectus and which, in the opinion of management, include all
adjustments, consisting solely of normal, recurring adjustments, necessary to
present fairly the information they contain. The summary combined financial data
for each of the three month periods ended March 31, 1998 and 1999 and as of
March 31, 1998 and 1999 have been derived from the unaudited combined financial
statements of PTI Alaska which are included in this prospectus and which, in the
opinion of management, include all adjustments, consisting solely of normal,
recurring adjustments, necessary to present fairly the information they contain.
The financial statements of PTI Alaska include the results of the telephone
operation of the City of Fairbanks (the "City of Fairbanks Telephone Operation")
from October 6, 1997, the date of its acquisition. This acquisition was
accounted for as a purchase. PTI Alaska was acquired by Century on December 1,
1997 as part of its acquisition of Pacific Telecom. The data for the year ended
December 31, 1997 represent the results of PTI Alaska for the 11 months ended
November 30, 1997, as owned by Pacific Telecom, and the one month ended December
31, 1997, as owned by Century. The summary historical combined financial data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the audited combined
financial statements of PTI Alaska, and the related notes, included elsewhere in
this prospectus.
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------- --------------------
1994 1995 1996 1997(A) 1998 1998 1999
--------- --------- --------- ----------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
OPERATING DATA:
Operating revenue.............................. $ 69,402 $ 75,071 $ 76,633 $ 88,040 $ 112,398 $ 25,798 $ 27,749
Operating expenses............................. 52,795 55,506 56,043 63,907 94,198 22,185 22,681
--------- --------- --------- ----------- --------- --------- ---------
Operating income............................... 16,607 19,565 20,590 24,133 18,200 3,613 5,068
Interest expense, net.......................... (2,459) (2,331) (1,996) (2,340) (1,405) (302) (358)
Other income (expense)(b)...................... 1,094 (1,020) (368) 152 2,070 1,129 922
--------- --------- --------- ----------- --------- --------- ---------
Income before income taxes..................... 15,242 16,214 18,226 21,945 18,865 4,440 5,632
Income taxes................................... 5,962 5,713 6,737 8,482 9,218 2,214 2,709
--------- --------- --------- ----------- --------- --------- ---------
Net income..................................... $ 9,280 $ 10,501 $ 11,489 $ 13,463 $ 9,647 $ 2,226 $ 2,923
--------- --------- --------- ----------- --------- --------- ---------
--------- --------- --------- ----------- --------- --------- ---------
OTHER FINANCIAL DATA:
Net cash provided by operating activities...... -- -- $ 34,589 $ 26,801 $ 38,291 $ 11,025 $ 14,103
Net cash provided (used) by investing
activities................................... -- -- (20,611) (16,833) (26,664) 1,947 (2,339)
Net cash used by financing activities.......... -- -- (12,947) (10,772) (6,770) (11,587) (6,753)
EBITDA (as defined)(c)......................... 30,790 32,861 35,570 42,574 50,729 11,951 13,775
EBITDA margin.................................. 44.4% 43.8% 46.4% 48.4% 45.1% 46.3% 49.6%
Capital expenditures........................... $ 21,001 $ 19,437 $ 20,465 $ 16,400 $ 26,799 $ 2,321 $ 2,200
Depreciation and amortization.................. 13,098 14,316 15,348 18,289 30,459 7,209 7,785
OTHER DATA (END OF PERIOD):
Access lines in service(d)..................... 73,563 77,660 82,969 124,869 131,858 128,023 134,276
Cellular subscribers(e)........................ 3,058 3,950 5,573 2,096 2,945 2,546 3,417
Cellular penetration........................... 2.1% 2.7% 3.8% 3.7% 5.2% 4.6% 5.2%
15
- ------------------------------
(a) In conjunction with Century's acquisition of Pacific Telecom on December 1,
1997, the purchase method of accounting was utilized, resulting in the push
down of $208 million of goodwill to PTI Alaska.
(b) "Other income (expense)" includes the net operating results of PTI Alaska's
equipment sales and rental, payphone and internet businesses.
(c) See the definition of "EBITDA" in note (b) to "Summary Pro Unaudited Forma
Combined Financial and Operating Data."
(d) "Access lines in service" includes all revenue producing lines, whether
connected to resale or wholesale customers.
(e) On December 31, 1997, PTI Alaska sold its cellular operations in Fairbanks
to MACtel. The Fairbanks cellular property had 5,497 subscribers at the time
of the sale.
16
SUMMARY HISTORICAL FINANCIAL DATA--ATU
The following table sets forth summary historical financial data of ATU. The
summary historical financial data for each of the three years in the period
ended December 31, 1998 and as of December 31, 1997 and 1998 have been derived
from the audited financial statements and the notes thereto of ATU included
elsewhere in this prospectus. The summary historical financial data for each of
the two years in the period ended December 31, 1995 and as of December 31, 1994,
1995 and 1996 have been derived from the audited financial statements of ATU
which are not included in this prospectus. The summary financial data for each
of the three month periods ended March 31, 1998 and 1999 and as of March 31,
1998 and 1999 have been derived from the unaudited financial statements of ATU
which are included in this prospectus and which, in the opinion of management,
include all adjustments, consisting solely of normal, recurring adjustments,
necessary to present fairly the information they contain. The summary historical
financial data below should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the audited
financial statements of ATU, and the related notes, included elsewhere in this
prospectus.
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
OPERATING DATA:
Operating revenue.......................... $ 105,561 $ 109,831 $ 115,970 $ 125,243 $ 141,703 32,853 36,557
Operating expenses......................... 84,620 89,159 95,493 106,238 119,155 27,224 30,891
--------- --------- --------- --------- --------- --------- ---------
Operating income........................... 20,941 20,672 20,477 19,005 22,548 5,629 5,666
Interest expense, net...................... (7,565) (6,706) (6,840) (6,768) (6,427) (1,840) (1,585)
Other income (expense)(a).................. (328) (322) 220 (119) (2,551) (330) (593)
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes................. 13,048 13,644 13,857 12,118 13,570 3,459 3,488
Income taxes(b)............................ -- -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income................................. $ 13,048 $ 13,644 $ 13,857 $ 12,118 $ 13,570 $ 3,459 $ 3,488
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
OTHER FINANCIAL DATA:
Net cash provided by operating
activities(c)............................ $ 42,382 $ 43,412 $ 42,120 $ 46,641 $ 53,207 $ 8,394 $ 10,735
Net cash provided (used) by investing
activities(c)............................ 13,577 1,057 (787) (3,665) (5,659) (8,044) (1,568)
Net cash provided (used) by financing
activities(c)............................ (57,169) (53,518) (30,095) (46,916) (33,580) 16,631 (12,150)
EBITDA (as defined)(d)..................... 39,549 39,608 41,239 45,567 52,550 12,648 13,016
EBITDA margin.............................. 37.5% 36.1% 35.6% 36.4% 37.1% 38.5% 35.6%
Capital expenditures....................... $ 33,328 $ 27,958 $ 24,958 $ 35,187 $ 29,644 $ 8,404 $ 3,383
Depreciation and amortization.............. 18,936 19,258 20,496 26,839 29,608 7,099 7,434
OTHER DATA (END OF PERIOD)
Access lines in service(e)................. 144,869 147,934 154,752 158,486 168,536 164,569 170,343
Cellular subscribers....................... 13,684 24,855 37,651 53,035 63,627 54,436 63,779
Cellular penetration....................... 4.7% 8.4% 12.6% 13.3% 15.8% 13.7% 15.8%
- ------------------------------
(a) "Other income (expense)" includes the net operating results of ATU's
equipment sales and rental, payphone business, and equity in earnings (loss)
from minority investments.
(b) ATU is a public utility of the Municipality of Anchorage and is exempt from
federal and state income taxes.
(c) Net cash data includes information from ATU financial statements prepared in
accordance with Governmental Accounting Principles.
(d) See definition of "EBITDA" in note (b) to "Summary Unaudited Pro Forma
Combined Financial and Operating Data." EBITDA does not include equity in
earnings (loss) of minority investments of $(46,158), $158,000, and
$(2,945,000) for the years ended December 31, 1996, 1997 and 1998 and
$(250,000) and $(509,000) for the three months ended March 31, 1998 and
1999.
(e) "Access lines in service" includes all revenue producing lines, whether
connected to retail or wholesale customers.
17
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS AND THE OTHER
INFORMATION IN THIS PROSPECTUS BEFORE DECIDING TO EXCHANGE YOUR OLD NOTES FOR
EXCHANGE NOTES.
WE WILL HAVE A SUBSTANTIAL AMOUNT OF DEBT WE MAY NOT BE ABLE TO SERVICE.
We have a significant amount of debt. As of March 31, 1999, on a pro forma
basis after giving effect to the acquisitions, we would have had outstanding
$599.2 million aggregate principal amount of debt (excluding unused
commitments), of which $449.2 million would have been senior debt, and
stockholders' equity of $146.2 million. In addition, Holdings would have had
$46.9 million of debt outstanding from the issuance of $25.0 million in gross
proceeds of its discount debentures and warrants.
Our substantial debt could have important consequences for our operations.
For example, our substantial debt could:
- limit our flexibility in planning for, or reacting to, changes in our
businesses and the telecommunications industry;
- require us to dedicate a substantial portion of our cash flow from
operations to payments on our debt, thereby reducing the availability of
our cash flow for other purposes, including to fund future working
capital, capital expenditures and other general corporate requirements;
- limit our ability to pursue our business strategy of offering new products
and services through our existing businesses;
- make it more difficult for us to satisfy our obligations under the
exchange notes;
- increase our vulnerability to economic downturns and adverse industry
conditions; and
- limit, among other things, our ability to borrow additional funds.
In addition, we and our subsidiaries may incur substantial additional debt
in the future. Our senior credit facility provides that we may borrow up to
$75.0 million under a revolving credit facility. The indenture does not prohibit
us or our subsidiaries from incurring additional debt, although there are
restrictions. See "Description of the Exchange Notes--Restrictive Covenants."
Our ability to make payments on our debt, including the exchange notes,
depends on our future operating performance. This performance is dependent upon
the general economic and competitive conditions and financial, business and
other factors, many of which we cannot control. If we are not able to generate
sufficient cash flow from our operating activities to make payments on our debt,
we may:
- delay or reduce capital expenditures;
- sell assets or operations;
- attempt to restructure or refinance our debt; or
- seek additional equity capital.
We may be unable to take any of these actions on satisfactory terms or in a
timely manner. Moreover, any or all of these actions may not be sufficient to
allow us to service our debt or fund our other requirements.
THE EXCHANGE NOTES AND THE GUARANTEES OF THE EXCHANGE NOTES WILL BE SUBORDINATE
TO OTHER DEBT THAT ENCUMBERS OUR ASSETS.
The right to payment on the exchange notes will be subordinate to all of our
existing and future senior debt. Similarly, the guarantees of the exchange notes
provided by Holdings and each of our guarantor subsidiaries will be subordinate
to all existing and future senior debt of the applicable
18
guarantor. Assuming we had completed our acquisitions of PTI Alaska and ATU, the
closing of our senior credit facility and the offering of the old notes on March
31, 1999:
- we would have had $441.7 million of senior debt outstanding, and the old
notes would have been subordinate to all of our outstanding senior debt;
- Holdings would have had $46.9 million of senior debt outstanding from the
issuance of $25.0 million in gross proceeds of its discount debentures and
warrants (in addition to its guarantee of our borrowings under our senior
credit facility), and Holdings' guarantee of the old notes would have been
subordinate to all of Holdings' outstanding senior debt; and
- our guarantor subsidiaries would have had $7.5 million of senior debt
outstanding (in addition to their guarantees of our borrowings under our
senior credit facility), and their guarantees of the old notes would have
been subordinate to all of their outstanding senior debt.
In the event of a bankruptcy or similar proceeding with respect to us or any
guarantor of the exchange notes, our or the guarantor's assets will be available
to pay obligations on the exchange notes or the applicable guarantee only after
all outstanding senior debt has been paid in full. There may not be sufficient
assets remaining to make payment of amounts due on any or all of the exchange
notes then outstanding or the guarantees.
In addition, all payments on the exchange notes and the guarantees of the
exchange notes will be blocked in the event of a payment default on Designated
Senior Indebtedness, as defined in the indenture governing the old notes, and
may be blocked for up to 179 days out of 360 days in the event of a nonpayment
default on Designated Senior Indebtedness.
THE EXCHANGE NOTES AND THE GUARANTEES OF THE EXCHANGE NOTES WILL BE UNSECURED.
The exchange notes and the guarantees of the exchange notes will not be
secured by any collateral. Thus, the exchange notes will effectively rank junior
in right of payment to our secured debt, and the guarantees of exchange notes
will effectively rank junior in right of payment to each guarantor's secured
debt to the extent of the value of the assets securing that debt.
Our secured debt includes debt incurred under our senior credit facility,
which is secured by pledges of all of our capital stock and all of the capital
stock of all of our subsidiaries and liens on substantially all of our assets
and the assets of our subsidiaries. If an event of default were to occur under
our senior credit facility:
- the lenders could foreclose on the collateral securing the amounts
outstanding under our senior credit facility, regardless of any default
with respect to the exchange notes; and
- the assets constituting the collateral would first be used to repay in
full all amounts outstanding under our senior credit facility.
It is possible that there would be insufficient assets remaining after
repayment in full of all amounts outstanding under our senior credit facility to
satisfy in full all claims of holders of exchange notes.
WE ARE DEPENDENT ON OUR SUBSIDIARIES FOR FUNDS NECESSARY TO MAKE PAYMENTS ON THE
EXCHANGE NOTES.
All of our operations will be conducted through our subsidiaries. As a
result, we will be dependent upon dividends from our subsidiaries for the funds
necessary to make payments on the exchange notes. We cannot assure you that any
dividends or other distributions that we receive from our subsidiaries will be
adequate to allow us to make payments on the exchange notes.
The indenture governing the exchange notes will limit restrictions on the
ability of our subsidiaries to pay dividends or make other distributions, but
these limitations are subject to a number of significant qualifications and
exceptions. In addition,
- our senior credit facility will restrict the ability of our subsidiaries
to pay dividends or make other distributions; and
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- the ability of our subsidiaries to pay dividends or make other
distributions may be restricted by applicable laws and regulations, as
well as by agreements our subsidiaries enter with other parties.
The claims of creditors of a subsidiary are generally structurally superior
in right of payment to the claims of creditors of the subsidiary's parent
company, unless the claims of the creditors of the parent company are guaranteed
by the subsidiary. Consequently, the exchange notes will be effectively
subordinate in right of payment to the claims of creditors of our subsidiaries
that do not guarantee the exchange notes.
WE MAY NOT BE ABLE TO SATISFY OUR OBLIGATIONS TO HOLDERS OF THE EXCHANGE NOTES
UPON A CHANGE OF CONTROL.
Upon the occurrence of a "change of control," as defined in the indenture
governing the exchange notes, each holder of the exchange notes will have the
right to require us to repurchase the holder's exchange notes at a price equal
to 101% of the principal amount of the exchange notes, together with accrued and
unpaid interest, if any, to the date of repurchase; but,
- our senior credit facility will effectively prevent the repurchase of the
exchange notes by us in the event of a change of control, unless all
amounts outstanding under our senior credit facility are repaid in full;
- our failure to repurchase the exchange notes would be a default under the
indenture governing the exchange notes, which would be a default under our
senior credit facility; and
- our failure to repay all amounts outstanding under our senior credit
facility upon a default would be a default under the indenture governing
the exchange notes.
In the event of a change of control, we may not have sufficient assets to
satisfy all obligations under our senior credit facility and the indenture
governing the exchange notes.
OUR DEBT INSTRUMENTS CONTAIN RESTRICTIVE COVENANTS THAT MAY LIMIT OUR
FLEXIBILITY.
The indenture governing the exchange notes and the credit agreement relating
to our senior credit facility will, among other things, restrict our ability and
the ability of our subsidiaries and future subsidiaries to:
- incur debt;
- pay dividends on stock or purchase stock;
- make investments;
- use the proceeds of the sale of assets or stock of our subsidiaries;
- engage in transactions with our affiliates;
- engage in mergers, consolidations and sales of assets;
- engage in business activities unrelated to our current business; and
- permit restrictions on the ability of our subsidiaries to pay dividends
and make other distributions.
In addition, our senior credit facility will require us to maintain minimum
interest coverage ratios and maximum leverage ratios.
The restrictions in our senior credit facility and the indenture governing
the exchange notes may limit our financial and operating flexibility. In
addition, if we do not comply with these restrictions, or if we fail to satisfy
the financial ratios and tests under our senior credit facility, the holders of
the exchange notes may accelerate payments under the exchange notes, and the
lenders could accelerate payment of all amounts outstanding under our senior
credit facility.
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HOLDINGS IS DEPENDENT UPON US TO MAKE PAYMENTS ON ITS DISCOUNT DEBENTURES.
Holdings is a holding company whose only material asset is our capital
stock. Holdings is not expected to undertake any business activities, other than
in connection with:
- its ownership of our capital stock;
- the performance of its obligations as a guarantor of our senior credit
facility and of the exchange notes; and
- the issuance of its discount debentures and warrants to purchase its
capital stock.
As a result, Holdings will be dependent upon dividends from us for the funds
necessary to satisfy its obligations, including payment of principal of its
discount debentures if their maturity is accelerated (unless they could be
refinanced) and, after May 15, 2004, payment of interest on its discount
debentures. Holdings will also be dependent upon dividends from us for the funds
needed to purchase any discount debentures tendered upon an offer to purchase
following a "change of control," as defined in the indenture governing the
Holdings discount debentures, or sales of assets.
We can not assure you that we will have adequate funds to pay dividends to
Holdings to allow Holdings to satisfy its obligations under its discount
debentures. In addition, our senior credit facility and the indenture governing
the exchange notes will restrict our ability to pay dividends and make other
distributions to Holdings. Consequently, we may not be permitted to pay
dividends or make other distributions to Holdings in amounts sufficient to allow
Holdings to satisfy its obligations under its discount debentures. If Holdings
does not receive dividends from us that are sufficient for Holdings to satisfy
its obligations under its discount debentures, then, unless Holdings can
refinance those obligations, a default under the indenture governing the
discount debentures could occur and payment of all amounts outstanding under the
discount debentures would be accelerated.
WE CANNOT ASSURE YOU THAT WE WILL BE ABLE TO SUCCESSFULLY INTEGRATE OUR RECENT
ACQUISITIONS OR ANY ACQUISITIONS WE MAY MAKE IN THE FUTURE.
Our ability to operate successfully is dependent on our ability to integrate
the acquisitions of PTI Alaska and ATU. Because we acquired both PTI Alaska and
ATU at the same time, there may be unanticipated difficulties or complexities
that would interfere with our ability to integrate these businesses. Our success
will depend on our ability to, among other things:
- transfer general and administrative support services and information
technology platforms that are currently provided to PTI Alaska by Century
to ATU's systems;
- modify ATU's current information technology platforms to support the
operations of both PTI Alaska and ATU; and
- coordinate and integrate operational, financial and management processes,
systems and controls.
In addition, any future acquisitions may involve some or all of the
following risks:
- diversion of management attention from operating matters;
- inability to retain key personnel of the acquired business or maintain
relationships with its customers;
- inability to successfully integrate acquired businesses with our existing
businesses, including information technology systems; and
- difficulty in maintaining uniform standards, controls, procedures and
policies.
OUR BUSINESS IS SUBJECT TO EXTENSIVE GOVERNMENTAL LEGISLATION AND REGULATION.
APPLICABLE LEGISLATION AND REGULATIONS AND CHANGES TO THEM COULD ADVERSELY
AFFECT OUR BUSINESS.
We operate in a heavily regulated industry, and most of our revenues come
from the provision of services regulated by the Federal Communications
Commission and the Regulatory Commission of Alaska (the "RCA"). The RCA
succeeded the Alaska Public Utilities Commission (the "APUC"), which
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was abolished on June 30, 1999, with the RCA assuming jurisdiction over the
operations of utilities in Alaska. It is not possible to predict what, if any,
changes the RCA will make in the regulatory rules, orders and procedures that
impact our local or long distance operations. Laws and regulations applicable to
us and our competitors may be, and have been, challenged in the courts, and
could be changed by legislative initiative or regulatory agencies at any time.
We cannot predict the impact of future developments or changes to the regulatory
environment or the impact these developments or changes would have on us if they
occurred. See "Regulation."
SUBSTANTIAL PROTECTIONS FROM COMPETITION GRANTED TO PTI ALASKA UNDER THE
TELECOMMUNICATIONS ACT OF 1996 HAVE BEEN REVOKED.
To encourage competition, the Telecommunications Act of 1996 (the "Telecom
Act") generally requires incumbent LECs to allow competitors to interconnect
with their local networks. Historically, each of PTI Alaska's rural local
operating companies qualifies for protections under the Telecom Act that
exempted it from or permitted suspension or modification of these obligations.
For the first three months of 1999, these companies accounted for 42.3% of our
revenues and 52.3% of our operating income. In the fall of 1997, the APUC
conducted a proceeding to determine whether these rural exemptions should be
lifted. Although the APUC decided that the rural exemptions should be
maintained, the decision was appealed and the Alaska Superior Court remanded the
case back to the APUC for further proceedings. On June 30, 1999 (its last day of
existence), the APUC voted to revoke the rural exemptions held by each of PTI's
rural local exchange operating companies and directed the commencement of
negotiations under Section 252 of the Telecom Act between those companies and
GCI, Inc., a competitor which had been seeking interconnection with PTI Alaska's
rural local exchange companies. Section 252 provides for a maximum negotiation
and arbitration period of nine months for approval of an interconnection
agreement. In its opinions revoking the rural exemptions, the APUC did not
address the rights of PTI Alaska's local exchange operating companies regarding
suspension and modification of interconnection duties under a separate provision
of the Telecom Act. PTI Alaska's local exchange companies could pursue
reconsideration of the APUC ruling by the new RCA, judicial challenge to the
APUC ruling, or a new proceeding to establish the need for suspension and/or
modification of interconnection duties under the Telecom Act. We have not yet
determined which, if any, of these remedies we will pursue. Moreover, we cannot
assure you that any of these potential remedies, if pursued, could be
successfully invoked.
Additionally, during the last session, a bill was proposed in the Alaska
State Senate that proposed to open to competition many local telephone markets
within Alaska having 5,000 or more access lines, effectively depriving incumbent
LECs in those markets of their rural exemptions. We cannot predict at this time
whether or to what extent proposals included in the bill will be offered again
and enacted into law. To the extent the markets of PTI Alaska's rural local
exchange companies are opened to competition by the APUC's termination of their
rural exemptions, we do not believe that the marginal effect of passage of the
proposed bill on our business would be material.
If the rural exemptions remain revoked in whole or in part, all or some of
PTI Alaska's local operating companies that are affected may be required to
negotiate with their competitors the terms under which the competitors would be
allowed to interconnect with our local networks. We cannot assure you that the
terms or rates for this interconnection would be sufficient to cover our costs
or otherwise mitigate the financial impacts of competition or that we would be
able to compete effectively with these competitors. See "Regulation."
THE RATES WE CHARGE OUR LOCAL TELEPHONE CUSTOMERS ARE SUBJECT TO REVIEW AND
DOWNWARD ADJUSTMENT BY THE RCA.
The rates we charge our local telephone customers are based, in part, on a
rate of return on capital invested in our networks for our local telephone
operating companies that is authorized by the RCA. These authorized rates are
subject to review and change by the RCA at any time. The APUC
22
has in the past indicated that one of our local telephone operating companies
had earnings in excess of its historical authorized rate of return, but neither
the RCA nor the APUC has initiated a proceeding to review or change the
authorized rate of return. As a condition to granting its approval of our recent
acquisitions of PTI Alaska and ATU, the APUC required that we file, by June 30,
2001, revenue requirement, cost-of-service and value design studies which will
show our earnings levels for the year ended December 31, 2000. Based on
historical practice, the APUC did not generally initiate rate proceedings unless
a company, as a whole, was earning in excess of the average of its authorized
rates of return. We cannot assure you, however, that the RCA will not change
this practice, that our earnings levels, as disclosed in our studies, will not
exceed our authorized rates of return, or that the RCA will not initiate a rate
proceeding which could cause the RCA to order us to reduce our rates.
REVENUES FROM ACCESS CHARGES MAY BE REDUCED OR LOST.
PTI Alaska receives a significant portion of its revenues (45.3% in 1998)
from access charges paid by interstate and intrastate interexchange carriers for
originating and terminating calls in its service areas. The amount of revenue
that PTI Alaska receives from access charges is calculated in accordance with
guidelines set by the FCC and the RCA. These guidelines are subject to change by
the FCC and the RCA for LECs serving rural areas. Any change in the guidelines
may be adverse to us. The FCC has initiated a proceeding to review its rates and
policies governing access charges and the rate of return applicable to incumbent
LECs serving rural areas. The APUC initiated various proceedings for the reform
of intrastate access charges. We cannot predict when any reforms will be
implemented by the RCA or if the final reforms will have an adverse effect on
our business.
UNIVERSAL SERVICE SUPPORT CURRENTLY RECEIVED BY SOME OF OUR SUBSIDIARIES MAY BE
REDUCED OR DISCONTINUED IN THE FUTURE.
PTI Alaska receives a portion of its revenues (11.9% in 1998) from the
federal Universal Service Fund, or USF, which was established to compensate for
the high cost of providing universal telecommunications services in rural
markets. If the subsidies received from the USF were materially reduced or
discontinued, some of PTI Alaska's local operating companies might not be able
to operate profitably.
Various reform proceedings are underway at the FCC to change the method of
calculating the amount of subsidies paid under the universal service support
system. Future reforms are expected to replace the current historical cost
system with a system based upon forward-looking costs. We cannot be certain that
this method or any other method we are required to use to determine the
allocation of costs in the future will accurately reflect all of the costs PTI
Alaska incurs or that PTI Alaska will continue to receive the subsidies it
currently receives, and, therefore, we cannot assure you that we will be able to
recover these costs.
Reform proceedings are also underway within the state jurisdiction to review
carriers' support from the Alaska Universal Service Fund, or AUSF. These
proceedings could change the method of calculating the support paid to some of
PTI Alaska's local operating companies. For example, the APUC Staff proposed to
reduce or eliminate carriers' receipt of support for switching costs. By the
Staff's calculations, some of PTI Alaska's local operating companies receive
$1.5 million of switching support from the AUSF. Depending on the RCA's actions,
the guidelines under which some of PTI Alaska's local operating companies
receives support from the AUSF may change, impacting PTI Alaska's ability to
recover its costs.
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In addition, the APUC proposed funding public interest pay telephones from
the state universal service fund. Carriers would be required to place pay
telephones in locations required in the public interest, supported by the AUSF.
We cannot assure you that the method that the RCA may adopt for compensating
carriers for their public interest pay telephone costs will ensure full cost
recovery. Finally, the APUC's establishment of the AUSF has been challenged in
state court. This lawsuit could cause the RCA to change the manner in which it
funds support for universal service, or could render establishment of this, or
any, state universal service support system null and void under existing legal
authority.
THE TELECOMMUNICATIONS INDUSTRY IS EXTREMELY COMPETITIVE, AND MANY OF OUR
COMPETITORS HAVE SIGNIFICANT ADVANTAGES OVER US THAT MAY ADVERSELY AFFECT OUR
ABILITY TO COMPETE WITH THEM.
The telecommunications industry is extremely competitive. We face many of
the same types of competitive challenges in our local telephone, wireless, long
distance and internet access businesses. In each case, the companies against
which we compete have or may in the future have advantages over us, including:
- greater financial and technical resources;
- stronger brand name recognition; and
- fewer regulatory burdens.
Aggressive competition could result in, among other things:
- reductions in our customer base;
- the lowering of rates and other prices in order to compete; and
- increased marketing expenditures and use of discounting and promotional
campaigns that adversely affect our margins.
Moreover, we may experience high customer turnover, particularly in our
wireless, long distance and internet businesses, as customers change providers
in response to offerings of lower rates and promotional incentives by our
competitors.
The timing and effectiveness of competitive entry and the resulting
reductions in our customer base and rates and increases in our costs in response
to competitive threats cannot be predicted, but this competition could have a
material adverse effect on our financial condition and results of operations.
LOCAL TELEPHONE SERVICES. We currently face competition from a variety of
companies in Anchorage. To date most competitors in Anchorage have focused on
offering favorably priced bundled services, including both local and long
distance, primarily to residential customers. This competition has resulted in a
loss of market share and retail access lines as these competitors either resell
ATU's services or lease unbundled network elements from ATU in offering their
bundled services. We could in the future face more competition in Anchorage as
well as experience competition in PTI Alaska's markets. We believe that the
Telecom Act and various other legislative initiatives and recent actions by the
FCC and state regulatory authorities may result in increased competition for
each of the services we offer.
Consistent with this regulatory environment, on June 30, 1999, the APUC
ordered the rural exemptions of PTI Alaska's rural local exchange companies
terminated. While the near-term effect of these termination orders is unclear,
they are intended to increase local exchange competition in PTI Alaska's rural
markets and will likely have that effect over the longer-term.
24
In addition, even if we continue to benefit from the rural exemptions, other
local service providers that build their own networks could enter PTI Alaska's
service areas at any time. Companies can also bypass our local telephone
networks by using the facilities of interexchange carriers, cable television
companies, electric utilities and wireless service providers. We have also
offered to resell our services to competitors at a wholesale discount rate,
although no competitor has pursued this offer to date.
Although we are entitled to set rates for our services at a level that
affords us an opportunity to earn a reasonable rate of return on the invested
capital in our network, the need to respond to price competition could lead us
to charge lower rates.
WIRELESS. We currently compete with one other cellular provider in each of
our wireless service areas. In addition, there are six PCS licensees in each of
our wireless service areas. One of these PCS licensees has constructed a network
and is currently providing digital PCS service in Anchorage, and another
licensee has recently announced the commencement of trials of its technology.
Any of these other potential competitors could initiate service in the future.
LONG DISTANCE AND INTERNET. Both the long distance and internet markets are
characterized by aggressive price competition. The long distance market in our
service areas is dominated by two large competitors, and acquisition of market
share will be difficult. Although there are a large number of competitive
internet access providers, there are few barriers to entry, which can make
market share growth costly.
OUR LONG DISTANCE STRATEGY INVOLVES MANY RISKS AND UNCERTAINTIES.
As a new entrant in the long distance business, we have invested and will
continue to invest significant resources to promote our product offerings in
order to generate brand recognition and establish ourselves as a preferred
provider of long distance services. Many of these costs, such as the costs of
fiber capacity, will be incurred in advance of the receipt of related revenues.
We cannot assure you that our long distance strategy will be successful or that
we will be able to recover these costs. In 1998 ATU incurred an operating loss
of $3.7 million from long distance services.
We currently offer long distance services through a reseller strategy. As a
reseller, we rely on other long distance carriers to provide transmission and
termination services for our long distance services. Because we do not own our
own facilities, we are subject to changes in the policies and available capacity
of the carriers from which we lease our transmission capacity. Furthermore, in
negotiating resale agreements with carriers to provide us with these services,
we must estimate future supply and demand for transmission capacity, as well as
the calling patterns and traffic levels for our future customers. If we:
- overestimate our needs for transmission services, we may be obligated to
incur excessive fixed costs; or
- underestimate our needs for transmission services, we may be obligated to
pay higher prices for needed capacity or may find that this capacity is
unavailable and, therefore, be unable to provide adequate service to our
customers.
In response to these concerns and as part of the settlement of a number of
outstanding disputes, including opposition to our recent acquisitions of PTI
Alaska and ATU, we recently agreed to purchase capacity between Alaska's major
population centers and between Alaska and the contiguous 48 states of the U.S.
As a result, we will commit significant additional resources to our long
distance business in the future. We cannot assure you that we will generate
sufficient revenues in our long distance business to recover the costs of these
investments. See "Business--Products Services and Revenue Sources-- Long
Distance Services." Although this acquisition mitigates somewhat the risks
related to being a reseller, we now have significant additional resources
committed to our long distance businesses, the costs of which we may not be able
to recover.
25
Finally, because we have affiliated local telephone service companies, our
long distance operations are subject to a number of regulations and restrictions
adopted by the APUC. These requirements require us to keep our long distance
business separate from our local telephone business and impose restrictions on
our ability to jointly market and, in some areas, bundle our long distance and
local services. This may increase the costs we would otherwise incur in
competing successfully in the long distance business.
IF WE DO NOT ADAPT TO TECHNOLOGICAL CHANGES IN THE TELECOMMUNICATIONS INDUSTRY,
WE COULD LOSE OUR CUSTOMERS OR MARKET SHARE.
The telecommunications industry will continue to experience rapid changes in
technology. Our success may depend on our ability to adapt to changes in the
industry. Our failure to adopt a new technology, or our choice of one
technological innovation over another, may have an adverse impact on our ability
to compete or meet the demands of our customers. Technological change could,
among other things, reduce the capital required by a competitor to provide local
service in our service areas.
THE SUCCESSFUL OPERATION AND GROWTH OF OUR BUSINESSES ARE DEPENDENT ON ECONOMIC
CONDITIONS IN ALASKA.
We offer telecommunications services solely in Alaska. Because of this
geographical concentration, the successful operation and growth of our
businesses is dependent on economic conditions in Alaska. The Alaskan economy,
in turn, is dependent upon:
- the strength of the natural resources industries, particularly oil
production;
- the strength of the Alaskan tourism industry;
- the level of government and military spending; and
- continued growth in services industries.
The customer base for telecommunications services in Alaska is small and
geographically concentrated. The population of Alaska is approximately 614,000
people, over 60% of whom live in Anchorage, Juneau and Fairbanks.
IF WE FAIL TO RESOLVE POTENTIAL YEAR 2000 PROBLEMS IN A TIMELY MANNER, WE COULD
EXPERIENCE SIGNIFICANT BUSINESS DISRUPTIONS.
We have conducted a review of the computer systems and related software and
equipment that we acquired upon completion of our acquisitions of PTI Alaska and
ATU. We have identified a number of systems that are not year 2000 compliant and
have implemented a plan that we believe will ensure that these systems, software
and equipment store and process information properly in the year 2000 and later
years. We expect that the action items required by this plan will be largely
completed by October 1999. We have also made efforts to verify the year 2000
readiness of our important vendors and suppliers. Although we believe the
processes we have initiated are adequate to remedy year 2000 deficiencies, we
cannot assure you that these remedies will be timely or effectively implemented.
We also can make no assurances that we are immune to any adverse impacts from
year 2000 deficiencies suffered by third parties that may in some way affect our
business in a materially adverse manner. We believe that, in the event that we
or our important vendors or suppliers experience year 2000 problems, the
problems could create a material disruption to our business processes and
relationships with our customers, or could require the expenditure of material
financial and other resources, and could, therefore, have an adverse impact on
our business. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
26
WE DEPEND ON OUR ABILITY TO RECRUIT AND RETAIN KEY PERSONNEL.
Our success depends on our ability to retain our senior management team,
including, in particular, Charles E. Robinson, our Chairman, President and Chief
Executive Officer. Our business will be managed by a small group of key
executive officers. The loss of any of these officers could have an adverse
impact on our business.
Our success also depends on our continued ability to recruit and retain
highly skilled, knowledgeable and sophisticated technical, managerial and
professional personnel. Competition for highly qualified personnel in the
telecommunications industry is intense, and the number of these individuals
living in, or willing to move to, Alaska is limited. Accordingly, we can not
assure you that we will be able to recruit or retain the necessary personnel in
the future.
THE INTERESTS OF THE CONTROLLING STOCKHOLDER OF HOLDINGS MAY CONFLICT WITH THE
INTERESTS OF HOLDERS OF THE EXCHANGE NOTES.
Fox Paine beneficially owns approximately 98% of the outstanding shares of
the voting capital stock of Holdings. As a result, Fox Paine has the power to:
- elect the directors of Holdings and our directors; and
- approve any action requiring the approval of the stockholders of Holdings
or our stockholders.
The directors elected by Fox Paine have the authority to make decisions
affecting Holdings' capital structure and our capital structure, including the
issuance of additional debt or equity. Fox Paine also has the ability to make
decisions regarding any merger, consolidation or sale of assets involving
Holdings or us.
Fox Paine may in the future make significant investments in other
telecommunications companies. Some of these companies may be our competitors.
Fox Paine and its affiliates are not obligated to advise us of any investment or
business opportunities of which they are aware.
FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO VOID
THE EXCHANGE NOTES AND THE GUARANTEES OF THE EXCHANGE NOTES.
Our issuance of the exchange notes may be subject to review under U.S.
federal bankruptcy law and comparable provisions of state fraudulent conveyance
laws if a bankruptcy or reorganization case or lawsuit is commenced by or on
behalf of our unpaid creditors. Under these laws, if a court were to find in a
bankruptcy or reorganization case or lawsuit that, at the time we issued the
exchange notes:
- we issued the exchange notes to delay, hinder or defraud present or future
creditors; or
- we received less than reasonably equivalent value or fair consideration
for issuing the exchange notes and at the time we issued the exchange
notes;
- we were insolvent or rendered insolvent by reason of issuing the exchange
notes;
- we were engaged, or about to engage, in a business or transaction for
which our remaining unencumbered assets constituted unreasonably small
capital to carry on our business; or
- we intended to incur, or believed that we would incur, debts beyond our
ability to pay as they mature,
then the court could void the obligations under the exchange notes or
subordinate the exchange notes to our other debt or take other action
detrimental to holders of the exchange notes.
The measures of insolvency for purposes of fraudulent transfer laws vary
depending upon the law of the jurisdiction that is being applied in any
proceeding to determine whether a fraudulent transfer
27
has occurred. Generally, however, a person would be considered insolvent if, at
the time it incurred the debt:
- the present fair salable value of its assets was less than the amount that
would be required to pay its probable liability on its existing debts,
including contingent liabilities, as they become absolute and mature; or
- it could not pay its debts as they become due.
There can be no assurance regarding the standard that a court would use to
determine whether or not we were solvent at the relevant time, or, regardless of
the standard that the court uses, that the issuance of the exchange notes would
not be voided or the exchange notes would not be subordinated to our other debt.
Each guarantee of the exchange notes also may be subject to review under
federal bankruptcy law and comparable provisions of state fraudulent conveyance
laws if a bankruptcy or reorganization case or lawsuit is commenced by or on
behalf of the unpaid creditors of the applicable guarantor. If a bankruptcy or
reorganization case or lawsuit were to occur:
- the analysis applicable to the issuance of the exchange notes would
generally apply to the incurrence of the guarantee of the exchange notes;
and
- any guarantee of the exchange notes incurred by one of our guarantor
subsidiaries could also be subject to the claim that, since the guarantee
was incurred for our benefit, and only indirectly for the benefit of the
guarantor subsidiary, the obligations of the applicable guarantor
subsidiary were incurred for less than fair consideration.
A court could thus void the obligations under the guarantee or subordinate
the guarantee to the applicable guarantor's other debt or take other action
detrimental to holders of the exchange notes.
THERE IS NO ESTABLISHED TRADING MARKET FOR THE EXCHANGE NOTES.
The exchange notes are a new issue of securities. If issued under an
effective registration statement, the exchange notes generally may be resold or
otherwise transferred with no need for further registration; but,
- the exchange notes will constitute a new issue of securities with no
established trading market; and
- the offer to exchange the exchange notes for the old notes will not depend
upon the amount of old notes tendered for exchange.
We cannot assure you that a liquid market will develop for the exchange
notes, that you will be able to sell your exchange notes at a particular time or
that the prices that you receive when you sell will be favorable. Future trading
prices of the exchange notes will depend on many factors, including:
- our operating performance and financial condition;
- prevailing interest rates; and
- the market for similar securities.
The exchange notes have been designated for trading in the PORTAL market.
However, we do not intend to apply for the exchange notes to be listed on any
securities exchange or to arrange for quotation on any automated dealer
quotation system.
The initial purchasers have advised us that they intend to make a market in
the exchange notes, but they are not obligated to do so. The initial purchasers
may discontinue any market making in the exchange notes at any time, in their
sole discretion.
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YOU MAY BE DEEMED TO HAVE RECEIVED RESTRICTED SECURITIES IN EXCHANGE FOR YOUR
OLD NOTES.
If you exchange your old notes in the exchange offer, you will be deemed to
have represented, by your acceptance of the exchange offer, that you acquired
the exchange notes in the ordinary course of business and that you are not
engaged in, and do not intend to engage in, a distribution of the exchange
notes. If the SEC later determines otherwise, however, you may be deemed to have
received restricted securities. If so, you will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction.
THERE MAY BE ADVERSE CONSEQUENCES IF YOU DO NOT EXCHANGE YOUR OLD NOTES.
It may be difficult for you to sell old notes that are not exchanged in the
exchange offer. If you do not tender your old notes or if we do not accept some
of your old notes, those old notes will continue to be subject to transfer and
exchange restrictions.
These restrictions on transfer of your old notes arise because we issued the
old notes pursuant to an exemption from the registration requirements of the
Securities Act and applicable state securities laws. In general, you may only
offer or sell the old notes if they are registered under the Securities Act and
applicable state securities laws, or offered and sold pursuant to an exemption
from the Securities Act and applicable state securities laws. If you intend to
make use of an exemption, you must, if requested by us, deliver to us an opinion
of independent counsel, reasonably satisfactory in form and substance to us,
that the exemption is available. We do not intend to register the old notes
under the Securities Act.
Based on interpretations of the SEC staff, exchange notes issued pursuant to
the exchange offer may be offered for resale, resold or otherwise transferred by
their holders (other than any holder that is our "affiliate" within the meaning
of Rule 405 under the Securities Act) without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that the
holders acquired the exchange notes in the ordinary course of the holders'
business and the holders have no arrangement or understanding with respect to
the distribution of the exchange notes to be acquired in the exchange offer. Any
holder who tenders in the exchange offer for the purpose of participating in a
distribution of the exchange notes:
- cannot rely on the applicable interpretations of the SEC; and
- must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction.
To the extent the old notes are tendered and accepted in the exchange offer,
the trading market, if any, for the old notes would be adversely affected due to
a reduction in market liquidity.
29
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
We have entered into an exchange and registration rights agreement with the
initial purchasers of the old notes in which we agreed to file a registration
statement relating to an offer to exchange the old notes for exchange notes. We
also agreed to use our reasonable best efforts to cause the exchange offer to be
consummated within 180 days following the original issue of the old notes. The
exchange notes will have terms substantially identical to the old notes except
that the exchange notes will not contain terms with respect to transfer
restrictions, registration rights and additional interest for our failure to
observe obligations in the registration rights agreement. The old notes were
issued on May 14, 1999.
Under the circumstances set forth below, we will use our reasonable best
efforts to cause the SEC to declare effective a shelf registration statement
with respect to the resale of the old notes and keep the statement effective for
up to two years after the original issue of the old notes. These circumstances
include:
- if any changes in law, SEC rules or regulations or applicable
interpretations by the staff of the SEC do not permit us to effect the
exchange offer as contemplated by the registration rights agreement;
- if any old notes validly tendered in the exchange offer are not exchanged
for exchange notes within 180 days after the original issue of the old
notes;
- if any initial purchaser of the old notes requests within 20 days of
completion of the exchange offer, but only with respect to any old notes
not eligible to be exchanged for exchange notes in the exchange offer;
- if any holder of the old notes is not permitted by any law or applicable
interpretations by the staff of the SEC to participate in the exchange
offer;
- if any holder of old notes that participates in the exchange offer and
does not receive fully tradeable exchange notes requests within 20 days of
completion of the exchange offer; or
- if we elect to file a shelf registration statement with respect to the
resale of the old notes.
If we fail to comply with our obligations under the registration rights
agreement, we may be required to pay additional interest to holders of the old
notes. Please read the section captioned "Exchange and Registration Rights
Agreement" for more details regarding the registration rights agreement.
RESALE OF EXCHANGE NOTES
Based on interpretations of the SEC staff set forth in no-action letters
issued to unrelated third parties, we believe that exchange notes issued under
the exchange offer in exchange for old notes may be offered for resale, resold
and otherwise transferred by any exchange note holder without compliance with
the registration and prospectus delivery provisions of the Securities Act, if:
- the holder is not our "affiliate" within the meaning of Rule 405 under the
Securities Act;
- the exchange notes are acquired in the ordinary course of the holder's
business; and
- the holder does not intend to participate in a distribution of the
exchange notes.
30
Any holder who tenders in the exchange offer with the intention of
participating in any manner in a distribution of the exchange notes:
- cannot rely on the position of the staff of the SEC set forth in "Exxon
Capital Holdings Corporation" or similar interpretive letters; and
- must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction.
This prospectus may be used for an offer to resell, resale or other
retransfer of exchange notes. With regard to broker-dealers, only broker-dealers
that acquired the old notes as a result of market-making activities or other
trading activities may participate in the exchange offer. Each broker-dealer
that receives exchange notes for its own account in exchange for old notes,
where the old notes were acquired by the broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of the exchange notes.
Please read the section captioned "Plan of Distribution" for more details
regarding the transfer of exchange notes.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, we will accept for exchange any old notes
properly tendered and not withdrawn before expiration of the exchange offer. We
will issue $1,000 principal amount of exchange notes in exchange for each $1,000
principal amount of old notes surrendered under the exchange offer. Old notes
may be tendered only in integral multiples of $1,000.
The form and terms of the exchange notes will be substantially identical to
the form and terms of the old notes except the exchange notes:
- will be registered under the Securities Act;
- will not bear legends restricting their transfer; and
- will not provide for any additional interest upon our failure to fulfill
our obligations under the registration rights agreement to file, and cause
to be effective, a registration statement.
The exchange notes will evidence the same debt as the old notes. The exchange
notes will be issued under and entitled to the benefits of the same indenture
that authorized the issuance of the old notes. Consequently, both series will be
treated as a single class of debt securities under that indenture. For a
description of the indenture, see "Description of Exchange Notes" below.
The exchange offer is not conditioned upon any minimum aggregate principal
amount of old notes being tendered for exchange.
As of the date of this prospectus, $150.0 million aggregate principal amount
of the old notes are outstanding. This prospectus and the letter of transmittal
are being sent to all registered holders of old notes. There will be no fixed
record date for determining registered holders of old notes entitled to
participate in the exchange offer.
We intend to conduct the exchange offer in accordance with the provisions of
the registration rights agreement, the applicable requirements of the Securities
Act and the Securities Exchange Act of 1934 and the rules and regulations of the
SEC. Old notes that are not tendered for exchange in the exchange offer will
remain outstanding and continue to accrue interest and will be entitled to the
rights and benefits their holders have under the indenture relating to the old
notes.
We will be deemed to have accepted for exchange properly tendered old notes
when we have given oral or written notice of the acceptance to the exchange
agent. The exchange agent will act as agent for
31
the tendering holders for the purposes of receiving the exchange notes from us
and delivering the exchange notes to holders. Subject to the terms of the
registration rights agreement, we expressly reserve the right to amend or
terminate the exchange offer, and not to accept for exchange any old notes not
previously accepted for exchange, upon the occurrence of any of the conditions
specified below under the caption "--Conditions."
Holders who tender old notes in the exchange offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the letter
of transmittal, transfer taxes with respect to the exchange of old notes. We
will pay all charges and expenses, other than applicable taxes described below,
in connection with the exchange offer. It is important that you read the section
labeled "--Fees and expenses" below for more details regarding fees and expenses
incurred in the exchange offer.
EXPIRATION OF THE EXCHANGE OFFER; EXTENSIONS; AMENDMENTS
The exchange offer will expire at 5:00 p.m., New York City time on
[ ], 1999, unless, in our sole discretion, we extend it.
In order to extend the exchange offer, we will notify the exchange agent
orally or in writing of any extension. We will notify the registered holders of
old notes of the extension no later than 9:00 a.m., New York City time, on the
business day after the previously scheduled expiration of the exchange offer.
We reserve the right, in our sole discretion:
- to delay accepting for exchange any old notes;
- to extend the exchange offer or to terminate the exchange offer and to
refuse to accept old notes not previously accepted if any of the
conditions set forth below under "--Conditions" have not been satisfied,
by giving oral or written notice of the delay, extension or termination to
the exchange agent; or
- subject to the terms of the registration rights agreement, to amend the
terms of the exchange offer in any manner.
Any delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice to the registered
holders of old notes. If we amend the exchange offer in a manner that we
determine to constitute a material change, we will promptly disclose that
amendment in a manner reasonably calculated to inform the holders of old notes
of the amendment.
Without limiting the manner in which we may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the exchange offer, we will have no obligation to publish, advertise, or
otherwise communicate any public announcement, other than by making a timely
release to a financial news service.
CONDITIONS
Despite any other term of the exchange offer, we will not be required to
accept for exchange, or exchange any exchange notes for, any old notes, and we
may terminate the exchange offer as provided in this prospectus before accepting
any old notes for exchange if in our reasonable judgment:
- the exchange notes to be received will not be tradeable by the holder,
without restriction under the Securities Act, the Exchange Act and without
material restrictions under the blue sky or securities laws of
substantially all of the states of the United States;
- the exchange offer, or the making of any exchange by a holder of old
notes, would violate applicable law or any applicable interpretation of
the staff of the SEC; or
32
- any action or proceeding has been instituted or threatened in any court or
by or before any governmental agency with respect to the exchange offer
that, in our judgment, would reasonably be expected to impair our ability
to proceed with the exchange offer.
In addition, we will not be obligated to accept for exchange the old notes
of any holder that has not made to us:
- the representations described under "--Purpose and effect of the exchange
offer," "--Procedures for tendering" and "Plan of Distribution"; and
- any other representations that may be reasonably necessary under
applicable SEC rules, regulations or interpretations to make available to
us an appropriate form for registration of the exchange notes under the
Securities Act.
We expressly reserve the right, at any time or at various times, to extend
the period of time during which the exchange offer is open. Consequently, we may
delay acceptance of any old notes by giving oral or written notice of an
extension to their holders. During an extension, all old notes previously
tendered will remain subject to the exchange offer, and we may accept them for
exchange. We will return any old notes that we do not accept for exchange for
any reason without expense to their tendering holder as promptly as practicable
after the expiration or termination of the exchange offer.
We expressly reserve the right to amend or terminate the exchange offer, and
to reject for exchange any old notes not previously accepted for exchange, upon
the occurrence of any of the conditions of the exchange offer specified above.
We will give oral or written notice of any extension, amendment, non-acceptance
or termination to the holders of the outstanding Notes as promptly as
practicable. In the case of any extension, the notice of extension will be
issued no later than 9:00 a.m., New York City time, on the business day after
the previously scheduled expiration of the exchange offer.
These conditions are solely for our benefit and we may assert them
regardless of the circumstances that may give rise to them or waive them in
whole or in part at any time or at various times in our sole discretion. If we
fail at any time to exercise any of the foregoing rights, this failure will not
constitute a waiver of that right. Each of these rights will be deemed an
ongoing right that we may assert at any time or at various times.
In addition, we will not accept for exchange any old notes tendered, and
will not issue exchange notes in exchange for any old notes, if at that time a
stop order is threatened or in effect with respect to the registration statement
of which this prospectus constitutes a part or the qualification of the
indenture under the Trust Indenture Act of 1939.
PROCEDURES FOR TENDERING
Only a holder of record of old notes may tender old notes in the exchange
offer. To tender in the exchange offer, a holder must:
- complete, sign and date the letter of transmittal, or a facsimile of the
letter of transmittal; have the signature on the letter of transmittal
guaranteed if the letter of transmittal so requires; and mail or deliver
the letter of transmittal or facsimile to the exchange agent prior to the
expiration date; or
- comply with DTC's Automated Tender Offer Program procedures described
below.
In addition, either:
- the exchange agent must receive old notes along with the letter of
transmittal; or
33
- the exchange agent must receive, before expiration of the exchange offer,
a timely confirmation of book-entry transfer of old notes into the
exchange agent's account at DTC according to the procedure for book-entry
transfer described below or a properly transmitted agent's message; or
- the holder must comply with the guaranteed delivery procedures described
below.
To be tendered effectively, the exchange agent must receive any physical
delivery of the letter of transmittal and other required documents at the
address set forth below under "--Exchange agent" before expiration of the
exchange offer.
The tender by a holder that is not withdrawn before expiration of the
exchange offer will constitute an agreement between that holder and us in
accordance with the terms and subject to the conditions set forth in this
prospectus and in the letter of transmittal.
THE METHOD OF DELIVERY OF OLD NOTES, THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE HOLDER'S ELECTION AND RISK.
RATHER THAN MAIL THESE ITEMS, WE RECOMMEND THAT HOLDERS USE AN OVERNIGHT OR HAND
DELIVERY SERVICE. IN ALL CASES, HOLDERS SHOULD ALLOW SUFFICIENT TIME TO ASSURE
DELIVERY TO THE EXCHANGE AGENT BEFORE EXPIRATION OF THE EXCHANGE OFFER. HOLDERS
SHOULD NOT SEND THE LETTER OF TRANSMITTAL OR OLD NOTES TO US. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR
OTHER NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR THEM.
Any beneficial owner whose old notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
should contact the registered holder promptly and instruct it to tender on the
owner's behalf. If the beneficial owner wishes to tender on its own behalf, it
must, prior to completing and executing the letter of transmittal and delivering
its old notes, either:
- make appropriate arrangements to register ownership of the old notes in
the owner's name; or
- obtain a properly completed bond power from the registered bolder of old
notes.
The transfer of registered ownership may take considerable time and may not
be completed prior to the expiration date.
Signatures on a letter of transmittal or a notice of withdrawal described
below must be guaranteed by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States or another "eligible institution" within the meaning of Rule 17Ad-15
under the Exchange Act, unless the old notes are tendered:
- by a registered holder who has not completed the box entitled "Special
Registration Instructions" or "Special Delivery Instructions" on the
letter of transmittal; or
- for the account of an eligible institution.
If the letter of transmittal is signed by a person other than the registered
holder of any old notes, the old notes must be endorsed or accompanied by a
properly completed bond power. The bond power must be signed by the registered
holder as the registered holder's name appears on the old notes and an eligible
institution must guarantee the signature on the bond power.
If the letter of transmittal or any old notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, these
persons should so indicate when signing. Unless we waive this requirement, they
should also submit evidence satisfactory to us of their authority to deliver the
letter of transmittal.
34
The exchange agent and DTC have confirmed that any financial institution
that is a participant in DTC's system may use DTC's Automated Tender Offer
Program to tender. Participants in the program may, instead of physically
completing and signing the letter of transmittal and delivering it to the
exchange agent, transmit their acceptance of the exchange offer electronically.
They may do so by causing DTC to transfer the old notes to the exchange agent in
accordance with its procedures for transfer. DTC will then send an agent's
message to the exchange agent. The term "agent's message" means a message
transmitted by DTC, received by the exchange agent and forming part of the
book-entry confirmation, to the effect that:
- DTC has received an express acknowledgment from a participant in its
Automated Tender Offer Program that is tendering old notes that are the
subject of the book-entry confirmation;
- the participant has received and agrees to be bound by the terms of the
letter of transmittal or, in the case of an agent's message relating to
guaranteed delivery, that the participant has received and agrees to be
bound by the applicable notice of guaranteed delivery; and
- the agreement may be enforced against the participant.
We will determine in our sole discretion all questions as to the validity,
form, eligibility (including time of receipt), acceptance of tendered old notes
and withdrawal of tendered old notes. Our determination will be final and
binding. We reserve the absolute right to reject any old notes not properly
tendered or any old notes the acceptance of which would, in the opinion of our
counsel, be unlawful. We also reserve the right to waive any defects,
irregularities or conditions of tender as to particular old notes. Our
interpretation of the terms and conditions of the exchange offer (including the
instructions in the letter of transmittal) will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of old notes must be cured within the time that we determine. Although we intend
to notify holders of defects or irregularities with respect to tenders of old
notes, neither we, the exchange agent nor any other person will incur any
liability for failure to give notification. Tenders of old notes will not be
deemed made until any defects or irregularities have been cured or waived. Any
old notes received by the exchange agent that are not properly tendered and as
to which those defects or irregularities have not been cured or waived will be
returned by the exchange agent without cost to the tendering holder, unless
otherwise provided in the letter of transmittal, as soon as practicable
following the expiration date.
In all cases, we will issue exchange notes for old notes that we have
accepted for exchange under the exchange offer only after the exchange agent
timely receives:
- old notes or a timely book-entry confirmation that old notes have been
transferred into the exchange agent's account at DTC; and
- a properly completed and duly executed letter of transmittal and all other
required documents or a properly transmitted agent's message.
By signing the letter of transmittal, each tendering holder of old notes
will represent to us that, among other things:
- any exchange notes that the holder receives will be acquired in the
ordinary course of its business;
- the holder has no arrangement or understanding with any person or entity
to participate in the distribution of the exchange notes;
- if the holder is not a broker-dealer, that it is not engaged in and does
not intend to engage in the distribution of the exchange notes;
35
- if the holder is a broker-dealer that will receive exchange notes for its
own account in exchange for old notes that were acquired as a result of
market-making activities or other trading activities, that it will deliver
a prospectus, as required by law, in connection with any resale of those
exchange notes (see "Plan of Distribution"); and
- the holder is not an "affiliate," as defined in Rule 405 of the Securities
Act, of us or, if the holder is an affiliate, it will comply with any
applicable registration and prospectus delivery requirements of the
Securities Act.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect
to the old notes at DTC for purposes of the exchange offer promptly after the
date of this prospectus; and any financial institution participating in DTC's
system may make book-entry delivery of old notes by causing DTC to transfer old
notes into the exchange agent's account at DTC in accordance with DTC's
procedures for transfer. Holders of old notes who are unable to deliver
confirmation of the book-entry tender of their old notes into the exchange
agent's account at DTC or all other documents required by the letter of
transmittal to the exchange agent on or prior to the expiration date must tender
their old notes according to the guaranteed delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
Holders wishing to tender their old notes but whose old notes are not
immediately available or who cannot deliver their old notes, the letter of
transmittal or any other required documents to the exchange agent or comply with
the applicable procedures under DTC's Automated Tender Offer Program before
expiration of the exchange offer may tender if:
- the tender is made through an eligible institution;
- before expiration of the exchange offer, the exchange agent receives from
the eligible institution either a properly completed and duly executed
notice of guaranteed delivery (by facsimile transmission, mail or hand
delivery) or a properly transmitted agent's message and notice of
guaranteed delivery:
- setting forth the name and address of the holder and the registered
number(s) and the principal amount of old notes tendered;
- stating that the tender is being made by guaranteed delivery; and
- guaranteeing that, within three New York Stock Exchange trading days
after expiration of the exchange offer, the letter of transmittal (or
facsimile thereof) together with the old notes or a book-entry
confirmation, and any other documents required by the letter of
transmittal will be deposited by the eligible institution with the
exchange agent; and
- the exchange agent receives the properly completed and executed letter of
transmittal (or facsimile thereof), as well as all tendered old notes in
proper form for transfer or a book-entry confirmation, and all other
documents required by the letter of transmittal, within three New York
Stock Exchange trading days after expiration of the exchange offer.
Upon request to the exchange agent, a notice of guaranteed delivery will be
sent to holders who wish to tender their old notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, holders of old notes may
withdraw their tenders at any time before expiration of the exchange offer.
36
For a withdrawal to be effective:
- the exchange agent must receive a written notice (which may be by
telegram, telex, facsimile transmission or letter) of withdrawal at one
of the addresses set forth below under "--Exchange agent"; or
- holders must comply with the appropriate procedures of DTC's Automated
Tender Offer Program system.
Any notice of withdrawal must:
- specify the name of the person who tendered the old notes to be
withdrawn;
- identify the old notes to be withdrawn (including the principal amount of
the old notes to be withdrawn); and
- where certificates for old notes have been transmitted, specify the name
in which the old notes were registered, if different from that of the
withdrawing holder.
If certificates for old notes have been delivered or otherwise identified to
the exchange agent, then, prior to the release of those certificates, the
withdrawing holder must also submit:
- the serial numbers of the particular certificates to be withdrawn; and
- a signed notice of withdrawal with signatures guaranteed by an eligible
institution, unless the withdrawing holder is an eligible institution.
If old notes have been tendered pursuant to the procedure for book-entry
transfer described above, any notice of withdrawal must specify the name and
number of the account at DTC to be credited with the withdrawn old notes and
otherwise comply with the procedures of the facility. We will determine all
questions as to the validity, form and eligibility (including time of receipt)
of notices of withdrawal, and our determination shall be final and binding on
all parties. We will deem any old notes so withdrawn not to have been validly
tendered for exchange for purposes of the exchange offer. Any old notes that
have been tendered for exchange but that are not exchanged for any reason will
be returned to their holder without cost to the holder (or, in the case of old
notes tendered by book-entry transfer into the exchange agent's account at DTC
according to the procedures described above, those old notes will be credited to
an account maintained with DTC for old notes) as soon as practicable after
withdrawal, rejection of tender or termination of the exchange offer. Properly
withdrawn old notes may be retendered by following one of the procedures
described under "--Procedures for tendering" above at any time on or before
expiration of the exchange offer.
37
EXCHANGE AGENT
IBJ Whitehall Bank & Trust Company has been appointed as exchange agent for
the exchange offer. You should direct questions and requests for assistance,
requests for additional copies of this prospectus or of the letter of
transmittal and requests for the notice of guaranteed delivery to the exchange
agent addressed as follows:
For Delivery by Registered or Certified Mail: For Overnight Delivery Only or by Hand:
IBJ Whitehall Bank & Trust Company IBJ Whitehall Bank & Trust Company
P.O. Box 84 One State Street
Bowling Green Station New York, NY 10004
New York, NY 10274-0084 Attn: Securities Processing Window
Attn: Reorganization Operations Department Subcellar One, (SC-1)
By Facsimile Transmission (for Eligible Institutions Only):
IBJ Whitehall Bank & Trust Company
(212) 858-2611
Attn: Reorganization Operations Department
To Confirm by Telephone or for Information Call: (212) 858-2103
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT
CONSTITUTE A VALID DELIVERY OF THE LETTER OF TRANSMITTAL.
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. The principal solicitation
is being made by mail; however, we may make additional solicitations by
telegraph, telephone or in person by our officers and regular employees and
those of our affiliates.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to broker-dealers or others soliciting
acceptances of the exchange offer. We will, however, pay the exchange agent
reasonable and customary fees for its services and reimburse it for its related
reasonable out-of-pocket expenses.
We will pay the cash expenses to be incurred in connection with the exchange
offer. The expenses are estimated in the aggregate to be approximately $120,000.
They include:
- SEC registration fees;
- fees and expenses of the exchange agent and trustee;
- accounting and legal fees; and
- printing and mailing costs.
TRANSFER TAXES
We will pay all transfer taxes, if any, applicable to the exchange of old
notes under the exchange offer. The tendering holder, however, will be required
to pay any transfer taxes (whether imposed on the registered holder or any other
person) if:
- certificates representing old notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be issued in the
name of, any person other than the registered holder of old notes
tendered;
38
- tendered old notes are registered in the name of any person other than
the person signing the letter of transmittal; or
- a transfer tax is imposed for any reason other than the exchange of old
notes under the exchange offer.
If satisfactory evidence of payment of transfer taxes is not submitted with
the letter of transmittal, the amount of any transfer taxes will be billed to
the tendering holder.
ACCOUNTING TREATMENT
We will record the exchange notes in our accounting records at the same
carrying value as the old notes, which is the aggregate principal amount, as
reflected in our accounting records on the date of exchange. Accordingly, we
will not recognize any gain or loss for accounting purposes in connection with
the exchange offer. We will record the expenses of the exchange offer as
incurred.
OTHER
Participation in the exchange offer is voluntary, and you should carefully
consider whether to accept. You are urged to consult your financial and tax
advisors in making your own decision on what action to take.
We may in the future seek to acquire untendered old notes in open market or
privately negotiated transactions, through subsequent exchange offers or
otherwise. However, we have no present plans to acquire any old notes that are
not tendered in the exchange offer or to file a registration statement to permit
resales of any untendered old notes.
39
THE ACQUISITIONS
THE ACQUISITION AGREEMENTS
On August 14, 1998, we entered into a purchase agreement with CenturyTel of
the Northwest, Inc. and CenturyTel Wireless, Inc., which are wholly owned
subsidiaries of Century relating to the acquisition of PTI Alaska. Pursuant to
the PTI Alaska purchase agreement, we acquired all of the capital stock of PTI
Alaska for $411.8 million on May 14, 1999.
On October 20, 1998, we entered into an asset purchase agreement with the
Municipality of Anchorage relating to the acquisition of ATU. Pursuant to the
ATU purchase agreement, we acquired substantially all of the assets and
liabilities of ATU for $263.6 million on May 14, 1999.
The PTI Alaska purchase agreement contains customary representations,
warranties and covenants, as well as limited indemnification provisions under
which the PTI Alaska sellers agreed to indemnify us for specified losses and we
agreed to indemnify the PTI Alaska sellers for specified losses. The ATU
purchase agreement contains customary representations, warranties and covenants.
The PTI Alaska purchase agreement and the ATU purchase agreement have been each
filed as exhibits to the registration statement of which this prospectus is a
part and are incorporated by reference herein.
RELATED AGREEMENTS
LICENSE AGREEMENT. Pursuant to a license agreement entered into on May 14,
1999 among the PTI Alaska sellers and us, the PTI Alaska sellers granted to us
an exclusive, royalty-free license to use several trade names, trademarks and
service marks owned by Century, including Pacific Telecom, PTI, PTINet(SM), PTI
Communications(SM) and Cellulink(SM), throughout Alaska in connection with our
provisioning of telecommunications services. The license agreement also contains
customary provisions relating to maintaining the quality of the names and marks,
protection against infringement and limited cross-indemnification provisions.
The license agreement is perpetual unless terminated by the PTI Alaska sellers
upon 30 days' written notice to us upon a material breach of the license
agreement by us, which breach has not been cured or discontinued within 90 days
of notification by the PTI Alaska sellers. The license agreement may also be
terminated under other limited circumstances.
TRANSITION SERVICES AGREEMENT. Pursuant to a transition services agreement
dated August 14, 1998, by and among PTI Alaska, on the one hand, and Century and
its affiliates (the "suppliers"), on the other hand, (1) the suppliers and PTI
Alaska formalized intercompany arrangements under which the suppliers have been
providing PTI Alaska, among other services, accounting, financial, information
and data, technical, construction and engineering, customer and purchasing and
contract administration services (the "transition services") prior to the PTI
Closing Date and (2) the suppliers agreed to continue to provide the transition
services until August 31, 1999.
The suppliers have agreed to provide the transition services in a manner
consistent with past practice in all material respects at their actual cost plus
operating costs and other costs relating to the provision of cellular services.
In addition, we have agreed to pay the suppliers a one-time payment of $1.0
million in consideration for the continued provision of the transition services.
We can terminate the provision of any transition service, or the entire
transition services agreement, on 60 days written notice to the suppliers.
40
USE OF PROCEEDS
We used the proceeds from our offering of the old notes, the equity
contributions from Holdings and borrowings under the senior credit facility of
$[688] million (after deduction of discounts to the initial purchasers in the
private placement of the old notes and other fees and expenses of the
acquisitions and related transactions) to:
- finance the aggregate consideration paid to Century in connection with the
PTI Alaska acquisition, including repayment of PTI Alaska's outstanding
indebtedness of $43 million;
- finance the aggregate consideration paid to the Municipality of Anchorage
in connection with the ATU acquisition; and
- finance general corporate needs, including the purchase of fiber capacity
for $19.5 million.
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999, as
adjusted to give pro forma effect to the acquisitions of PTI Alaska and ATU, the
initial borrowings under the senior credit facility and the offering of the old
notes as of that date. This table should be read in conjunction with "Use of
Proceeds," "Unaudited Pro Forma Combined Financial and Operating Data" and the
historical financial statements of PTI Alaska and ATU, and the related notes,
included in this prospectus.
PRO FORMA
MARCH 31, 1999
-------------------
(DOLLARS IN
MILLIONS)
Total debt (including current portion):
Capital lease obligations................................................... $ 7.5
Revolving credit facility(a)................................................ 6.7
Term loan facilities(b)..................................................... 435.0
9 3/8% Senior subordinated notes due 2009................................... 150.0
------
Total debt................................................................ 599.2
Total stockholders' equity(c)................................................. 146.2
------
Total capitalization...................................................... $ 745.4
------
------
- ------------------------------
(a) Total borrowings of up to $75.0 million are available under the revolving
credit facility, of which $66.3 million remains available. See "Description
of Other Indebtedness--The Senior Credit Facility."
(b) The term loan facilities are comprised of $150.0 million of term loan A
facility, $150.0 million of term loan B facility and $135.0 million of term
loan C facility.
(c) Stockholders' equity consists of the proceeds of $121.2 million of common
equity contributed by the Fund, members of management and other investors to
Holdings and $25.0 million in aggregate gross proceeds of discount
debentures and warrants issued by Holdings, all of which Holdings
contributed to us as common equity.
41
SELECTED HISTORICAL COMBINED FINANCIAL DATA--PTI ALASKA
The following tables set forth selected historical combined financial data
of PTI Alaska. The selected historical combined financial data for each of the
three years in the period ended December 31, 1998 and as of December 31, 1997
and 1998 have been derived from the audited combined financial statements and
the related notes of PTI Alaska included in this prospectus. The selected
historical combined financial data for each of the two years in the period ended
December 31, 1995 and as of December 31, 1994, 1995 and 1996, have been derived
from the unaudited combined financial statements of PTI Alaska, which are not
included in this prospectus and which, in the opinion of management, include all
adjustments, consisting solely of normal, recurring adjustments, necessary to
present fairly the information they contain. The summary combined financial data
for each of the three month periods ended March 31, 1998 and 1999 and as of
March 31, 1998 and 1999 have been derived from the unaudited combined financial
statements of PTI Alaska which are included in this prospectus and which, in the
opinion of management, include all adjustments, consisting solely of normal,
recurring adjustments, necessary to present fairly the information they contain.
The financial statements of PTI Alaska include the results of the City of
Fairbanks Telephone Operation from October 6, 1997, the date of its acquisition.
This acquisition was accounted for as a purchase. PTI Alaska was acquired by
Century on December 1, 1997. The financial statements for the 11-month period
ended November 30, 1997 and prior periods have been presented on Pacific
Telecom's basis of accounting, while the financial statements as of December 31,
1997, the one-month period ended December 31, 1997 and subsequent periods have
been presented on Century's basis of accounting. The selected historical
combined financial data below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the audited combined financial statements of PTI Alaska, and the related notes,
included in this prospectus.
42
PTI ALASKA
----------------------------------------------------------------------------------------------
CENTURY
----------------------------------------------
PACIFIC TELECOM THREE
---------------------------------------------- MONTHS
YEAR ENDED
YEAR ENDED DECEMBER 31, JAN. 1, 1997 DEC. 1, 1997 ENDED MARCH 31,
------------------------------- TO TO DEC. 31, --------------------
1994 1995 1996 NOV. 30, 1997 DEC. 31, 1997 1998 1998 1999
--------- --------- --------- ------------- ------------- --------- --------- ---------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
OPERATING DATA:
Operating revenue
Local telephone................. $ 66,636 $ 70,540 $ 71,810 $ 73,472 $ 9,267 $ 109,822 $ 25,390 $ 27,203
Cellular........................ 2,766 4,531 4,823 5,120 181 2,576 408 546
--------- --------- --------- ------------- ------------- --------- --------- ---------
Total operating revenue....... 69,402 75,071 76,633 78,592 9,448 112,398 25,798 27,749
Operating expenses
Local telephone................. 37,664 38,043 37,314 36,572 5,817 61,611 14,646 14,500
Cellular........................ 2,042 3,147 3,381 3,082 147 2,128 330 396
Depreciation and amortization... 13,089 14,316 15,348 15,823 2,466 30,459 7,209 7,785
--------- --------- --------- ------------- ------------- --------- --------- ---------
Total operating expenses...... 52,795 55,506 56,043 55,477 8,430 94,198 22,185 22,681
--------- --------- --------- ------------- ------------- --------- --------- ---------
Operating income.................. 16,607 19,565 20,590 23,115 1,018 18,200 3,613 5,068
Interest expense, net............. (2,459) (2,331) (1,996) (2,169) (171) (1,405) (302) (358)
Other income (expense)(a)......... 1,094 (1,020) (368) (272) 424 2,070 1,129 922
--------- --------- --------- ------------- ------------- --------- --------- ---------
Income before income taxes........ 15,242 16,214 18,226 20,674 1,271 18,865 4,440 5,632
Income taxes...................... 5,962 5,713 6,737 7,746 736 9,218 2,214 2,709
--------- --------- --------- ------------- ------------- --------- --------- ---------
Net income........................ $ 9,280 $ 10,501 $ 11,489 $ 12,928 $ 535 $ 9,647 $ 2,226 $ 2,923
--------- --------- --------- ------------- ------------- --------- --------- ---------
--------- --------- --------- ------------- ------------- --------- --------- ---------
43
PTI ALASKA
----------------------------------------------------------------------------------------------
CENTURY
----------------------------------------------
PACIFIC TELECOM THREE
---------------------------------------------- MONTHS
YEAR ENDED
YEAR ENDED DECEMBER 31, JAN. 1, 1997 DEC. 1, 1997 ENDED MARCH 31,
------------------------------- TO TO DEC. 31, --------------------
1994 1995 1996 NOV. 30, 1997 DEC. 31, 1997 1998 1998 1999
--------- --------- --------- ------------- ------------- --------- --------- ---------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
OTHER FINANCIAL DATA:
Net cash provided by operating
activities...................... -- -- $ 34,589 $ 21,213 $ 5,588 $ 38,291 $ 11,025 $ 14,103
Net cash provided (used) by
investing activities............ -- -- (20,611) (13,554) (3,279) (26,664) 1,947 (2,339)
Net cash used by financing
activities...................... -- -- (12,947) (8,209) (2,563) (6,770) (11,587) (6,753)
EBITDA (as defined)(b)............ 30,790 32,861 35,570 38,666 3,908 50,729 11,951 13,775
EBITDA margin..................... 44.4% 43.8% 46.4% 49.2% 41.4% 45.1% 46.3% 49.6%
Capital expenditures.............. $ 21,001 $ 19,437 $ 20,465 $ 14,575 $ 1,825 $ 26,799 $ 2,321 $ 2,200
Ratio of earnings to fixed
charges(c)...................... 4.5x 4.3x 4.8x 5.5x 3.2x 4.5x 2.5x 5.0x
OTHER DATA (END OF PERIOD):
Access lines in service........... 73,563 77,660 82,969 -- 124,869 131,858 128,023 134,276
Cellular subscribers(d)........... 3,058 3,950 5,573 -- 2,096 2,945 2,546 3,417
Cellular penetration.............. 2.1% 2.7% 3.8% -- 3.7% 5.2% 4.6% 5.2%
BALANCE SHEET DATA (END OF PERIOD)
Total assets...................... $ 157,536 $ 161,323 $ 162,834 -- $ 459,175 $ 472,660 $ 466,301 $ 473,669
Long-term debt including current
portion......................... 43,089 43,616 44,294 -- 42,950 43,408 42,683 43,094
Stockholders' equity.............. 82,317 90,841 92,137 -- 391,314 400,962 395,359 403,885
- ------------------------------
(a) "Other income (expense)" includes the net operating results of PTI Alaska's
equipment sales and rental, payphone and internet businesses.
(b) "EBITDA" is net income before interest expense, interest income, income
taxes, depreciation and amortization. EBITDA includes the net operating
results of equipment sales and rental, payphone and internet businesses.
EBITDA is not intended to represent cash flow from operations as defined by
GAAP and should not be considered as an alternative to net income as an
indicator of our operating performance or cash flows. EBITDA is included in
this prospectus because management believes it provides additional
information with respect to our ability to satisfy our debt service, capital
expenditure and working capital requirements. While EBITDA is frequently
used as a measure of operations and the ability of a company to meet debt
service requirements, it is not necessarily comparable to other similarly
titled captions of other companies due to the differences in methods of
calculation.
(c) For purposes of calculating the ratio of earnings to fixed charges,
"earnings" represent income before provision for income taxes plus fixed
charges. "Fixed charges" consist of interest expensed and capitalized,
amortization of debt issuance costs, and the portion of rental expense which
management believes is representative of the interest component of lease
expense.
(d) On December 31, 1997, PTI Alaska sold its cellular operations in Fairbanks
to ATU. The Fairbanks cellular property had 5,497 subscribers at the time of
the sale.
44
SELECTED HISTORICAL FINANCIAL DATA--ATU
The following table sets forth selected historical financial data of ATU.
The selected historical financial data for each of the three years in the period
ended December 31, 1998 and as of December 31, 1997 and 1998 have been derived
from the audited financial statements and the notes thereto of ATU included in
this prospectus. The selected historical financial data for each of the two
years in the period ended December 31, 1995 and as of December 1994, 1995 and
1996 have been derived from the audited financial statements of ATU which are
not included in this prospectus. The summary financial data for each of the
three month periods ended March 31, 1998 and 1999 and as of March 31, 1998 and
1999 have been derived from the unaudited financial statements of ATU which are
included in this prospectus and which, in the opinion of management, include all
adjustments, consisting solely of normal, recurring adjustments, necessary to
present fairly the information they contain. The selected historical financial
data below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the audited
financial statements of ATU, and the related notes, included in this prospectus.
45
ATU
---------------------------------------------------------------------------
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
OPERATING DATA:
Operating revenue
Local telephone......................... $ 97,021 $ 97,161 $ 99,071 $ 101,857 $ 105,663 $ 25,830 $ 27,164
Cellular................................ 8,540 12,670 16,897 21,845 29,225 5,879 6,710
Long distance........................... -- -- 2 1,541 6,815 1,144 2,683
--------- --------- --------- --------- --------- --------- ---------
Total operating revenues.............. 105,561 109,831 115,970 125,243 141,703 32,853 36,557
Operating expenses
Local telephone......................... 59,211 60,174 62,075 60,300 59,191 14,179 15,474
Cellular................................ 6,473 9,727 12,379 14,455 19,961 4,048 4,740
Long distance........................... -- -- 543 4,644 10,395 1,898 3,243
Depreciation and amortization........... 18,936 19,258 20,496 26,839 29,608 7,099 7,434
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses.............. 84,620 89,159 95,493 106,238 119,155 27,224 30,891
--------- --------- --------- --------- --------- --------- ---------
Operating income.......................... 20,941 20,672 20,477 19,005 22,548 5,629 5,666
Interest expense, net..................... (7,565) (6,706) (6,840) (6,768) (6,427) (1,840) (1,585)
Other income (expense)(a)................. (328) (322) 220 (119) (2,551) (330) (593)
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes................ 13,048 13,644 13,857 12,118 13,570 3,459 3,488
Income taxes(b)........................... -- -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income................................ $ 13,048 $ 13,644 $ 13,857 $ 12,118 $ 13,570 $ 3,459 $ 3,488
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
OTHER FINANCIAL DATA:
Net cash provided by operating
activities(c)........................... $ 42,382 $ 43,412 $ 42,120 $ 46,641 $ 53,207 $ 8,394 $ 10,735
Net cash provided (used) by investing
activities(c)........................... 13,577 1,057 (787) (3,665) (5,659) (8,044) (1,568)
Net cash provided (used) by financing
activities(c)........................... (57,169) (53,518) (30,095) (46,916) (33,580) 16,631 (12,150)
EBITDA (as defined)(d).................... 39,549 39,608 41,239 45,567 52,550 12,648 13,016
EBITDA margin............................. 37.5% 36.1% 35.6% 36.4% 37.1% 38.5% 35.6%
Capital expenditures...................... $ 33,328 $ 27,958 $ 24,958 $ 35,187 $ 29,644 $ 8,404 $ 3,383
Ratio of earnings to fixed charges(e)..... 1.5x 1.4x 1.4x 1.4x 1.5x 1.7x 1.4x
OTHER DATA (END OF PERIOD):
Access lines in service(f)................ 144,869 147,934 154,752 158,486 168,536 164,569 170,343
Cellular subscribers...................... 13,684 24,855 37,651 53,035 63,627 54,436 63,779
Cellular penetration...................... 4.7% 8.4% 12.6% 13.3% 15.8% 13.7% 15.8%
BALANCE SHEET DATA (END OF PERIOD):
Total assets.............................. $ 288,857 $ 289,903 $ 308,810 $ 323,124 $ 350,245 351,190 $ 346,696
Long-term debt including current
portion................................. 145,775 123,009 146,412 151,945 172,521 180,161 167,618
Fund equity............................... 118,695 126,839 132,596 136,414 141,884 139,873 145,372
- ------------------------------
(a) "Other income (expense)" includes the net operating results of ATU's
equipment sales and rental, and payphone business and equity in earnings
(losses) from minority investments.
(b) During the periods presented, ATU was a public utility of the Municipality
of Anchorage and was exempt from federal and state income taxes.
(c) Net cash data includes information from ATU financial statements prepared in
accordance with Governmental Accounting Principles.
(d) "EBITDA" is net income before interest expense, interest income, income
taxes, depreciation and amortization, and equity in earnings (loss) of
minority investments of $(46,158), $158,000 and $(2,945,000) for the years
ended December 31, 1996, 1997 and 1998 and $(250,000) and $(509,000) for the
three months ended March 31, 1998 and 1999. EBITDA includes the net
operating results of equipment sales and rental, payphone and internet
businesses. EBITDA is not intended to represent cash flow from operations as
defined by GAAP and should not be considered as an alternative to net income
as an indicator of our operating performance or cash flows. EBITDA is
included in this prospectus because management believes it provides
additional information with respect to our ability to satisfy our debt
service, capital expenditure and working capital requirements. While EBITDA
is frequently used as a measure of operations and the ability of a company
to meet debt service requirements, it is not necessarily comparable to other
similarly titled captions of other companies due to the differences in
methods of calculation.
(e) For purposes of calculating the ratio of earnings to fixed charges,
"earnings" represent income before provision for income taxes plus fixed
charges. "Fixed charges" consist of interest expensed and capitalized,
amortization of debt issuance costs and the portion of rental expense which
Management believes is representative of the interest component of lease
expense.
(f) "Access lines in service" includes all revenue producing lines, whether
connected to retail or wholesale customers.
46
UNAUDITED PRO FORMA COMBINED FINANCIAL AND OPERATING DATA
The following unaudited pro forma combined financial and operating data are
based on the financial statements of PTI Alaska and ATU, as adjusted for the
estimated effects of:
- the acquisition of PTI Alaska;
- the acquisition of ATU;
- the purchase of fiber capacity for $19.5 million; and
- the financings necessary to complete these transactions,
as if they had occurred on January 1, 1998 for the Statement of Operations and
on March 31, 1999 for the Balance Sheet. The unaudited pro forma combined
financial and operating data are not necessarily indicative of what our
financial position or results of operations would actually have been had these
transactions been completed on the dates indicated and do not project our
results of operations for any future date.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
------------------------------------------------
THREE MONTHS ENDED
ACQUISITION PRO FORMA MARCH 31,
--------------------
1999
1998 ---------
---------
PRO FORMA
PTI ALASKA ATU ADJUSTMENTS COMBINED COMBINED
----------- --------- ----------- ----------- --------------------
(DOLLARS IN THOUSANDS)
Operating revenue
Local telephone............................... $ 109,822 $ 105,663 $ -- $ 215,485 $ 51,220 $ 54,367
Cellular...................................... 2,576 29,225 -- 31,801 6,287 7,256
Long distance................................. -- 6,815 -- 6,815 1,144 2,683
----------- --------- ----------- ----------- --------- ---------
Total operating revenue....................... 112,398 141,703 -- 254,101 58,651 64,306
Operating expenses
Local telephone............................... 61,611 59,191 -- 120,802 28,825 29,974
Cellular...................................... 2,128 19,961 -- 22,089 4,378 5,136
Long distance................................. -- 10,395 -- 10,395 1,898 3,243
Depreciation and amortization................. 30,459 29,608 1,154(a) 61,221 14,597 15,507
----------- --------- ----------- ----------- --------- ---------
Total operating expenses...................... 94,198 119,155 1,154 214,507 49,698 53,860
----------- --------- ----------- ----------- --------- ---------
Operating income.............................. 18,200 22,548 (1,154) 39,594 8,953 10,446
Interest expense, net......................... (1,405) (6,427) (45,866)(b) (53,698) (13,425) (13,425)
Equity in earnings (loss) of subsidiaries..... -- (2,945) -- (2,945) (250) (509)
Other income (expense)........................ 2,070 394 (1,033)(c) 1,431 791 580
----------- --------- ----------- ----------- --------- ---------
Income (loss) before income taxes............. 18,865 13,570 (48,053) (15,618) (3,931) (2,908)
Income tax expense (benefit).................. 9,218 -- (9,218)(d) -- -- --
----------- --------- ----------- ----------- --------- ---------
Net income (loss)............................. $ 9,647 $ 13,570 $ (38,835) $ (15,618) $ (3,931) $ (2,908)
----------- --------- ----------- ----------- --------- ---------
----------- --------- ----------- ----------- --------- ---------
OTHER DATA:
EBITDA (as defined)(e)........................ -- -- -- $ 102,246 $ 24,341 $ 26,533
Adjusted EBITDA............................... -- -- -- 106,109 24,853 27,045
Pro forma cash interest expense............... -- -- -- 49,948 12,487 12,487
Capital expenditures.......................... -- -- -- 56,443 10,725 5,583
47
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(a) Represents the increase in amortization expense as a result of the increase
in goodwill due to the application of purchase accounting as described in
note (a) to the Unaudited Pro Forma Combined Balance Sheet and the
$19,500,000 purchase of fiber capacity. Goodwill is amortized over 40 years,
and fiber capacity is amortized over 20 years.
(b) Represents the net adjustment to interest expense as a result of the
borrowings under the revolving credit facility, the term loan facilities and
the exchange notes, calculated as follows (dollars in thousands):
YEAR ENDED
DECEMBER 31, 1998
-----------------
Revolving credit facility(1)......................................................... $ 523
Term Loan A Facility(2).............................................................. 11,625
Term Loan B Facility(3).............................................................. 12,000
Term Loan C Facility(4).............................................................. 11,138
9 3/8% Senior subordinated notes due 2009(5)......................................... 14,063
Interest on long term obligations assumed(6)......................................... 600
-------
Pro forma cash interest expense(7)................................................... 49,948
Amortization of deferred financing costs(8).......................................... 3,750
-------
Pro forma interest expense........................................................... 53,698
Historical interest expense, net..................................................... (7,832)
-------
Total................................................................................ $ 45,866
-------
-------
-----------------------------------
(1) Represents interest on the $6.7 million that was drawn under the
revolving credit facility on the closing date using an assumed interest
rate of 7.75%.
(2) Represents interest on the $150.0 million Term Loan A Facility using an
assumed interest rate of 7.75%.
(3) Represents interest on the $150.0 million Term Loan B Facility using an
assumed interest rate of 8.00%.
(4) Represents interest on the $135.0 million Term Loan C Facility using an
assumed interest rate of 8.25%.
(5) Represents interest on the $150.0 million exchange notes using an
interest rate of 9.375%.
(6) Represents interest on $7.5 million of long-term obligations assumed by
us at an interest rate of 8.00%.
(7) A 1/8% change in interest rates for the variable rate debt above would
change interest expense by $552,000.
(8) Deferred financing costs are amortized over the term of the related
debt (an average life of eight years for all borrowings).
(c) Represents the estimated annual management fee to be paid to Fox Paine.
(d) Represents the elimination of historical tax expense, as on a pro forma
basis we would have been in a net loss position. No tax benefit for the net
loss is reflected in the Unaudited Pro Forma Combined Statement of
Operations, as we are uncertain when profitable operations will be achieved.
(e) "EBITDA" is net income before interest expense, interest income, income
taxes, depreciation and amortization. EBITDA includes the net operating
results of equipment sales and rental, payphone and internet businesses and
the estimated annual management fee to be paid to Fox Paine. EBITDA is not
intended to represent cash flow from operations as defined by GAAP and
should not be considered as an alternative to net income as an indicator of
our operating performance or cash flows. EBITDA is included in this
prospectus because management believes it provides additional information
with respect to our ability to satisfy our debt service, capital expenditure
and working capital requirements. While EBITDA is frequently used as a
measure of operations and the ability of a company to meet debt service
requirements, it is not necessarily comparable to other similarly titled
captions of other companies due to the differences in methods of
calculation.
48
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AT MARCH 31, 1999
-----------------------------------------------------
ACQUISITION PRO FORMA
PTI ALASKA ATU ADJUSTMENTS(A) COMBINED
----------- ---------- --------------- -----------
(DOLLARS IN THOUSANDS)
ASSETS
Cash and cash equivalents.............................. $ 10,739 $ 23,034 $ (33,773)(b) $ --
Accounts receivable.................................... 54,645 24,026 (36,489)(c) 42,182
Inventory and other current assets..................... 2,660 3,138 -- 5,798
----------- ---------- --------------- -----------
Total current assets............................... 68,044 50,198 (70,262) 47,980
Gross telephone plant.................................. 413,478 449,354 19,500(d) 882,332
Less: accumulated depreciation......................... 255,612 194,170 -- 449,782
----------- ---------- --------------- -----------
Net telephone plant................................ 157,866 255,184 19,500(d) 432,550
Restricted funds and investments....................... -- 17,309 (17,309)(c) --
Financing costs........................................ -- -- 30,000(e) 30,000
Goodwill............................................... 241,030 16,203 9,588(f) 266,821
Long-term investments.................................. 976 5,107 6,083
Other.................................................. 5,753 2,695 -- 8,448
----------- ---------- --------------- -----------
Total other assets................................. 247,759 41,314 22,279 311,352
----------- ---------- --------------- -----------
Total assets........................................... $ 473,669 $ 346,696 $ (28,483) $ 791,882
----------- ---------- --------------- -----------
----------- ---------- --------------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable....................................... $ 2,589 $ 22,967 -- $ 25,556
Accrued salaries and benefits.......................... 2,321 5,170 -- 7,491
Advance billings and customer deposits................. 2,026 3,790 -- 5,816
Other.................................................. 3,778 1,779 -- 5,557
----------- ---------- --------------- -----------
Total current liabilities.......................... 10,714 33,706 -- 44,420
Long-term obligations and current maturities........... 43,094 167,618 388,533(g) 599,245
Deferred income taxes.................................. 13,914 -- (13,914)(h) --
Deferred investment tax credits........................ 780 -- -- 780
Other.................................................. 1,282 -- -- 1,282
----------- ---------- --------------- -----------
Total deferred credits and other liabilities....... 15,976 -- (13,914) 2,062
----------- ---------- --------------- -----------
Stockholder's equity................................... 403,885 145,372 (403,102)(i) 146,155
----------- ---------- --------------- -----------
Total liabilities and stockholder's equity............. $ 473,669 $ 346,696 $ (28,483) $ 791,882
----------- ---------- --------------- -----------
----------- ---------- --------------- -----------
49
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(a) The following represents the sources of funds and the preliminary allocation
of the purchase price for the acquisitions to the assets acquired and
liabilities assumed based upon their respective estimated fair values. The
actual purchase adjustments to reflect the fair values of the assets
acquired and liabilities assumed will be based upon appraisal studies and
management's evaluation of the assets and liabilities. Accordingly, the
adjustments that have been included in the pro forma data will change based
upon the final allocation.
The sources and uses of the funds are as follows:
AMOUNT
--------------------
(DOLLARS IN
THOUSANDS)
Sources of funds:
Revolving credit facility............................................. $ 6,745
Term loan facilities.................................................. 435,000
9 3/8% Senior subordinated notes due 2009............................. 150,000
Issuance of common stock.............................................. 146,155
--------
Total sources....................................................... $ 737,900
--------
--------
Uses of funds:
Accounts receivable................................................... $ 42,182
Inventories and other current assets.................................. 5,798
Property, plant and equipment......................................... 432,550
Other assets.......................................................... 14,531
Capitalized financing costs........................................... 30,000
Goodwill.............................................................. 266,821
Liabilities assumed................................................... (53,982)
--------
Total uses.......................................................... $ 737,900
--------
--------
(b) Represents cash used to fund a portion of the purchase price for the
acquisitions.
(c) Represents assets at March 31, 1999 that were not acquired in the
acquisitions.
(d) Represents the purchase of fiber capacity for $19,500,000.
(e) Represents the portion of the fees and expenses attributable to the
revolving credit facility, the term loan facilities, the discount debentures
of Holdings, the old notes and the exchange notes, which have been recorded
as deferred financing costs and will be amortized over the average life of
the debt issued.
(f) Represents the adjustment to goodwill to reflect the preliminary allocation
of the purchase price by eliminating existing goodwill of $258,947,000 and
reflecting the goodwill set forth in note (a) of $266,821,000. Goodwill is
amortized over 40 years.
50
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET (CONTINUED)
(g) Represents the payment of existing debt, the initial borrowings under the
revolving credit facility and the term loan facilities and the offerings of
the exchange notes as follows:
AMOUNT
--------------------
(DOLLARS IN
THOUSANDS)
Revolving credit facility............................................... $ 6,745
Term loan facilities.................................................... 435,000
Capital lease obligations............................................... 7,500
9 3/8% Senior subordinated notes due 2009............................... 150,000
--------
Total debt.......................................................... 599,245
Repayment of existing long-term obligations............................. 210,712
--------
Increase in long-term obligations....................................... $ 388,533
--------
--------
(h) Represents the adjustment to reduce deferred income taxes to zero at the
date of acquisition as the beginning book basis of the assets and
liabilities equaled their tax basis for all items except some portion of
goodwill.
(i) Represents the adjustment to stockholder's equity to eliminate the existing
equity of PTI Alaska and ATU and reflect the $146,155,000 of proceeds from
our issuance of common stock.
51
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
We were formed in 1998 to acquire telecommunications properties in Alaska.
Prior to the consummation of the acquisitions of PTI Alaska and ATU, we had no
operations. Accordingly, the following is a discussion and analysis of the
historical financial condition and results of operations of PTI Alaska and ATU,
respectively. See "Capitalization," "Unaudited Pro Forma Combined Financial and
Operating Data" and "Use of Proceeds." The following discussion should be read
in conjunction with the combined financial statements of PTI Alaska and the
consolidated financial statements of ATU, and the related notes, included in
this prospectus.
REVENUES. PTI Alaska generates revenue through: (1) the provision of local
telephone services, including (a) basic local service to customers within its
service areas, (b) network access services to interexchange carriers, or IXCs,
for origination and termination of interstate and intrastate long distance phone
calls, (c) enhanced services, (d) ancillary services, such as billing and
collection, and (e) USF; and (2) the provision of wireless services. PTI Alaska
generates additional revenue through the provision of internet access and
miscellaneous equipment sales, which are recorded net of expenses as "Other
income (expense)."
ATU generates revenue through: (1) the provision of local telephone
services, including (a) basic local service to customers within its service
areas, (b) network access services to IXCs for origination and termination of
interstate and intrastate long distance phone calls, (c) enhanced services and
(d) ancillary services, such as billing and collection; (2) the provision of
wireless services; and (3) the provision of long distance services. In addition,
ATU recognizes its proportionate share of the net income or loss of its
minority-owned investments.
The historically stable revenue and cash flow of LEC operations are the
result of the need for basic telecommunications services, the highly regulated
nature of the telecommunications industry and, in the case of rural LECs, the
underlying cost recovery settlement and support mechanisms applicable to LEC
operations. Basic local service is generally provided at a flat monthly rate and
allows the user to place unlimited calls within a defined local calling area.
Access revenues are generated by providing IXCs access to the LEC's local
network and its customers. USF revenues are a subsidy paid to rural LECs, such
as PTI Alaska, to support the high cost of providing universal service in rural
markets. Other service revenue is generated from ancillary services, enhanced
services, such as voice mail, or internet access.
Changes in revenue are largely attributable to changes in the number of
access lines, local service rates and minutes of use. Other factors can also
impact revenue, such as: (1) intrastate and interstate revenue settlement
methodologies, (2) whether an access line is used by a business or residential
subscriber, (3) calling patterns (intrastate and interstate), (4) customers'
selection of various local rate plan options, (5) selection of enhanced calling
services or other packaged products (such as cellular and internet) and (6)
other subscriber usage characteristics.
LECs have two basic tiers of customers: (1) end users located in the LEC's
local exchanges that pay for local telephone service and (2) the IXCs that pay
the LEC for access to customers located within that LEC's local service area.
LECs provide access service to numerous IXCs and also bill and collect long
distance charges from IXC customers on behalf of the IXCs. The amount of access
charge revenue associated with a particular IXC varies depending upon long
distance calling patterns and the relative market share of each long distance
carrier.
Our local service rates for end users are authorized by the APUC. Authorized
rates of return are set by the FCC and the APUC for interstate and intrastate
access charges, respectively, and may change from time to time.
52
OPERATING EXPENSES. PTI Alaska's operating expenses are categorized as:
cost of sales and operating expenses--telephone; cost of sales and operating
expenses--wireless; and depreciation and amortization. Cost of sales and
operating expenses--telephone are those operating expenses incurred by PTI
Alaska in connection with its local telephone business, including the operation
of its central offices and outside plant facilities and related operations,
customer service, marketing and other general and administrative expenses and
allocated corporate expenses. Cost of sales and operating expenses--wireless are
those operating expenses incurred by PTI Alaska in connection with the operation
of its wireless facilities and transmission of wireless services, customer
service, marketing and other general and administrative expenses and allocated
corporate expenses.
ATU's operating expenses are categorized as: cost of sales and operating
expenses--local telephone; cost of sales and operating expenses--cellular; cost
of sales and operating expenses--long distance; and depreciation and
amortization. Cost of sales and operating expenses--local telephone are those
operating expenses incurred by ATU in connection with its local telephone
business, including the operation of its central offices and outside plant
facilities and related operations, customer service, marketing and other general
and administrative expenses and corporate expenses. Cost of sales and operating
expenses--cellular are those operating expenses incurred by ATU in connection
with the operation of its wireless facilities and transmission of wireless
services, customer service, marketing and other general and administrative
expenses and corporate expenses. Cost of sales and operating expenses--long
distance includes operating expenses incurred by ATU in connection with the
provisioning of long distance services.
PTI ALASKA
On August 14, 1998, we entered into an agreement to acquire PTI Alaska. We
completed the acquisition of PTI Alaska on May 14, 1999. PTI Alaska is the
incumbent provider of local telephone services to over 131,000 access lines in
Juneau, Fairbanks and more than 70 rural communities in Alaska. PTI Alaska also
provides cellular services and internet access services. Since August 1998,
members of Management have been providing advisory and management consulting
services to PTI Alaska relating to its day-to-day business operations under a
consulting agreement between Century and LEC Consulting Corporation, a company
formed by members of Management.
Century acquired PTI Alaska on December 1, 1997 as part of its acquisition
of Pacific Telecom, Inc. from PacifiCorp Holdings, Inc. On October 6, 1997,
prior to its acquisition by Century, PTI Alaska acquired the assets of the City
of Fairbanks Telephone Operation. On December 31, 1997, PTI Alaska sold its
Alaska rural statistical area ("RSA") #1 B-side cellular property in Fairbanks
to MACtel. The operating results of this divested property are included in the
historical operating results of PTI Alaska.
The following table summarizes each component of PTI Alaska's revenue
sources for the years ended December 31, 1996, 1997 and 1998 and the three month
periods ended March 31, 1998 and 1999 (dollars in thousands):
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- ---------- --------- ---------
Local service............................................. $ 21,740 $ 26,937 $ 37,255 $ 8,961 $ 9,576
Network access............................................ 45,056 50,298 64,321 14,292 15,305
Other..................................................... 5,014 5,504 8,246 2,137 2,322
--------- --------- ---------- --------- ---------
Local telephone........................................... 71,810 82,739 109,822 25,390 27,203
Cellular.................................................. 4,823 5,301 2,576 408 546
--------- --------- ---------- --------- ---------
Total..................................................... $ 76,633 $ 88,040 $ 112,398 $ 25,798 $ 27,749
--------- --------- ---------- --------- ---------
--------- --------- ---------- --------- ---------
53
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998.
OPERATING REVENUES
Combined operating revenues increased 7.6% for the three months ended March
31, 1999 as compared to the three months ended March 31, 1998. Local service,
network access and cellular revenues all increased as compared to the prior
three month period.
LOCAL TELEPHONE
Local telephone revenues increased 7.1% for the three months ended March 31,
1999 as compared to the three months ended March 31, 1998. The increase in local
service revenues paralleled a 4.9% growth in access lines from the previous
period. Access revenues increased $1.0 million, or 7.1%, as compared to the
prior three month period.
CELLULAR
Cellular revenues increased 33.8% for the three months ended March 31, 1999
as compared to the three months ended March 31, 1998, as cellular customers
increased 34.3% during that period.
OPERATING EXPENSES
LOCAL TELEPHONE
Cost of sales and operating expenses--telephone decreased marginally for the
three months ended March 31, 1999 as compared to the three months ended March
31, 1998.
CELLULAR
Cost of sales and operating expenses--cellular increased 20.0% for the three
months ended March 31, 1999 as compared to the three months ended March 31,
1998. This increase is due to the additional cost required to support additional
cellular customers.
DEPRECIATION AND AMORTIZATION
The 8.0% increase in depreciation and amortization for the three months
ended March 31, 1999 as compared to the three months ended March 31, 1998 was
due to higher plant in service balances and amortization of goodwill associated
with purchase accounting.
INTEREST EXPENSE, NET
Interest expense, net increased to $358,000 the three months ended March 31,
1999 from $302,000 for the three months ended March 31, 1998.
OTHER INCOME (EXPENSE)
Other income (expense) is related to the net operating results of
nonregulated equipment sales and rental activity, primarily relating to local
telephone operations. For the three months ended March 31, 1999, other income
(expense) decreased 18.3% as compared to the three months ended March 31, 1998.
The decrease was primarily due to recognition of expenses attributable to
projects recognized in the prior year.
54
INCOME TAXES
The provision for income taxes was $2.7 million for the three months ended
March 31, 1999 as compared to $2.2 million for the three months ended March 31,
1998 due to higher taxable income in the more recent three month period.
NET INCOME AND EBITDA
Increases in Net Income and EBITDA are a result of the factors described
above. EBITDA includes the net operating results of equipment sales and rental,
payphone and internet businesses which are included below operating income in
the line "Other income (expense)."
FISCAL YEAR ENDED DECEMBER 31, 1998 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1997
The financial statements of PTI Alaska reflect the combined results of PTI
Alaska, including Telephone Utilities of Alaska, Inc. ("TUA"), which operates in
Juneau; Telephone Utilities of the Northland, Inc. ("TUNI"), which operates in
numerous rural communities; and the Alaska RSA #3 cellular property for the
years ended December 31, 1997 and 1998. Additionally, the results of the City of
Fairbanks Telephone Operation are reflected from the date of acquisition,
October 6, 1997. The Alaska RSA #1 B-side cellular property was divested on
December 31, 1997 to satisfy FCC cross-ownership restrictions. The operating
results of this property are included in the financial statements for the years
ended December 31, 1997 and 1996, respectively, as follows:
1996 1997
--------- ---------
(DOLLARS IN
THOUSANDS)
Revenues............................................................. $ 2,681 $ 3,100
Operating expenses................................................... 1,889 1,643
Depreciation......................................................... 457 424
--------- ---------
Operating income..................................................... $ 335 $ 1,033
--------- ---------
--------- ---------
OPERATING REVENUES
Combined operating revenues increased 27.7% to $112.4 million for the year
ended December 31, 1998 as compared to $88.0 million for the year ended December
31, 1997. Local telephone operating revenues increased 32.7% to $109.8 million
for the year ended December 31, 1998 as compared to $82.7 million for the year
ended December 31, 1997. Cellular revenues decreased 51.4% to $2.6 million for
the year ended December 31, 1998 as compared to $5.3 million for the year ended
December 31, 1997. Ownership of the City of Fairbanks Telephone Operation for a
full year in 1998 versus a partial year in 1997 accounted for $21.0 million of
the total $24.4 million increase in combined operating revenues.
LOCAL TELEPHONE
Local telephone revenues increased 32.7% to $109.8 million for the year
ended December 31, 1998 as compared to $82.7 million for the year ended December
31, 1997. Of this increase, $21.0 million was due to the full year of ownership
of the City of Fairbanks Telephone Operation in 1998 versus a partial year in
1997, $4.2 million was due to higher access revenues at TUA and TUNI, $1.5
million was due to higher local service revenues at TUA and TUNI, and $0.4
million was due to higher other revenues. The increase in local service revenues
was due to a 5.6% growth in access lines from December 31, 1997 to December 31,
1998. Growth in access revenues was primarily the result of a higher revenue
requirement due to higher expenses for the year ended December 31, 1998 as
compared to the year ended December 31, 1997.
55
CELLULAR
Cellular revenues decreased 51.4% to $2.6 million for the year ended
December 31, 1998 as compared to $5.3 million for the year ended December 31,
1997. Improved results of the Alaska RSA #3 property increased revenues $0.4
million for the year ended December 31, 1998 as compared to the year ended
December 31, 1997. The divestiture of the Alaska RSA #1 B-side cellular property
decreased cellular revenue by $3.1 million for the year ended December 31, 1998
as compared to the year ended December 31, 1997.
OPERATING EXPENSES
LOCAL TELEPHONE
Cost of sales and operating expenses--telephone increased 45.4% to $61.6
million for the year ended December 31, 1998 as compared to $42.4 million for
the year ended December 31, 1997. Ownership of the City of Fairbanks Telephone
Operation for the full year 1998 versus a partial year in 1997 accounted for
$15.0 million of the total increase in cost of sales and operating
expenses--telephone. The remaining increase was due to $4.2 million of higher
expenses at TUA and TUNI local telephone operations, attributable to increased
costs necessary to support growth in access lines and higher corporate allocated
costs.
CELLULAR
Cost of sales and operating expenses--cellular decreased by 34.1% to $2.1
million for the year ended December 31, 1998 as compared to $3.2 million for the
year ended December 31, 1997. In addition, $0.5 million of higher cost of sales
and operating expense--cellular was due to increased costs necessary to support
the increased number of customers for the Alaska RSA #3 cellular property. The
divestiture of the Alaska RSA #1 B-side cellular property decreased expenses by
$1.6 million.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased $12.2 million to $30.5 million for
the year ended December 31, 1998 as compared to $18.3 million for the year ended
December 31, 1997. The increase in depreciation and amortization expense was due
to higher plant in service balances, amortization of goodwill associated with
purchase accounting, higher authorized depreciation rates effective January 1,
1998, as approved by the APUC, and a full year of ownership of the City of
Fairbanks Telephone Operation.
INTEREST EXPENSE, NET
Interest expense, net decreased 40.0% to $1.4 million for the year ended
December 31, 1998 as compared to $2.3 million for the year ended December 31,
1997. The decrease was due to $4.9 million in higher cash and cash equivalents
and $11.5 million higher affiliated receivable balances at December 31, 1998 as
compared to December 31, 1997.
OTHER INCOME (EXPENSE)
Other income (expense) is related to the net operating results of
nonregulated equipment sales and rental activity, primarily relating to local
telephone operations. For the year ended December 31, 1998 Other income
(expense) was $2.0 million as compared to $0.2 million for the year ended
December 31, 1997. The improved results were due to $0.8 million of higher
equipment rental and sales results, $0.3 million of stronger payphone results,
$0.2 million of higher internet operating income, and other miscellaneous items.
56
INCOME TAXES
Income taxes increased 8.7% to $9.2 million for the year ended December 31,
1998 as compared to $8.5 million for the year ended December 31, 1997. Higher
income taxes were due to higher taxable income in 1998 as compared to 1997.
NET INCOME
As a result of the factors described above, net income decreased $3.8
million to $9.6 million for the year ended December 31, 1998 as compared to
$13.4 million for the year ended December 31, 1997.
EBITDA
As a result of the factors described above, EBITDA increased by $8.1 million
to $50.7 million for the year ended December 31, 1998 as compared to $42.6
million for the year ended December 31, 1997. EBITDA includes the net operating
results of equipment sales and rental, payphone and internet businesses.
FISCAL YEAR ENDED DECEMBER 31, 1997 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1996
OPERATING REVENUES
Combined operating revenues increased 14.9% to $88.0 million for the year
ended December 31, 1997 as compared to $76.6 million for the year ended December
31, 1996. Local telephone operating revenues increased 15.2% to $82.7 million
for the year ended December 31, 1997 as compared to $71.8 million for the year
ended December 31, 1996. Cellular revenues increased 9.9% to $5.3 million for
the year ended December 31, 1997 as compared to $4.8 million for the year ended
December 31, 1996. Ownership of the City of Fairbanks Telephone Operation from
October 6, 1997 through December 31, 1997 accounted for $7.8 million of the
total $11.4 million increase in combined operating revenues.
LOCAL TELEPHONE
Local telephone revenues increased 15.2% to $82.7 million for the year ended
December 31, 1997 as compared to $71.8 million for the year ended December 31,
1996. Of this increase, $7.8 million was due to partial year ownership of the
City of Fairbanks Telephone Operation in 1997, $1.2 million was due to higher
access revenues at TUA and TUNI, and $2.0 million was due to higher local
service and other revenues at TUA and TUNI. The increase in local service
revenues was due to a 6.0% growth in access lines and higher enhanced services
revenue (in each case without giving effect to the City of Fairbanks Telephone
Operation acquisition). Growth in access revenues was primarily the result of a
higher revenue requirement due to higher expenses for the year ended December
31, 1997 as compared to the prior year.
CELLULAR
Cellular revenues increased 9.9% to $5.3 million for the year ended December
31, 1997 as compared to $4.8 million for the year ended December 31, 1996.
Improved results were primarily due to an increase in subscribers from December
31, 1996 to December 31, 1997.
57
OPERATING EXPENSES
LOCAL TELEPHONE
Cost of sales and operating expenses--telephone increased 13.6% to $42.4
million for the year ended December 31, 1997 as compared to $37.3 million for
the year ended December 31, 1996. Ownership of the City of Fairbanks Telephone
Operation for part of the year in 1997 accounted for $4.4 million of the total
increase. The remaining increase is due to $0.7 million higher expenses for TUA
and TUNI local telephone operations, attributable to increased costs necessary
to support growth in access lines.
CELLULAR
Cost of sales and operating expenses--cellular decreased 4.5% to $3.2
million for the year ended December 31, 1997 as compared to $3.4 million for the
year ended December 31, 1996.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased 19.2% to $18.3 million for the year
ended December 31, 1997 as compared to $15.3 million for the year ended December
31, 1996. Ownership of the City of Fairbanks Telephone Operation for part of the
year in 1997 resulted in $2.1 million of the total increase. The remaining
portion of the total increase was due to higher plant in service balances in
1997 as compared to 1996.
INTEREST EXPENSE, NET
Interest expense, net increased 17.2% to $2.3 million for the year ended
December 31, 1997 as compared to $2.0 million for the year ended December 31,
1996.
OTHER INCOME (EXPENSE)
Other income (expense) is related to the operating income for nonregulated
equipment sales and rental activity, primarily relating to local telephone
operations. For the year ended December 31, 1996, this activity resulted in
other income (expense) of $(0.4) million as compared to $0.2 million for the
year ended December 31, 1997. This increase was due principally to increased
internet revenues and increased payphone, equipment sales and rental activity.
INCOME TAXES
Income taxes increased 25.9% to $8.5 million for the year ended December 31,
1997 as compared to $6.7 million for the year ended December 31, 1996. The
higher income taxes were due to higher taxable income in 1997 as compared to
1996.
NET INCOME
As a result of the factors described above, net income increased $1.9
million to $13.4 million for the year ended December 31, 1997 as compared to
$11.5 million for the year ended December 31, 1996.
EBITDA
As a result of the factors described above, EBITDA increased $7.0 million to
$42.6 million for the year ended December 31, 1998 as compared to $35.6 million
for the year ended December 31, 1996. EBITDA includes the net operating results
of equipment sales and rental, payphone and internet businesses.
58
ATU
On October 20, 1998, we entered into an agreement to acquire substantially
all of the assets and liabilities of ATU from the Municipality of Anchorage. ATU
is the incumbent provider of local telephone services to over 168,000 access
lines in the Municipality of Anchorage and surrounding communities. ATU also
provides cellular and long distance services. In addition, ATU holds minority
interests in companies that deliver wireless cable television, internet access
and wholesale long distance. Prior to May 1999, ATU also held a minority
interest in a provider of home security services.
The following table summarizes each component of ATU's revenue sources for
the years ended December 31, 1996, 1997 and 1998 and the three months ended
March 31, 1998 and 1999 (dollars in thousands):
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------- --------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- --------- ---------
Local service...................... $ 49,458 $ 52,007 $ 50,863 $ 12,913 $ 12,244
Network access..................... 34,800 34,369 34,740 8,035 10,686
Other.............................. 14,813 15,481 20,060 4,882 4,234
---------- ---------- ---------- --------- ---------
Local telephone................ 99,071 101,857 105,663 25,830 27,164
Cellular........................... 16,897 21,845 29,225 5,879 6,710
Long distance...................... 2 1,541 6,815 1,144 2,683
---------- ---------- ---------- --------- ---------
Total.............................. $ 115,970 $ 125,243 $ 141,703 $ 32,853 $ 36,557
---------- ---------- ---------- --------- ---------
---------- ---------- ---------- --------- ---------
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1998
OPERATING REVENUES
Operating revenues increased 11.3% million for the three months ended March
31, 1999 as compared to the three months ended March 31, 1998. ATU reported
revenue growth in all three service categories: local telephone, cellular and
long distance.
LOCAL TELEPHONE
Local telephone revenues, which consist of local service, network access
charges and other revenues, increased 5.2% for the three months ended March 31,
1999 as compared to the three months ended March 31, 1998. Comparing the same
periods, local service revenues decreased 5.2% as a result of a 3.6% decrease in
retail access lines. Local service revenues include revenues for ATU's retail
local telephone service to business and residential customers and wholesale
customers that resell ATU's local telephone service. The decrease in retail
access lines was primarily due to the introduction of competition in ATU's
service area.
Network access revenues increased 33.0% for the three months ended March 31,
1999 as compared to the three months ended March 31, 1998, due primarily to
prior period revenues which had been reserved in connection with various
regulatory matters that have been resolved.
Other revenues decreased $0.6 million, or 13.3% for the three months ended
March 31, 1999 as compared to the three months ended March 31, 1998. One
significant component of other revenues is rental of unbundled network elements
to other service providers. A significant increase in this rental activity was
offset by two factors. Other revenues for the prior three month period ending
March 31, 1998 included one-time revenue from services provided to
facility-based competitors of approximately $0.6 million. In addition, there was
a significant decrease in revenues generated from billing and collection
services provided to other service providers during the 1(st) quarter of 1999.
59
CELLULAR
Cellular revenues increased 14.1% for the three months ended March 31, 1999
as compared to the three months March 31, 1998. The number of subscribers
increased from 54,436 at March 31, 1998 to 63,779 at March 31, 1999.
LONG DISTANCE
Long distance revenues increased 134.5% for the three months ended March 31,
1999 as compared to the three months ended March 31, 1998 principally due to a
161.1% growth in minutes of use.
OPERATING EXPENSES
LOCAL TELEPHONE
Cost of sales and operating expenses--telephone increased 9.1% for the three
months ended March 31, 1999 as compared to the three months ended March 31, 1998
due to a number of factors including increased labor and consulting related to
new information systems, increased customer service expense and an increase in
sales and marketing expense as a response to the opening of the local market to
competition.
CELLULAR
Cost of sales and operating expenses--cellular increased 17.1% for the three
months ended March 31, 1999 as compared to the three months ended March 31, 1998
primarily due to the increase costs of supporting a larger customer base.
LONG DISTANCE
Cost of sales and operating expenses--long distance increased 70.9% for the
three months ended March 31, 1999 as compared to the three months ended March
31, 1998. Expenses rose at a lower rate than revenues due to economies of scale.
Since ATU is not a facilities-based carrier, a primary component of long
distance cost of sales is the semi-fixed expense of leased lines. The number of
leased lines is fixed over a range of capacity. In addition, selling, general
and administrative expense, as a percentage of revenues, was significantly lower
for the three months ended March 31, 1999 as compared to the three months ended
March 31, 1998.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense increased 4.7% for the three months
ended March 31, 1999 as compared to the three months ended March 31, 1998
primarily due to increases in plant in service balances and goodwill
amortization.
INTEREST EXPENSE, NET
Interest expense, net decreased 13.9% for the three months ended March 31,
1999 as compared to the three months ended March 31, 1998 due to the decrease in
outstanding long-term debt.
OTHER INCOME (EXPENSE)
Other income (expense) consists of equity in earnings (loss) of minority
interests and the net operating results of ATU's nonregulated equipment sales
and lease activities. Other income (expense) changed only marginally between the
two three month periods.
60
NET INCOME AND EBITDA
The 0.8% increase in net income and the 2.9% increase in EBITDA result from
the factors described above. Because ATU is a public utility of the Municipality
of Anchorage, it is exempt from U.S. federal and state income taxes. Because
earnings and losses from equity investments do not directly affect the operating
cash requirements of ATU, these amounts have been excluded from the EBITDA
calculation. EBITDA includes the net operating results of equipment sales and
rental, payphone and internet businesses which are included below operating
income in the line "Other income (expense)."
FISCAL YEAR ENDED DECEMBER 31, 1998 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1997
OPERATING REVENUES
Operating revenues increased 13.1% to $141.7 million for the year ended
December 31, 1998 as compared to $125.2 million for the year ended December 31,
1997. ATU reported revenue growth in all three service categories: local
telephone, cellular and long distance.
LOCAL TELEPHONE
Local telephone revenues, which consist of local service, network access
charges and other revenues, increased 3.7% to $105.7 million for the year ended
December 31, 1998 as compared to $101.9 million for the year ended December 31,
1997. Local service revenues decreased 2.2% to $50.9 million for the year ended
December 31, 1998 as compared to $52.0 million for the year ended December 31,
1997 as a result of a decrease in retail access lines. Local service revenues
include revenues for ATU's retail local telephone service to business and
residential customers and wholesale customers that resell ATU's local telephone
service. Although the total number of access lines increased from 158,486 at
December 31, 1997 to 168,536 at December 31, 1998, retail access lines decreased
14,492 from 150,720 at December 31, 1997 to 136,228 at December 31, 1998,
principally as a result of the introduction of competition in ATU's service
area. The number of access lines made available to competitors increased from
7,766 at December 31, 1997 to 32,308 at December 31, 1998. This decrease in
retail access lines resulted in a decrease in local service revenues.
Network access revenues increased 1.1% to $34.7 million for the year ended
December 31, 1998 as compared to $34.4 million for the year ended December 31,
1997. Market share losses relating to increased sales by competitors reduced
network access revenues by $1.9 million in 1998. We expect this competition to
continue. This decrease was partially offset by $2.4 million in higher
intrastate network access revenues from the settlement of a prior year access
charge dispute.
Other revenues increased 29.6% to $20.1 million for the year ended December
31, 1998 as compared to $15.5 million for the year ended December 31, 1997. This
increase was attributable to $3.8 million of higher revenues from unbundled
network element, or UNE, interconnection and $0.7 million of directory revenue.
Revenues from monthly charges paid by competing carriers for UNE interconnection
are accounted for as other revenue.
CELLULAR
Cellular revenues increased 33.8% to $29.2 million for the year ended
December 31, 1998 as compared to $21.8 million for the year ended December 31,
1997. The increase was due to an increase in the number of cellular subscribers
in Anchorage and Alaska RSA #2, as well as the acquisition of the Alaska RSA #1
B-side cellular property on January 1, 1998. The number of subscribers increased
from 47,538 (excluding the Alaska RSA #1 B-side property) at December 31, 1997
to 63,627 at December 31, 1998. The Fairbanks property increased from 5,497
subscribers at January 1, 1998 to
61
9,064 at December 31, 1998. Average revenue per customer per month remained
stable at $42 per customer per month.
LONG DISTANCE
Long distance revenues increased 342.2% to $6.8 million for the year ended
December 31, 1998 as compared to $1.5 million for the year ended December 31,
1997 principally due to customer growth. The number of customers increased to
25,670 customers at December 31, 1998 from approximately 10,600 customers at
December 31, 1997.
OPERATING EXPENSES
LOCAL TELEPHONE
Cost of sales and operating expenses--telephone decreased 1.8% to $59.2
million for the year ended December 31, 1998 as compared to $60.3 million for
the year ended December 31, 1997. Product sales and advertising expenses
increased $2.4 million in 1998 due to increased advertising campaigns resulting
from heightened competition in the local telephone market in 1998. These higher
expenses were offset by $3.5 million of lower expenses, primarily due to lower
labor expenses associated with reduced full-time local telephone employee levels
in 1998 as compared to 1997.
CELLULAR
Cost of sales and operating expenses--cellular increased 38.1% to $20.0
million for the year ended December 31, 1998 as compared to $14.5 million for
the year ended December 31, 1997. An increase in customers from 47,538 at
December 31, 1997 to 63,627 at December 31, 1998 resulted in increases in sales
and marketing, general and administrative and other operating expenses. Of the
$5.5 million increase in cost of sales and operating expenses--cellular, $2.1
million was due to the operation of the newly acquired Alaska RSA #1 B-side
cellular property for a full year in 1998.
LONG DISTANCE
Cost of sales and operating expenses--long distance increased 123.8% to
$10.4 million for the year ended December 31, 1998 as compared to $4.6 million
for the year ended December 31, 1997. Higher expenses were due to increased
dedicated facilities leases, access payments, advertising and administrative
expenses to support greater long distance traffic volumes. Traffic volumes
increased due to increases in the total number of long distance customers. As a
result, ATU's long distance operations incurred losses of $3.7 million in 1998
and $3.2 million in 1997.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense increased 10.3% to $29.6 million for
the year ended December 31, 1998 as compared to $26.8 million for the year ended
December 31, 1997. Increases in plant in service balances and goodwill
amortization accounted for the increase. Higher depreciation and amortization
expense of $1.5 million in the local telephone operations and $1.3 million in
the cellular and long distance operations was incurred in 1998.
INTEREST EXPENSE, NET
Interest expense, net decreased 5.0% to $6.4 million for the year ended
December 31, 1998 as compared to $6.8 million for the year ended December 31,
1997. Interest expense increased by $1.1 million as a result of higher
outstanding long-term obligations associated with a bond issuance in 1998.
Increases in interest income from higher cash balances served to offset higher
interest expense.
62
Reversal of previously accrued interest expense for revenue that had been
reserved in prior periods but recognized in 1998 reduced interest expense for
the year ended December 31, 1998 by $0.4 million.
OTHER INCOME (EXPENSE)
Other income (expense) consists of equity in earnings (loss) of minority
interests and the net operating results of ATU's nonregulated equipment sales
and lease activities. Other income (expense) deteriorated by $2.5 million from
an expense of $0.1 million for the year ended December 31, 1997 to an expense of
$2.6 million for the year ended December 31, 1998. ATU recognized losses in its
minority investments of $2.9 million for the year ended December 31, 1998
compared to earnings of $0.2 million for the year ended December 31, 1997. For
the year ended December 31, 1998, ATU incurred $1.1 million in proportional
losses from its minority investments, and wrote down $1.5 million and $0.4
million of its investments in Alaskan Choice Television, LLC, and Internet
Alaska, respectively.
NET INCOME
As a result of the factors described above, net income increased $1.5
million to $13.6 million for the year ended December 31, 1998 as compared to
$12.1 million for the year ended December 31, 1997. Because ATU is a public
utility of the Municipality of Anchorage, it is exempt from U.S. federal and
state income taxes.
EBITDA
As a result of the factors described above, EBITDA increased $7.0 million to
$52.6 million for the year ended December 31, 1998 as compared to $45.6 million
for the year ended December 31, 1997. Because earnings and losses from equity
investments do not directly affect the operating cash requirements of ATU, these
amounts have been excluded from the EBITDA calculation. EBITDA includes the net
operating results of equipment sales and rental, payphone and internet
businesses.
FISCAL YEAR ENDED DECEMBER 31, 1997 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1996
OPERATING REVENUES
Operating revenues increased 8.0% to $125.2 million for the year ended
December 31, 1997 as compared to $116.0 million for the year ended December 31,
1996. ATU reported revenue growth in all three service categories: local
telephone, cellular and long distance.
LOCAL TELEPHONE
Local telephone revenues increased 2.8% to $101.9 for the year ended
December 31, 1997 as compared to $99.1 million for the year ended December 31,
1996. Local service revenues increased 5.2% to $52.0 million for the year ended
December 31, 1997 as compared to $49.5 million for the year ended December 31,
1996. The increase in local service revenues was primarily due to a 2.4%
increase in access lines and increases in penetration of enhanced services, such
as caller ID and call forwarding. Access revenues declined $0.4 million for the
year ended December 31, 1997 due to lower intrastate access revenues. Other
revenues increased 4.5% to $15.5 million for the year ended December 31, 1997 as
compared to $14.8 million for the year ended December 31, 1996, principally as a
result of the commencement of UNE interconnection, resulting in the sale by ATU
of unbundled network elements to a competitor, and directory advertising
revenues.
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CELLULAR
Cellular revenues increased 29.3% to $21.8 million for the year ended
December 31, 1997 as compared to $16.9 million for the year ended December 31,
1996. The increase was principally attributable to a 26.3% increase in the
number of subscribers, from 37,651 at December 31, 1996 to 47,538 at December
31, 1997 (excluding the Alaska RSA #1 B-Side cellular property which was
acquired on January 1, 1998).
LONG DISTANCE
Long distance revenues increased to $1.5 million for the year ended December
31, 1997 as compared to $2,000 for the year ended December 31, 1996. The
increase was attributable to the commencement of the long distance business in
the fall of 1996.
OPERATING EXPENSES
LOCAL TELEPHONE
Cost of sales and operating expenses--telephone decreased 2.9% to $60.3
million for the year ended December 31, 1997 as compared to $62.1 million for
the year ended December 31, 1996. The decrease is primarily attributable to
lower labor expense from a reduction in the number of employees and lower
expenses from regulatory consulting services.
CELLULAR
Cost of sales and operating expenses--cellular increased 16.8% to $14.5
million for the year ended December 31, 1997 as compared to $12.4 million for
the year ended December 31, 1996. The increase is attributable to increases in
the number of employees to support growth in the customer base and increased
advertising expenses.
LONG DISTANCE
Cost of sales and operating expenses--long distance increased $4.1 million
to $4.6 million for the year ended December 31, 1997 as compared to $0.5 million
for the year ended December 31, 1996. The increase was due to start-up expenses
associated with commencing long distance operations, including higher switching,
facilities lease and access expenses to support the larger base of customers.
DEPRECIATION AND AMORTIZATION
Depreciation expense increased 30.9% to $26.8 million for the year ended
December 31, 1997 as compared to $20.5 million for the year ended December 31,
1996. The higher depreciation expense was attributable to higher telephone plant
in service, as well as higher depreciation rates authorized by the APUC that
became effective January 1, 1997.
INTEREST EXPENSE, NET
Interest expense, net remained relatively unchanged. Higher interest expense
from higher outstanding long-term debt balances was offset by higher interest
income associated with higher cash balances.
OTHER INCOME (EXPENSE)
Other income (expense) consists of minority investment earnings of $0.2
million for the year ended December 31, 1997, and net nonregulated expense of
$0.3 million for the year ended December 31, 1997 as compared to net
nonregulated income of $0.3 million for the year ended December 31, 1996.
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NET INCOME
As a result of the factors described above, net income decreased $1.8
million to $12.1 million for the year ended December 31, 1997 as compared to
$13.9 million for the year ended December 31, 1996. Because ATU is a public
utility of the Municipality of Anchorage, it is exempt from federal and state
income taxes.
EBITDA
As a result of the factors described above, EBITDA increased $4.4 million to
$45.6 million for the year ended December 31, 1997 as compared to $41.2 million
for the year ended December 31, 1996. Because earnings and losses from equity
investments do not directly affect the operating cash requirements of ATU, these
amounts have been excluded from the EBITDA calculation. EBITDA includes the net
operating results of equipment sales and rental, payphone and internet
businesses.
YEAR 2000
Some of our older computer programs identify years with two digits instead
of four. This may cause problems because these programs may recognize the year
2000 as the year 1900. These problems could result in a system failure or
miscalculations disrupting operations, including a temporary inability to
process transactions, send invoices or engage in similar, normal business
activities. In addition, we face the risk that suppliers of products, services
and systems purchased by us do not have business systems or products that comply
with the year 2000 requirements.
While we believe that the conversions or installations of replacement
systems will proceed smoothly, we cannot assure you that there will not be
interruptions or failures in our systems or in the systems of our suppliers. The
telecommunications industry is highly susceptible to the year 2000 issue. Should
the year 2000 issue cause problems across our infrastructure, service could be
interrupted. These events, if they occur, could materially adversely affect our
financial condition and results of operations.
In order to understand our vulnerability to the year 2000 issue, we
conducted a complete systems assessment of our year 2000 compliance during the
process of evaluating the acquisitions of PTI Alaska and ATU. Many of our
systems have been represented by the respective vendors of these systems to be
year 2000 compliant and both PTI Alaska and ATU have initiatives in progress
that we believe will address all outstanding year 2000 issues.
As of January 1, 1999, ATU completed its installation of SAP, an integrated
financial and accounting system. On March 12, 1999, ATU completed its
installation of Saville, a state-of-the-art customer care and billing system.
MACtel and ATU Long Distance will continue to operate their existing financial
management and billing systems. For carrier access billing, following the
closing of the acquisitions, ATU will transition to PTI Alaska's existing
systems. Each of the foregoing systems has been represented by the vendor to be
year 2000 compliant.
We are in the process of converting PTI Alaska's customer care and billing
systems to ATU's Saville platform. This process is expected to be complete in
July 1999. PTI Alaska recently completed its installation of Platinum, an
integrated financial and accounting application. Facilities management and
repair support systems for PTI Alaska are scheduled to be transitioned in July
1999 to ATU platforms, which have been represented by the vendors as year 2000
compliant.
Since January 1, 1997, ATU has spent approximately $22.8 million to upgrade
and maintain its information technology systems. While each of these upgrades
related to systems that, based on representations by the vendors, we believe are
year 2000 compliant, the expenditures for upgrading these systems also included
costs of replacing otherwise obsolete systems. We expect to spend an additional
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$4.3 million to make our information technology systems year 2000 compliant by
the end of October 1999.
PTI Alaska's cellular systems are supported by Novatel and Northern Telecom
switching and cell site equipment. The Novatel switches, which serve southeast
Alaska, are not currently year 2000 compliant, but these systems are in the
process of being replaced by year 2000 compliant systems, with completion
expected by October 1999 at a cost of approximately $4.0 million.
Given the progress made to date, we do not anticipate delays in finalizing
and implementing year 2000 readiness solutions by the end of October 1999. We
cannot accurately estimate the uncertainty of completing its year 2000 readiness
plan, particularly as it relates to any failure by third parties that have
material relationships with us and fail to achieve their own year 2000
readiness. We have in the past and will continue to obtain assurances from third
parties that their systems are or will be year 2000 compliant no later than the
end of October 1999. Any failures by these third parties to appropriately
address their own year 2000 readiness challenges could materially adversely
affect our financial condition and results of operations.
We believe that the following several situations make up our most reasonably
likely worst case scenario:
FAILURE OF ELECTRICAL POWER SUPPLIES. Although most of our major switching
and information systems have emergency standby power supplies, in the event of
long-term power disruption we may be required to shut down its switching and
computer equipment. We believe the larger electrical utilities that provide
service to us are pursuing year 2000 readiness strategies. However, electric
utilities serving smaller rural communities may be particularly exposed to year
2000 readiness issues.
DISRUPTION OF SWITCHING AND INFORMATION TECHNOLOGY INFRASTRUCTURE. The most
significant risks related to our switching and information technology systems
are (1) the inability of our customers to make and receive calls, (2) the
inability of our cell sites, switching centers and other interfaces to process
and record call details of local telephone, long distance and cellular traffic
accurately and (3) the inability of our billing systems to report and bill
customers for phone usage accurately. We believe that we have adequately
addressed each of these risks in our year 2000 readiness plan.
INABILITY OF LARGE CUSTOMERS TO PAY INVOICES. Our largest customers are
IXCs that are both customers and competitors in some of our markets. If IXCs
experience year 2000 readiness problems, we may experience delays in collection
of outstanding receivables and a decrease in the cash available to fulfill our
obligations.
We are developing contingency plans for potential year 2000 disruptions. We
are closely monitoring our year 2000 readiness plan and have developed
preliminary contingency plans for the most critical aspects of our year 2000
readiness plan. Details of these plans will be further developed and will depend
on our final assessment of the relevant situation and potential alternative
strategies.
LIQUIDITY AND CAPITAL RESOURCES
Our initial debt borrowings and equity contributions were sufficient to fund
the consummation of the acquisitions of PTI Alaska and ATU. As a result of the
financing for these acquisitions, we have a substantial amount of long-term
debt. Interest payments on the old notes (and on the exchange notes after the
exchange offer) and borrowings under the senior credit facility, as well as
amortization of borrowings under the senior credit facility, represent
significant obligations of ours. Interest on the old notes (and on the exchange
notes after the exchange offer) is payable semiannually. Interest on borrowings
under the senior credit facility is payable quarterly, and the senior credit
facility requires annual amortization payments commencing on May 14, 2002. We
also have a $75.0 million revolving credit facility, approximately $66.3 million
of which is undrawn and available.
66
Management believes additional debt availability and internally generated
cash flow from operations will be adequate to meet our anticipated capital and
liquidity requirements. Other than debt service, our future liquidity demands
relate to capital expenditures and working capital.
The local telephone business is a regulated business that requires the
timely maintenance of plant and infrastructure. Our local network is of high
quality and is technically advanced and will have relatively predictable annual
capital needs. Our historical capital expenditures have been significant. The
construction and geographic expansion of our cellular network required a
substantial amount of capital. We are in the process of completing a digital
upgrade of our cellular network and expect to finish this upgrade during the
last six months of 1999, spending approximately $7.0 million. The implementation
of our long distance strategy is capital intensive. We recently purchased fiber
capacity for $19.5 million. This purchase will enable us to use our own leased
facilities in developing our business. If we successfully implement our long
distance strategy and grow our long distance business, we will be required to
make substantial purchases of additional fiber capacity. In addition to the
purchase of fiber capacity, we anticipate total capital expenditures in 1999 of
approximately $58.0 million, of which approximately $48.0 million will be for
our LEC business and approximately $10.0 million will be for our cellular
business. We do not expect our capital expenditure requirements to increase
materially in the foreseeable future for our LEC or cellular businesses.
Our capital requirements may change, however, due to, among other things:
(1) the availability of additional fiber capacity; (2) our decision to pursue
specific acquisition opportunities; (3) changes in technology, or (4) the
effects of competition. Any of these changes could require additional financing
that might not be available or, if available, might not be on terms favorable to
us. Our ability to satisfy our capital requirements will be dependent upon our
future financial performance, which is, in turn, subject to future economic
conditions and to financial, business and other factors, many of which are
beyond our control. See "Risk Factors."
EFFECT OF NEW ACCOUNTING STANDARDS
SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES,
was issued in June 1998. SFAS No. 133 establishes standards for the recognition
and measurement of derivatives and hedging activities. This statement is
effective for fiscal years beginning after June 15, 1999. We are currently
analyzing the impact SFAS No. 133 will have on our financial statements.
Statement of Position ("SOP") 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER
SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE, was issued in March 1998. SOP
98-1, among other things, requires that the costs of software, whether purchased
or developed internally, be capitalized and amortized over the estimated useful
life of the software. Adoption of SOP 98-1 is required as of January 1, 1999. We
do not expect SOP 98-1 to have a material impact on our financial statements.
RECENT DEVELOPMENTS
On April 5, 1999, Holdings and GCI, Inc. entered into a settlement agreement
under which they agreed to enter into a number of new business arrangements and
to settle a number of outstanding disputes. As part of this agreement, we
acquired $19.5 million of fiber optic capacity on GCI's systems. We expect that,
despite the large initial cost of acquiring this capacity, the transition to
leased facilities-based services will reduce the cost of providing long distance
and internet access services. In addition, as part of this agreement, GCI
withdrew its opposition to our acquisitions of PTI Alaska and ATU and agreed to
settle several outstanding claims against ATU, the effect of which is not
expected to be material.
67
OUTLOOK
We expect the current demand for telecommunications services in Alaska to
continue to grow, particularly as data-related usage leads to increased access
line demand and industry-wide demand for wireless services increases. We believe
that we will be able to capitalize on this demand through our diverse service
offerings and a focused sales and marketing approach.
There are currently a number of regulatory proceedings underway at the
federal and state levels that could have a significant impact on our operations.
The APUC held hearings the week of June 21, 1999, and on June 30, 1999 issued
orders revoking the rural exemptions applicable to PTI Alaska's rural local
exchange operating companies. We may seek reconsideration or appeal of these
orders or suspension or modification of our interconnection duties under the
Telephone Act. In addition to seeking these remedies, we can request that the
RCA take further steps to reform rural markets by initiating regulatory changes
to permit increased operating and marketing flexibility in our operations, in
order to mitigate the impact that competition might have on our operations. If
any reconsideration or appeal of the APUC's orders or suspension or modification
of interconnection duties is not sought, or if these market structure reforms
are not implemented or if they are implemented in a manner that is unfavorable
to us, then we may be unable to provide local telephone service on a profitable
basis to all our service areas. See "Regulation."
We believe there are numerous potential facilities-based competitors for
each of our services in our service areas. During the last session, a bill was
proposed in the Alaska State Senate to open to competition many local telephone
markets in which we operate. Specifically, the bill proposed to allow
competitors to provide local telephone service in local telephone markets
throughout Alaska that have at least 5,000 access lines, effectively depriving
incumbent LECs in those markets of their rural exemptions. Competition resulting
from this bill, if it had been enacted into law, could have materially adversely
affected our profitability. We cannot predict at this time whether or to what
extent proposals included in the bill will be offered again and enacted into
law. However, with the exception of Anchorage, we do not expect facilities-based
competition for our services to begin in the near future, either because of
regulatory restrictions pertaining to negotiation or arbitration or because of
the significant capital investment that would be required to initiate
facilities-based competition. We believe that our existing competitors in
Anchorage will continue to market their services aggressively and that we may be
forced to react to special promotions or discounts in order to retain our
customer base. If that is required, it may materially adversely affect our
profitability.
The telecommunications industry is subject to continuous technological
change. We expect that new technological developments in the future will
generally serve to enhance our ability to provide service to our customers.
However, these developments may also increase competition or require us to make
significant capital investments to maintain our leadership position in Alaska.
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INDUSTRY OVERVIEW
OVERVIEW
In recent years, the telecommunications industry has undergone rapid change
due to deregulation, construction of additional infrastructure and introduction
of new technologies, all of which have resulted in increased competition and
demand for telecommunications services. The Alaskan telecommunications industry
is influenced by many of these factors, though Alaska's unique characteristics
further enhance the need for telecommunications services. Alaska has widely
dispersed population centers across a large geographic area and under-developed
ground transportation infrastructure. As a result, Alaskan residents are
particularly dependent on telecommunications to access resources and
information.
Alaskan telecommunications operators use a variety of technologies,
including traditional copper wire, fiber optic cable, digital microwave and
satellite-based communications (particularly in remote communities) to provide
telecommunications services, including local telephone, wireless, long distance
services and internet access. Management estimates the telecommunications market
in Alaska generated revenues of approximately $810 million in 1997, of which
approximately $300 million was attributable to local telephone, $60 million to
wireless, $430 million to long distance and $20 million to internet.
LOCAL TELEPHONE OVERVIEW
The U.S. LEC industry is subject to significant regulation from both the FCC
and state authorities. The U.S. local telephone industry is composed of a few
large, well-known companies, including the RBOCs and GTE Corporation, and
numerous small, independent telephone companies. Large incumbent LECs generate
the vast majority of the estimated $100 billion in annual local exchange
revenues and own a majority of the access lines. A majority of the small,
independent telephone companies operate in sparsely populated rural areas with
limited competition due to the unfavorable economics of constructing and
operating a competing network in those areas.
Local telephone services traditionally offered by local telephone companies
include (1) basic local service to customers within a LEC's service area, (2)
network access services to interexchange carriers for origination and
termination of interstate and intrastate long distance phone calls, (3) enhanced
services, such as call waiting, call forwarding, caller ID and voice mail and
(4) other services, such as billing and collection, directory publishing,
directory assistance and Centrex, a switch-based service offering for business
customers. Rural LECs typically receive the majority of their revenues from
access charges, as opposed to the RBOCs, which receive a greater share of
revenues from basic local services.
The characteristics of a rural LEC's service areas result in higher costs
for the LEC because of the additional costs of providing the infrastructure to
rural customers and the lack of economies of scale available in more densely
populated areas. To ensure that affordable universal telephone service is
available in remote areas, rural LECs typically benefit from various support
mechanisms. The largest support mechanism for rural LECs is the USF. See
"Regulation."
ALASKAN OVERVIEW
The population of Alaska was approximately 614,020 at June 30, 1998, having
grown at a compound annual rate of approximately 1.3% over the past ten years.
While the majority of the population is concentrated in the city of Anchorage
and surrounding areas, population growth in recent years has been broadly
distributed throughout the state. The U.S. Census Bureau projects that through
2005 the population of Alaska will grow at a compound annual rate of 1.9%, as
compared to a 0.8% compound annual rate projected for the U.S. as a whole.
69
Alaska has the highest median household income in the U.S. According to the
U.S. Census Bureau, Alaska's average median household income during the period
from 1995 to 1997 was $50,829, approximately 40% greater than the overall U.S.
median household income. In addition, Alaskans benefit from the absence of state
personal income taxes.
Alaska's economic activity centers around three urban areas: Anchorage,
Juneau, and Fairbanks. Historically, the state's economy has depended
significantly on natural resource industries in general and the petroleum
industry in particular. In 1996, the most recent year for which the gross state
product was calculated, the petroleum industry represented approximately 36.3%
of the $25.9 billion gross state product. In 1998 most of the employment growth
in Alaska was attributable to the services sector, and in particular, health
care, hotels and social services.
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BUSINESS
OUR COMPANY
We are the leading diversified, full-service telecommunications provider in
Alaska offering local telephone, wireless, long distance and internet services
to business and residential customers throughout the state. We have over $875
million invested in our network, a state-of-the-art telecommunications
infrastructure that includes over 485 miles of fiber optic cable and 176
switching facilities.
LOCAL TELEPHONE. With over 300,000 access lines, we are the 16th largest
LEC in the U.S. and the leading LEC in Alaska. We provide service to 75% of the
Alaskan population and to all of the state's major population centers, including
Anchorage, Juneau and Fairbanks. There are no RBOCs in Alaska.
WIRELESS. We are the largest and only statewide provider of wireless
services in Alaska, currently serving over 66,000 subscribers. Our service areas
cover all major population centers and highway corridors.
LONG DISTANCE AND INTERNET. We provide long distance services to
approximately 26,000 customers, primarily in Anchorage, and internet access
services to approximately 16,000 customers throughout the state.
We have achieved strong operating results through stable internal growth and
strategic acquisitions. For the year ended December 31, 1998, we would have had
consolidated pro forma revenues of $254 million, operating income of $40
million, a net loss of $16 million and EBITDA of $102 million.
We believe that the outlook for continued growth in our local telephone
business is favorable due to the fundamentals of the LEC business, including:
- continued demand for core telephone services and enhanced service
offerings, such as voice mail and call waiting;
- access line growth due to higher consumer bandwidth needs for internet,
data and video usage; and
- improving regulatory environments.
We also intend to leverage our strength in our core local telephone business
to grow our wireless, long distance and internet businesses.
COMPANY BACKGROUND
We were formed in 1998 by Fox Paine and Management to acquire PTI Alaska and
ATU.
PTI ALASKA. PTI Alaska is the incumbent provider of local telephone
services to over 131,000 access lines in Juneau, Fairbanks and more than 70
rural communities in Alaska. PTI Alaska also provides cellular service to
approximately 3,000 subscribers, primarily in Juneau, and owns 10 MHz PCS
licenses covering Anchorage, Juneau and Fairbanks. In addition, PTI Alaska
provides internet services to approximately 16,000 customers statewide.
ATU. ATU is the largest LEC in Alaska and is the incumbent provider of
local telephone services to over 168,000 access lines, primarily in Anchorage.
ATU also provides cellular service to over 63,000 subscribers primarily in
Anchorage and Fairbanks under the MACtel brand name. MACtel is the leading
cellular provider in Alaska and has achieved a penetration rate of approximately
16% in its service areas. ATU began providing long distance service through ATU
Long Distance on a resale basis in the fall of 1997 and serves approximately
26,000 customers, primarily in Anchorage.
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PRODUCTS, SERVICES AND REVENUE SOURCES
We offer a broad portfolio of telecommunications services to residential and
business customers in our markets. Our service offerings are locally managed to
better serve the needs of each community. We believe that, as the communications
marketplace continues to converge, the ability to offer an integrated package of
communications products will provide a distinct competitive advantage, as well
as increase customer loyalty, thereby decreasing customer turnover. We intend to
complement our local telephone services by actively marketing our wireless, long
distance and internet service offerings.
The following table sets forth the components of our revenues on a pro forma
basis for the year ended December 31, 1998:
REVENUE SOURCE AMOUNT PERCENT
- ---------------------------------------------------------------- ------------------- -----------
(DOLLARS IN
MILLIONS)
Local telephone services
Basic local service........................................... $ 78.6 30.9%
Enhanced services............................................. 9.5 3.8
Network access.................................................. 85.6 33.7
Cellular........................................................ 31.8 12.5
Long distance................................................... 6.8 2.7
USF............................................................. 13.5 5.3
Other........................................................... 28.3 11.1
------ ---
Total....................................................... $ 254.1 100%
------ ---
------ ---
LOCAL TELEPHONE SERVICES
BASIC LOCAL SERVICE. Basic local service enables customers to originate and
receive telephone calls within a defined "exchange" area. We provide basic local
services to residential and business customers, generally for a fixed monthly
charge. The maximum amount that we can charge a customer for basic local
services is determined by rate proceedings involving the appropriate state
regulatory authorities. We charge business customers higher rates to recover a
portion of the costs of providing local service to residential customers. On
average, U.S. business rates for basic local services have been over two times
the rates of residential customers. Basic local service also includes
non-recurring charges to customers for the installation of new products and
services.
At December 31, 1998, approximately 60% of our retail access lines served
residential customers, while 40% served business customers. Currently, our
monthly charges for basic local service for residential customers range from
$9.42 to $16.30 in PTI Alaska's service areas and are $9.70 in ATU's service
area, as compared to the national average of $15.99. Monthly charges for
business customers range from $17.65 to $26.05 in PTI Alaska's service areas and
are $25.75 in ATU's service areas, as compared to the national average of
$34.55.
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The table below sets forth the growth in access lines at PTI Alaska and ATU
from December 31, 1994 to December 31, 1998:
AS OF DECEMBER 31,
-----------------------------------------------------
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
Access lines
PTI Alaska........................ 73,563 77,660 82,969 124,869(a) 131,858
ATU(b)............................ 144,869 147,934 154,752 158,486 168,536
% Growth
PTI Alaska........................ -- 5.6% 6.8% 50.5%(a) 5.6%
ATU............................... -- 2.1% 4.6% 2.4% 6.3%
- ------------------------------
(a) Approximately 37,000 access lines were acquired by PTI Alaska as part of its
acquisition of the City of Fairbanks Telephone Operation in October 1997.
(b) Represents all revenue producing access lines, whether connected to retail
or wholesale customers.
Future growth in access lines is expected to be derived from (1) increases
in line demand from data-related usage by existing business customers, (2)
increased additional line demand from internet usage by residential customers
and (3) population growth in our service areas.
ENHANCED SERVICES. Enhanced services consist of services such as call
waiting, call forwarding, call return, continuous redial, caller ID and voice
mail. These services are generally billed on a monthly basis together with the
customers' bill for basic local services. Customer penetration of enhanced
services (the number of enhanced services divided by the number of access lines)
in our service areas is currently 82%, while other rural LECs in the U.S. have
achieved penetration levels of 100% to 120%, on average.
NETWORK ACCESS
Network access services include long distance, or toll, calls that typically
involve more than one company in the provision of telephone service. We bill
access charges to each IXC for the use of our facilities to access the customer,
as described below. Since toll calls are generally billed to the customer
originating the call, a mechanism is required to compensate each company
providing services relating to the call. Rural LECs typically are allowed to
charge higher access rates to IXCs than urban LECs as an implicit means of
recovering a portion of the costs of providing telephone service to rural
service areas.
INTRASTATE ACCESS CHARGES. We generate intrastate access revenue when an
intrastate long distance call (which involves an IXC) is originated by a
customer within the same state but in another local calling area. The IXC pays
us an intrastate access payment for either terminating or originating the call.
We record the details of the call through our carrier access billing system and
receive the access payment from the IXC. When one of our customers originates
the call, we typically provide billing and collection for the IXC through a
billing and collection agreement. The access charge for our intrastate service
is regulated and approved by the RCA.
INTERSTATE ACCESS CHARGES. We generate interstate access revenue when an
interstate long distance call is originated by a customer calling from a local
calling area in one state to a local calling area in another state. We bill
interstate access charges in the same manner as we bill intrastate access
charges; however, the interstate access charge is regulated and approved by the
FCC rather than by the RCA.
WIRELESS SERVICES
Our cellular businesses currently are managed separately from our LEC
business and are subject to a different regulatory framework and cost structure.
Management intends to integrate PTI Alaska's
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cellular operations with those of MACtel. The primary sources of wireless
revenue include subscriber access charges, airtime usage, toll charges,
connection fees, roaming revenues, as well as enhanced features, such as voice
mail. A subscriber may purchase services separately or may purchase rate plans
that package these services in different ways to fit different calling patterns.
We currently provide digital service in Anchorage and Fairbanks and expect to be
fully digital in our other service areas [by the end of 1999]. Upon conversion
to digital service, we will be able to offer advanced digital services and
features, such as text messaging.
As illustrated in the table below, both PTI Alaska and MACtel have
experienced growth in the number of cellular subscribers served and the total
population over the past five years:
AS OF DECEMBER 31,
-----------------------------------------------------
1994 1995 1996 1997 1998(A)
--------- --------- --------- --------- ---------
Total POPs
PTI Alaska........................... 53,484 54,286 55,101 55,927 56,766
MACtel............................... 289,813 294,160 298,573 397,434 403,396
Ending subscribers
PTI Alaska........................... 1,194 1,300 1,678 2,096 2,945
MACtel............................... 13,684 24,855 37,651 53,035 63,627
Ending penetration
PTI Alaska........................... 2.2% 2.4% 3.1% 3.7% 5.2%
MACtel............................... 4.7% 8.4% 12.6% 13.3% 15.8%
- ------------------------------
(a) MACtel acquired the Alaska RSA #1 B-Side cellular property from PTI Alaska
on January 5, 1998, which had 94,383 POPs and 5,497 subscribers on the date
of acquisition. The chart includes the RSA #1 B-Side cellular property for
MACtel as of December 31, 1997. The RSA #1 B-Side cellular property has been
excluded from the data for PTI Alaska presented in the table.
Although MACtel has achieved cellular penetration rates of 18% and 19% in
Anchorage and Kenai, respectively, penetration rates in our other service areas
are significantly lower. Management believes there are opportunities to improve
the penetration rates of our cellular operations in Fairbanks and Juneau.
Management also believes that the market for wireless services will continue to
grow with the growth in the wireless industry as a whole.
We also own 10 MHz E Block PCS licenses covering Anchorage, Juneau and
Fairbanks, which were purchased by PTI Alaska in 1997. We have not built out
these licenses and do not plan to do so in the near future. Management is
analyzing technical alternatives for using this spectrum to enhance our service
offerings in our overall business.
LONG DISTANCE SERVICES
We began offering long distance services on a resale basis in October 1997,
primarily in Anchorage. We currently have approximately 26,000 long distance
customers and less than a 2.5% market share, based on revenues. We intend to
expand our long distance operations into PTI Alaska's service areas during 1999.
Before August 1998, PTI Alaska was precluded from entering the long distance
business by a non-competition agreement with AT&T Alascom, Inc. which was signed
when Pacific Telecom sold Alascom, Inc. to AT&T in 1995. To date, our long
distance operations have generated operating losses.
We recently purchased fiber capacity between the major population centers in
Alaska and between Alaska and the contiguous 48 states of the U.S. from GCI. We
agreed to pay $19.5 million for one DS-3 from Fairbanks to Anchorage, one-half
DS-3 from Anchorage to Juneau, and one DS-3 from Anchorage to Seattle. One DS-3
is equivalent to 28 multiplexed T-1 channels. We will require significant
additional fiber capacity to grow our long distance business. We have various
alternatives for the
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purchase of this additional capacity, including a limited purchase option with
GCI. Under our agreement with GCI, the price for additional capacity, if
available, will be the lowest price at which GCI sells capacity to another
purchaser. In addition, GCI has agreed to match the lowest price we receive for
comparable capacity from other suppliers. [We intend to pursue purchases of
additional capacity from another supplier that has indicated it will complete
the construction of a fiber optic cable over similar routes in the third quarter
of 1999.] Although the capacity to be purchased from GCI covers our primary long
distance routes, we expect to lease capacity over routes serving other areas of
the state. See "Management's Discussion and Analysis of Results of
Operations--Recent Developments."
We are subject to numerous conditions imposed by the RCA and, to a lesser
degree, by the FCC on the manner in which we conduct our long distance
operations. The restrictions are intended to prohibit cross-subsidization from
the regulated LEC to the unregulated long distance affiliate and discrimination
against other long distance providers in favor of a LEC's long distance
affiliate. Specifically, our long distance affiliates are
- required to hold all books and records, management, employees and
administrative services separate, except that services may be provided
among affiliates through arms-length affiliated interest agreements;
- prohibited from jointly marketing or bundling local and long distance
services until competition develops in the local market; and
- prevented from joint ownership of telephone transmission or switching
facilities with the LEC and from using the LEC's assets as collateral for
its own indebtedness.
As a result of the introduction of competition in ATU's local service areas,
the APUC lifted the restriction on bundling on local and long distance services
in ATU's service areas in 1998.
USF REVENUE
USF revenue supplements the amount of local service revenue we receive to
ensure that basic local service rates for customers in high cost rural areas are
not significantly higher than rates charged in lower cost urban and suburban
areas. The federal USF is funded by monthly customer fees charged to IXCs, LECs
and other telecommunications providers and distributed to us on a monthly basis
based upon our costs for providing local service. See "Regulation."
OTHER
We seek to capitalize on our local presence and network infrastructure by
offering additional services to customers, such as directory services and
billing and collection services for IXCs.
INTERNET ACCESS
We provide internet access services to approximately 16,000 customers under
the PTINet(SM) brand name. For the year ended December 31, 1998, PTI Alaska
generated $5.1 million in internet access revenues. In order to offer internet
access, we provide local dial-up telephone numbers for our customers. These
local dial-up numbers allow customers access, through a modem connection on
their computer, to a series of computer servers we own and maintain. These
servers allow customers to access their e-mail accounts and to be routed to
local access points that connect customers to the internet. We charge customers
either a flat rate for unlimited internet usage or a usage-sensitive rate,
which, in either case, is billed in conjunction with the local telephone bill.
internet revenues are recorded, net of expenses, in our income statement under
"Other income (expense)."
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NETWORK FACILITIES
LOCAL TELEPHONE SERVICES
As of December 31, 1998, we owned 74 exchanges serving over 300,000 access
lines. All of our exchanges are served by digital switches, provided
predominately by Northern Telecom. Our switches are linked through a combination
of extensive aerial, underground and buried cable, including 485 miles of fiber
optic cable, as well as digital microwave and satellite links. We have 100%
single-party services (one customer per access line), and believe all switches
have the latest generic software upgrades available, allowing for the full range
of enhanced customer features.
We have integrated numerous network elements to offer a variety of services
and applications that meet the increasingly sophisticated needs of customers.
These elements include Signal System 7, or SS7, signaling networks, voice
messaging platforms, digital switching and, in some communities, ISDN access. As
the telecommunications industry experiences significant changes in technology,
customer demand and competitive pressures, we intend to introduce additional
enhancements, such as information delivery that improves the delivery speeds of
data, video and voice traffic, known as ATM, and the efficient switching of
variable-length data packets, known as Frame Relay.
Network operations and monitoring will be provided for PTI Alaska and ATU by
ATU's network operating control center ("NOCC") located in Anchorage. The NOCC
has technicians staffed or on-call seven days a week, 24 hours a day. Automated
alarm systems are in place should problems arise with the network after normal
business hours. In addition, we have the right to use Century's NOCC until
August 31, 1999 under a transition services agreement. We also have customer
care facilities in Anchorage and Fairbanks with extensive business hours to
efficiently handle customer inquiries and orders for service.
WIRELESS SERVICES
Our cellular operations consist of eight switching centers and 77 cell sites
covering all major population centers and highway corridors in Alaska. We plan
to complete the conversion of all of our switching and cell site equipment to
digital service by the end of 1999. Our switching and cell site infrastructure
is linked by digital microwave and fiber. MACtel also has a NOCC and customer
care center, located in Anchorage.
COMPETITION
LOCAL TELEPHONE SERVICES
Incumbent LECs may be subject to any of three types of competition:
- facilities-based competition from providers with their own local service
network;
- resale competition from providers who purchase local service from the
incumbent LEC at wholesale rates and resell these services to their
customers ("resale interconnection"); and
- competition from providers who lease unbundled network elements from the
incumbent LEC ("UNE interconnection").
The geographic characteristics of rural areas make the entrance of most
facilities-based competitors uneconomical because of the significant capital
investment required and the limited market size. Thus, competition is likely to
come from resale interconnection or UNE interconnection.
In September 1997, GCI and AT&T Alascom, two long distance carriers in
Alaska, began providing competitive local telephone services in Anchorage. GCI
competes principally through UNE interconnection with ATU's facilities, while
AT&T Alascom competes exclusively by reselling ATU's services. Competition is
based upon price and pricing plans, types of services offered, customer service,
76
billing services, quality and reliability. GCI has focused principally on
advertising discount plans for bundled services. AT&T Alascom's strategy has
been to sell ATU's service as part of a package of local and long distance
services. As a result, ATU lost approximately 19% of its retail access lines in
Anchorage to these competitors during the first ten months of competition,
approximately 61% of which resulted from UNE interconnection by GCI. The
majority of this loss was among price-sensitive residential customers who have
lower average monthly bills than ATU's business customers. Since June 1998, the
rate of this loss has slowed. We expect GCI and AT&T Alascom to continue to
compete for local telephone business.
As "rural telephone companies" under the Telecom Act, PTI Alaska's local
telephone operating subsidiaries had been granted rural exemptions from the
obligation to lease their facilities to competitive LECs seeking to interconnect
with our network. Thus, we do not currently face competition for local telephone
services in PTI Alaska's service areas, although PTI Alaska voluntarily offered
competitors the opportunity to begin resale service at wholesale rates in 1997.
Despite these rural exemptions, in the fall of 1997, PTI Alaska received a
request from GCI for UNE interconnection. Following failed negotiations between
PTI Alaska and GCI, the APUC conducted a hearing in which it affirmed PTI's
rural exemptions. This ruling was appealed and was remanded to the APUC for
further proceedings. The APUC terminated the rural exemptions on June 30, 1999
and ordered the start of a nine-month cycle of negotiation or arbitration as
provided for in the Telecom Act. Management expects that we may eventually be
required to allow UNE interconnection in some of PTI Alaska's service areas but
believes that our services offerings and customer relationships and management's
expertise in the local telephone business will provide us a competitive
advantage over new LECs. In addition, management believes that the lifting of
the rural exemptions provides the RCA the opportunity to implement market
structure reforms that would mitigate the financial impact caused by
competition, although we cannot assure you that the RCA will take any actions
that would so benefit us.
We expect increasing competition from providers of various services that
provide users the means to bypass its network. Long distance companies may
construct, modify or lease facilities to transmit traffic directly from a user
to a long distance company. Cable television companies, in particular, may be
able to modify their networks to partially or completely bypass our local
network.
In addition, while cellular telephone services have historically
complemented traditional LEC services, we anticipate that existing and emerging
wireless technologies may increasingly compete with LEC services. Technological
developments in cellular telephone features, personal communications services,
digital microwave and other wireless technologies are expected to further permit
the development of alternatives to traditional landline services.
WIRELESS SERVICES
The wireless telecommunications industry is experiencing significant
technological change, as evidenced by the increasing pace of improvements in the
capacity and quality of digital technology, shorter cycles for new products and
enhancements and changes in consumer preferences and expectations. We believe
that the demand for wireless telecommunications services is likely to increase
significantly as equipment costs and service rates continue to decline and
equipment becomes more convenient and functional. We currently compete with one
other cellular provider in each of its wireless service areas, including AT&T
Wireless Services, Century and Mercury Communications. Competition is based on
price, quality and network coverage. In addition, there are six PCS licensees in
each of our wireless service areas. We hold licenses covering Anchorage,
Fairbanks and Juneau. One of the PCS licensees began providing digital PCS
service in Anchorage in October 1998. Another PCS licensee has recently
indicated it will commence trials of its technology. We believe that the unique
and vast terrain and the high cost of PCS system build-out makes entrance into
markets outside Anchorage unlikely.
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LONG DISTANCE SERVICES
The long distance telecommunications market is highly competitive.
Competition in the long distance business is based on price, customer service,
billing services and quality. We currently offer long distance in ATU's service
areas, and intend, subject to regulatory restrictions, to expand ATU's long
distance operations into PTI Alaska's service areas. AT&T Alascom and GCI are
currently the two major long distance providers in Alaska, including in our
service areas.
Our long distance operations are subject to regulatory restrictions. See
"--Products, Services and Revenue Sources--Long Distance Services."
INTERNET SERVICES
The market for internet access services is highly competitive. There are few
significant barriers to entry, and we expect that competition will intensify in
the future. We currently compete with a number of established on line services
companies, IXCs and cable companies. We believe that our ability to compete
successfully will depend upon a number of factors, including the reliability and
security of our network infrastructure, the ease of access to the internet and
the pricing policies of our competitors.
CUSTOMERS
We have two basic types of customers for our local services:
- business and residential customers located in their local service areas
that pay for local phone service and
- IXCs that pay us for access to long distance calling customers located
within our local service areas.
In general, the majority of our local customers are residential, rather than
business, customers, as is typical for rural telephone companies. In addition,
no single local customer of ours represented more than 5% of our total 1998 pro
forma revenue, excluding access customers.
SALES AND MARKETING
PTI Alaska and ATU have historically conducted their sales and marketing
operations for each of their respective products on a stand-alone basis. At PTI
Alaska, local telephone products and services are provided under the PTI
Communications(SM) brand name, wireless services are marketed under the
Cellulink(SM) brand name and PTI Alaska's internet access services are sold
under the PTINet brand name. Similarly, at ATU local telephone products and
services are marketed under the ATU brand name, cellular services are marketed
under the MACtel brand name and long distance services are marketed under the
ATU LD brand name. Each of these product lines has separate sales forces and
marketing departments.
Our sales and marketing strategy, subject to regulatory restrictions, is to:
- market aggressively current and future service offerings, including
packaged service offerings;
- centralize sales and marketing functions; and
- enhance direct sales efforts.
We also believe that we can leverage our position as an integrated provider of
multiple telecommunications services with attractive positions in local access
and cellular services. By pursuing a marketing strategy that takes advantage of
these characteristics, we believe we can increase penetration of new product
offerings, maintain customer retention rates, increase our share of our
customers' overall telecommunications expenditures and achieve continued revenue
and operating cash flow growth.
78
While PTI Alaska and ATU have, to a limited extent, packaged local telephone
services into attractively-priced service offerings and packaged these local
telephone services with wireless, long distance and internet services, neither
PTI Alaska nor ATU has focused on these types of offerings. Packaged offerings
allow customers to enjoy pricing for a number of services at a substantial
discount to A LA CARTE pricing of individual services. Subject to regulatory
limitations, we intend to expand this strategy, which we expect will increase
the average revenue per customer and result in a more loyal and satisfied
customer base.
We intend to establish a sales and marketing division where marketing
strategies will be centralized and sales functions will be based locally. To
enhance our direct selling efforts, we intend to establish additional customer
and retail service centers in its larger service areas, such as Juneau and
Kenai/ Soldotna, and to enhance call center operations through a combination of
technology investments and training and incentive compensation programs for call
center employees. In addition, we intend to begin marketing PTI Alaska's
cellular operations under the MACtel brand name. We will continue to review our
branding strategy and believe that further rationalization of our brand names
may be appropriate.
SUPPLIERS
We believe we have strong, long-term relationships with our numerous
communications vendors. Our primary switching vendor is Northern Telecom, a
leading provider of advanced switching systems to rural service providers. While
we recognize that the separation of PTI Alaska from the rest of Century's
properties might result in higher unit costs for PTI Alaska, we expect that the
combination of PTI Alaska and ATU and the presence of vendor competition will
deter any significant unit increases and may result in unit cost reductions in
the longer term. We also enjoy positive relationships with a variety of vendors
for outside plant facilities and other elements of our network.
EMPLOYEES
We consider employee relations to be good. As of June 18, 1999, we employed
a total of 1,107 full-time employees, 750 of whom were represented by unions. In
addition, we employ approximately 32 part-time employees in various support
positions throughout the organization.
PTI Alaska has a collective bargaining agreement with the International
Brotherhood of Electrical Workers that expires in 2004. This agreement provides
for wage increases up to 4% based upon the annual increases in the U.S.
Department of Labor CPI-U, the Consumer Price Index for Anchorage. ATU also has
a contract with the IBEW that is scheduled to expire in August 1999. Management
and the IBEW are negotiating the terms under which ATU's represented employees
would be transitioned to PTI Alaska's collective bargaining agreement. We
believe this transition will be completed prior to expiration of ATU's existing
agreement and are confident that a mutually acceptable transition can be
negotiated with the IBEW. There have been no work stoppages or strikes by either
PTI Alaska's or ATU's employees, and Management has worked closely with IBEW
leadership for many years.
MINORITY INTERESTS
We own minority interests in the entities described below:
- a 47% equity interest in Alaska Network Systems, Inc., which provides
wholesale intrastate and interstate long distance services;
- a 30% share of Internet Alaska, Inc., which serves approximately 30,000
customers, primarily in Anchorage and Fairbanks; and
- a 33% interest in Alaskan Choice Television, L.L.C. ("ACTV"), a wireless
cable television provider whose business plan requires significant
additional capital. While we are not obligated to
79
make an additional investment in ACTV, we are currently considering a
number of alternatives which address our proportionate interest in ACTV.
For the year ended December 31, 1998, ATU incurred $1.1 million in
proportional losses from its minority investments and wrote down $1.5 million
and $0.4 million of its investments in Alaskan Choice Television, LLC, and
Internet Alaska. See Note 7 to the consolidated financial statements of ATU
included herein.
ENVIRONMENTAL REGULATIONS
Our operations are subject to federal, state and local laws and regulations
governing the use, storage, disposal of, and exposure to, hazardous materials,
the release of pollutants into the environment and the remediation of
contamination. As an owner or operator of property and a generator of hazardous
wastes, we could be subject to environmental laws that impose liability for the
entire cost of cleanup at contaminated sites, regardless of fault or the
lawfulness of the activity that resulted in contamination. We believe, however,
that our operations are in substantial compliance with applicable environmental
laws and regulations.
Many of our properties formerly contained, or currently contain, underground
and aboveground storage tanks used for the storage of fuel or wastes. Some of
these tanks have leaked. We believe that known contamination caused by these
leaks has been, or is being, investigated or remediated. We cannot be sure,
however, that we have discovered all contamination or that the regulatory
authorities will not request additional remediation at sites that have
previously undergone remediation.
Our cellular operations are also subject to regulations and guidelines that
impose a variety of operational requirements relating to radio frequency
emissions. The potential connection between radio frequency emissions and
negative health effects, including some forms of cancer, has been the subject of
substantial study by the scientific community in recent years. To date, the
results of these studies have been inconclusive. Although we have not been named
in any lawsuits alleging damages from radio frequency emissions, it is possible
we could be sued in the future, particularly if scientific studies conclusively
determine that radio frequency emissions are harmful.
PROPERTIES
LOCAL TELEPHONE. Our primary properties consist of 168 switching facilities
serving 74 exchanges. We own most of our administrative and maintenance
facilities, central office and remote switching platforms and transport and
distribution network facilities. We lease our corporate headquarters located in
Anchorage.
Our transport and distribution network facilities include a fiber optic
backbone and copper wire distribution facilities that connect customers to
remote switch locations or to the central office and to points of presence or
interconnection with IXCs. These facilities are located on land pursuant to
permits, easements or other agreements.
WIRELESS. We have 77 cell sites that cover all major population centers and
highway corridors throughout Alaska. Most of these sites are leased.
LEGAL PROCEEDINGS
We currently, and from time to time, are involved in litigation and
regulatory proceedings incidental to the conduct of our business. Neither PTI
Alaska nor ATU is a party to any lawsuit or proceeding that, in the opinion of
management, is likely to have a material adverse effect on us.
In March 1999, the Alaska Superior Court ordered the APUC to conduct further
proceedings to consider whether it is appropriate to lift PTI Alaska's rural
exemptions, based on a finding that the burden of proof had been assigned to GCI
in error. The remand is now pending at the APUC. See "Regulation."
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REGULATION
OVERVIEW
Our operations are subject to the separate but concurrent jurisdictional
control of both the federal government and the State of Alaska. PTI Alaska's
local telephone operating subsidiaries, TUNI, TUA and PTIC (formerly the City of
Fairbanks Telephone Operation), and ATU are each "telecommunications carriers"
and "local exchange companies" under the Communications Act of 1934, as amended
by the Telecom Act (the "Communications Act"). As a result, the FCC exercises
jurisdiction over all of our interstate and wireless communications activities.
PTI Alaska's local telephone operating companies and ATU are also "public
utilities" within the meaning of the Alaska Statutes and are, therefore,
governed by the applicable rules and regulations of the RCA.
FEDERAL REGULATION
Under the federal regulatory scheme, incumbent LECs are required to comply
with the Communications Act and the applicable rules and regulations. In
substantially overhauling the Communications Act, the Telecom Act was intended
to, among other things, eliminate unproductive regulatory burdens and promote
competition. Despite this, telecommunications carriers are still subject to
extensive ongoing regulatory requirements. For instance, FCC-regulated entities
are required to obtain operating authorizations prior to providing
international, interstate and wireless communications services. The FCC also
regulates transfers of control and assignments of these operating
authorizations. The FCC requires carriers providing access services to file
tariffs with the FCC reflecting the rates, terms and conditions of those
services. These tariffs are subject to review and potential objection by the FCC
or third parties.
STATE REGULATION
Telecommunications companies subject to the RCA's jurisdiction are required
to obtain certificates of public convenience and necessity prior to operating as
a public utility in Alaska. The RCA is responsible for approving new issuances
and any transfers of these operating certificates. In addition, the RCA is
responsible for implementing a portion of the competitive requirements of the
Telecom Act, as well as for regulating intrastate access and local service rates
and services of local telephone companies. After passage of the Telecom Act, the
APUC adopted a plan to address competition issues across Alaska. The APUC
established multiple dockets to investigate different competition-related
issues, including revising local and long distance market structures, reforming
its intrastate access charge system and establishing a state universal service
fund.
COST RECOVERY AND REVENUE RECOGNITION
As a regulated common carrier, we are afforded the opportunity to set
maximum rates at a level that allows us the opportunity to recover the
reasonable costs we incur in the provision of regulated telecommunications
services and to earn a reasonable rate of return on the investment required to
provide these services.
These costs are recovered through:
- monthly charges to end users for basic local telephone services and
enhanced service offerings,
- access charges to IXCs for originating and terminating interstate and
intrastate interexchange calls,
- interconnection charges or other rates to competing carriers
interconnecting with our networks or reselling our services and
- high-cost support mechanisms, such as the USF, and the state high-cost
fund.
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Rates for regulated services, and the amount of high-cost support, are set by
the FCC with respect to interstate services and by the RCA with respect to
intrastate services.
In conjunction with the recovery of costs and establishment of rates, a LEC
must first determine its aggregate costs and then allocate those costs between
regulated and nonregulated services.
After identifying the regulated costs of providing local telephone service,
a LEC must allocate those costs among its various local exchange and interstate
and intrastate interexchange services and between state and federal
jurisdictions. This process is complicated by the difficulty of allocating
specific pieces of plant and equipment to a particular service because a LEC's
plant and equipment are utilized for different services, such as local telephone
and interstate and intrastate access. This process is referred to as
"separations" and is governed primarily by the FCC's rules and regulations. The
underlying legal purpose of separations rules is to define how a carrier's
expenses are allocated and recovered from federal and state jurisdictions. The
FCC is considering whether to modify or eliminate the current separations
process. This decision could indirectly increase or reduce earnings of carriers
subject to separations rules.
INTERSTATE END-USER RATES
Deployment of the local telephone network from the switching facility to the
customer (the "local loop") is one of the most significant costs incurred by a
LEC in providing telephone service. The FCC has established a rate structure
that provides for the recovery of a portion of the cost of the local loop
allocated to that interstate jurisdiction directly from the end user customer
through the assessment of a subscriber line charge. The remaining portion of the
local loop costs are recovered from interstate access charges to an IXC.
As a result of the market and geographic conditions in rural areas, the
costs of providing local loop and switching services are often higher than in
urban areas. In the absence of an accommodation in the FCC rules to address this
fact, a substantial portion of the costs of smaller LECs would remain
unrecovered, leaving them little alternative other than to charge high rates for
intrastate services. Accordingly, the FCC provides for additional interstate
recovery by eligible telecommunications carriers through the USF. The USF is
available to carriers whose local loop costs are significantly above the
national average as calculated pursuant to FCC rules.
INTERSTATE ACCESS RATES
Interstate access rates are developed on the basis of a LEC's measurement of
its interstate costs for the provision of access service to IXCs divided by its
projected demand for each service. The resulting rates are published in a
company's interstate access tariff and filed with the FCC, at which time they
are subject to challenge by third parties and to review by the FCC.
The FCC recognized that this rate making and tariff filing process may be
administratively burdensome for small LECs. Accordingly, the FCC established the
National Exchange Carriers Association ("NECA") in 1983 to, among other things,
develop common interstate access service rates, terms and conditions. NECA
develops interstate access rates on the basis of data that are provided
individually by participating LECs and blended to yield average rates. These
rates are intended to generate revenue equal to the aggregate costs plus a
return on the investment of all of the participants. Currently, the authorized
rate of return used in setting interstate access rates is 11.25%.
Individual participating LECs are likely to have costs of providing service
that are either higher or lower than the revenues generated by applying the
overall NECA tariff rate. To rectify this result, the revenues generated by
applying the NECA rates are pooled from all of the participating companies and
redistributed on the basis of each individual company's costs. The result of
this process not only eliminates the burden of individual tariff filing, but
also produces a system in which small companies
82
can share and spread risk. For example, if a smaller LEC filed its own tariff
and subsequently suffered the loss of major customers that utilize interstate
access service, the LEC could suffer significant under-recovery of its costs. In
the NECA pool environment, the impact of this loss is reduced because it is
spread over all of the pool participants.
NECA operates separate pools for traffic sensitive (primarily switching) and
non-traffic sensitive (primarily loop) costs. Companies are also free to develop
and administer their own interstate access charges.
The FCC has initiated a proceeding to review its rates and policies
governing interstate exchange access and the rate of return applicable to
incumbent LECs. Because most rural LECs are subject to rate-of-return
regulation, the outcome of this proceeding will directly affect the earning
prospects for rural and small LECs. The outcome of this proceeding, and its
ultimate impact on us, cannot be predicted at this time.
INTRASTATE END USER RATES The levels of rates charged to end users for the
provision of basic local service are generally subject to rate-of-return
regulation administered by the RCA. Local rates are typically set at a level
that will allow recovery of embedded costs for local service divided by the
number of services and customers. Recognized costs include an allowance for a
rate of return on investment in plant used to provide local service. Rate cases
are typically infrequent, carrier-initiated and require the carrier to meet
substantial burdens of proof. The last APUC-authorized rates of return were
12.55% and 11.70% for TUA and TUNI, respectively. The TUA and TUNI rates were
ordered in 1989. PTIC was previously not regulated by the APUC and instead was
regulated by the City of Fairbanks Public Utilities Board. As a condition of the
acquisition of the City of Fairbanks Telephone Operation by PTI Alaska, the APUC
required that a general rate proceeding be initiated for PTIC by June of 1999.
This proceeding has been delayed and combined with a company-wide earnings
review to be filed with the APUC by June 30, 2001. ATU's last authorized rate of
return was 9.79% (retail local exchange) and 10.85% (intrastate access), ordered
in 1991.
The APUC adopted regulations to govern competition in the local exchange
marketplace. The transitional regulations provide for, among other things:
- initial classification of all incumbent LECs (including PTI Alaska and
ATU) as dominant carriers,
- symmetrical requirements that all carriers (dominant and nondominant)
offer all retail services for resale at wholesale rates and
- substantial dominant carrier pricing flexibility in competitive areas,
under which carriers may reduce retail rates, offer new or repackaged
services and implement special contracts for retail service upon 30 days'
notice to the APUC (only rate increases affecting existing services are
subject to full cost support showings for LECs in areas with local
competition).
INTRASTATE ACCESS RATES In the past, the APUC has required all local
companies in Alaska to pool their access costs and has set an annual statewide
average price for access service. Each LEC charges IXCs fees for originating or
terminating long distance calls on its network based on the statewide average
cost of access rather than on its costs of access. Access revenues are collected
in a pool administered by the Alaska Exchange Carriers Association ("AECA") and
then redistributed to the LECs based on their actual costs.
With the passage of the Telecom Act and increased competition in the local
exchange market, the APUC began a process of reforming intrastate access
charges.
Under recent revisions to the Alaska access system, LECs not yet subject to
local competition continue to participate in the AECA pool. Participants in this
pool recover their costs based on the embedded cost of services most recently
authorized by the APUC. These revisions also allow LECs to
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exit the pool in the event of competitive entry. These LECs have the right to
propose that their access charges be based on market rates.
An additional consequence of this access reform is the continued removal of
subsidies implicit in access pricing. For instance, the APUC recently abolished
the "weighting system" for the non-traffic-sensitive rate element that had
loaded extra costs on access charges for lower cost urban exchanges to support
rural exchanges. At the same time, the APUC proposed to support a portion of
high switching costs separately through a state universal service fund.
The AUSF serves as a complement to the USF. Currently, the AUSF only
subsidizes a portion of higher cost carriers' switching costs, and the costs of
lifeline service--supporting rates of low income customers. The APUC indicated
that it may have considered expanding the AUSF's coverage in the future, such as
to support the costs of public interest pay telephones. The RCA is examining
whether existing support paid to carriers for switching costs is reasonable or
should be changed, eliminated or reduced. Further litigation has been initiated
in state court to determine the lawfulness of the AUSF as currently established.
THE TELECOM ACT
Among other things, the Telecom Act was enacted to enhance competition
without jeopardizing the availability of nationwide universal service at
affordable rates. These two objectives have resulted in a complex set of rules
intended to promote competitive entry in the provision of local telephone
services, except where entry would make the provision of universal service
prohibitively expensive.
PROMOTION OF LOCAL SERVICE COMPETITION AND THE RURAL EXEMPTIONS
The Telecom Act made competitive entry into the local telephone business
more attractive to other carriers by removing barriers to competition. In order
to promote competition, the Telecom Act established new interconnection rules
generally requiring LECs to allow competing carriers to interconnect with their
local networks. Congress recognized, however, that when the desire to promote
competition conflicted with the ability of existing carriers to provide
universal service to higher cost customers, LECs classified as "Rural Telephone
Companies" should be exempted from interconnection requirements until the
appropriate conditions for competitive entry exist.
Under the Telecom Act, all LECs, including both incumbent LECs and new
competitive carriers, are required to:
- offer reasonable and nondiscriminatory resale of their telecommunications
services,
- ensure that customers can keep their telephone numbers when changing
carriers;
- ensure that competitors' customers can use the same number of digits when
dialing and receive nondiscriminatory access to telephone numbers,
operator service, directory assistance and directory listing;
- ensure access to telephone poles, ducts, conduits and rights of way; and
- compensate competitors for the costs of terminating traffic.
The Telecom Act also requires incumbent LECs to:
- interconnect their facilities and equipment with any requesting
telecommunications carrier at any technically feasible point;
- unbundle and provide nondiscriminatory access to UNEs, such as local
loops, switches and transport facilities, at nondiscriminatory rates and
on nondiscriminatory terms and conditions;
- offer resale interconnection at wholesale rates;
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- provide reasonable notice of changes in the information necessary for
transmission and routing of services over the incumbent LEC's facilities
or in the information necessary for interoperability; and
- provide for the physical collocation of equipment necessary for
interconnection or access to UNEs at the premises of the incumbent LEC, at
rates, terms and conditions that are just, reasonable and
nondiscriminatory.
In order to implement interconnection requirements, LECs generally enter
into negotiated interconnection arrangements with competing carriers. LECs may
also offer interconnection tariffs, available to all competitors.
Competitors are required to compensate a LEC for the cost of providing
interconnection services. In the case of resale interconnection, the rules
provide that the rates charged should be on a wholesale basis and reflect the
current retail rates of the LEC, excluding the portion of costs avoided by the
LEC. In the case of UNE interconnection, rates are based on costing
methodologies that employ a forward-looking pricing methodology known as Total
Element Long Run Incremental Cost. The Telecom Act specifies that resale and UNE
rates are to be negotiated among the parties, or, if the parties fail to reach
an agreement, arbitrated by the relevant state regulatory authority. Once the
parties have come to agreement, the proposed rates are subject to final approval
by the state regulatory commission.
In January of 1997, ATU entered into an interconnection agreement with GCI,
which provides for resale and UNE interconnection, and with AT&T Alascom, which
provides for resale interconnection.
PTI Alaska's local operating utilities, TUA, TUNI and PTIC, are defined as
"rural telephone companies" under the Telecom Act. As rural telephone companies,
they were granted rural exemptions from the requirements relating to both resale
interconnection and UNE interconnection. The rural exemptions were continued
until the APUC determined that interconnection was technically feasible, not
unduly economically burdensome and consistent with the Telecom Act's universal
service provisions, or until Alaska's state legislature acted to remove the
rural exemptions directly.
On June 30, 1999, the APUC ordered the rural exemptions of TUNI, TUA and
PTIC terminated in order to increase competition in their rural local exchange
markets. As a result, these companies are no longer exempt from the Telecom
Act's interconnection requirements. While the short-term effect of the orders
will likely be delayed for up to nine months under the Telecom Act while
interconnection agreements are negotiated, the eventual effect of the orders,
taken alone as written by the APUC without reference to potential modification
and suspension of those companies' interconnection duties, would likely be
materially adverse to their operations. We have not yet determined whether we
will seek reconsideration or appeal of the APUC's orders. We have also not yet
determined whether or to what extent we will seek suspension and modification of
their interconnection duties or market structure reforms that would permit these
companies increased operating and marketing flexibility that we believe over the
longer term could largely offset the adverse effect caused by the loss of the
rural exemptions.
In April 1999, a bill was proposed in the Alaska State Senate to open to
competition many local telephone markets in which we operate. Specifically, the
bill proposed to allow competitors to provide local telephone service in local
telephone markets throughout Alaska that have at least 5,000 access lines,
effectively depriving incumbent LECs in those markets of their rural exemptions.
Competition resulting from this bill, if it had been enacted into law, could
have materially adversely affected our profitability. We cannot predict at this
time whether or to what extent proposals included in the bill will be offered
again and enacted into law. To the extent the markets of PTI Alaska's rural
local exchange companies are opened to competition by the APUC's termination of
their rural exemptions, we do not believe that the marginal effect of passage of
the proposed bill on our business would be material.
85
For the first three months of 1999, PTI Alaska's local exchange companies
benefiting from rural exemptions accounted for 42.3% of our revenues and 52.3%
of our operating income. Loss of the rural exemptions, absent compensating
measures, such as rate increases, or market structure reforms, such as the
replacement of implicit subsidies by explicit support mechanisms, or rate
deaveraging, could adversely affect our ability to meet our financial
obligations.
PROMOTION OF UNIVERSAL SERVICE
While the Telecom Act promoted Congress' policy of ensuring that affordable
service is provided to consumers universally in rural, high-cost areas of the
country, the Telecom Act altered the framework for providing universal service
by:
- requiring the FCC to make implicit subsidies explicit;
- expanding the types of communications carriers required to pay universal
service support; and
- allowing competitive LECs to be eligible for funding.
These and other provisions were intended to make provision of universal service
support compatible with a competitive market.
Pursuant to the Telecom Act, USF funds are only available to carriers that
are designated as eligible telecommunications carriers ("ETCs") by a state
public utilities commission (a "PUC"). In areas served by rural LECs, the
Telecom Act provides that a state PUC may designate more than one ETC (in
addition to the incumbent LEC) only after determining that the designation of an
additional ETC will serve the public interest. As a result, an incumbent rural
LEC has an opportunity to maintain its status as the sole recipient of USF
payments in its service area, even if it is subsequently subjected to
competition. TUA, TUNI and PTIC are currently the sole designated ETCs in their
respective service areas. The addition of a second ETC in PTI Alaska's service
areas could have the effect of reducing the amount of funds available from the
USF and could materially adversely affect our ability to achieve a reasonable
rate of return on the capital invested in our network.
In May 1997, the FCC implemented new rules for interstate universal service
support. The new rules provide for separate USF programs for rural and non-rural
telephone companies. The new rules for non-rural companies base support upon
"forward-looking costs" derived from cost proxy models. The FCC set the
implementation date for the new system at January 1, 1999 (which has now been
postponed to January 1, 2000 for non-rural telephone companies). The FCC has
established a Rural Task Force, which will investigate how to adapt the proxy
cost models approved for larger carriers for rural telephone companies. The FCC
has indicated that it will not implement a new system for application to rural
telephone companies for an additional three years after the first step
implementation, or at least until January 1, 2001. In the interim, support
mechanisms for rural carriers remain unchanged. The FCC revised its rules for
non-rural carriers in May 1999 and sought comment on aspects of its revised
plan.
It is uncertain whether the forward-looking cost model will fully compensate
LECs for the cost of providing local service in high-cost areas. An appeal of
the FCC's universal service rules is pending before the U.S. Court of Appeals
for the Fifth Circuit, for which oral arguments were heard on December 1, 1998.
The court may issue its decision in the third or fourth quarter of this year,
though it is unclear what impact, if any, the FCC's revised rules will have on
its decision. It is not possible to predict at this time whether the FCC or the
courts will order modification to the fund or the ultimate impact from any
modification on us.
The court may issue its decision in the third or fourth quarter of 1999,
though it is unclear what impact, if any, the FCC's revised rules will have on
its decision.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Set forth below are the names, ages and positions of the individuals who
currently serve as our executive officers and directors. Subject to our
obligations under the employment agreements described under the caption "--New
Employment Arrangements," our directors and officers are elected at the annual
meeting of our shareholders and will serve until they resign or are removed or
until their successors are elected and qualified.
NAME POSITION AGE
- ------------------------------ --------------------------------------------------------------------------- ---
Charles E. Robinson Chairman, President and Chief Executive Officer 65
Wesley E. Carson Executive Vice President and Assistant Secretary 48
Michael E. Holmstrom Senior Vice President and Chief Financial Officer 56
Benjamin L. Jarvis Senior Vice President of LEC Operations 61
F. Scott Davis President and CEO of MACtel 61
Michael E. Bowman Vice President of Division Operations 43
Mark A. Foster President of ATU LD 38
John Ayers Senior Vice President of Marketing and Sales 56
Donn T. Wonnell Executive Vice President, General Counsel and Secretary 52
Kenneth Laing Vice President of Division Operations 56
Michael L. Schuh Vice President of Information Technology and Chief Information Officer 40
Dean A. Ryland Vice President, Finance and Accounting, Controller and Assistant Treasurer 48
W. Dexter Paine, III Director 38
Saul A. Fox Director 45
J. Russell Triedman Director 29
See "Ownership of Capital Stock--Stockholders' Agreement" for information
regarding election and terms of our directors and other related arrangements.
CHARLES E. ROBINSON
Mr. Robinson is our Chairman, President and Chief Executive Officer. Mr.
Robinson has over four decades of experience in the telecommunications industry.
Mr. Robinson was instrumental in creating Alaska's long distance communications
systems, including the White Alice Communications System, beginning in the late
1950's. Between 1979 to 1982, Mr. Robinson served as President of Alascom, the
state's primary long distance carrier at the time. Under his guidance, Alascom
developed the first statewide long distance service network in Alaska,
connecting with more than 27 independent local companies. Mr. Robinson served as
President and Chief Operating Officer of Pacific Telecom from 1981 until its
sale to Century in 1997 and was appointed Chairman and Chief Executive Officer
in 1989. Mr. Robinson has been a member of the National Security
Telecommunications Advisory Committee for the last 18 years, having been
appointed by President Reagan. Mr. Robinson also served on the Board of
Directors of the United States Telephone Association from 1993 to 1995.
WESLEY E. CARSON
Mr. Carson is our Executive Vice President and Assistant Secretary. Mr.
Carson has over 19 years of telecommunications experience. Mr. Carson began his
career in telecommunications in 1980 with TRT Telecommunications Corporation, an
international data and voice carrier located in Washington, D.C. that was
acquired by Pacific Telecom in 1988. From 1989 to 1997, Mr. Carson served as the
Vice President of Human Resources for Pacific Telecom responsible for the
planning, development, implementation and administration of human resources
policies and procedures and employee relations.
87
Mr. Carson has been involved with labor issues for nearly 20 years and an active
participant in Alaska labor relations since 1989. Mr. Carson holds a B.A. in
International Relations from Brigham Young University, a Master of Public
Administration degree from the University of Illinois-Springfield and a J.D.
from Georgetown University.
MICHAEL E. HOLMSTROM
Mr. Holmstrom is our Senior Vice President and Chief Financial Officer and
will be responsible for our financial, accounting, tax and business development
functions. Mr. Holmstrom's career in telecommunications spans 35 years. Since
1990 he has consulted, served as Chief Operating Officer for Spectrum Network
Systems, Ltd. in Sydney, Australia, and as Chief Financial Officer for Atlantic
Tele-Network in the U.S. Virgin Islands. From 1983 through 1989 he was Vice
President of Unregulated Operations, Chief Financial Officer and then President
of CP National Corporation, a telecommunications provider that merged with
Alltel Corporation in December 1988. Mr. Holmstrom was Vice President of Finance
at Alascom from 1976 through 1980, and Vice President of Financial and Business
Planning at Pacific Telecom, Alascom's parent corporation, from 1980 to 1981.
Mr. Holmstrom has a B.S. in Business Administration from Gannon University. He
was Executive-in-Residence professor of business strategy at Texas A&M
University for the academic year 1981 to 1982.
BENJAMIN L. JARVIS
Mr. Jarvis is our Senior Vice President of LEC Operations. Mr. Jarvis has
over 35 years of experience in the telecommunications industry. Mr. Jarvis was
employed by Pacific Telecom in operations management for approximately 16 years
from 1966 to 1982. From 1982 to 1998, Mr. Jarvis held various leadership
positions with Harris Corporation, Bay Area Teleport and Harbor Bay
Telecommunications, American Satellite Inc., U.S. Intelco Networks, Inc. and two
competitive local exchange companies operating in emerging markets.
F. SCOTT DAVIS
Mr. Davis is responsible for our statewide cellular operations as President
and Chief Executive Officer of MACtel, which position he has held since 1995.
Mr. Davis has been with MACtel since 1990, previously serving as Sales and
Marketing Manager, and then General Manager. Mr. Davis has more than 30 years of
experience in the wireless industry beginning in 1966 at Airsignal
International, Inc., where he advanced to the position of Executive Vice
President before he left in 1982. From 1982 to 1987 he served as Senior Vice
President and General Manager for McCaw Communications Companies, Inc., with
responsibility for Alaska and Hawaii. Mr. Davis worked in Alaska as a
communications broker and consultant from 1987 to 1990. Mr. Davis holds a B.B.A.
degree from Washburn University.
MICHAEL E. BOWMAN
Mr. Bowman is Vice President of Division Operations with responsibility for
directing ATU's operations and managing statewide central office engineering and
network administration. Prior to joining us, Mr. Bowman had been with ATU since
1975, rising to become Chief Operations Officer. Mr. Bowman has also held
positions of leadership within the International Brotherhood of Electrical
Workers.
MARK A. FOSTER
Mr. Foster is President of ATU LD. Mr. Foster has over 15 years experience
in the utility industry, including a term as a Commissioner on the Alaska Public
Utility Commission. Mr. Foster served as President of the Western Conference of
Public Service Commissioners in 1993. Prior to joining ATU LD in 1997, Mr.
Foster was a consultant specializing in strategic planning for utilities
transitioning into increasingly competitive markets.
88
JOHN AYERS
Mr. Ayers is Senior Vice President of Marketing and Sales. Mr. Ayers has
more than 20 years of experience in the telecommunications industry. As
President and co-founder of e.Net, Ltd. in 1996, Mr. Ayers served as a
consultant to a variety of established and start-up businesses. From February
1987 through August 1995, Mr. Ayers held various leadership positions with
Pacific Telecom, Inc and its subsidiaries, including Executive Vice President of
Pacific Telecom Services Company, with responsibility for strategic planning,
marketing and business development, and Executive Vice President and General
Manager of Alascom, Inc., Alaska's largest inter-exchange carrier. Mr. Ayers
holds a bachelor's degree in management from Golden Gate University.
DONN T. WONNELL
Mr. Wonnell is Executive Vice President, General Counsel and Secretary. Mr.
Wonnell has worked in the telecommunications industry for more than 20 years.
Mr. Wonnell served as Vice President for legal, regulatory, and legislative
affairs of Pacific Telecom until the merger of Pacific Telecom into Century at
the end of 1997. Prior to joining PTI, Mr. Wonnell served as President of the
Telecommunications and Energy Division of California Pacific Utilities in San
Francisco, and, earlier, as Vice President and General Counsel of RCA Alaska
Communications in Anchorage. Mr. Wonnell holds a B.A. from the College of
William & Mary and a J.D. from the University of Pennsylvania School of Law. Mr.
Wonnell has been admitted to practice before the bars of Alaska, California,
Pennsylvania, and the District of Columbia.
KENNETH LAING
Mr. Laing is Vice President of Division Operations with statewide
responsibility for customer service and outside plant engineering, as well as
direction of operations for the PTI Communications properties. Mr. Laing's
telecommunications experience includes more than 30 years serving in various
senior management capacities in local exchange telephone and long distance
companies. Mr. Laing began his telecommunications career in 1968 as a technician
for RCA building the Alaskan telecommunications network that preceded Alascom.
Mr. Laing subsequently served in various leadership positions within Alascom,
including Vice President of Administration and Vice President of Local Exchange
Operations for Pacific Telecom's Montana and Washington divisions. Mr. Laing was
an executive of LEC Consulting Corporation before our acquisitions of PTI Alaska
and ATU. Mr. Laing, a veteran of the U.S. Air Force, attended the University of
Washington and Northeastern University.
MICHAEL L. SCHUH
Mr. Schuh is our Vice President of Information Technology and Chief
Information Officer. Mr. Schuh has more than 22 years of information technology
experience, with 17 of those years devoted to telecommunications. Mr. Schuh
worked for Pacific Telecom from 1986 to 1998, initially as an Information
Services Manager and later as Senior Manager, LEC Operations, Customer Services
and System Support. Prior to joining Pacific Telecom, Mr. Schuh held various
positions in the computer operations department of the Municipality of Anchorage
and Alascom from 1979 through 1986.
DEAN A. RYLAND
Mr. Ryland is our Vice President, Finance and Accounting, Controller and
Assistant Treasurer. From 1997 to 1998, Mr. Ryland served as a senior accounting
manager with Century. Prior to this time he worked at Pacific Telecom for over
20 years, holding various positions including Vice President, Finance and
Administration Multivisions Ltd., and Pacific Telecom Accounting Manager. Mr.
Ryland earned a B.A. from the University of Santa Clara. Mr. Ryland began his
professional accounting career as an auditor for PriceWaterhouse based in
Anchorage and left when offered an opportunity to join Alascom in 1976.
89
W. DEXTER PAINE, III
Mr. Paine is a director. Mr. Paine has been President and Co-founder of Fox
Paine since its inception in 1997. From 1994 until founding Fox Paine, Mr. Paine
served as a senior partner of Kohlberg & Company, where he was responsible for
establishing and leading the firm's west coast office. Prior to joining Kohlberg
& Company, Mr. Paine served as a general partner at Robertson Stephens &
Company. In his more than 11 years in leveraged investing, Mr. Paine has focused
on the supermarket, healthcare, telecommunications and automotive industries.
Mr. Paine has a B.A. in economics from Williams College.
SAUL A. FOX
Mr. Fox is a director. Mr. Fox has been Chief Executive Officer and
Co-founder of Fox Paine since its inception in 1997. From 1984 until founding
Fox Paine, Mr. Fox was at Kohlberg Kravis & Roberts & Co., where he became one
of KKR's most senior general partners prior to his retirement from KKR in 1996.
In his more than 13 years at KKR, Mr. Fox was involved in numerous leveraged
transactions in a wide variety of industries. Prior to joining KKR, Mr. Fox was
an attorney at Latham & Watkins, a leading national law firm headquartered in
Los Angeles, California. Mr. Fox has a B.S. in communications and computer
science from Temple University and a J.D. from the University of Pennsylvania
Law School.
J. RUSSELL TRIEDMAN
Mr. Triedman is a director. Mr. Triedman has been a Vice President of Fox
Paine since 1998. Upon completion of law school in 1996, Mr. Triedman worked at
Cravath, Swaine & Moore. While at Cravath, Mr. Triedman worked in mergers and
acquisitions and high yield finance. Prior to attending law school, Mr. Triedman
worked as a financial analyst at Brown Brothers Harriman & Co. in the private
equity group, where he facilitated three private equity investments totaling $95
million. Mr. Triedman is a graduate of Brown University with a B.S. in Applied
Mathematics and Economics and holds a J.D. from the University of Chicago Law
School.
COMPENSATION OF DIRECTORS
We currently do not compensate our directors other than for expense
reimbursement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
We do not currently have a compensation committee. All arrangements
regarding executive compensation before completion of the acquisitions of PTI
Alaska and ATU were conducted between members of Fox Paine and our executive
officers.
NEW EMPLOYMENT ARRANGEMENTS
Before completion of the acquisitions of PTI Alaska and ATU, Holdings
entered into new employment arrangements with some of our employees relating to
their employment with Holdings and us, their ownership of Holdings common stock
and the granting of options to purchase shares of Holdings common stock
following the completion of these acquisitions, as more fully described below.
EMPLOYMENT AGREEMENT WITH CHARLES E. ROBINSON. Under the employment
agreement between Holdings, us and Charles E. Robinson, dated as of March 12,
1999, Mr. Robinson serves as the Chairman of the Board, Chief Executive Officer
and President of Holdings and us for a three-year period commencing on the
Closing Date, which term will be extended automatically for successive
additional one-year periods unless either the board of directors of Holdings
gives Mr. Robinson, or Mr. Robinson gives the board of directors of Holdings, no
less than 90 days written notice of the intention not to extend the term. Mr.
Robinson will receive during the initial term of his employment
90
agreement an annual base salary of $500,000 that may be increased at the
beginning of each year following the first year of employment. Mr. Robinson will
be eligible for an annual bonus for each calendar year based on the attainment
by us of mutually determined business targets. Mr. Robinson will receive an
annual bonus equal to 100% of his annual base salary, as then in effect, if we
attain these mutually determined business targets, with appropriate adjustments
to the extent we exceed or fail to reach these targets. In no event will Mr.
Robinson's annual bonus be less than $200,000. Mr. Robinson's employment
agreement also provides for other customary benefits including fringe benefit
plans, paid vacation, life and disability insurance plans and expense
reimbursement.
Under the Robinson employment agreement, if Mr. Robinson's employment were
to be terminated by Mr. Robinson for Good Reason (as defined below) or following
a Change in Control (as defined below) or by Holdings without Cause (as defined
below), Holdings would be obligated to pay Mr. Robinson a lump sum cash payment
in an amount equal to the sum of:
- Mr. Robinson's annual base salary, as then in effect plus
- Mr. Robinson's most recent annual bonus, as well as reimbursement for the
cost of continuing health insurance coverage under COBRA for twelve
months.
In addition, notwithstanding any provisions to the contrary in any option plan
or agreement under which Mr. Robinson has received options, upon the termination
of Mr. Robinson's employment, the number of then-unvested options will vest as
are necessary to vest at least one-third of all options received by Mr.
Robinson. In addition, in the event Holdings decides at any time not to extend
the term of his employment agreement, Holdings will pay Mr. Robinson the sum of:
- Mr. Robinson's annual base salary, as then in effect, plus
- Mr. Robinson's most recent annual bonus, as well as reimbursement for the
cost of continuing health insurance coverage under COBRA for twelve
months.
As used in the Robinson employment agreement:
- "Good Reason" means:
- the assignment of Mr. Robinson by Holdings to any duties materially
inconsistent with, or a material diminution of, his position, including
duties, title, offices, or responsibilities; or
- the transfer, without Mr. Robinson's concurrence, of Mr. Robinson's
principal place of employment to a geographic location more than 100
miles from both his current personal residence and from the location of
his current principal place of employment;
- "Cause" means:
- the willful failure to comply with lawful directions of the board of
directors of Holdings after written notice;
- fraud, misappropriation or embezzlement; or
- a material breach of the Robinson employment agreement (other than due to
physical or mental illness) that is not cured within 30 days after
receipt of written notice from the board of directors of Holdings of a
specific failure to perform his duties; and
- "Change in Control" means:
- the acquisition by any person or group (as that term is used in
Regulation 13D under the Exchange Act), other than Fox Paine or any of
its affiliates, of beneficial ownership of a majority of Holdings' or our
outstanding voting securities; or
- any sale, lease, exchange or other transfer in one transaction or a
series of transactions, other than a transfer to an entity which is
majority controlled by Fox Paine or any affiliate thereof or an entity
with substantially the same equity holders as immediately prior to the
transfer, of
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all or substantially all of the assets of Holdings or us or our operating
subsidiaries (taken together), or any plan for our liquidation or
dissolution.
The Robinson employment agreement also provides that during his employment
and during the 12-month period following any termination of his employment, Mr.
Robinson shall not directly or indirectly own, invest (equity or debt) in,
manage, control, participate in, consult with, advise, render services to, or in
any manner engage in, or be connected as an employee, officer, partner,
director, consultant or otherwise with:
- any enterprise engaged in the provision of local exchange or wireless
telecommunications services in any state in which:
- Holdings, its affiliates or subsidiaries or
- any entity that is a party to an acquisition agreement with Holdings, its
affiliates or subsidiaries
is engaged in the provision of local exchange or wireless
telecommunications services, or
- any enterprise that is the subject of a potential transaction made known
to Holdings, its affiliates or subsidiaries, or Mr. Robinson during or at
any time prior to the termination of the Robinson employment agreement,
that is engaged in the provision of local exchange or wireless
telecommunications services;
PROVIDED that Mr. Robinson may be a passive owner of not more than one percent
of any publicly-traded class of capital stock of any entity engaged in the
provision of local exchange or wireless telecommunications services. The
Robinson employment agreement also provides for other restrictions during Mr.
Robinson's employment and during the 12 months following any termination of his
employment in connection with:
- inducing or attempting to induce any employee of us or our affiliates or
subsidiaries to terminate, or otherwise interfering with, the relationship
between us our affiliates or subsidiaries and any of its employees, and
- soliciting or attempting to solicit business from any customer or supplier
of us or our affiliates or subsidiaries.
EMPLOYMENT AGREEMENT WITH WESLEY E. CARSON. Under the employment agreement,
dated March 12, 1999, by and between Holdings, us and Wesley Carson, Mr. Carson
serves as Executive Vice President of Holdings and us for a two-year initial
term at an annual base salary of $200,000. Mr. Carson's employment agreement
contains provisions for additional terms, salary increases during any additional
term, annual bonus, severance, other benefits, definitions of "Good Reason,"
"Cause" and "Change in Control" and provisions for non-competition and
non-solicitation similar to those in Mr. Robinson's employment agreement, except
that:
- Mr. Carson does not have a guaranteed minimum annual bonus and Mr. Carson
will receive no annual bonus if termination occurs prior to December 31,
1999; and
- Mr. Carson's employment agreement does not provide any additional rights
with respect to vesting of then-unvested options upon termination.
EMPLOYMENT AGREEMENT WITH MICHAEL E. HOLMSTROM. Under the employment
agreement, dated April 19, 1999, by and among Holdings, us and Michael E.
Holmstrom, Mr. Holmstrom serves as Executive Vice President of Holdings and us
for a two-year initial term at an annual base salary of $200,000. Mr.
Holmstrom's employment agreement contains provisions for additional terms,
salary increases during any additional term, annual bonus, severance, other
benefits, definitions of "Good Reason," "Cause" and "Change in Control" and
provisions for non-competition and non-solicitation similar to those in Mr.
Robinson's employment agreement, except that:
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- Mr. Holmstrom does not have a guaranteed minimum annual bonus and Mr.
Holmstrom will receive no annual bonus if termination occurs prior to
December 31, 1999; and
- Mr. Holmstrom's employment agreement does not provide any additional
rights with respect to vesting of then-unvested options upon termination.
Mr. Holmstrom's employment agreement also obliges us to pay relocation-related
costs of Mr. Holmstrom.
ALEC HOLDINGS, INC. 1999 STOCK INCENTIVE PLAN
In connection with the completion of the acquisitions of PTI Alaska and ATU,
Holdings adopted the ALEC Holdings, Inc. 1999 Stock Incentive Plan under which
Holdings may grant incentive awards in the form of options to purchase shares of
Holdings common stock, restricted shares of Holdings common stock and stock
appreciation rights to non-employee directors, officers, employees and
consultants ("participants") of Holdings and its affiliates. The total number of
shares of Holdings common stock initially reserved and available for grant under
the stock incentive plan is 3,410,486 shares. A committee of the board of
directors of Holdings, or the board of directors of Holdings itself in the
absence of a committee, is authorized to make grants and various other decisions
under the stock incentive plan. Unless otherwise determined by the committee,
any participant granted an award under the stock incentive plan must become a
party to, and agree to be bound by, the stockholders' agreement (as described
below).
Holdings stock options may include incentive stock options, nonqualified
stock options or both, in each case, with or without stock appreciation rights.
Holdings stock options are generally nontransferable and, unless otherwise
determined by the committee, have a term of ten years. Upon a participant's
death or when the participant's employment with Holdings or the applicable
affiliate of Holdings is terminated for any reason, the participant's
then-unvested Holdings stock options are forfeited and the participant or his or
her legal representative may, within three months (if termination of employment
is for any reason other than death) or one year (in the case of the
participant's death), exercise any previously vested Holdings stock options.
Stock appreciation rights may be granted in conjunction with all or part of any
Holdings stock option award and are generally exercisable limitations, only in
connection with the exercise of the related Holdings stock option. Upon
termination or exercise of the related Holdings stock option, stock appreciation
rights terminate and are no longer exercisable. Stock appreciation rights are
transferable only with the related Holdings stock options. Unless otherwise
provided in the related award agreement or, if applicable, the stockholders'
agreement, immediately prior to the change of control transactions described in
the stock incentive plan, all outstanding Holdings stock options and stock
appreciation rights will become fully exercisable and vested, and any
restrictions and deferral limitations applicable to any restricted stock awards
will lapse. The committee may also grant to any participant, on terms and
conditions determined by the committee, the right to receive cash payments to be
paid at that time as an award results in compensation income to the participant
in order to assist the participant in paying the resulting taxes.
The stock incentive plan will terminate on May 14, 2009. However, awards
outstanding at that time will not be affected or impaired by the stock incentive
plan's termination. The board of directors of Holdings and the committee have
authority to amend the stock incentive plan and awards granted thereunder.
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OWNERSHIP OF CAPITAL STOCK
All of our outstanding common stock is owned by Holdings. The following
table sets forth information regarding the beneficial ownership of the common
stock, par value $0.01 per share, of Holdings by:
- each person known by us to own beneficially more than 5% of Holdings
common stock;
- each of our directors and each of our named executive officers; and
- all of our executive officers and directors, as a group.
Except as otherwise indicated in the footnotes below, each beneficial owner has
the sole power to vote and to dispose of all shares held by that holder.
SHARES OF
HOLDINGS COMMON
STOCK
BENEFICIALLY PERCENT OF SHARES
NAME AND ADDRESS OWNED(+) OUTSTANDING(++)
- --------------------------------------------------------------------------- -------------------- -----------------
Fox Paine Capital, LLC(a).................................................. 19,555,751 90.0%
Fox Paine Capital Fund(a).................................................. 16,251,658 74.8%
FPC Investors, L.P.(a)..................................................... 241,144 1.1%
W. Dexter Paine, III(a).................................................... 19,555,751 90.0%
Saul A. Fox(a)............................................................. 19,555,751 90.0%
J. Russell Triedman(a)..................................................... 19,555,751 90.0%
Charles E. Robinson(b)..................................................... 241,788 1.1%
Wesley E. Carson(c)........................................................ 129,341 *
Michael E. Holmstrom(d).................................................... 16,249 *
Donn T. Wonnell(e)......................................................... 16,249 *
All directors and executive officers as a group (6 persons)(f)............. 19,959,378 91.9%
- ------------------------
(*) Indicates less than 1% of outstanding shares.
(+) The amounts and percentage of Holdings common stock beneficially owned are
reported on the basis of regulations of the SEC governing the determination
of beneficial ownership of securities. Under the rules of the SEC, a person
is deemed to be a "beneficial owner" of a security if that person has or
shares "voting power," which includes the power to vote or to direct the
voting of the security, or "investment power," which includes the power to
dispose of or to direct the disposition of the security. A person is also
deemed to be a beneficial owner of any securities of which that person has
a right to acquire beneficial ownership within 60 days. Under these rules,
more than one person may be deemed a beneficial owner of the same
securities and a person may be deemed to be a beneficial owner of
securities as to which that person has no economic interest. The percentage
of Holdings common stock outstanding is based on the 21,724,027 shares of
Holdings common stock outstanding as of the date of this prospectus,
without taking into account any options or convertible interests of
Holdings.
(++) Computed with respect to the currently outstanding shares of Holdings
common stock, as the case may be held by the holder, without taking into
account any options or warrants.
(a) Fox Paine Capital, LLC is General Partner or Manager of (1) the Fund, (2)
FPC Investors, L.P., (3) ALEC Coinvestment Fund I, LLC, (4) ALEC
Coinvestment Fund II, LLC, (5) ALEC Coinvestment Fund III, LLC, (6) ALEC
Coinvestment Fund IV, LLC (7) ALEC Coinvestment Fund V, LLC and (8) ALEC
Coinvestment Fund VI, LLC and possesses voting and investment power over
all shares held by each of these entities. Fox Paine Capital is not the
record owner of any shares of Holdings common stock. Messrs. Fox and Paine
are the Members of Fox Paine Capital and share voting power of Fox Paine
Capital. Mr. Triedman is a Vice President of Fox Paine. Each of Messrs.
Paine and Fox are limited partners of FPC Investors. None of the shares
shown as beneficially owned by any of Messrs. Fox, Paine or Triedman are
owned of record by these individuals. The address of Fox Paine Capital, the
Fund, FPC Investors, and Messrs. Paine, Fox and Triedman is c/o Fox Paine &
Company, LLC, 950 Tower Lane, Suite 1950, Foster City, CA 94404.
(b) Mr. Robinson is record owner of 241,788 shares of Holdings common stock.
The address of Mr. Robinson is c/o ALEC Holdings, Inc., 510 L. Street,
Suite 500, Anchorage, Alaska 99501. Of these shares, 172,729 represent
Holdings stock grants. See "Insider Relationships and Related Party
Transactions."
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(c) Mr. Carson is record owner of 129,341 shares of Holdings common stock. The
address of Mr. Carson is c/o ALEC Holdings, Inc., 510 L. Street, Suite 500,
Anchorage, Alaska 99501. Of these shares, 85,469 represent Holdings stock
grants. See "Insider Relationships and Related Party Transactions."
(d) Mr. Holmstrom is record owner of 16,249 shares of Holdings common stock.
See "Insider Relationships and Related Party Transactions." The address of
Mr. Holmstrom is c/o ALEC Holdings, Inc., 510 L. Street, Suite 500,
Anchorage, Alaska 99501.
(e) Mr. Wonnell is the record owner of 16,249 shares of Holdings common stock.
See "Insider Relationships and Related Party Transactions." The address of
Mr. Wonnell is c/o ALEC Holdings, Inc., 510 L. Street, Anchorage, Alaska
99501.
(f) See "Management--ALEC Holdings, Inc. 1999 Stock Incentive Plan" for a
discussion of options to purchase or other equity rights that may be
granted to some of our directors and officers.
STOCKHOLDERS' AGREEMENT
On May 14, 1999, Holdings entered into a stockholders' agreement with the
Fund, affiliates of the Fund (the "Fund Investors"), co-investors and employees
of Holdings listed as parties thereto (the "Non-Fund Investors"). The following
is a summary of the principal terms of the stockholders' agreement and is
subject to and qualified in its entirety by reference to the stockholders'
agreement, which has been filed as an exhibit to the registration statement of
which this prospectus is a part and is incorporated by reference herein.
The stockholders' agreement provides, among other things, for
- the right of the Non-Fund Investors to participate in, and the right of
the Fund to require the Non-Fund Investors to participate in, sales of
Holdings common stock by the Fund;
- prior to an initial public offering of the stock of Holdings, the rights
of Holdings to purchase, and rights of the Non-Fund Investors to require
Holdings to purchase, except in the case of termination of employment of
the Non-Fund Investors, all, but not less than all, of the shares of
Holdings common stock owned by a Non-Fund Investor upon the termination of
employment or death of the Non-Fund Investor, at prices determined in
accordance with the stockholders' agreement; and
- additional restrictions on the rights of the Non-Fund Investors to
transfer shares of Holdings common stock.
The stockholders' agreement also contains provisions granting the Fund and
the Non-Fund Investors rights in connection with registrations of Holdings
common stock and provides for indemnification and other rights, restrictions and
obligations in connection with those registrations.
The stockholders' agreement will terminate:
- with respect to the rights and obligations of and restrictions on the Fund
Investors and the Non-Fund Investors in connection with restrictions on
the transfer of shares of Holdings common stock, when the Fund and its
affiliates no longer hold at least 20% of the outstanding shares of
Holdings common stock, on a fully diluted basis; PROVIDED that the
stockholders' agreement will terminate in that respect in any event if
Holdings enters into transactions resulting in the Fund, its affiliates,
the Non-Fund Investors, and each of their respective permitted
transferees, owning less than a majority of the outstanding voting power
of the entity surviving that transactions; and
- with respect to the registration of Holdings common stock in offerings on
the earlier of (a) the date on which there are no longer any registrable
securities outstanding (as determined under the stockholders' agreement)
and (b) the 20(th) anniversary of the stockholders' agreement.
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INSIDER RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In connection with the completion of the acquisitions of PTI Alaska and ATU,
members of management were given grants of Holdings common stock. See "Ownership
of Capital Stock." In connection with the Holdings stock grants, Holdings loaned
one member of management and one former member of management approximately 40%
of the fair market value of the grants as of May 14, 1999 to be used by those
two individuals to pay taxes on the income deemed received in connection with
the grants.
In connection with the execution of the PTI Alaska purchase agreement,
Century entered into a consulting agreement, dated August 14, 1998, with LEC
Consulting Corporation, a corporation owned and operated by members of
management. Pursuant to the consulting agreement, LEC Consulting provided
management and advisory services to PTI Alaska with respect to its day-to-day
business operations. Under the terms of the consulting agreement, Century paid
LEC Consulting $175,000 per month for these services. In addition to the
services required under the consulting agreement, LEC Consulting employees were
responsible for managing the transition process for us and for creating the
infrastructure necessary to begin operations as of May 14, 1999. In addition,
Fox Paine loaned to LEC Consulting approximately $3.4 million beginning in
August 1998 for funding of start-up expenses, which amount was repaid out of
funds provided by us on May 14, 1999 as part of the fees and expenses related to
the acquisitions. LEC Consulting was merged into us on May 10, 1999.
Pursuant to a consulting agreement between Century and Mr. Robinson, Mr.
Robinson will continue to provide consulting services to Century with respect to
its operations in the lower 48 contiguous states. These services will not
interfere with Mr. Robinson's fulfillment of his duties and responsibilities to
us. However, we have agreed that Mr. Robinson will not participate in making any
decisions relating to acquisitions by us in the lower 48 contiguous states
during the term of his consulting agreement and for two years thereafter. This
consulting agreement is expected to expire on or before November 2000.
Fox Paine received advisory fees upon consummation of each of the
acquisitions. In addition, Fox Paine will receive an annual management fee.
In connection with the consummation of the acquisitions of PTI Alaska and
ATU, Holdings issued $25.0 million of aggregate gross proceeds of 13% senior
discount debentures due 2011 together with warrants to purchase shares of
Holdings common stock, representing 3.40% of the fully diluted ownership of
Holdings. The Holdings warrants are exercisable for $0.01 per share and expire
on May 14, 2011. The proceeds received from the issuance of the Holdings
discount debentures and the Holdings warrants, together with the proceeds of the
equity contributions to Holdings, were contributed to us as common equity. See
"Description of Other Indebtedness--The Holdings Discount Debentures" and "The
Acquisitions."
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DESCRIPTION OF OTHER INDEBTEDNESS
THE SENIOR CREDIT FACILITY
We, together with Holdings, entered into a credit agreement with The Chase
Manhattan Bank, as administrative agent and collateral agent, Credit Suisse
First Boston Corporation, as documentation agent, and Canadian Imperial Bank of
Commerce, as syndication agent, and the lenders named therein that provides our
senior credit facility consisting of term loans of up to $460.0 million and a
revolving credit facility of $75.0 million. Chase Securities Inc. acts as
advisor and arranger in connection with the senior credit facility. The
following is a summary description of the principal terms of the senior credit
facility and is subject to and qualified in its entirety by reference to the
credit agreement, which has been filed as an exhibit to the registration
statement of which this prospectus is a part and is incorporated by reference
herein.
STRUCTURE. Loans under the credit agreement consist of:
- a term loan A facility in the amount of $150.0 million;
- a term loan B facility in the amount of $150.0 million;
- a term loan C facility in the amount of $160.0 million; and
- a revolving credit facility in the amount of $75.0 million which is
available, in part, for up to $25.0 million in letters of credit and up to
$10.0 million in the form of swingline loans.
The term loan facilities and the revolving credit facility constitute the senior
credit facility. We used the term loan facilities and a portion of the revolving
credit facility to provide a portion of the funds necessary to complete the
acquisitions of PTI Alaska and ATU and to repay existing indebtedness of PTI
Alaska. We will use the remainder of the revolving credit facility for general
corporate purposes.
SECURITY; GUARANTEES. Our obligations under the senior credit facility are
unconditionally and irrevocably guaranteed, jointly and severally, by Holdings
and by each of our existing and subsequently acquired or organized domestic (or,
in limited circumstances, foreign) subsidiaries. In addition, the senior credit
facility and the guarantees thereunder are secured by substantially all of our
assets and all of the assets of our subsidiaries (collectively, the
"Collateral"), including:
- a first priority pledge (1) by Holdings of all of our capital stock and
(2) (a) to the extent not prohibited by law or any existing contract, by
us of the capital stock of companies in which we hold a minority stake and
(b) of all the capital stock we, or any of our domestic subsidiaries (or,
under limited circumstances, any of our foreign subsidiaries), held in any
existing and subsequently acquired or organized subsidiary (which pledge,
in the case of any foreign subsidiary will, except under limited
circumstances, be limited to 65% of the capital stock of the foreign
subsidiary) and
- a perfected first priority security interest in, and mortgage on,
substantially all of our tangible and intangible assets and substantially
all of the tangible and intangible assets of the guarantors (including but
not limited to accounts receivable, documents, inventory, equipment,
intellectual property, investment property, general intangibles, real
property, cash and cash accounts and proceeds of the foregoing), in each
case subject to limited exceptions. The credit agreement provides for the
release of guarantees under limited circumstances.
AVAILABILITY. The availability of the senior credit facility is subject to
various conditions precedent typical of bank loans including, among other
things, the absence of any material adverse change in our business. The full
amount of the term loan facilities was required to be drawn in a single drawing
on May 14, 1999. Amounts repaid or prepaid under the term loan facilities may
not be reborrowed. Amounts repaid under the revolving credit facility are
available for reborrowing on a revolving basis,
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subject to the terms of the revolving credit facility. As a result of issuance
of $150.0 million in old notes, the term loan C facility was reduced to $135.0
million on May 14, 1999.
AMORTIZATION, INTEREST.
- The term loan A facility is repayable in annual principal payments of one
percent of principal over five years, commencing on May 14, 2002, with the
balance of the term loan A facility payable at maturity. The final
maturity of the term loan A facility is November 14, 2006. The term loan A
facility bears interest at a rate PER ANNUM equal (at our option) to: (1)
an adjusted London interbank offered rate ("Adjusted LIBOR") plus 2.75% or
(2) a rate equal to the greater of the administrative agent's prime rate,
a certificate of deposit rate plus 1% and the federal funds effective rate
plus 1/2 of 1% (the "Alternate Base Rate") plus 1.75%, in each case
subject to reduction based on our financial performance.
- The term loan B facility is repayable in annual principal payments of one
percent of principal over six years, commencing on May 14, 2002, with the
balance of the term loan B facility payable at maturity. The final
maturity of the term loan B facility is November 14, 2007. The term loan B
facility bears interest at a rate PER ANNUM equal (at our option) to: (1)
Adjusted LIBOR plus 3.00% or (2) the Alternate Base Rate plus 2.00%.
- The term loan C facility is repayable in annual principal payments of one
percent of principal over six years, commencing on May 14, 2002, with the
balance of the term loan C facility payable at maturity. The final
maturity of the term loan C facility is May 14, 2008. The term loan C
facility bears interest at a rate PER ANNUM equal (at our option) to: (1)
Adjusted LIBOR plus 3.25% or (2) the Alternate Base Rate plus 2.25%.
- The revolving credit facility is a seven-year facility and outstanding
balances thereunder will bear interest at a rate PER ANNUM equal (at our
option) to: (1) Adjusted LIBOR plus 2.75% or (2) the Alternate Base Rate
plus 1.75%, in each case subject to reduction based on our financial
performance. Amounts under the senior credit facility not paid when due
bear interest at a default rate equal to 2.0% above the otherwise
applicable rate.
PREPAYMENTS. The senior credit facility permits us to prepay loans and to
permanently reduce revolving credit commitments, in whole or in part, at any
time. In addition, we are is required to make mandatory prepayments of the term
loan facilities, subject to limited exceptions, in amounts equal to the excess,
if any, of:
- 50% of excess cash flow for each fiscal year, as specified in the credit
agreement, over
- the aggregate principal amount of the term loan facilities prepaid during
the fiscal year.
We are also required to make mandatory prepayments of term loan facilities,
subject to limited exceptions, with the net cash proceeds of dispositions of
assets or issuances of debt of Holdings or any of its subsidiaries. Mandatory
and optional prepayments will be allocated PRO RATA among the term loan A
facility, the term loan B facility and the term loan C facility, as applicable,
and within each term loan facility, applied PRO RATA to the remaining
amortization payments under that facility, except that the lenders participating
in the term loan B facility and the term loan C facility, as applicable, have
the right to refuse mandatory prepayments, in which case those prepayments will
be applied to the term loan A facility, or, if no portion of the term loan A
facility remains outstanding, we may retain the prepayments. Any prepayment of
Adjusted LIBOR loans other than at the end of an interest period will be subject
to reimbursement of breakage costs as described in the credit agreement.
FEES. We are required to pay the lenders, on a quarterly basis, a
commitment fee equal to 1/2 of 1% PER ANNUM on the undrawn portion of the unused
commitments, subject to reductions based upon our financial performance. We are
also required to pay:
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- on a quarterly basis, a commission on the face amount of all outstanding
letters of credit equal to the applicable margin then in effect for
Adjusted LIBOR loans under the revolving credit facility;
- on a quarterly basis, a fronting fee in the amount of 0.25% PER ANNUM on
each letter of credit to the issuing bank;
- standard fees of the issuing bank with respect to issuance, amendment,
renewal or extension of any letters of credit; and
- fees payable to the administrative agent.
COVENANTS, EVENTS OF DEFAULT. The credit agreement contains customary
covenants that, among other things, restrict the ability of Holdings, our
ability and the ability of our subsidiaries to dispose of assets, incur
additional indebtedness, incur guarantee obligations, prepay other indebtedness
or amend other debt instruments, pay dividends, create liens on assets, enter
into sale and leaseback transactions, make investments, loans or advances, make
acquisitions, engage in mergers or consolidations, change our business, make
capital expenditures or engage in transactions with affiliates. In addition,
under the senior credit facility, we are required to comply with specified
financial ratios, including minimum interest coverage ratios and maximum
leverage ratios.
The credit agreement also contains provisions that prohibit any modification
of the indenture relating to the exchange notes as well as customary
representations and warranties, affirmative covenants and events of default,
including cross default, material judgments and change in control.
THE HOLDINGS DISCOUNT DEBENTURES
On May 14, 1999, Holdings issued $46.9 million in aggregate principal amount
of senior discount debentures due 2011, for gross proceeds of $25.0 million, in
a private transaction not subject to the registration requirements of the
Securities Act. While the Holdings discount debentures are not direct
obligations of us or our subsidiaries, the indenture governing the Holdings
discount debentures contains covenants that may restrict our activities and
those of our subsidiaries. However, the covenants in the indenture governing the
Holdings discount debentures that may affect the operations of us and our
subsidiaries are generally no more restrictive than those contained in the
indenture governing the exchange notes.
No cash interest is payable on the Holdings discount debentures for five
years following issuance, but deferred interest accrues at the rate of 13% PER
ANNUM. On and after May 15, 2004, cash interest will be payable on the
outstanding principal amount of the Holdings discount debentures (including
accrued deferred interest) at the rate of 13% PER ANNUM payable semiannually on
May 15th and November 15th of each year, subject to restrictions on dividends to
Holdings contained in the senior credit facility and the indenture relating to
the exchange notes.
The Holdings discount debentures rank PARI PASSU in right of payment to all
current and future senior indebtedness of Holdings and rank senior in right of
payment to all current and future subordinated indebtedness of Holdings. As
obligations of a holding company, the Holdings discount debentures are
effectively subordinated to all obligations of the subsidiaries of Holdings,
including our obligations under the exchange notes and borrowings under the
senior credit facility. See "Risk Factors."
The Holdings discount debentures are not redeemable until May 15, 2004.
Thereafter, the Holdings discount debentures will be redeemable at the option of
Holdings with a premium that declines each year until 2009, when the Holdings
discount debentures will be redeemable in whole or in part at 100% of their
principal amount plus accrued and unpaid interest. Upon a Change of Control (as
defined in the indenture governing the Holdings discount debentures), each
holder will be able to require Holdings to offer to redeem the holder's Holdings
discount debentures at a price equal to
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101% of accreted value (or, if after May 15, 2004, of the principal amount
thereof plus accrued and unpaid interest thereon), subject to restrictions
contained in the senior credit facility and the indenture relating to the
exchange notes. If Holdings consummates one or more offerings of Holdings common
stock on or before May 15, 2002, Holdings, at its option, will be able to use
all or a portion of the sale proceeds to redeem up to 35% of the aggregate
principal amount of the Holdings discount debentures originally issued, at a
price equal to their accreted value plus a premium equal to one year's interest
at the stated interest rate.
The indenture relating to the Holdings discount debentures contains various
restrictive covenants that, among other things, limit:
- the incurrence of indebtedness by Holdings and its subsidiaries;
- the payment of Restricted Payments (as defined in the indenture relating
to the Holdings discount debentures);
- the payment of dividends on stock and purchases of stock;
- the sale of assets or stock of Holdings' subsidiaries;
- transactions with affiliates;
- mergers, consolidations and sales of assets; and
- the business activities in which Holdings and its subsidiaries may engage.
Each of these limitations, however, is subject to qualifications set forth fully
in the indenture governing the Holdings discount debentures, which has been
filed as an exhibit to the registration statement of which this prospectus is a
part and is incorporated by reference herein.
The indenture relating to the Holdings discount debentures also contains
events of default customary for obligations of this type, including a default in
the payment of interest on the Holdings discount debentures when due and
payable, the acceleration of debt of Holdings or any of its subsidiaries in an
amount in excess of $5.0 million and the rendering of any judgment for the
payment of money in excess of $5.0 million against Holdings, subject, in each
case, to applicable grace periods. As a result, events may occur that cause
default under the indenture governing the Holdings discount debentures at a time
when there is no default under the indenture governing the exchange notes.
Payment of all amounts outstanding under the Holdings discount debentures could
be accelerated in the event of a default under the indenture governing the
Holdings discount debentures.
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DESCRIPTION OF THE EXCHANGE NOTES
DEFINITIONS OF TERMS USED IN THIS DESCRIPTION OF THE EXCHANGE NOTES MAY BE
FOUND UNDER THE CAPTION "--DEFINITIONS." FOR PURPOSES OF THIS SECTION,
REFERENCES TO "ACS" OR THE "COMPANY" REFER ONLY TO ALASKA COMMUNICATIONS SYSTEMS
HOLDINGS, INC. AND "HOLDINGS" REFERS ONLY TO ALEC HOLDINGS, INC. AND NOT ANY OF
THEIR SUBSIDIARIES. HOLDINGS, SUBSIDIARIES OF ACS AND FUTURE DOMESTIC
SUBSIDIARIES OF ACS WILL GUARANTEE THE EXCHANGE NOTES AND, THEREFORE, WILL BE
SUBJECT TO MANY OF THE PROVISIONS CONTAINED IN THIS DESCRIPTION OF THE EXCHANGE
NOTES. EACH COMPANY THAT GUARANTEES THE EXCHANGE NOTES IS REFERRED TO IN THIS
SECTION AS A "GUARANTOR," AND EACH GUARANTEE OF THE OBLIGATIONS WITH RESPECT TO
THE EXCHANGE NOTES ISSUED BY A GUARANTOR IS TERMED A "GUARANTEE."
GENERAL
ACS will issue the exchange notes under the same indenture, dated as of May
14, 1999 (the "Indenture"), among ACS, the Guarantors and IBJ Whitehall Bank &
Trust Company, as Trustee (the "Trustee"), under which the old notes were
issued, a copy of which is available upon request to ACS. The Indenture contains
provisions that define your rights under the exchange notes. In addition, the
Indenture governs the obligations of ACS and of each Guarantor under the
exchange notes. The terms of the exchange notes include those stated in the
Indenture and those made part of the Indenture by reference to the TIA.
The following description is meant to be only a summary of the Indenture. It
does not restate the terms of the Indenture in their entirety. We urge you to
read carefully the Indenture as it, and not this description, governs your
rights as Holders.
OVERVIEW OF THE EXCHANGE NOTES AND THE GUARANTEES
The exchange notes:
- will be general unsecured obligations of ACS;
- will be subordinated in right of payment to all existing and future Senior
Indebtedness of ACS;
- will rank PARI PASSU in right of payment with all existing and future
Senior Subordinated Indebtedness of ACS;
- will be senior in right of payment to all existing and future Subordinated
Obligations of ACS;
- will be effectively subordinated to all Secured Indebtedness of ACS and
its Subsidiaries to the extent of the value of the assets securing that
Indebtedness; and
- are guaranteed by Holdings and each of the Domestic Subsidiaries of ACS.
The Guarantees:
- will be general unsecured obligations of each Guarantor;
- will be subordinated in right of payment to all existing and future Senior
Indebtedness of each Guarantor;
- will rank PARI PASSU in right of payment with all existing and future
Senior Subordinated Indebtedness of each Guarantor;
- will be senior in right of payment to all existing and future Subordinated
Obligations of each Guarantor; and
- will be effectively subordinated to all Secured Indebtedness of each
Guarantor to the extent of the value of the assets securing that
Indebtedness.
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PRINCIPAL, MATURITY AND INTEREST
We will initially issue exchange notes in an aggregate principal amount of
$150 million. The exchange notes will mature on May 15, 2009. We will issue the
exchange notes in fully registered form, without coupons, in denominations of
$1,000 and any integral multiple of $1,000.
Each Exchange Note we issue will bear interest at a rate of 9 3/8% beginning
on November 15, 1999, or from the most recent date to which interest has been
paid or provided for. We will pay interest semiannually to Holders of record at
the close of business on the May 1 or November 1 immediately preceding the
interest payment date on May 15 and November 15 of each year. We will pay
interest on overdue principal at 1% PER ANNUM in excess of such rate, and we
will pay interest on overdue installments of interest at such higher rate to the
extent lawful.
PAYING AGENT AND REGISTRAR
We will pay the principal of, premium, if any, and interest on the exchange
notes at any office of ours or any agency designated by us which is located in
the Borough of Manhattan, the City of New York. We have initially designated the
corporate trust office of the Trustee to act as the agent of ACS in such matters
(the "Paying Agent"). The location of the corporate trust office is One State
Street, New York, New York 10004. We reserve the right, however, to pay interest
to Holders by check mailed directly to Holders at their registered addresses.
Holders may exchange or transfer their exchange notes at the location given
in the preceding paragraph. No service charge will be made for any registration
of transfer or exchange of exchange notes. We may, however, require Holders to
pay any transfer tax or other similar governmental charge payable in connection
with such transfer or exchange.
OPTIONAL REDEMPTION
Except as set forth in the following paragraph, we may not redeem the
exchange notes at our option prior to May 15, 2004. After this date, we may
redeem the exchange notes in whole or in part, on not less than 30 nor more than
60 days' prior notice, at the following redemption prices (expressed as
percentages of principal amount), plus accrued and unpaid interest thereon, and
Additional Amounts in respect thereof, if any, to the redemption date (subject
to the right of Holders of record on the relevant record date to receive
interest due on the relevant interest payment date), if redeemed during the
twelve-month period commencing on May 15 of the years set forth below:
REDEMPTION
YEAR PRICE
- --------------------------------------------------------------------------------- -----------
2004............................................................................. 104.688%
2005............................................................................. 103.125%
2006............................................................................. 101.563%
2007 and thereafter.............................................................. 100.000%
Prior to May 15, 2002, we may, at our option, on one or more occasions, also
redeem up to a maximum of 35% of the original aggregate principal amount of the
exchange notes with the Net Cash Proceeds of one or more Equity Offerings (1) by
ACS or (2) by Holdings to the extent the Net Cash Proceeds thereof are
contributed to ACS or used to purchase Capital Stock (other than Disqualified
Stock) of ACS from ACS, at a redemption price equal to 109 3/8% of the principal
amount thereof, plus accrued and unpaid interest on, and any Additional Amounts
in respect of, the exchange notes, to the redemption date (subject to the right
of Holders of record on the relevant record date to receive
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interest due on the relevant interest payment date); PROVIDED, HOWEVER, that
after giving effect to any such redemption:
(1) at least 65% of the original aggregate principal amount of the exchange
notes remains outstanding; and
(2) any such redemption by ACS must be made within 90 days of such related
Equity Offering by ACS or Holdings, as the case may be, and must be made
upon not less than 30 nor more than 60 days' notice mailed to each Holder
of exchange notes being redeemed and otherwise in accordance with the
procedures set forth in the Indenture.
SELECTION
If we partially redeem exchange notes, the Trustee will select the exchange
notes to be redeemed on a PRO RATA basis, by lot or by such other method as the
Trustee shall deem to be fair and appropriate (and in such manner as complies
with applicable legal requirements); PROVIDED that no Exchange Note of $1,000 in
original principal amount or less will be redeemed in part. If we redeem any
Exchange Note in part only, the notice of redemption relating to such Exchange
Note shall state the portion of the principal amount of such Exchange Note to be
redeemed. A new Exchange Note in principal amount equal to the unredeemed
portion of such Exchange Note will be issued in the name of the Holder upon
cancellation of the original Exchange Note. On and after the redemption date,
interest will cease to accrue on exchange notes or portions of exchange notes
called for redemption so long as we have deposited with the Paying Agent funds
sufficient to pay the principal of, plus accrued and unpaid interest on, and
Additional Amounts in respect of, the exchange notes to be redeemed.
RANKING
The indebtedness evidenced by the exchange notes (and any Additional
Amounts) will be unsecured Senior Subordinated Indebtedness of ACS, will be
subordinated in right of payment, as set forth in the Indenture, to all existing
and future Senior Indebtedness of ACS, will rank PARI PASSU in right of payment
with all existing and future Senior Subordinated Indebtedness of ACS and will be
senior in right of payment to all existing and future Subordinated Obligations
of ACS. The exchange notes also will be effectively subordinated to any Secured
Indebtedness of ACS and its Subsidiaries to the extent of the value of the
assets securing such Indebtedness. However, payment from the money or the
proceeds of U.S. Government Obligations held in any defeasance trust described
below under the caption "--Defeasance" will not be subordinated to any Senior
Indebtedness or subject to the restrictions described herein.
We will initially conduct all of our operations through our Subsidiaries.
Certain creditors of such Subsidiaries, including trade creditors, of such
Subsidiaries generally will have priority with respect to the assets and
earnings of such Subsidiaries over the claims of our creditors, including
Holders. The exchange notes, therefore, will be effectively subordinated to
creditors, including trade creditors, of our Subsidiaries. As of December 31,
1998, our Subsidiaries had total liabilities, including trade payables, of
approximately $55.5 million. Although the Indenture will limit the Incurrence of
Indebtedness by, and the issuance of Preferred Stock (or Disqualified Stock) of,
certain of our Subsidiaries, such limitation is subject to a number of
significant qualifications.
Assuming that we had completed Transactions and applied the net proceeds we
received from the Transactions in the manner described under the caption "Use of
Proceeds," as of March 31, 1999, there would have been outstanding:
- $441.7 million of Senior Indebtedness of ACS, all of which was Secured
Indebtedness (exclusive of unused commitments under the Credit Agreement);
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- $46.9 million Senior Indebtedness of Holdings (one of the Guarantors) from
the issuance of $25.0 million in gross proceeds of the Holdings Discount
Debentures (exclusive of guarantees of Indebtedness under the Credit
Agreement); and
- $7.5 million of Senior Indebtedness of the Subsidiaries of ACS (all of
which are Guarantors) (exclusive of guarantees of Indebtedness under the
Credit Agreement); and
- no Senior Subordinated Indebtedness of ACS (other than the exchange notes)
or the Guarantors (other than the Guarantees); and
- no Subordinated Obligations of ACS or the Guarantors.
Although the amount of additional Indebtedness we can Incur is limited by the
terms of our financing arrangements, we and our Subsidiaries may be able to
Incur substantial amounts of Indebtedness in certain circumstances. Such
Indebtedness may be Senior Indebtedness.
"Senior Indebtedness" of ACS or any Guarantor means the principal of,
premium (if any) and accrued and unpaid interest on (including interest accruing
on or after the filing of any petition in bankruptcy or for reorganization of
ACS or such Guarantor, regardless of whether or not a claim for post-filing
interest is allowed in such proceedings), and fees and other amounts (including
expenses, reimbursement obligations under letters of credit and indemnities)
owing in respect of, Bank Indebtedness and all other Indebtedness of ACS or such
Guarantor, whether outstanding on the Closing Date or thereafter Incurred,
unless in the instrument creating or evidencing the same or pursuant to which
the same is outstanding it is provided that such obligations are not superior in
right of payment to the Notes or such Guarantor's Guarantee; PROVIDED, HOWEVER,
that Senior Indebtedness shall not include:
(1) any obligation of ACS to Holdings or any Subsidiary of ACS or of such
Guarantor to ACS or Holdings or any Subsidiary of ACS;
(2) any liability for federal, state, local or other taxes owed or owing by
ACS or such Guarantor;
(3) any accounts payable or other liability to trade creditors arising in
the ordinary course of business (including guarantees thereof or
instruments evidencing such liabilities);
(4) any Indebtedness or obligation of ACS or such Guarantor (and any accrued
and unpaid interest in respect thereof) that is subordinate or junior in
any respect to any other Indebtedness or obligation of ACS or such
Guarantor, as applicable, including any Senior Subordinated Indebtedness
and any Subordinated Obligations;
(5) any obligations with respect to any Capital Stock; or
(6) any Indebtedness Incurred in violation of the Indenture.
If any Senior Indebtedness is disallowed, avoided or subordinated pursuant to
the provisions of Section 548 of Title 11 of the United States Bankruptcy Code
or any applicable state fraudulent conveyance law, such Senior Indebtedness
nevertheless will constitute Senior Indebtedness.
Only Indebtedness of ACS or a Guarantor that is Senior Indebtedness will
rank senior to the exchange notes or the relevant Guarantee in accordance with
the provisions of the Indenture. The exchange notes and each Guarantee will in
all respects rank PARI PASSU with all other Senior Subordinated Indebtedness of
ACS and the relevant Guarantor, respectively. ACS will agree in the Indenture
that neither it nor its Restricted Subsidiaries will Incur, directly or
indirectly, any Indebtedness that is subordinate or junior in ranking in any
respect to Senior Indebtedness, unless such Indebtedness is Senior Subordinated
Indebtedness or is expressly subordinated in right of payment to Senior
Subordinated Indebtedness. Unsecured Indebtedness is not deemed to be
subordinate or junior to Secured Indebtedness merely because it is unsecured.
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We may not pay principal of, premium (if any) or interest on (or Additional
Amounts in respect of), the exchange notes, or make any deposit pursuant to the
provisions described under the caption "--Defeasance", and may not otherwise
purchase, redeem or otherwise retire any Notes (collectively, "pay the exchange
notes") if:
(1) a default in the payment of the principal of, premium, if any, or
interest on any Designated Senior Indebtedness occurs and is continuing
or any other amount owing in respect of any Designated Senior
Indebtedness is not paid when due; or
(2) any other default on Designated Senior Indebtedness occurs and the
maturity of such Designated Senior Indebtedness is accelerated in
accordance with its terms,
unless, in either case,
(a) the default has been cured or waived and any such acceleration has been
rescinded; or
(b) such Designated Senior Indebtedness has been paid in full in cash or
cash equivalents;
PROVIDED, HOWEVER, that we may pay the exchange notes without regard to the
foregoing if ACS and the Trustee receive written notice approving such payment
from the Representative of the Designated Senior Indebtedness with respect to
which either of the events set forth in clause (1) or (2) above has occurred and
is continuing.
During the continuance of any default (other than a default described in
clause (1) or (2) of the preceding sentence) with respect to any Designated
Senior Indebtedness pursuant to which the maturity thereof may be accelerated
immediately without further notice (except such notice as may be required to
effect such acceleration) or the expiration of any applicable grace periods, we
may not pay the Notes for a period (a "Payment Blockage Period") commencing upon
the receipt by the Trustee (with a copy to us) of written notice (a "Blockage
Notice") of such default from the Representative of such Designated Senior
Indebtedness specifying an election to effect a Payment Blockage Period and
ending 179 days thereafter (or earlier if such Payment Blockage Period is
terminated:
(1) by written notice to the Trustee and us from the Person or Persons who
gave such Blockage Notice;
(2) by repayment in full in cash or cash equivalents of such Designated
Senior Indebtedness; or
(3) because the default giving rise to such Blockage Notice is no longer
continuing).
Notwithstanding the provisions described in the immediately preceding sentence
(but subject to the provisions contained in the preceding paragraph and in the
immediately succeeding paragraph), unless the holders of such Designated Senior
Indebtedness or the Representative of such holders have accelerated the maturity
of such Designated Senior Indebtedness, we may resume payments on the Notes
after the end of such Payment Blockage Period.
Not more than one Blockage Notice may be given in any period of 360
consecutive days, irrespective of the number of defaults with respect to
Designated Senior Indebtedness during such period. However, if any Blockage
Notice within such 360-day period is given by or on behalf of any holders of
Designated Senior Indebtedness other than the Bank Indebtedness, the
Representative of the Bank Indebtedness may give another Blockage Notice within
such period. In no event, however, may the total number of days during which any
Payment Blockage Period or Periods is in effect exceed 179 days in the aggregate
during any period of 360 consecutive days. For purposes of this paragraph, no
default or event of default that existed or was continuing on the date of the
commencement of any Payment Blockage Period with respect to the Designated
Senior Indebtedness initiating such Payment Blockage Period shall be, or be
made, the basis of the commencement of a subsequent Payment Blockage Period by
the Representative of such Designated Senior Indebtedness, whether or not within
a period of 360
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consecutive days, unless such default or event of default shall have been cured
or waived for a period of not less than 90 consecutive days.
Upon any payment or distribution of the assets of ACS upon a total or
partial liquidation or a total or partial dissolution of ACS or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to ACS
or its property:
(1) the holders of Senior Indebtedness will be entitled to receive payment
in full in cash or cash equivalents of such Senior Indebtedness
(including interest accruing after, or that would accrue but for, the
commencement of such proceeding at the rate specified in the applicable
Senior Indebtedness, whether or not such claim for such interest would be
allowed) before the Noteholders are entitled to receive any payment; and
(2) until such Senior Indebtedness is paid in full in cash or cash
equivalents any payment or distribution to which Noteholders would be
entitled but for the subordination provisions of the Indenture will be
made to holders of such Senior Indebtedness as their interests may
appear, except that Holders may receive and retain:
(A) Permitted Junior Securities; and
(B) payments made from the trust described under the caption
"--Defeasance," so long as, on the date or dates the respective
amounts were paid into the trust, such payments were made with
respect to the exchange notes without violating the subordination
provisions described herein.
If a distribution is made to Noteholders that, due to the subordination
provisions of the Indenture, should not have been made to them, such Noteholders
will be required to hold the distribution in trust for the holders of Senior
Indebtedness and pay it over to them as their interests may appear.
If payment of the exchange notes is accelerated because of an Event of
Default, ACS or the Trustee shall promptly notify the holders of the Designated
Senior Indebtedness (or their Representative) of the acceleration. If any
Designated Senior Indebtedness is outstanding, ACS may not pay the Notes until
five Business Days after the holders or the Representative of such Designated
Senior Indebtedness receive notice of such acceleration and, thereafter, may pay
the exchange notes only if the subordination provisions of the Indenture
otherwise permit payment at that time.
By reason of the subordination provisions of the Indenture, in the event of
insolvency, creditors of ACS who are holders of Senior Indebtedness may recover
more, ratably, than the Noteholders, and creditors of ACS who are not holders of
Senior Indebtedness or of Senior Subordinated Indebtedness (including the
exchange notes) may recover less, ratably, than holders of Senior Indebtedness
and may recover more, ratably, than the holders of Senior Subordinated
Indebtedness.
The Indenture will contain substantially identical subordination provisions
relating to each Guarantor's obligations under its Guarantee.
GUARANTEES
Holdings and all of the Subsidiaries of ACS existing on the Closing Date and
certain future Subsidiaries of ACS (collectively referred to as the
"Guarantors"), as primary obligors and not merely as sureties, will jointly and
severally, irrevocably and unconditionally guarantee on an unsecured senior
subordinated basis the performance and full and punctual payment when due,
whether at Stated Maturity, by acceleration, by redemption or otherwise, of all
obligations of ACS under the Indenture (including obligations to the Trustee)
and the exchange notes, whether for payment of principal of, or interest on, or
Additional Amounts in respect of, the exchange notes, expenses, indemnification
or otherwise (all such obligations guaranteed by such Guarantors, the
"Guaranteed Obligations"). Such Guarantors will agree to pay, in addition to the
amount stated above, any and all costs and expenses (including
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reasonable counsel fees and expenses) incurred by the Trustee or the Holders in
enforcing any rights under the Guarantees. Each Guarantee will be limited in
amount to an amount not to exceed the maximum amount that can be guaranteed by
the applicable Guarantor without rendering the Guarantee, as it relates to such
Guarantor, voidable under applicable law relating to fraudulent conveyance or
fraudulent transfer or similar laws affecting the rights of creditors generally.
After the Closing Date, ACS will cause each Domestic Subsidiary that Incurs
Indebtedness to execute and deliver to the Trustee a supplemental indenture
pursuant to which such Domestic Subsidiary will guarantee payment of the
exchange notes. See "--Restrictive Covenants--Future Guarantors."
The obligations of a Guarantor under its Guarantee are Senior Subordinated
Indebtedness. As such, the rights of Noteholders to receive payment by a
Guarantor pursuant to its Guarantee will be subordinated in right of payment to
the rights of holders of Senior Indebtedness of such Guarantor. The terms of the
subordination provisions described above with respect to ACS' obligations under
the exchange notes apply equally to a Guarantor and the obligations of such
Guarantor under its Guarantee.
Each Guarantee is a continuing guarantee and shall, except as described in
the immediately succeeding paragraph, (1) remain in full force and effect until
payment in full of all the Guaranteed Obligations, (2) be binding upon each
Guarantor and its successors and (3) inure to the benefit of, and be enforceable
by, the Trustee, the Holders and their successors, transferees and assigns.
Any Guarantee by a Subsidiary of ACS will be automatically released upon the
sale (including through merger or consolidation) of the Capital Stock, or all or
substantially all the assets, of the applicable Subsidiary if such sale is made
in compliance with the covenant described under the caption "--Restrictive
Covenants--Limitation on Sales of Assets and Subsidiary Stock." In addition, if
any such Subsidiary is released from its guarantees of, and all pledges and
security granted in connection with, the Credit Agreement and any other
Indebtedness of ACS or any Subsidiary of ACS, then such Guarantor shall also be
automatically released and relieved of any obligations under its Guarantee.
A Guarantee by a Subsidiary of ACS also will be automatically released upon
the applicable Subsidiary ceasing to be a Subsidiary of ACS as a result of any
foreclosure of any pledge or security interest securing Bank Indebtedness or
other exercise of remedies in respect thereof if such Subsidiary is released
from its guarantees of, and all pledges and security interests granted in
connection with, the Credit Agreement.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder will have the right to require ACS to repurchase all or
any part of such Holder's exchange notes at a purchase price in cash equal to
101% of the principal amount thereof plus accrued and unpaid interest thereon
and Additional Amounts in respect thereof, if any, to the date of repurchase
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date); PROVIDED, HOWEVER,
that notwithstanding the occurrence of a Change of Control, ACS shall not be
obligated to repurchase the exchange notes pursuant to this section in the event
that it has exercised its right to redeem all the exchange notes under the terms
described under the caption "--Optional Redemption":
(1) prior to the earlier to occur of (a) the first public offering of common
stock of Holdings or (b) the first public offering of common stock of
ACS, the Permitted Holders, taken together, cease to be the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act),
directly or indirectly, of a majority in the aggregate of the total
voting power of the Voting Stock of Holdings or ACS, whether as a result
of issuance of securities of Holdings or ACS, any merger, consolidation,
liquidation or dissolution of Holdings or ACS, any direct or indirect
transfer of securities by any Permitted Holder or otherwise (for purposes
of this
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clause (1) and clause (2) below, the Permitted Holders shall be deemed to
beneficially own any Voting Stock of an entity (the "specified entity")
held by any other entity (the "parent entity") so long as the Permitted
Holders beneficially own, directly or indirectly, in the aggregate a
majority of the voting power of the Voting Stock of the parent entity);
(2) (a) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than one or more Permitted Holders, is or
becomes the beneficial owner (as defined in clause (1) above, except that
for purposes of this clause (2) such person shall be deemed to have
"beneficial ownership" of all shares that any such person has the right
to acquire, whether such right is exercisable immediately or only after
the passage of time), directly or indirectly, of more than 35% of the
total voting power of the Voting Stock of Holdings or ACS and (b) the
Permitted Holders beneficially own (as defined in clause (1) above),
directly or indirectly, in the aggregate a lesser percentage of the total
voting power of the Voting Stock of Holdings or ACS than such other
person and do not have the right or ability by voting power, contract or
otherwise to elect or designate for election a majority of the Board of
Directors of Holdings or ACS, as the case may be (for the purposes of
this clause (2), such other person shall be deemed to beneficially own
any Voting Stock of a specified entity held by a parent entity, if such
other person is the beneficial owner (as defined in this clause (2)),
directly or indirectly, of more than 35% of the voting power of the
Voting Stock of such parent entity and the Permitted Holders beneficially
own (as defined in clause (1) above), directly or indirectly, in the
aggregate a lesser percentage of the voting power of the Voting Stock of
such parent entity and do not have the right or ability by voting power,
contract or otherwise to elect or designate for election a majority of
the board of directors of such parent entity);
(3) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of ACS or
Holdings, as the case may be (together with any new directors whose (a)
election by such Board of Directors of Holdings or ACS, as the case may
be, or whose nomination for election by the shareholders of Holdings or
ACS, as the case may be, was approved by a majority vote of the directors
of Holdings or ACS, as the case may be, then still in office who were
either directors at the beginning of such period or whose election or
nomination for election was previously so approved or (b) who are
designees of the Permitted Holders or were nominated by the Permitted
Holders) cease for any reason to constitute a majority of the Board of
Directors of ACS or Holdings, as the case may be, then in office;
(4) the adoption of a plan relating to the liquidation or dissolution of
Holdings or ACS;
(5) the merger or consolidation of Holdings or ACS with or into another
Person or the merger of another Person with or into Holdings or ACS, or
the sale of all or substantially all the assets of Holdings or ACS to
another Person (other than a Person that is controlled by the Permitted
Holders), and, in the case of any such merger or consolidation, the
securities of Holdings or ACS that are outstanding immediately prior to
such transaction and that represent 100% of the aggregate voting power of
the Voting Stock of Holdings or ACS are changed into or exchanged for
cash, securities or property, unless pursuant to such transaction such
securities are changed into or exchanged for, in addition to any other
consideration, securities of the surviving Person or transferee that
represent immediately after such transaction, at least a majority of the
aggregate voting power of the Voting Stock of the surviving Person or
transferee; or
(6) ACS ceases to be a Wholly Owned Subsidiary of Holdings.
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In the event that at the time of such Change of Control the terms of the
Bank Indebtedness restrict or prohibit the repurchase of exchange notes pursuant
to this covenant, then prior to the mailing of the notice to Holders provided
for in the immediately succeeding paragraph but in any event within 30 days
following any Change of Control, ACS shall:
(1) repay in full all Bank Indebtedness or, if doing so will allow the
repurchase of exchange notes, offer to repay in full all Bank
Indebtedness and repay the Bank Indebtedness of each lender who has
accepted such offer; or
(2) obtain the requisite consent under the agreements governing the Bank
Indebtedness to permit the repurchase of the exchange notes as provided
for in the immediately succeeding paragraph.
Within 30 days following any Change of Control, ACS shall mail a notice to
each Holder with a copy to the Trustee (the "Change of Control Offer") stating:
(1) that a Change of Control has occurred and that such Holder has the right
to require ACS to purchase such Holder's exchange notes at a purchase
price in cash equal to 101% of the principal amount thereof, plus accrued
and unpaid interest thereon and Additional Amounts in respect thereof, if
any, to the date of purchase (subject to the right of Holders of record
on the relevant record date to receive interest on the relevant interest
payment date);
(2) the circumstances and relevant facts and financial information regarding
such Change of Control;
(3) the purchase date (which shall be no earlier than 30 days nor later than
60 days from the date such notice is mailed); and
(4) the instructions determined by ACS, consistent with this covenant, that
a Holder must follow in order to have its exchange notes purchased.
In the event that Holders of not less than 98% of the principal amount of
the outstanding exchange notes accept a Change of Control Offer and ACS
purchases all of the exchange notes held by such Holders, ACS will have the
right, on not less than 30 nor more than 60 days' prior notice, given not more
than 30 days following the purchase pursuant to the Change of Control Offer
described below, to redeem all of the exchange notes that remain outstanding
following such purchase at the purchase price specified in the Change of Control
Offer plus, to the extent not included in the purchase price specified in the
Change of Control Offer, accrued and unpaid interest thereon and Additional
Amounts in respect thereof, if any, to the date of redemption (subject to the
right of Holders of record on the relevant record date to receive interest on
the relevant interest payment date).
ACS will not be required to make a Change of Control Offer upon a Change of
Control if a third party makes the Change of Control Offer in the manner, at the
times and otherwise in compliance with the requirements set forth in the
Indenture applicable to a Change of Control Offer made by ACS and purchases all
exchange notes validly tendered and not withdrawn under such Change of Control
Offer.
ACS will comply, to the extent applicable, with the requirements of Section
14(e) of the Exchange Act and any other securities laws or regulations in
connection with the purchase of exchange notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of this covenant, ACS will comply with the applicable securities laws
and regulations and will not be deemed to have breached its obligations under
this covenant by virtue thereof.
The Change of Control purchase feature is a result of negotiations between
ACS and the Initial Purchasers. Management has no present intention to engage in
a transaction involving a Change of Control, although it is possible that ACS
would decide to do so in the future. Subject to the limitations discussed below,
ACS could, in the future, enter into certain transactions, including
acquisitions,
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refinancings or recapitalizations, that would not constitute a Change of Control
under the Indenture, but that could increase the amount of Indebtedness
outstanding at such time or otherwise affect ACS' capital structure or credit
ratings. Restrictions on the ability of ACS to Incur additional Indebtedness are
contained in the covenant described under the caption "--Restrictive
Covenants--Limitation on Indebtedness." Such restrictions can only be waived
with the consent of the Holders of a majority in principal amount of the
exchange notes then outstanding. Except for the limitations contained in such
covenants, however, the Indenture will not contain any covenants or provisions
that may afford Holders protection in the event of a highly leveraged
transaction.
The occurrence of certain of the events that would constitute a Change of
Control would constitute a default under the Credit Agreement. Future Senior
Indebtedness of ACS may contain prohibitions of certain events that would
constitute a Change of Control or require such Senior Indebtedness to be
repurchased or repaid upon a Change of Control. Moreover, the exercise by the
Holders of their right to require ACS to repurchase the exchange notes could
cause a default under such Senior Indebtedness, even if the Change of Control
itself does not, due to the financial effect of such repurchase on ACS. Finally,
ACS' ability to pay cash to the Holders upon a repurchase may be limited by ACS'
then existing financial resources. There can be no assurance that sufficient
funds will be available when necessary to make any required repurchases. The
provisions under the Indenture relative to ACS' obligation to make an offer to
repurchase the exchange notes as a result of a Change of Control may be waived
or modified with the written consent of the Holders of a majority in principal
amount of the exchange notes.
RESTRICTIVE COVENANTS
The Indenture will contain covenants including, among others, the following:
LIMITATION ON INDEBTEDNESS. (1) ACS will not, and will not permit any
Restricted Subsidiary to, Incur any Indebtedness; PROVIDED, HOWEVER, that ACS or
any Restricted Subsidiary may Incur Indebtedness if on the date of such
Incurrence and after giving effect thereto the Debt to EBITDA Ratio would be
less than 7:1.
(2) Notwithstanding the foregoing paragraph (1), ACS and its Restricted
Subsidiaries may Incur the following Indebtedness:
(a) Bank Indebtedness in an aggregate principal amount not to exceed $585
million less the aggregate amount of all prepayments of principal applied
to permanently reduce any such Indebtedness;
(b) Indebtedness of ACS owed to and held by any Wholly Owned Subsidiary or
Indebtedness of a Restricted Subsidiary owed to and held by ACS or any
Wholly Owned Subsidiary; PROVIDED, HOWEVER, that (i) any subsequent
issuance or transfer of any Capital Stock or any other event that results
in any such Wholly Owned Subsidiary ceasing to be a Wholly Owned
Subsidiary or any subsequent transfer of any such Indebtedness (except to
ACS or a Wholly Owned Subsidiary) shall be deemed, in each case, to
constitute the Incurrence of such Indebtedness by the issuer thereof and
(ii) if ACS is the obligor on such Indebtedness, such Indebtedness is
expressly subordinated to the prior payment in full in cash of all
obligations with respect to the exchange notes;
(c) Indebtedness (i) represented by the exchange notes and the Guarantees,
(ii) outstanding on the Closing Date (other than the Indebtedness
described in clauses (a) and (b) above), (iii) consisting of Refinancing
Indebtedness Incurred in respect of any Indebtedness described in this
clause (c) (including Indebtedness Refinancing Indebtedness) or the
foregoing paragraph (1) or (iv) consisting of guarantees of any
Indebtedness permitted under clauses (a) and (b) of this paragraph (2);
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(d) (i) Indebtedness of a Restricted Subsidiary Incurred and outstanding on
or prior to the date on which such Restricted Subsidiary was acquired by
ACS (other than Indebtedness Incurred as consideration in, or to provide
all or any portion of the funds or credit support utilized to consummate,
the transaction or series of related transactions pursuant to which such
Restricted Subsidiary became a Subsidiary of, or was otherwise acquired
by, ACS); PROVIDED, HOWEVER, that on the date that such Restricted
Subsidiary is acquired by ACS, ACS would have been able to Incur $1.00 of
additional Indebtedness pursuant to the foregoing paragraph (1) after
giving effect to the Incurrence of such Indebtedness pursuant to this
clause (d) and (ii) Refinancing Indebtedness Incurred by ACS or a
Restricted Subsidiary in respect of Indebtedness Incurred pursuant to
this clause (d);
(e) Indebtedness in respect of performance bonds, bankers' acceptances,
letters of credit and surety or appeal bonds provided by ACS and the
Restricted Subsidiaries in the ordinary course of their business;
(f) Purchase Money Indebtedness and Capitalized Lease Obligations in an
aggregate principal amount not in excess of $20 million at any time
outstanding;
(g) Hedging Obligations of ACS or any Guarantor directly related to
Indebtedness permitted to be Incurred by ACS or any Guarantor pursuant to
the Indenture for the purpose of fixing or hedging interest rate risk or
currency fluctuations;
(h) (i) Indebtedness of another Person Incurred and outstanding on or prior
to the date on which such Person consolidates with or merges with or into
ACS (other than Indebtedness Incurred as consideration in, or to provide
all or any portion of the funds or credit support utilized to consummate,
the transaction or series of related transactions pursuant to which such
Person consolidates with or merges with or into ACS); PROVIDED, HOWEVER,
that on the date that such transaction is consummated, ACS would have
been able to Incur $1.00 of additional Indebtedness pursuant to the
foregoing paragraph (1) after giving effect to the Incurrence of such
Indebtedness pursuant to this clause (h) and (ii) Refinancing
Indebtedness Incurred by ACS or the Successor Company in respect of
Indebtedness Incurred pursuant to subclause (i) of this clause (h); or
(i) Indebtedness (other than Indebtedness permitted to be Incurred pursuant
to the foregoing paragraph (1) or any other clause of this paragraph (2))
in an aggregate principal amount on the date of Incurrence that, when
added to all other Indebtedness Incurred pursuant to this clause (i) and
then outstanding, shall not exceed $5 million.
(3) Notwithstanding the foregoing, ACS may not Incur any Indebtedness
pursuant to paragraph (2) above if the proceeds thereof are used, directly or
indirectly, to repay, prepay, redeem, defease, retire, refund or refinance any
Subordinated Obligations, unless such Indebtedness will be subordinated to the
exchange notes to at least the same extent as such Subordinated Obligations. ACS
may not Incur any Indebtedness if such Indebtedness is subordinate or junior in
ranking in any respect to any Senior Indebtedness unless such Indebtedness is
Senior Subordinated Indebtedness or is expressly subordinated in right of
payment to Senior Subordinated Indebtedness. In addition, ACS may not Incur any
Secured Indebtedness that is not Senior Indebtedness unless contemporaneously
therewith effective provision is made to secure the exchange notes equally and
ratably with (or on a senior basis to, in the case of Indebtedness subordinated
in right of payment to the exchange notes) such Secured Indebtedness for so long
as such Secured Indebtedness is secured by a Lien. A Guarantor may not Incur any
Indebtedness if such Indebtedness is by its terms expressly subordinate or
junior in ranking in any respect to any Senior Indebtedness of such Guarantor
unless such Indebtedness is Senior Subordinated Indebtedness of such Guarantor
or is expressly subordinated in right of payment to Senior Subordinated
Indebtedness of such Guarantor. In addition, a Guarantor may not Incur any
Secured Indebtedness that is not Senior Indebtedness of such Guarantor unless
contemporaneously
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therewith effective provision is made to secure the Guarantee of such Guarantor
equally and ratably with (or on a senior basis to, in the case of Indebtedness
subordinated in right of payment to such Guarantee) such Secured Indebtedness
for as long as such Secured Indebtedness is secured by a Lien.
(4) Notwithstanding any other provision of this covenant, the maximum amount
of Indebtedness that ACS or any Restricted Subsidiary may Incur pursuant to this
covenant shall not be deemed to be exceeded solely as a result of fluctuations
in the exchange rates of currencies. For purposes of determining the outstanding
principal amount of any particular Indebtedness Incurred pursuant to this
covenant:
(a) Indebtedness Incurred pursuant to the Credit Agreement prior to or on
the Closing Date shall be treated as Incurred pursuant to clause (2)(a)
above;
(b) Indebtedness permitted by this covenant need not be permitted solely by
reference to one provision permitting such Indebtedness but may be
permitted in part by one such provision and in part by one or more other
provisions of this covenant permitting such Indebtedness; and
(c) in the event that Indebtedness meets the criteria of more than one of
the types of Indebtedness described in this covenant, ACS, in its sole
discretion, shall classify such Indebtedness and only be required to
include the amount of such Indebtedness in one of such clauses.
LIMITATION ON RESTRICTED PAYMENTS. (1) ACS will not, and will not permit
any Restricted Subsidiary, directly or indirectly, to:
(a) declare or pay any dividend or make any distribution on or in respect of
its Capital Stock (including any payment in connection with any merger or
consolidation involving ACS) or similar payment to the holders of its
Capital Stock except dividends or distributions payable solely in its
Capital Stock (other than Disqualified Stock) and except dividends or
distributions payable to ACS or another Restricted Subsidiary (and, if
such Restricted Subsidiary has shareholders other than ACS or other
Restricted Subsidiaries, to its other shareholders on a pro rata basis);
(b) purchase, redeem, retire or otherwise acquire for value any Capital
Stock of Holdings, ACS or any Restricted Subsidiary held by Persons other
than ACS or another Restricted Subsidiary;
(c) purchase, repurchase, redeem, defease or otherwise acquire or retire for
value, prior to scheduled maturity, scheduled repayment or scheduled
sinking fund payment any Subordinated Obligations (other than the
purchase, repurchase or other acquisition of Subordinated Obligations
purchased in anticipation of satisfying a sinking fund obligation,
principal installment or final maturity, in each case, due within one
year of the date of acquisition); or
(d) make any Investment (other than a Permitted Investment) in any Person
(any such dividend, distribution, purchase, redemption, repurchase, defeasance,
other acquisition, retirement or Investment being herein referred to as a
"Restricted Payment") if at the time ACS or such Restricted Subsidiary makes
such Restricted Payment:
(i) a Default will have occurred and be continuing (or would result
therefrom);
(ii) ACS could not Incur at least $1.00 of additional Indebtedness under
paragraph (1) of the covenant described under the caption "--Limitation
on Indebtedness"; or
(iii) the aggregate amount of such Restricted Payment and all other
Restricted Payments (the amount so expended, if other than in cash, to
be determined in good faith by the Board of Directors, whose
determination will be conclusive and evidenced by a resolution of the
Board
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of Directors) declared or made subsequent to the Closing Date would
exceed the sum of, without duplication:
(A)(i) 100% of EBITDA accrued during the period (treated as one
accounting period) from the beginning of the fiscal quarter
immediately following the fiscal quarter during which the Closing Date
occurs to the end of the most recent fiscal quarter for which
financial statements are publicly available (or, in case such EBITDA
will be a deficit, minus 100% of such deficit), minus
(ii) 140% of Consolidated Interest Expense accrued during the period
(treated as one accounting period) from the beginning of the fiscal
quarter immediately following the fiscal quarter during which the
Closing Date occurs to the end of the most recent fiscal quarter for
which financial statements are publicly available; plus
(B) the aggregate Net Cash Proceeds received by ACS from the issue or
sale of its Capital Stock (other than Disqualified Stock) subsequent
to the Closing Date (other than (x) an issuance or sale to a
Subsidiary of ACS, (y) an issuance or sale to an employee stock
ownership plan or other trust established by ACS or any of its
Subsidiaries or (z) to the extent used in accordance with clause
(2)(e)(ii) or (2)(f)(iii)(B)) below; plus
(C) the aggregate Net Cash Proceeds received by ACS from the sale or
other disposition (other than to ACS or a Restricted Subsidiary) of
any Investments previously made by ACS or a Restricted Subsidiary
and treated as a Restricted Payment; PROVIDED that the amount added
pursuant to this clause (C) shall not exceed the amount treated as a
Restricted Payment and not previously added pursuant to this
paragraph (iii); plus
(D) the amount by which Indebtedness of ACS or its Restricted
Subsidiaries is reduced on ACS' balance sheet upon the conversion or
exchange (other than by a Subsidiary of ACS) subsequent to the
Closing Date of any Indebtedness of ACS or its Restricted
Subsidiaries issued after the Closing Date that is convertible or
exchangeable for Capital Stock (other than Disqualified Stock) of ACS
(less the amount of any cash or the fair market value of other
property distributed by ACS or any Restricted Subsidiary upon such
conversion or exchange); plus
(E) the amount equal to the net reduction in Investments in Unrestricted
Subsidiaries resulting from (i) payments of dividends, repayments of
the principal of loans or advances or other transfers of assets to
ACS or any Restricted Subsidiary from Unrestricted Subsidiaries or
(ii) the redesignation of Unrestricted Subsidiaries as Restricted
Subsidiaries (valued, in each case, as provided in the definition of
"Investment") not to exceed, in the case of any Unrestricted
Subsidiary, the amount of Investments previously made by ACS or any
Restricted Subsidiary in such Unrestricted Subsidiary, which amount
was included in the calculation of the amount of Restricted
Payments; plus
(F) $5 million.
(2) The provisions of the foregoing paragraph (1) will not prohibit:
(a) any purchase, repurchase, retirement, defeasance or other acquisition or
retirement for value of Capital Stock or Subordinated Obligations of ACS
made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Capital Stock of ACS (other than Disqualified Stock
and other than Capital Stock issued or sold to a Subsidiary of ACS or an
employee stock ownership plan or other trust established by ACS or any of
its Subsidiaries); PROVIDED, HOWEVER, that:
(i) such Restricted Payment will be excluded in the calculation of the
amount of Restricted Payments; and
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(ii) the Net Cash Proceeds from such sale applied in the manner set
forth in this clause (a) will be excluded from the calculation of
amounts under clause (B) of paragraph (iii) above;
(b) any purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value of Subordinated Obligations of ACS made by exchange
for, or out of the proceeds of the substantially concurrent sale of,
Indebtedness of ACS that is permitted to be Incurred pursuant to
paragraph (2) of the covenant described under the caption "--Limitation
on Indebtedness"; PROVIDED, HOWEVER, that such purchase, repurchase,
redemption, defeasance or other acquisition or retirement for value will
be excluded in the calculation of the amount of Restricted Payments;
(c) any purchase or redemption of Subordinated Obligations from Net
Available Cash to the extent permitted by the covenant described under
the caption "--Limitation on Sales of Assets and Subsidiary Stock";
PROVIDED, HOWEVER, that such purchase or redemption will be excluded in
the calculation of the amount of Restricted Payments;
(d) dividends paid within 60 days after the date of declaration thereof if
at such date of declaration such dividend would have complied with this
covenant; PROVIDED, HOWEVER, that such dividend will be included in the
calculation of the amount of Restricted Payments;
(e) the repurchase or other acquisition of shares of, or options to purchase
shares of, common stock of ACS or any of its Subsidiaries from employees,
former employees, consultants, former consultants, directors or former
directors of ACS or any of its Subsidiaries (or permitted transferees of
such employees, former employees, consultants, former consultants,
directors or former directors), pursuant to the terms of agreements
(including employment agreements) or plans (or amendments thereto)
approved by the Board of Directors under which such individuals purchase
or sell, or are granted the option to purchase or sell, shares of such
common stock; PROVIDED, HOWEVER, that the aggregate amount of such
repurchases, together with any amounts or other distributions to Holdings
under the following paragraph (f)(iii), shall not exceed in any calendar
year the sum of (i) $5 million plus (ii) the Net Cash Proceeds received
(A) since the date of the Indenture by ACS or received by Holdings and
contributed to ACS from the sale of Capital Stock to employees,
consultants and directors of Holdings or ACS and (B) not previously
credited to any repurchase or other acquisition of such shares or options
to purchase shares of common stock pursuant to this clause (2)(e)(ii) or
clause (2)(f)(iii)(B) below; PROVIDED, FURTHER, HOWEVER, that such
repurchases and other acquisitions of shares, or options to purchase
shares of common stock shall be included in the calculation of the amount
of Restricted Payments; and
(f) payment of dividends, other distributions or other amounts by ACS solely
for the purposes set forth in clauses (i) through (iv) below; PROVIDED,
HOWEVER, that such dividend, distribution or amount set forth in clauses
(i), (iii) and (iv) (but not clause (ii)) shall be included in the
calculation of the amount of Restricted Payments for the purposes of
paragraph (1) above:
(i) to Holdings in amounts equal to the amounts required for Holdings to
pay franchise taxes and other fees required to maintain its
corporate existence, and provide for other operating costs of up to
$7.5 million per fiscal year;
(ii) to Holdings in amounts equal to amounts required for Holdings to
pay U.S. federal, state and local income taxes to the extent such
income taxes are attributable to the income of ACS and its
Restricted Subsidiaries (and, to the extent of amounts actually
received from its Unrestricted Subsidiaries, in amounts required to
pay such taxes to the extent attributable to the income of such
Unrestricted Subsidiaries);
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(iii) to Holdings in amounts equal to amounts expended by Holdings to
repurchase or otherwise acquire shares of, or options to purchase
shares of, common stock of Holdings from employees, former
employees, consultants, former consultants, directors or former
directors of Holdings, ACS or any of ACS' Subsidiaries (or
permitted transferees of such employees, former employees,
consultants, former consultants, directors or former directors),
pursuant to the terms of agreements (including employment
agreements) or plans (or amendments thereto) approved by the Board
of Directors of Holdings under which such individuals purchase or
sell, or are granted the option to purchase or sell, shares of such
common stock of Holdings; PROVIDED, HOWEVER, that the aggregate
amount paid, loaned or advanced to Holdings pursuant to this clause
(iii), together with the amounts of any repurchases or other
acquisitions under clause (e) above, shall not exceed in any
calendar year the sum of (A) $5 million plus (B) the Net Cash
Proceeds received (1) since the date of the Indenture by ACS or
received by Holdings and contributed to ACS from the sale of
Capital Stock to employees, consultants and directors of Holdings
or ACS and (2) not previously credited to any repurchase or other
acquisition of such shares or options to purchase shares of common
stock pursuant to this clause (2)(f)(iii)(B) or clause (2)(e)(ii)
above; and
(iv) to Holdings in amounts equal to amounts necessary for Holdings to
make loans or advances to employees in the ordinary course of
business in accordance with past practices of ACS, but in any event
not to exceed, when aggregated with amounts loaned or advanced
under clause (6) of the definition of "Permitted Investments," $5
million in the aggregate outstanding at any one time.
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED
SUBSIDIARIES. ACS will not, and will not permit any Restricted Subsidiary to,
create or otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock or
pay any Indebtedness or other obligations owed to ACS or any of its
Restricted Subsidiaries;
(2) make any loans or advances to ACS or any of its Restricted Subsidiaries;
or
(3) transfer any of its property or assets to ACS or any of its Restricted
Subsidiaries,
except:
(a) any encumbrance or restriction pursuant to applicable law or an
agreement in effect at or entered into on the Closing Date;
(b) any encumbrance or restriction with respect to a Restricted Subsidiary
pursuant to an agreement relating to any Indebtedness Incurred by such
Restricted Subsidiary prior to the date on which such Restricted
Subsidiary was acquired by ACS (other than Indebtedness Incurred as
consideration in, in contemplation of, or to provide all or any portion
of the funds or credit support utilized to consummate the transaction or
series of related transactions pursuant to which such Restricted
Subsidiary became a Restricted Subsidiary or was otherwise acquired by
ACS) and outstanding on such date;
(c) any encumbrance or restriction pursuant to an agreement effecting a
Refinancing of Indebtedness Incurred pursuant to an agreement referred to
in clause (a) or (b) above or this clause (c) or contained in any
amendment to an agreement referred to in clause (a) or (b) above or this
clause (c); PROVIDED, HOWEVER, that the encumbrances and restrictions
contained in any such Refinancing agreement or amendment are no less
favorable to the Noteholders than the encumbrances and restrictions
contained in such predecessor agreements;
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(d) in the case of clause (3), any encumbrance or restriction:
(i) that restricts in a customary manner the subletting, assignment or
transfer of any property or asset that is subject to a lease,
license or similar contract; or
(ii) contained in security agreements securing Indebtedness of a
Restricted Subsidiary to the extent such encumbrance or restriction
restricts the transfer of the property subject to such security
agreements;
(e) with respect to a Restricted Subsidiary, any restriction imposed
pursuant to an agreement entered into for the sale or disposition of all
or substantially all the Capital Stock or assets of such Restricted
Subsidiary pending the closing of such sale or disposition;
(f) any encumbrance or restriction relating to Purchase Money Indebtedness
or Capitalized Lease Obligations for property acquired in the ordinary
course of business that imposes restrictions on the ability of ACS or a
Restricted Subsidiary to sell, lease or transfer the acquired property to
ACS or its Restricted Subsidiaries;
(g) restrictions on cash or other deposits imposed by customers under
contracts entered into in the ordinary course of business; and
(h) any encumbrance or restriction contained in joint venture agreements and
other similar agreements entered into in the ordinary course of business
and customary for such types of agreements.
LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK. (1) ACS will not, and
will not permit any Restricted Subsidiary to, make any Asset Disposition unless:
(a) ACS or such Restricted Subsidiary receives consideration (including by
way of relief from, or by any other Person assuming sole responsibility
for, any liabilities, contingent or otherwise) at the time of such Asset
Disposition at least equal to the fair market value, as determined in
good faith by the Board of Directors, of the shares and assets subject to
such Asset Disposition;
(b) at least 75% of the consideration thereof received by ACS or such
Restricted Subsidiary is in the form of cash; PROVIDED that the following
shall be deemed to be cash for purposes of this clause (b): (i) the
amount of any liabilities (as shown on ACS', or such Restricted
Subsidiary's, most recent balance sheet or in the notes thereto) of ACS
or any Restricted Subsidiary (other than liabilities that are by their
terms subordinated to the Exchange Notes or the Guarantees) that are
assumed by the transferee of any such assets, (ii) the amount of any
securities received by ACS or such Restricted Subsidiary from such
transferee that are converted by ACS or such Restricted Subsidiary into
cash (to the extent of the cash received) within 90 days following the
closing of such Asset Disposition, (iii) the fair market value of any
Telecommunications Assets received by ACS in such Asset Disposition and
(iv) the fair market value of any Permitted Joint Venture Interests
received by ACS or any Restricted Subsidiary in such Asset Disposition;
PROVIDED that the aggregate fair market value of all Permitted Joint
Venture Interests received pursuant to this clause (iv), valued, in each
case, at the time of receipt, shall not exceed 10% of Consolidated Net
Tangible Assets,
(for purposes of this paragraph (b), all determinations of fair market
value shall be made in good faith by the Board of Directors and evidenced
by an Officers' Certificate delivered to the Trustee); and
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(c) an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by ACS (or such Restricted Subsidiary, as the case
may be):
(i) FIRST, to the extent ACS elects (or is required by the terms of any
Indebtedness), to prepay, repay, redeem, purchase or otherwise
acquire Senior Indebtedness of ACS or Indebtedness (other than any
Disqualified Stock) of a Wholly Owned Subsidiary (in each case,
other than Indebtedness owed to ACS or an Affiliate of ACS and other
than Preferred Stock) within 180 days of the later of the date of
such Asset Disposition or the receipt of such Net Available Cash;
(ii) SECOND, to the extent of the balance of Net Available Cash after
application in accordance with clause (i) above, to the extent ACS
or such Restricted Subsidiary elects to, or enters into a binding
agreement to, reinvest in Additional Assets (including by means of
an Investment in Additional Assets by a Restricted Subsidiary with
cash in an amount equal to the amount of Net Available Cash
received by, or to be received by, ACS or another Restricted
Subsidiary) within 180 days of the later of such Asset Disposition
or the receipt of such Net Available Cash; and
(iii) THIRD, to the extent of the balance of such Net Available Cash
after application in accordance with clauses (i) and (ii) above, to
make an Offer to purchase exchange notes pursuant to and subject to
the conditions set forth in paragraph (2) below; PROVIDED, HOWEVER,
that, if ACS elects (or is required by the terms of any other
Senior Subordinated Indebtedness), such Offer may be made ratably
to purchase the exchange notes and other Senior Subordinated
Indebtedness of ACS;
PROVIDED, HOWEVER, that, in connection with any prepayment, repayment or
purchase of Indebtedness pursuant to clause (i) or (iii) above, ACS or such
Restricted Subsidiary will retire such Indebtedness and will cause the
related loan commitment (if any) to be permanently reduced in an amount
equal to the principal amount so prepaid, repaid or purchased.
Upon completion of any Offer, the amount of Net Available Cash shall be
reset at zero and ACS shall be entitled to use any remaining proceeds for any
corporate purposes to the extent permitted under the Indenture. Notwithstanding
the foregoing provisions of this covenant, ACS and the Restricted Subsidiaries
will not be required to apply any Net Available Cash in accordance with this
covenant except to the extent that the aggregate Net Available Cash from all
Asset Dispositions that is not applied in accordance with this covenant exceeds
$10 million.
(2) In the event of an Asset Disposition that requires the purchase of
exchange notes pursuant to clause (c)(iii) above, ACS will be required to offer
to purchase exchange notes tendered pursuant to an offer by ACS for the exchange
notes (an "Offer") at a purchase price of 100% of their principal amount plus
accrued and unpaid interest thereon, and Additional Amounts in respect thereof,
if any, to the date of purchase in accordance with the procedures (including
prorating in the event of oversubscription) set forth in the Indenture and to
purchase other Senior Subordinated Indebtedness on the terms and to the extent
contemplated thereby. ACS will not be required to make an Offer for exchange
notes (and other Senior Subordinated Indebtedness) pursuant to this covenant if
the Net Available Cash available therefor (after application of the proceeds as
provided in clauses (c)(i) and (c)(ii) above) is less than $10 million for any
particular Asset Disposition (which lesser amount will be carried forward for
purposes of determining whether an Offer is required with respect to the Net
Available Cash from any subsequent Asset Disposition).
(3) ACS will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of exchange notes pursuant to this covenant.
To the extent that the provisions of any securities laws or regulations conflict
with provisions of this covenant, ACS will comply with the applicable securities
laws and regulations and will not be deemed to have breached its obligations
under this covenant by virtue thereof.
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LIMITATION ON TRANSACTIONS WITH AFFILIATES. (1) ACS will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, enter into or
conduct any transaction or series of related transactions (including the
purchase, sale, lease or exchange of any property or the rendering of any
service) with any Affiliate of ACS (an "Affiliate Transaction") unless such
Affiliate Transaction is on terms:
(a) that are no less favorable to ACS or such Restricted Subsidiary, as the
case may be, than those that could be obtained at the time of such
transaction in arms'-length dealings with a Person who is not such an
Affiliate;
(b) that, in the event such Affiliate Transaction involves an aggregate
amount in excess of $5 million:
(i) are set forth in writing; and
(ii) have been approved by a majority of the members of the Board of
Directors having no personal stake, other than as a holder of
Capital Stock of Holdings, ACS or such Restricted Subsidiary, in
such Affiliate Transaction; and
(c) that, in the event such Affiliate Transaction involves an amount in
excess of $15 million, have been determined by a nationally recognized
appraisal or investment banking firm to be fair, from a financial
standpoint, to ACS and its Restricted Subsidiaries.
(2) The provisions of paragraph (1) above will not prohibit:
(a) any Restricted Payment permitted to be paid pursuant to the covenant
described under the caption "--Limitation on Restricted Payments";
(b) any issuance of securities, or other payments, awards or grants in cash,
securities or otherwise pursuant to, or the funding of, employment
arrangements, stock options and stock ownership plans approved by the
Board of Directors;
(c) the grant of stock options or similar rights to employees and directors
of ACS pursuant to plans approved by the Board of Directors;
(d) loans or advances to employees in the ordinary course of business in
accordance with past practices of ACS, but in any event not to exceed $10
million in the aggregate outstanding at any one time;
(e) the payment of reasonable fees to directors of ACS and its Subsidiaries
who are not employees of ACS or its Subsidiaries;
(f) any transaction between ACS and a Restricted Subsidiary or between
Restricted Subsidiaries;
(g) customary indemnification and insurance arrangements in favor of
officers, directors, employees and consultants of Holdings, ACS or any of
the Restricted Subsidiaries;
(h) payments by ACS or any of its Restricted Subsidiaries to Fox Paine and
its Affiliates for any financial advisory, financing, underwriting or
other placement services or in respect of other investment banking
activities, including, without limitation, in connection with
acquisitions or divestitures which payments are approved by a majority of
the members of the Board of Directors referred to in clause (b)(ii) above
in good faith;
(i) the existence of, or the performance by ACS or any of its Restricted
Subsidiaries of the obligations under the terms of, any stockholders
agreements (including any registration rights agreement or purchase
agreement related thereto) to which it is a party as of the Closing Date,
as such agreements, may be amended from time to time pursuant to the
terms thereof; PROVIDED, HOWEVER, that the terms of any such amendment
are no less favorable to the Holders than the terms of any such
agreements in effect as of the Closing Date; and
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(j) the issuance of Capital Stock (other than Disqualified Stock) of ACS for
cash to any Permitted Holder.
LIMITATION ON THE SALE OR ISSUANCE OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES. ACS will not sell or otherwise dispose of any shares of Capital
Stock of a Restricted Subsidiary, and will not permit any Restricted Subsidiary,
directly or indirectly, to issue or sell or otherwise dispose of any shares of
its Capital Stock except:
(1) to ACS or a Wholly Owned Subsidiary;
(2) if, immediately after giving effect to such issuance, sale or other
disposition, neither ACS nor any of its Subsidiaries own any Capital
Stock of such Restricted Subsidiary; or
(3) if, immediately after giving effect to such issuance or sale, such
Restricted Subsidiary would no longer constitute a Restricted Subsidiary
and any Investment in such Person remaining after giving effect thereto
would have been permitted to be made under the covenant described under
the caption "--Limitation on Restricted Payments" if made on the date of
such issuance, sale or other disposition.
The proceeds of any sale of such Capital Stock permitted hereby will be
treated as Net Available Cash from an Asset Disposition and must be applied in
accordance with the terms of the covenant described under the caption
"--Limitation on Sales of Assets and Subsidiary Stock".
SEC REPORTS. Notwithstanding that ACS may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, ACS will file with the
SEC and provide the Trustee and Exchange Noteholders and prospective Exchange
Noteholders (upon request) within 15 days after it files them with the SEC,
copies of its annual report and the information, documents and other reports
that are specified in Sections 13 and 15(d) of the Exchange Act. In addition,
following an Equity Offering, ACS shall furnish to the Trustee and Exchange
Noteholders, promptly upon their becoming available, copies of the annual report
to shareholders and any other information provided by ACS or Holdings to its
public shareholders generally. ACS also will comply with the other provisions of
Section 314(a) of the TIA.
FUTURE GUARANTORS. ACS will cause each Domestic Subsidiary that Incurs
Indebtedness to become a Guarantor, and, if applicable, execute and deliver to
the Trustee a supplemental indenture in the form set forth in the Indenture
pursuant to which such Domestic Subsidiary will guarantee payment of the
exchange notes. Each Guarantee will be limited to an amount not to exceed the
maximum amount that can be guaranteed by that Domestic Subsidiary without
rendering the Guarantee, as it relates to such Domestic Subsidiary, voidable
under applicable law relating to fraudulent conveyance or fraudulent transfer or
similar laws affecting the rights of creditors generally.
LIMITATION ON LINES OF BUSINESS. ACS will not, and will not permit any
Restricted Subsidiary to, engage in any business, other than a Related Business.
MERGER AND CONSOLIDATION
ACS will not consolidate with or merge with or into, or convey, transfer or
lease all or substantially all its assets to, any Person, unless:
(1) the resulting, surviving or transferee Person (the "Successor Company")
will be a corporation organized and existing under the laws of the United
States of America, any state thereof or the District of Columbia, and the
Successor Company (if not ACS) will expressly assume, by a supplemental
indenture, executed and delivered to the Trustee, in form satisfactory to
the Trustee, all the obligations of ACS under the exchange notes and the
Indenture;
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(2) immediately after giving effect to such transaction (and treating any
Indebtedness which becomes an obligation of the Successor Company or any
Restricted Subsidiary as a result of such transaction as having been
Incurred by the Successor Company or such Restricted Subsidiary at the
time of such transaction), no Default shall have occurred and be
continuing;
(3) immediately after giving effect to such transaction, the Successor
Company would be able to Incur an additional $1.00 of Indebtedness under
paragraph (1) of the covenant described under the caption "--Restrictive
Covenants--Limitation on Indebtedness";
(4) ACS shall have delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that such consolidation, merger or
transfer and such supplemental indenture (if any) comply with the
Indenture; and
(5) ACS shall have delivered to the Trustee an Opinion of Counsel to the
effect that the Holders will not recognize income, gain or loss for
Federal income tax purposes as a result of such transaction and will be
subject to Federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such transaction had not
occurred.
Notwithstanding the foregoing clause (2) or (3), ACS may merge with an Affiliate
incorporated or formed solely for the purpose of reincorporating ACS in another
jurisdiction.
The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, ACS under the Indenture, but ACS, in the case
of a conveyance, transfer or lease of all or substantially all its assets, will
not be released from the obligation to pay the principal of and interest on the
exchange notes.
In addition, ACS will not permit any Guarantor to consolidate with or merge
with or into, or convey, transfer or lease all or substantially all of its
assets to any Person unless:
(1) the resulting, surviving or transferee Person will be a corporation
organized and existing under the laws of the United States of America,
any state thereof or the District of Columbia, and such Person (if not
such Guarantor) will expressly assume, by a supplemental indenture,
executed and delivered to the Trustee, in form satisfactory to the
Trustee, all the obligations of such Guarantor under its Guarantee;
(2) immediately after giving effect to such transaction (and treating any
Indebtedness which becomes an obligation of the resulting, surviving or
transferee Person as a result of such transaction as having been Incurred
by such Person at the time of such transaction), no Default shall have
occurred and be continuing; and
(3) ACS will have delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that such consolidation, merger or
transfer and such supplemental indenture (if any) comply with the
Indenture.
Notwithstanding the foregoing clause (2), any Restricted Subsidiary may
consolidate with, merge into or transfer all or part of its properties and
assets to ACS or another Restricted Subsidiary.
DEFAULTS
Each of the following is an "Event of Default":
(1) a default in any payment of interest on any Exchange Note when due and
payable, whether or not prohibited by the provisions described under the
caption "--Ranking," continued for 30 days;
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(2) a default in the payment of principal of any Exchange Note when due and
payable at its Stated Maturity, upon required redemption or repurchase,
upon declaration or otherwise, whether or not such payment is prohibited
by the provisions described under the caption "--Ranking";
(3) the failure by ACS to comply with its obligations under the covenant
described under the caption "--Merger and Consolidation";
(4) the failure by ACS to comply for 30 days after notice with any of its
obligations under the covenants described under the captions "--Change of
Control" or "--Restrictive Covenants" (in each case, other than a failure
to purchase exchange notes);
(5) the failure by ACS to comply for 60 days after notice with its other
agreements contained in the exchange notes or the Indenture;
(6) the failure by ACS or any Subsidiary of ACS to pay any Indebtedness
(other than Indebtedness owing to ACS or a Subsidiary of ACS) within any
applicable grace period after final maturity or the acceleration of any
such Indebtedness by the holders thereof because of a default if the
total amount of such Indebtedness unpaid or accelerated exceeds $5.0
million or its foreign currency equivalent (the "cross acceleration
provision") and such failure continues for 10 days after receipt of the
notice specified in the Indenture;
(7) certain events of bankruptcy, insolvency or reorganization of ACS or a
Significant Subsidiary (the "bankruptcy provisions");
(8) the rendering of any judgment or decree for the payment of money in
excess of $5.0 million or its foreign currency equivalent against ACS or
a Subsidiary of ACS, to the extent such judgment or decree is not covered
by insurance or is in excess of insurance coverage, if such judgment or
decree remains outstanding for a period of 60 days following such
judgment and is not discharged, waived or stayed (the "judgment default
provision"); or
(9) any Guarantee ceases to be in full force and effect (except as
contemplated by the terms thereof) or any Guarantor or Person acting by
or on behalf of such Guarantor denies or disaffirms such Guarantor's
obligations under the Indenture or any Guarantee and such Default
continues for 10 days after receipt of the notice specified in the
Indenture.
The foregoing will constitute Events of Default whatever the reason for any
such Event of Default and whether it is voluntary or involuntary or is effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body.
However, a default under clause (4), (5) or (6) above will not constitute an
Event of Default until the Trustee or the Holders of at least 25% in principal
amount of the outstanding exchange notes notify ACS of the default and ACS does
not cure such default within the time specified in clauses (4), (5) or (6) above
after receipt of such notice.
If an Event of Default (other than an Event of Default under the bankruptcy
provisions) occurs and is continuing, the Trustee or the Holders of at least 25%
in principal amount of the outstanding exchange notes by notice to ACS may
declare the principal of and accrued but unpaid interest on all the exchange
notes to be due and payable. Upon such a declaration, such principal and
interest will be due and payable immediately. If an Event of Default under the
bankruptcy provisions occurs, the principal of and interest on all the exchange
notes will become immediately due and payable without any declaration or other
act on the part of the Trustee or any Holders. Under certain circumstances, the
Holders of a majority in principal amount of the outstanding exchange notes may
rescind any such acceleration with respect to the exchange notes and its
consequences.
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Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders, unless such Holders
have offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no Holder may pursue any
remedy with respect to the Indenture or the exchange notes unless:
(1) such Holder has previously given the Trustee notice that an Event of
Default is continuing;
(2) Holders of at least 25% in principal amount of the outstanding exchange
notes have requested the Trustee in writing to pursue the remedy;
(3) such Holders have offered the Trustee reasonable security or indemnity
against any loss, liability or expense;
(4) the Trustee has not complied with such request within 60 days after the
receipt of the request and the offer of security or indemnity; and
(5) the Holders of a majority in principal amount of the outstanding Notes
have not given the Trustee a direction inconsistent with such request
within such 60-day period.
Subject to certain restrictions, the Holders of a majority in principal
amount of the outstanding exchange notes will be given the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or of exercising any trust or power conferred on the Trustee. The
Trustee, however, may refuse to follow any direction that conflicts with law or
the Indenture or that the Trustee determines is unduly prejudicial to the rights
of any other Holder or that would involve the Trustee in personal liability.
Prior to taking any action under the Indenture, the Trustee will be entitled to
indemnification satisfactory to it in its sole discretion against all losses and
expenses caused by taking or not taking such action.
If a Default occurs and is continuing and is known to the Trustee, the
Trustee must mail to each Holder notice of the Default within 30 days after it
is known to a Trust Officer or written notice of it is received by the Trustee.
Except in the case of a Default in the payment of principal of, premium (if any)
or interest on any Exchange Note (including payments pursuant to the redemption
provisions of such Exchange Note), the Trustee may withhold notice if and so
long as a committee of its Trust Officers in good faith determines that
withholding notice is in the interests of the Holders. In addition, ACS will be
required to deliver to the Trustee, within 120 days after the end of each fiscal
year, a certificate indicating whether the signers thereof know of any Default
that occurred during the previous year. ACS will also be required to deliver to
the Trustee, within 30 days after the occurrence thereof, written notice of any
event that would constitute certain Events of Default, its status and what
action ACS is taking or proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture or the exchange notes may be
amended with the written consent of the Holders of a majority in principal
amount of the exchange notes then outstanding and any past default or compliance
with any provisions may be waived with the consent of the Holders of a majority
in principal amount of the exchange notes then outstanding. However, without the
consent of each Holder of an outstanding Exchange Note affected, no amendment
may, among other things:
(1) reduce the amount of exchange notes whose Holders must consent to an
amendment;
(2) reduce the rate of or extend the time for payment of interest or any
Additional Amounts on any Exchange Note;
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(3) reduce the principal of or extend the Stated Maturity of any Exchange
Note;
(4) reduce the premium payable upon the redemption of any Exchange Note or
change the time at which any Exchange Note may be redeemed as described
under the caption "--Optional Redemption";
(5) make any Exchange Note payable in money other than that stated in the
Exchange Note;
(6) make any change to the subordination provisions of the Indenture that
adversely affects the rights of any Holder;
(7) impair the right of any Holder to receive payment of principal of, and
interest or any Additional Amounts on, such Holder's exchange notes on or
after the due dates therefor or to institute suit for the enforcement of
any payment on or with respect to such Holder's exchange notes;
(8) make any change in the amendment provisions which require each Holder's
consent or in the waiver provisions; or
(9) modify the Guarantees in any manner adverse to the Holders.
Without the consent of any Holder, ACS and Trustee may amend the Indenture
to:
- cure any ambiguity, omission, defect or inconsistency;
- provide for the assumption by a successor corporation of the obligations
of ACS under the Indenture;
- provide for uncertificated exchange notes in addition to or in place of
certificated exchange notes (PROVIDED that the uncertificated exchange
notes are issued in registered form for purposes of Section 163(f) of the
Code, or in a manner such that the uncertificated Notes are described in
Section 163(f)(2)(B) of the Code);
- make any change in the subordination provisions of the Indenture that
would limit or terminate the benefits available to any holder of Senior
Indebtedness of ACS (or any representative thereof) under such
subordination provisions;
- add additional Guarantees with respect to the exchange notes;
- secure the exchange notes;
- add to the covenants of ACS for the benefit of the Holders or to surrender
any right or power conferred upon ACS;
- make any change that does not adversely affect the rights of any Holder,
subject to the provisions of the Indenture; or
- comply with any requirement of the SEC in connection with the
qualification of the Indenture under the TIA.
However, no amendment may be made to the subordination provisions of the
Indenture that adversely affects the rights of any holder of Senior Indebtedness
of ACS then outstanding, unless the holders of such Senior Indebtedness (or any
group or representative thereof authorized to give a consent) consent to such
change.
The consent of the Noteholders will not be necessary to approve the
particular form of any proposed amendment. It will be sufficient if such consent
approves the substance of the proposed amendment.
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After an amendment becomes effective, ACS will be required to mail to
Holders a notice briefly describing such amendment. However, the failure to give
such notice to all Holders, or any defect therein, will not impair or affect the
validity of the amendment.
TRANSFER AND EXCHANGE
A Holder will be able to transfer or exchange notes. Upon any transfer or
exchange, the registrar and the Trustee may require a Noteholder, among other
things, to furnish appropriate endorsements and transfer documents and ACS may
require a Noteholder to pay any taxes required by law or permitted by the
Indenture. ACS will not be required to transfer or exchange any Exchange Note
selected for redemption or to transfer or exchange any Exchange Note for a
period of 15 days prior to a selection of exchange notes to be redeemed. The
exchange notes will be issued in registered form and the Holder will be treated
as the owner of such Exchange Note for all purposes.
DEFEASANCE
ACS may at any time terminate all its obligations under the exchange notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the exchange notes, to replace mutilated, destroyed,
lost or stolen exchange notes and to maintain a registrar and paying agent in
respect of the exchange notes. In addition, ACS may at any time terminate:
(1) its obligations under the covenants described under "--Restrictive
Covenants" or
(2) the operation of the cross acceleration provision, the bankruptcy
provisions with respect to Significant Subsidiaries and the judgment
default provision described under "--Defaults" and the limitations
contained in clauses (3) and (4) under the first paragraph under
"--Merger and Consolidation" ("covenant defeasance").
In the event that ACS exercises its legal defeasance option or its covenant
defeasance option, each Guarantor will be released from all of its obligations
with respect to its Guarantee.
ACS may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option. If ACS exercises its legal
defeasance option, payment of the exchange notes may not be accelerated because
of an Event of Default with respect thereto. If ACS exercises its covenant
defeasance option, payment of the exchange notes may not be accelerated because
of an Event of Default specified in clause (4), (6), (7) (with respect only to
Significant Subsidiaries), (8) or (9) under "--Defaults" or because of the
failure of ACS to comply with clause (3) or (4) under the first paragraph under
"--Merger and Consolidation."
In order to exercise either defeasance option, ACS must irrevocably deposit
in trust (the "defeasance trust") with the Trustee money or U.S. Government
Obligations for the payment of principal, premium (if any) and interest on the
exchange notes to redemption or maturity, as the case may be, and must comply
with certain other conditions, including delivery to the Trustee of an Opinion
of Counsel to the effect that Holders will not recognize income, gain or loss
for Federal income tax purposes as a result of such deposit and defeasance and
will be subject to federal income tax on the same amounts and in the same manner
and at the same times as would have been the case if such deposit and defeasance
had not occurred (and, in the case of legal defeasance only, such Opinion of
Counsel must be based on a ruling of the Internal Revenue Service or other
change in applicable federal income tax law).
CONCERNING THE TRUSTEE
IBJ Whitehall Bank & Trust Company is to be the Trustee under the Indenture
and has been appointed by ACS as Registrar and Paying Agent with regard to the
exchange notes.
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GOVERNING LAW
The Indenture and the exchange notes will be governed by, and construed in
accordance with, the laws of the State of New York without giving effect to
applicable principles of conflicts of law to the extent that the application of
the law of another jurisdiction would be required thereby.
DEFINITIONS
"ACS" means Alaska Communications Systems Holdings, Inc., a Delaware
corporation formerly known as ALEC Acquisition Corporation.
"Additional Amounts" means any liquidated damages payable pursuant to any
exchange agreement, registration rights agreement or similar agreement entered
into in connection with the Indenture.
"Additional Assets" means:
(1) any property or assets (other than Indebtedness and Capital Stock) to be
used by ACS or a Restricted Subsidiary in a Related Business;
(2) the Capital Stock of a Person that becomes a Restricted Subsidiary as a
result of the acquisition of such Capital Stock by ACS or another
Restricted Subsidiary; or
(3) Capital Stock constituting a minority interest in any Person that at
such time is a Restricted Subsidiary;
PROVIDED, HOWEVER, that any such Restricted Subsidiary described in clauses (2)
or (3) above is primarily engaged in a Related Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control," when used with respect to any Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the provisions described under the captions "--Restrictive
Covenants--Limitation on Transactions with Affiliates" and "--Restrictive
Covenants--Limitation on Sales of Assets and Subsidiary Stock" only, "Affiliate"
shall also mean any beneficial owner of shares representing 5% or more of the
total voting power of the Voting Stock (on a fully diluted basis) of Holdings or
ACS or of rights or warrants to purchase such Voting Stock (whether or not
currently exercisable) and any Person who would be an Affiliate of any such
beneficial owner pursuant to the first sentence hereof.
"Alaska Communications Systems" means Alaska Communications Systems, Inc., a
Delaware corporation and a Wholly Owned Subsidiary.
"Alaska Entities" means Telephone Utilities of Alaska, Inc., Telephone
Utilities of the Northland, Inc., PTI Communications of Alaska, Inc., Pacific
Telecom of Alaska PCS, Inc. and Pacific Telecom Cellular of Alaska, Inc.
"ALEC Acquisition Sub" means ALEC Acquisition Sub Corp., a Delaware
corporation and a Wholly Owned Subsidiary.
"Asset Disposition" means any sale, lease, transfer or other disposition (or
series of related sales, leases, transfers or dispositions) by ACS or any
Restricted Subsidiary, including any disposition by
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means of a merger, consolidation, or similar transaction (each referred to for
the purposes of this definition as a "disposition"), of:
(1) any shares of Capital Stock of a Restricted Subsidiary (other than
directors' qualifying shares or shares required by applicable law to be
held by a Person other than ACS or a Restricted Subsidiary);
(2) all or substantially all the assets of any division or line of business
of ACS or any Restricted Subsidiary; or
(3) any other assets of ACS or any Restricted Subsidiary outside of the
ordinary course of business of ACS or such Restricted Subsidiary;
(other than, in the case of (1), (2) and (3) above:
(a) a disposition by a Restricted Subsidiary to ACS or by ACS or a
Restricted Subsidiary to a Wholly Owned Subsidiary;
(b) for purposes of the provisions described under the caption
"--Restrictive Covenants--Limitation on Sales of Assets and Subsidiary
Stock" only, a disposition subject to the covenant described under the
caption "--Restrictive Covenants--Limitation on Restricted Payments";
(c) a disposition of assets with a fair market value of less than $100,000;
(d) a disposition of Temporary Cash Investments or goods held for sale in
the ordinary course of business or obsolete equipment or other obsolete
assets in the course of business consistent with past practices of ACS;
(e) the disposition of all or substantially all of the assets of ACS in a
manner permitted under the covenant described under the caption "--Merger
and Consolidation" or any disposition that constitutes a Change of
Control under the Indenture; and
(f) the lease, assignment or sub-lease of any real or personal property in
the ordinary course of business).
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the exchange notes, compounded annually) of the total obligations of
the lessee for rental payments during the remaining term of the lease included
in such Sale/Leaseback Transaction (including any period for which such lease
has been extended).
"ATU Acquisition" means the acquisition by Alaska Communications Systems
from the Municipality of the ATU Business in accordance with the ATU Purchase
Agreement.
"ATU Business" means (1) the assets of Anchorage Telephone Utility (also
known as ATU Telecommunications) used in its business as a local exchange
carrier (2) the outstanding capital stock of ATU Communications, Inc., MACtel,
Inc., MACtel Fairbanks, Inc., ATU Long Distance, Inc., Peninsula Cellular
Services, Inc. and Prudhoe Communications, Inc. and (3) the minority interests
in Alaska Network Systems, Inc., Alaskan Choice Television, L.L.C., and Internet
Alaska, Inc., in each case to be acquired by Alaska Communications Systems
pursuant to (and as specified in) the ATU Purchase Agreement.
"ATU Purchase Agreement" means the Purchase Agreement dated as of October
20, 1998 between Alaska Communications Systems and the Municipality.
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"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing:
(1) the sum of the products of the numbers of years from the date of
determination to the dates of each successive scheduled principal payment
of such Indebtedness or redemption or similar payment with respect to
such Preferred Stock multiplied by the amount of such payment by
(2) the sum of all such payments.
"Bank Indebtedness" means any and all amounts payable under or in respect of
the Credit Agreement, the notes issued pursuant thereto, the guarantees thereof,
the collateral documents relating thereto and any Refinancing Indebtedness with
respect thereto, as amended from time to time, including principal, premium (if
any), interest (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to ACS whether or not a
claim for post-filing interest is allowed in such proceedings), fees, charges,
expenses, reimbursement obligations, guarantees and all other amounts payable
thereunder or in respect thereof.
"Board of Directors" means the Board of Directors of ACS or any committee
thereof duly authorized to act on behalf of the Board of Directors of ACS.
"Business Day" means each day that is not a Legal Holiday.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in (however designated) equity of such Person, including any Preferred Stock,
but excluding any debt securities convertible into such equity.
"Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be prepaid by the lessee without payment of a
penalty.
"Closing Date" means the date of the Indenture.
"CNI" means CenturyTel of the Northwest, Inc., formerly known as Pacific
Telecom, Inc., a Washington corporation.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means Alaska Communications Systems Holdings, Inc., a Delaware
corporation formerly known as ALEC Acquisition Corporation.
"Consolidated Current Liabilities" as of the date of determination means the
aggregate amount of liabilities of ACS and its Consolidated Restricted
Subsidiaries which may properly be classified as current liabilities (including
taxes accrued as estimated), on a Consolidated basis, after eliminating:
(1) all intercompany items between ACS and any Restricted Subsidiary; and
(2) all current maturities of long-term Indebtedness, all as determined in
accordance with GAAP consistently applied.
"Consolidated Interest Expense" means, for any period, the total interest
expense of ACS and its Consolidated Restricted Subsidiaries, plus, to the extent
Incurred by ACS and its Consolidated Restricted Subsidiaries in such period but
not included in such interest expense:
(1) interest expense attributable to Capitalized Lease Obligations and the
interest expense attributable to leases constituting part of a
Sale/Leaseback Transaction;
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(2) amortization of debt discount and debt issuance costs;
(3) capitalized interest;
(4) non-cash interest expense;
(5) commissions, discounts and other fees and charges attributable to
letters of credit and bankers' acceptance financing;
(6) interest accruing on any Indebtedness of any other Person to the extent
such Indebtedness is guaranteed by ACS or any Restricted Subsidiary;
(7) amortization of net costs associated with Hedging Obligations (including
amortization of fees);
(8) dividends in respect of all Disqualified Stock of ACS and all Preferred
Stock of any of the Subsidiaries of ACS, to the extent held by Persons
other than ACS or a Wholly Owned Subsidiary;
(9) interest Incurred in connection with investments in discontinued
operations; and
(10) the cash contributions to any employee stock ownership plan or similar
trust to the extent such contributions are used by such plan or trust to
pay interest or fees to any Person (other than ACS) in connection with
Indebtedness Incurred by such plan or trust.
"Consolidated Net Income" means, for any period, the net income of ACS and
its Consolidated Subsidiaries for such period; PROVIDED, HOWEVER, that there
shall not be included in such Consolidated Net Income:
(1) any net income of any Person (other than ACS) if such Person is not a
Restricted Subsidiary, except that:
(a) subject to the limitations contained in clause (4) below, ACS' equity
in the net income of any such Person for such period shall be
included in such Consolidated Net Income up to the aggregate amount
of cash or other assets actually distributed by such Person during
such period to ACS or a Restricted Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other
distribution made to a Restricted Subsidiary, to the limitations
contained in clause (3) below); and
(b) ACS' equity in a net loss of any such Person for such period shall be
included in determining such Consolidated Net Income;
(2) any net income (or loss) of any Person acquired by ACS or a Subsidiary
of ACS in a pooling of interests transaction for any period prior to the
date of such acquisition;
(3) any net income of any Restricted Subsidiary to the extent that the
declaration or payment of dividends or similar distributions by such
Restricted Subsidiary of its net income is not, at the date of
determination, permitted without any prior governmental approval (which
has not been obtained) or, directly or indirectly, by the operation of
the terms of its charter, or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to that
Restricted Subsidiary or its stockholders, unless such restrictions with
respect to the payment of dividends or similar distributions have been
legally waived, except that the net loss of any such Restricted
Subsidiary for such period shall be included in determining such
Consolidated Net Income;
(4) any gain (but not loss) realized upon the sale or other disposition of
any asset of ACS or its Consolidated Subsidiaries (including pursuant to
any Sale/Leaseback Transaction) that is not sold or otherwise disposed of
in the ordinary course of business and any gain (but not loss) realized
upon the sale or other disposition of any Capital Stock of any Person;
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(5) any extraordinary or otherwise nonrecurring gain or loss; and
(6) the cumulative effect of a change in accounting principles.
Notwithstanding the foregoing, for the purpose of the covenant described
under the caption "--Restrictive Covenants--Limitation on Restricted Payments"
only, there shall be excluded from Consolidated Net Income any dividends,
repayments of loans or advances or other transfers of assets from Unrestricted
Subsidiaries to ACS or a Restricted Subsidiary to the extent such dividends,
repayments or transfers increase the amount of Restricted Payments permitted
under such covenant pursuant to clause (1)(d)(iii)(E) thereof.
"Consolidated Net Tangible Assets" as of any date of determination, means
the total amount of assets (less accumulated depreciation and amortization,
allowances for doubtful receivables, other applicable reserves and other
properly deductible items) which would appear on a consolidated balance sheet of
ACS and its Consolidated Restricted Subsidiaries, determined on a Consolidated
basis in accordance with GAAP, and after giving effect to purchase accounting
and after deducting therefrom Consolidated Current Liabilities and, to the
extent otherwise included, the amounts of;
(1) minority interests in Consolidated Subsidiaries held by Persons other
than ACS or a Restricted Subsidiary;
(2) excess of cost over fair value of assets of businesses acquired, as
determined in good faith by the Board of Directors;
(3) any revaluation or other write-up in book value of assets subsequent to
the date of the Indenture as a result of a change in the method of
valuation in accordance with GAAP consistently applied;
(4) unamortized debt discount and expenses and other unamortized deferred
charges, goodwill, patents, trademarks, service marks, trade names,
copyrights, licenses, organization or developmental expenses and other
intangible items;
(5) treasury stock;
(6) cash set apart and held in a sinking or other analogous fund established
for the purpose of redemption or other retirement of Capital Stock to the
extent such obligation is not reflected in Consolidated Current
Liabilities; and
(7) Investments in and assets of Unrestricted Subsidiaries.
"Consolidation" means the consolidation of the amounts of each of the
Restricted Subsidiaries with those of ACS in accordance with GAAP consistently
applied; PROVIDED, HOWEVER, that "Consolidation" will not include consolidation
of the accounts of any Unrestricted Subsidiary, but the interest of ACS or any
Restricted Subsidiary in an Unrestricted Subsidiary will be accounted for as an
investment. The term "Consolidated" has a correlative meaning.
"Credit Agreement" means the credit agreement dated as of May 14, 1999 among
ACS, Holdings, the financial institutions named therein, The Chase Manhattan
Bank, as Administrative Agent, Canadian Imperial Bank of Commerce, as
Syndication Agent and Credit Suisse First Boston, as Documentation Agent, as
amended, waived or otherwise modified from time to time (except to the extent
that any such amendment, waiver or other modification thereto would be
prohibited by the terms of the Indenture, unless otherwise agreed to by the
Holders of at least a majority in aggregate principal amount of exchange notes
at the time outstanding), including any such amendments or modifications (or any
other credit agreement or credit agreements) that replace, refund or refinance
any or a portion of the commitments or loans thereunder, up to a maximum
principal amount not to exceed $585 million.
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"Currency Agreement" means, with respect to any Person, any foreign exchange
contract, currency swap agreements or other similar agreement or arrangement to
which such Person is a party or of which it is a beneficiary.
"CWI" means CenturyTel Wireless, Inc., formerly known as Century Cellunet,
Inc., a Louisiana corporation.
"Debt to EBITDA Ratio" as of any date of determination means the ratio of:
(1) Total Consolidated Indebtedness as of the date of determination to
(2) EBITDA for the period of the most recent four consecutive fiscal
quarters ending at the end of the most recent fiscal quarter for which
financial statements are publicly available; PROVIDED, HOWEVER, that:
(a) if ACS or any Restricted Subsidiary has repaid, repurchased, defeased
or otherwise discharged any Indebtedness since the beginning of such
period or if any Indebtedness is to be repaid, repurchased, defeased
or otherwise discharged (in each case, other than Indebtedness
Incurred under any revolving credit facility unless such Indebtedness
has been permanently repaid and has not been replaced) on the date of
the transaction giving rise to the need to calculate the Debt to
EBITDA Ratio, EBITDA for such period shall be calculated on a pro
forma basis as if such discharge had occurred on the first day of
such period and as if ACS or such Restricted Subsidiary has not
earned the interest income actually earned during such period in
respect of cash or Temporary Cash Investments used to repay,
repurchase, defease or otherwise discharge such Indebtedness;
(b) if since the beginning of such period ACS or any Restricted
Subsidiary shall have made any Asset Disposition, the EBITDA for such
period shall be reduced by an amount equal to the EBITDA (if
positive) directly attributable to the assets that are the subject of
such Asset Disposition for such period or increased by an amount
equal to the EBITDA (if negative) directly attributable thereto for
such period;
(c) if since the beginning of such period, ACS or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in
any Person that is merged with or into ACS or any Restricted
Subsidiary (or any Person that becomes a Restricted Subsidiary) or an
acquisition of assets, including any acquisition of assets occurring
in connection with a transaction causing a calculation to be made
hereunder, which constitutes all or substantially all of an operating
unit of a business, EBITDA for such period shall be calculated after
giving pro forma effect thereto (including the Incurrence of any
Indebtedness) as if such Investment or acquisition occurred on the
first day of such period; any such pro forma calculation may include
adjustments appropriate to reflect, without duplication (x) any such
acquisition to the extent such adjustments may be reflected in the
preparation of pro forma financial information in accordance with the
requirements of GAAP and Article XI of Regulation S-X under the
Exchange Act; (y) the annualized amount of operating expense
reductions reasonably expected to be realized in the six months
following any such acquisition made during any of the four fiscal
quarters constituting the four-quarter reference period prior to the
date of determination; and (z) the annualized amount of operating
expense reductions reasonably expected to be realized in the six
months following any such acquisition made by ACS during either of
the two fiscal quarters immediately preceding the four-quarter
reference period prior to the date of determination; PROVIDED that in
either case such adjustments are set forth in an Officers'
Certificate signed by ACS' chief executive officer and chief
financial officer which states (i) the amount of such adjustment or
adjustments, (ii) that such adjustment or adjustments are based on
the reasonable good faith beliefs of the officers executing such
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Officers' Certificate at the time of such execution and (iii) that
any related Incurrence of Indebtedness is permitted pursuant to the
Indenture; and
(d) if since the beginning of such period, any Person (that subsequently
became a Restricted Subsidiary or was merged with or into ACS or any
Restricted Subsidiary since the beginning of such period) shall have
made any Asset Disposition or any Investment or acquisition of assets
that would have required an adjustment pursuant to clause (b) or (c)
above if made by ACS or a Restricted Subsidiary during such period,
EBITDA for such period shall be calculated after giving pro forma
effect thereto as if such Asset Disposition, Investment or
acquisition of assets occurred on the first day of such period.
For purposes of this definition, whenever pro forma effect is to be given to an
acquisition of assets and the amount of income or earnings relating thereto, the
pro forma calculations shall be determined in good faith by a responsible
financial or accounting Officer of ACS. If any Indebtedness bears a floating
rate of interest and is being given pro forma effect, the interest expense on
such Indebtedness shall be calculated as if the rate in effect on the date of
determination had been the applicable rate for the entire period (taking into
account any Interest Rate Agreement applicable to such Indebtedness if such
Interest Rate Agreement has a remaining term as at the date of determination in
excess of 12 months).
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" of ACS or a Guarantor means:
(1) Bank Indebtedness; and
(2) any other Senior Indebtedness of ACS or such Guarantor that, at the date
of determination, has an aggregate principal amount outstanding of, or
under which, at the date of determination, the holders thereof are
committed to lend up to at least $15 million and is specifically
designated by ACS or such Guarantor in the instrument evidencing or
governing such Senior Indebtedness as "Designated Senior Indebtedness"
for purposes of the Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
that by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable or exercisable) or upon the happening of any
event:
(1) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise;
(2) is convertible or exchangeable for Indebtedness or Disqualified Stock;
or
(3) is redeemable at the option of the holder thereof, in whole or in part;
in each case on or prior to the first anniversary of the Stated Maturity of the
Exchange Notes; PROVIDED, HOWEVER, that any Capital Stock that would not
constitute Disqualified Stock but for provisions thereof giving holders thereof
the right to require such Person to repurchase or redeem such Capital Stock upon
the occurrence of an "asset sale" or "change of control" occurring prior to the
first anniversary of the Stated Maturity of the Exchange Notes shall not
constitute Disqualified Stock if the "asset sale" or "change of control"
provisions applicable to such Capital Stock are not more favorable to the
holders of such Capital Stock than the provisions of the covenants described
under the captions "--Change of Control" and "--Restrictive
Covenants--Limitation on Sale of Assets and Subsidiary Stock."
"Domestic Subsidiary" means any Restricted Subsidiary of ACS other than a
Foreign Subsidiary.
"EBITDA" for any period means the Consolidated Net Income for such period,
plus the following to the extent deducted in calculating such Consolidated Net
Income:
(1) income tax expense of ACS and its Consolidated Restricted Subsidiaries;
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(2) Consolidated Interest Expense;
(3) depreciation expense of ACS and its Consolidated Restricted
Subsidiaries;
(4) amortization expense of ACS and its Consolidated Restricted Subsidiaries
(excluding amortization expense attributable to a prepaid cash item that
was paid in a prior period); and
(5) all other non-cash charges of ACS and its Consolidated Restricted
Subsidiaries (excluding any such non-cash charge to the extent it
represents an accrual of or reserve for cash expenditures in any future
period, but that will not be expensed in such future periods),
in each case for such period.
Notwithstanding the foregoing, the provision for taxes based on the income
or profits of, and the depreciation and amortization and non-cash charges of, a
Restricted Subsidiary of ACS shall be added to Consolidated Net Income to
compute EBITDA only to the extent (and in the same proportion) that the net
income of such Restricted Subsidiary was included in calculating Consolidated
Net Income and only if a corresponding amount would be permitted at the date of
determination to be dividended to ACS by such Restricted Subsidiary without
prior approval (that has not been obtained), pursuant to the terms of its
charter and all agreements, instruments, judgments, decrees, orders, statutes,
rules and governmental regulations applicable to such Restricted Subsidiary or
its stockholders.
"Equity Offering" means any public or private sale of Capital Stock (other
than Disqualified Stock) of ACS or Holdings, other than offerings of ACS or
Holdings of the type that can be registered on Form S-8.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Foreign Subsidiary" means any Restricted Subsidiary of ACS that is not
organized under the laws of the United States of America or any state thereof or
the District of Columbia.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Closing Date, including those set forth in:
(1) the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants;
(2) statements and pronouncements of the Financial Accounting Standards
Board;
(3) such other statements by such other entities as approved by a
significant segment of the accounting profession; and
(4) the rules and regulations of the SEC governing the inclusion of
financial statements (including pro forma financial statements) in
periodic reports required to be filed pursuant to Section 13 of the
Exchange Act, including opinions and pronouncements in staff accounting
bulletins and similar written statements from the accounting staff of the
SEC.
All ratios and computations based on GAAP contained in the Indenture shall be
computed in conformity with GAAP.
"guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
other Person and any obligation, direct or indirect, contingent or otherwise, of
any Person:
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation of such other Person
(whether arising by virtue of partnership arrangements, or by agreement
to keep-well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions or otherwise);
or
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(2) entered into for purposes of assuring in any other manner the obligee of
such Indebtedness or other obligation of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in
part);
PROVIDED, HOWEVER, that the term "guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "guarantee"
used as a verb has a corresponding meaning. The term "guarantor" shall mean any
Person guaranteeing any obligation.
"Guarantee" means each guarantee of the obligations with respect to the
exchange notes issued by a Guarantor pursuant to the terms of the Indenture.
"Guarantor" means Holdings and any Domestic Subsidiary of ACS that has
provided a guarantee.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Noteholder" means the Person in whose name an Exchange Note is
registered on the registrar's books.
"Holdings" means ALEC Holdings, Inc., a Delaware corporation.
"Holdings Discount Debentures" means the discount debentures issued by
Holdings in connection with the Acquisitions pursuant to the Holdings Discount
Indenture for gross cash proceeds of not less than $25.0 million.
"Holdings Discount Indenture" means the indenture to be entered into between
Holdings and The Bank of New York in connection with the issuance of the
Holdings Discount Debentures, together with all instruments and other agreements
entered into by Holdings in connection therewith.
"Incur" means issue, assume, guarantee, incur or otherwise become liable
for; PROVIDED, HOWEVER, that any Indebtedness or Capital Stock of a Person
existing at the time such Person is merged or consolidated with ACS or becomes a
Subsidiary of ACS (whether by merger, consolidation, acquisition or otherwise)
shall be deemed to be Incurred by such Person at the time of such merger or
consolidation or at the time it becomes a Subsidiary of ACS. The term
"Incurrence" when used as a noun shall have a correlative meaning. The accretion
of principal of a non-interest bearing or other discount security shall not be
deemed the Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication):
(1) the principal of and premium (if any) in respect of indebtedness of such
Person for borrowed money;
(2) the principal of and premium (if any) in respect of obligations of such
Person evidenced by bonds, debentures, notes or other similar
instruments;
(3) all obligations of such Person in respect of letters of credit or other
similar instruments (including reimbursement obligations with respect
thereto);
(4) all obligations of such Person to pay the deferred and unpaid purchase
price of property or services (except Trade Payables and contingent
obligations to pay earn-outs), which purchase price is due more than six
months after the date of placing such property in service or taking
delivery and title thereto or the completion of such services;
(5) all Capitalized Lease Obligations and all Attributable Debt of such
Person;
(6) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or,
with respect to any Subsidiary of such Person, any Preferred Stock (but
excluding, in each case, any accrued dividends);
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(7) all Indebtedness of other Persons secured by a Lien on any asset of such
Person, whether or not such Indebtedness is assumed by such Person;
PROVIDED, HOWEVER, that the amount of Indebtedness of such Person shall
be the lesser of:
(A) the fair market value of such asset at such date of determination and
(B) the amount of such Indebtedness of such other Persons;
(8) to the extent not otherwise included in this definition, Hedging
Obligations of such Person; and
(9) all obligations of the type referred to in clauses (1) through (8) above
of other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
guarantee.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and the
maximum liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at such date.
"Interest Rate Agreement" means, with respect to any Person, any interest
rate protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party or a beneficiary.
"Investment" in any Person means any, direct or indirect, advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of the lender) or other
extension of credit (including by way of guarantee or similar arrangement) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by such Person. For purposes of the definition of
"Unrestricted Subsidiary" and the covenant described under the caption
"--Restrictive Covenants-- Limitation on Restricted Payments:"
(1) "Investment" shall include the portion (proportionate to ACS' equity
interest in such Subsidiary) of the fair market value of the net assets
of any Subsidiary of ACS at the time that such Subsidiary is designated
an Unrestricted Subsidiary; PROVIDED, HOWEVER, that, upon a redesignation
of such Subsidiary as a Restricted Subsidiary, ACS shall be deemed to
continue to have a permanent "Investment" in an Unrestricted Subsidiary
in an amount (if positive) equal to:
(a) ACS' Investment in such Subsidiary at the time of such redesignation
less
(b) the portion (proportionate to ACS' equity interest in such
Subsidiary) of the fair market value of the net assets of such
Subsidiary at the time of such redesignation; and
(2) any property transferred to or from an Unrestricted Subsidiary shall be
valued at its fair market value at the time of such transfer, in each
case, as determined in good faith by the Board of Directors.
"Legal Holiday" means a Saturday, Sunday or other day on which banking
institutions in the State of New York are authorized or required by law to
close.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Management Group" means the group consisting of current and former
directors and executive officers of ACS.
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"Municipality" means the Municipality of Anchorage, a municipality located
in the State of Alaska.
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise and proceeds from the
sale or other disposition of any securities received as consideration, but only
as and when received, but excluding any other consideration received in the form
of assumption by the acquiring Person of Indebtedness or other obligations
relating to the properties or assets that are the subject of such Asset
Disposition or received in any other non-cash form) therefrom, in each case net
of:
(1) all legal fees and expenses, title and recording tax expenses,
commissions and other fees and expenses incurred, and all federal, state,
provincial, foreign and local taxes required to be paid or accrued as a
liability under GAAP, as a consequence of such Asset Disposition;
(2) all payments, including any prepayment premiums or penalties, made on
any Indebtedness that is secured by any assets subject to such Asset
Disposition, in accordance with the terms of any Lien upon or other
security agreement of any kind with respect to such assets, or which must
by its terms, or in order to obtain a necessary consent to such Asset
Disposition, or by applicable law be repaid out of the proceeds from such
Asset Disposition;
(3) all distributions and other payments required to be made to minority
interest holders in Subsidiaries or joint ventures as a result of such
Asset Disposition; and
(4) appropriate amounts to be provided by the seller as a reserve, in
accordance with GAAP, against any liabilities associated with the
property or other assets disposed of in such Asset Disposition and
retained by ACS or any Restricted Subsidiary after such Asset
Disposition.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees and expenses actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
"Officer" means the Chairman of the Board, the Chief Executive Officer, the
Chief Financial Officer, the President, any Vice President, the Treasurer or the
Secretary of ACS.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to ACS
or the Trustee.
"Permitted Holders" means Fox Paine Capital Fund, L.P., and its Affiliates,
FPC Investors, L.P., ALEC Coinvestment Fund I, LLC, ALEC Coinvestment Fund II,
LLC, ALEC Coinvestment Fund III, LLC, ALEC Coinvestment Fund IV, LLC, ALEC
Coinvestment Fund V, LLC, the Management Group and any Person acting in the
capacity of an underwriter in connection with a public or private offering of
Holdings' or ACS' Capital Stock.
"Permitted Investment" means an Investment by ACS or any Restricted
Subsidiary in:
(1) ACS, a Restricted Subsidiary or a Person that will, upon the making of
such Investment, become a Restricted Subsidiary; PROVIDED, HOWEVER, that
the primary business of such Restricted Subsidiary is a Related Business;
(2) another Person if as a result of such Investment such other Person is
merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, ACS or a Restricted Subsidiary;
PROVIDED, HOWEVER, that such Person's primary business is a Related
Business;
(3) Temporary Cash Investments;
(4) receivables owing to ACS or any Restricted Subsidiary if created or
acquired in the ordinary course of business and payable or dischargeable
in accordance with customary trade terms;
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PROVIDED, HOWEVER, that such trade terms may include such concessionary
trade terms as ACS or any such Restricted Subsidiary deems reasonable
under the circumstances;
(5) payroll, travel and similar advances to cover matters that are expected
at the time of such advances ultimately to be treated as expenses for
accounting purposes and that are made in the ordinary course of business;
(6) any loans or advances to employees made in the ordinary course of
business consistent with past practices of ACS or such Restricted
Subsidiary and not exceeding, when aggregated with amounts loaned or
advanced under clause (2)(f)(iv) of "--Restrictive Covenants--Limitation
on Restricted Payments," $5 million in the aggregate outstanding at any
one time;
(7) stock, obligations or securities received in settlement of (or
foreclosure with respect to) debts created in the ordinary course of
business and owing to ACS or any Restricted Subsidiary or in satisfaction
of judgments;
(8) any Person to the extent such Investment represents the non-cash or
deemed cash portion of the consideration received for an Asset
Disposition that was made pursuant to and in compliance with the covenant
described under the caption "--Restrictive Covenants--Limitation on Sales
of Assets and Subsidiary Stock";
(9) any Investment existing on the Closing Date;
(10) Hedging Obligations permitted under paragraph (2)(g) of the covenant
described under the caption "--Restrictive Covenants--Limitation on
Indebtedness";
(11) guarantees of Indebtedness permitted under the covenant described under
the caption "--Restrictive Covenants--Limitation on Indebtedness";
(12) Investments which are made exclusively with Capital Stock of Holdings
or ACS (other than Disqualified Stock); and
(13) additional Investments having an aggregate fair market value, taken
together with all other Investments made pursuant to this clause (13)
that are at the time outstanding, not to exceed $5 million at the time of
such Investment (with the fair market value of each Investment being
measured at the time made and without giving effect to subsequent changes
in value).
"Permitted Joint Venture Interests" means equity interests representing at
least 35% of the Voting Stock of a Person engaged in a business in which ACS was
engaged at the Closing Date or a Related Business.
"Permitted Junior Securities" means debt or equity securities of ACS or any
successor corporation issued pursuant to a plan of reorganization or
readjustment of ACS that are subordinated to the payment of all then-outstanding
Senior Indebtedness of ACS at least to the same extent that the exchange notes
are subordinated to the payment of all Senior Indebtedness of ACS on the Closing
Date, so long as to the extent that any Senior Indebtedness of ACS outstanding
on the date of consummation of any such plan of reorganization or readjustment
is not paid in full in cash or cash equivalents on such date, the holders of any
such Senior Indebtedness not so paid in full in cash or cash equivalents have
consented to the terms of such plan of reorganization or readjustment.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock," as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) that is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over shares
of Capital Stock of any other class of such Person.
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"principal" of an Exchange Note means the principal of the Exchange Note
plus the premium, if any, payable on the Exchange Note that is due or overdue or
is to become due at the relevant time.
"PTI Acquisition" means the acquisition by ALEC Acquisition Sub from the
Sellers of all of the outstanding Capital Stock of the Alaska Entities in
accordance with the PTI Purchase Agreement.
"PTI Purchase Agreement" means the Purchase Agreement dated as of August 14,
1998, among ACS and the Sellers, as amended, which was assigned to ALEC
Acquisition Sub immediately prior to the Closing Date.
"Purchase Money Indebtedness" means Indebtedness:
(1) consisting of the deferred purchase price of an asset, conditional sale
obligations, obligations under any title retention agreement and other
purchase money obligations, in each case where the maturity of such
Indebtedness does not exceed the anticipated useful life of the asset
being financed; and
(2) incurred to finance the acquisition by ACS or a Restricted Subsidiary of
such asset, including additions and improvements; PROVIDED, HOWEVER, that
such Indebtedness is incurred within 180 days before or after the
acquisition by ACS or such Restricted Subsidiary of such asset.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, replace, prepay, redeem, defease or retire, or to issue
other Indebtedness in exchange or replacement for, such Indebtedness.
"Refinanced" and "Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that is Incurred to refund,
refinance, replace, repay, redeem, retire, renew, repay or extend (including
pursuant to any defeasance or discharge mechanism) any Indebtedness of ACS or
any Restricted Subsidiary existing on the Closing Date or Incurred in compliance
with the Indenture (including Indebtedness of ACS that Refinances Refinancing
Indebtedness); PROVIDED, HOWEVER, that:
(1) other than with respect to Senior Indebtedness, the Refinancing
Indebtedness has a Stated Maturity no earlier than the Stated Maturity of
the Indebtedness being Refinanced;
(2) other than with respect to Senior Indebtedness, the Refinancing
Indebtedness has an Average Life at the time such Refinancing
Indebtedness is Incurred that is equal to or greater than the Average
Life of the Indebtedness being refinanced;
(3) such Refinancing Indebtedness is Incurred in an aggregate principal
amount (or if issued with original issue discount, an aggregate issue
price) that is equal to or less than the aggregate principal amount (or
if issued with original issue discount, the aggregate accreted value)
then outstanding of the Indebtedness being Refinanced; and
(4) if the Indebtedness being Refinanced is subordinated in right of payment
to the exchange notes, such Refinancing Indebtedness is subordinated in
right of payment to the exchange notes at least to the same extent as the
Indebtedness being Refinanced;
PROVIDED, FURTHER, HOWEVER, that Refinancing Indebtedness shall not include:
(a) other than with respect to Senior Indebtedness, Indebtedness of a
Restricted Subsidiary that Refinances Indebtedness of ACS; or
(b) Indebtedness of ACS or a Restricted Subsidiary that Refinances
Indebtedness of an Unrestricted Subsidiary.
"Related Business" means any business related, ancillary or complementary to
the businesses of ACS and the Restricted Subsidiaries on the Closing Date.
"Representative" means the trustee, agent or representative (if any) for an
issue of Senior Indebtedness.
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"Restricted Subsidiary" means any Subsidiary of ACS other than an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired by ACS or a Restricted Subsidiary whereby ACS or a
Restricted Subsidiary transfers such property to a Person and ACS or such
Restricted Subsidiary leases it from such Person, other than leases between ACS
and a Wholly Owned Subsidiary or between Wholly Owned Subsidiaries.
"SEC" means the Securities and Exchange Commission.
"Sellers" means CNI and CWI.
"Secured Indebtedness" means any Indebtedness of ACS or any Guarantor
secured by a Lien.
"Senior Indebtedness" of ACS or any Guarantor means the principal of,
premium (if any) and accrued and unpaid interest on (including interest accruing
on or after the filing of any petition in bankruptcy or for reorganization of
ACS or such Guarantor, regardless of whether or not a claim for post-filing
interest is allowed in such proceedings), and fees and other amounts (including
expenses, reimbursement obligations under letters of credit and indemnities)
owing in respect of, Bank Indebtedness and all other Indebtedness of ACS or such
Guarantor, whether outstanding on the Closing Date or thereafter Incurred,
unless in the instrument creating or evidencing the same or pursuant to which
the same is outstanding it is provided that such obligations are not superior in
right of payment to the Securities or such Guarantor's Guarantee; PROVIDED,
HOWEVER, that Senior Indebtedness shall not include:
(1) any obligation of ACS to Holdings or any Subsidiary of ACS or of such
Guarantor to ACS or Holdings or any Subsidiary of ACS;
(2) any liability for federal, state, local or other taxes owed or owing by
ACS or such Guarantor;
(3) any accounts payable or other liability to trade creditors arising in
the ordinary course of business (including guarantees thereof or
instruments evidencing such liabilities);
(4) any Indebtedness or obligation of ACS or such Guarantor (and any accrued
and unpaid interest in respect thereof) that is subordinate or junior in
any respect to any other Indebtedness or obligation of ACS or such
Guarantor, as applicable, including any Senior Subordinated Indebtedness
and any Subordinated Obligations;
(5) any obligations with respect to any Capital Stock; or
(6) any Indebtedness Incurred in violation of the Indenture.
If any Senior Indebtedness is disallowed, avoided or subordinated pursuant to
the provisions of Section 548 of Title 11 of the United States Bankruptcy Code
or any applicable state fraudulent conveyance law, such Senior Indebtedness
nevertheless will constitute Senior Indebtedness.
"Senior Subordinated Indebtedness" of ACS or any Guarantor means the
exchange notes or the Guarantees, as applicable, and any other Indebtedness of
ACS or such Guarantor that specifically provides that such Indebtedness is to
rank PARI PASSU with the exchange notes or the Guarantees, as applicable, in
right of payment and is not subordinated by its terms in right of payment to any
Indebtedness or other obligation of ACS or such Guarantor which is not Senior
Indebtedness.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of ACS within the meaning of Rule 1-02 under Regulation
S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the final payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
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"Subordinated Obligation" means any Indebtedness of ACS or any Guarantor
(whether outstanding on the Closing Date or thereafter Incurred) that is
subordinate or junior in right of payment to the exchange notes pursuant to a
written agreement.
"Subsidiary" means, with respect to any Person (the "parent") at any date,
any corporation, limited liability company, partnership, association or other
entity the accounts of which would be consolidated with those of the parent in
the parent's consolidated financial statements if such financial statements were
prepared in accordance with GAAP as of such date, as well as any other
corporation, limited liability company, partnership, association or other
entity:
(1) of which securities or other ownership interests representing more than
50% of the equity or more than 50% of the ordinary voting power or, in
the case of a partnership, more than 50% of the general partnership
interests are, as of such date, owned, controlled or held; or
(2) that is, as of such date, otherwise controlled by the parent or one or
more subsidiaries of the parent or by the parent and one or more
subsidiaries of the parent.
"Telecommunications Assets" means (1) assets used or useful in the operating
businesses of ACS at the Closing Date or in a Related Business or (2) equity
interests representing a majority of the Voting Stock of Persons engaged in such
businesses.
"Temporary Cash Investments" means any of the following:
(1) any investment in direct obligations of the United States of America or
any agency thereof or obligations guaranteed by the United States of
America or any agency thereof;
(2) investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company that is organized under the
laws of the United States of America, any state thereof or any foreign
country recognized by the United States of America having capital,
surplus and undivided profits aggregating in excess of $250.0 million (or
the foreign currency equivalent thereof) and whose long-term debt is
rated "A" (or such similar equivalent rating) or higher by at least one
nationally recognized statistical rating organization (as defined in Rule
436 under the Securities Act);
(3) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) above entered
into with a bank meeting the qualifications described in clause (2)
above;
(4) investments in commercial paper, maturing not more than 90 days after
the date of acquisition, issued by a corporation (other than an Affiliate
of ACS) organized and in existence under the laws of the United States of
America or any foreign country recognized by the United States of America
with a rating at the time as of which any investment therein is made of
"P-1" (or higher) according to Moody's Investors Service, Inc. or "A-1"
(or higher) according to Standard and Poor's Ratings Service, a division
of The McGraw-Hill Companies, Inc. ("S&P"); and
(5) investments in securities with maturities of six months or less from the
date of acquisition issued or fully guaranteed by any state, commonwealth
or territory of the United States of America, or by any political
subdivision or taxing authority thereof, and rated at least "A" by S&P or
"A" by Moody's Investors Service, Inc.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. SectionSection
77aaa-77bbbb) as in effect on the Closing Date.
139
"Total Consolidated Indebtedness" means, as of any date of determination, an
amount equal to the aggregate amount of all Indebtedness of ACS and its
Restricted Subsidiaries, determined on a Consolidated basis, outstanding as of
such date of determination, after giving effect to any Incurrence of
Indebtedness and the application of the proceeds therefrom giving rise to such
determination.
"Trade Payables" means, with respect to any Person, any accounts payable or
any indebtedness or monetary obligation to trade creditors created, assumed or
guaranteed by such Person arising in the ordinary course of business in
connection with the acquisition of goods or services.
"Transactions" means the PTI Acquisition, the ATU Acquisition, the initial
borrowings under the Credit Agreement and the [issuance of the Notes].
"Trust Officer" means the Chairman of the Board, the President or any other
officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"Trustee" means the party named as such in the Indenture until a successor
replaces it and, thereafter, means the successor.
"Unrestricted Subsidiary" means:
(1) any Subsidiary of ACS that at the time of determination shall be
designated an Unrestricted Subsidiary by the Board of Directors in the
manner provided below; and
(2) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Subsidiary of ACS (including any newly
acquired or newly formed Subsidiary of ACS) to be an Unrestricted Subsidiary
unless such Subsidiary or any of its Subsidiaries owns any Capital Stock or
Indebtedness of, or owns or holds any Lien on any property of, ACS or any other
Subsidiary of ACS that is not a Subsidiary of the Subsidiary to be so
designated; PROVIDED, HOWEVER, that either:
(1) the Subsidiary to be so designated has total Consolidated assets of
$1,000 or less; or
(2) if such Subsidiary has Consolidated assets greater than $1,000, then
such designation would be permitted under the caption "--Restrictive
Covenants--Limitation on Restricted Payments."
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; PROVIDED, HOWEVER, that immediately after giving effect
to such designation:
(1) ACS could Incur $1.00 of additional Indebtedness under paragraph (1) of
the covenant described under the caption "--Restrictive
Covenants--Limitation on Indebtedness" and
(2) no Default shall have occurred and be continuing.
Any such designation of a Subsidiary as a Restricted Subsidiary or Unrestricted
Subsidiary by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the resolution of the Board of
Directors giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
that are not callable or redeemable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary of ACS all the
Capital Stock of which (other than directors' qualifying shares) is owned by ACS
or another Wholly Owned Subsidiary.
140
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
We, the initial purchasers in the private offering of the old notes and the
guarantors entered into an exchange and registration rights agreement on May 14,
1999. Pursuant to the registration rights agreement, we and the guarantors
agreed to:
- file with the SEC on or before to July 28, 1999 (75 days after issuance of
the old notes) a registration statement on Form S-1 or Form S-4, if the
use of that form is then available (the "exchange offer registration
statement"), relating to a registered exchange offer for the exchange
notes under the Securities Act and
- use our reasonable best efforts to cause the exchange offer registration
statement to be declared effective under the Securities Act on or before
October 11, 1999 (150 days after issuance of the old notes).
As soon as practicable after the effectiveness of the exchange offer
registration statement, we will offer to the holders of Transfer Restricted
Securities (as defined below) who are not prohibited by any law or policy of the
SEC from participating in the exchange offer the opportunity to exchange their
Transfer Restricted Securities for exchange notes. We and the guarantors will
keep the exchange offer open for not less than 30 days (or longer, if required
by applicable law) after the date on which notice of the exchange offer is
mailed to the holders of the old notes.
If:
- because of any change in law or applicable interpretations thereof by the
staff of the SEC, we are not permitted to effect the exchange offer as
contemplated by the registration rights agreement;
- any old notes validly tendered pursuant to the exchange offer are not
exchanged for exchange notes on or before November 10, 1999 (180 days
after issuance of the old notes);
- any initial purchaser so requests within 20 business days of completion of
the exchange offer with respect to old notes held by it that are not
eligible to be exchanged for exchange notes in the exchange offer;
- any applicable law or interpretations do not permit any holder of old
notes to participate in the exchange offer;
- any holder of old notes that participates in the exchange offer that does
not receive freely transferable exchange notes in exchange for tendered
old notes; or
- we so elect,
then we and the guarantors will file with the SEC a shelf registration statement
to cover resales of Transfer Restricted Securities by holders who provide
requested information in connection with the shelf registration statement.
For purposes of this section, "Transfer Restricted Securities" means each
old note until:
- the date on which the old note has been exchanged for a freely
transferable exchange note in the exchange offer;
- the date on which the old note has been effectively registered under the
Securities Act and disposed of in accordance with the shelf registration
statement; or
- the date on which the old note is distributed to the public pursuant to
Rule 144 under the Securities Act or is salable pursuant to Rule 144(k)
under the Securities Act.
141
We and the guarantors will use our reasonable best efforts to have the
exchange offer registration statement or, if applicable, the shelf registration
statement (each, a "registration statement") declared effective by the SEC as
promptly as practicable after its filing with the SEC. Unless the exchange offer
would not be permitted by a policy of the SEC, we will commence the exchange
offer and will use our reasonable best efforts to consummate the exchange offer
as promptly as practicable, but in any event on or before November 10, 1999. If
applicable, we and the guarantors will use our reasonable best efforts to keep
the shelf registration statement effective until May 14, 2001 or such shorter
period when all old notes covered by the shelf registration statement have been
sold in the manner set forth above and as contemplated in the shelf registration
statement or when the old notes become eligible for resale pursuant to Rule 144
under the Securities Act without volume restrictions, if any.
If:
- the applicable registration statement is not filed with the SEC on or
before July 28, 1999;
- the exchange offer registration statement or the shelf registration
statement, as the case may be, is not declared effective on or before
October 11, 1999 (or, in the case of a shelf registration statement
required to be filed in response to a change in law or applicable
interpretations of the staff of the SEC, if later, within 45 days after
publication of the change in law or interpretation);
- the exchange offer is not consummated on or before November 10, 1999; or
- the shelf registration statement is filed and declared effective on or
prior to October 11, 1999 (or, in the case of a shelf registration
statement required to be filed in response to a change in law or
applicable interpretations of the staff of the SEC, if later, within 45
days after publication of the change in law or interpretation); but shall
thereafter cease to be effective (at any time that we and the guarantors
are obligated to maintain its effectiveness) without being succeeded
within 45 days by an additional registration statement filed and declared
effective,
(each of the four events referred to above, a "Registration Default") we and the
guarantors will be obligated to pay liquidated damages to each holder of
Transfer Restricted Securities, during the period of one or more Registration
Defaults, in an amount equal to $0.192 per week per $1,000 principal amount of
the old notes constituting Transfer Restricted Securities held by the holder
until the applicable registration statement is filed, the exchange offer
registration statement is declared effective and the exchange offer is
consummated or the shelf registration statement is declared effective or again
becomes effective, as the case may be. All accrued liquidated damages shall be
paid to holders in the same manner as interest payments on the old notes on
semi-annual payment dates that correspond to interest payment dates for the old
notes. Following the cure of all Registration Defaults, the accrual of
liquidated damages will cease.
The registration rights agreement also provides that we and the guarantors:
- will make available for a period of 90 days after the consummation of the
exchange offer a prospectus meeting the requirements of the Securities Act
to any broker-dealer for use in connection with any resale of any exchange
notes and
- will pay all expenses incident to the exchange offer (including the
expense of one counsel to the holders of the old notes) and will jointly
and severally indemnify holders of the old notes (including any
broker-dealer) against related liabilities, including liabilities under
the Securities Act. A broker-dealer that delivers a prospectus to
purchasers in connection with resales will be subject to the civil
liability provisions under the Securities Act and will be bound by the
provisions of the registration rights agreement (including those relating
to indemnification rights and obligations).
142
Each holder of old notes who wishes to exchange old notes for exchange notes
in the exchange offer will be required to make several representations. See "The
Exchange Offer--Procedures for tendering."
Holders of the old notes will be required to make the representations to us
described under the caption "The Exchange Offer--Procedures for tendering" in
order to participate in the exchange offer and will be required to deliver
information to be used in connection with the shelf registration statement in
order to have their old notes included in the shelf registration statement and
benefit from the provisions regarding liquidated damages set forth in the
preceding paragraphs. A holder who sells old notes pursuant to the shelf
registration statement generally will be:
- required to be named as a selling securityholder in the related prospectus
and to deliver a prospectus to purchasers;
- subject to the civil liability provisions under the Securities Act in
connection with those sales; and
- bound by the provisions of the registration rights agreement that are
applicable to that holder (including those relating to indemnification
obligations).
For so long as the old notes are outstanding, we will continue to provide to
holders of the old notes and to prospective purchasers of the old notes the
information required by Rule 144A(d)(4) under the Securities Act.
This description of the registration rights agreement is a summary only and
is qualified in its entirety by reference to all provisions of the registration
rights agreement, which has been filed as an exhibit to the registration
statement of which this prospectus is a part and is incorporated by reference
herein.
143
BOOK-ENTRY, DELIVERY AND FORM
The exchange notes will initially be represented by one or more permanent
global notes in definitive, fully registered book-entry form, without interest
coupons that will be deposited with, or on behalf of, DTC and registered in the
name of Cede and Co., as nominee of DTC, on behalf of the acquirors of exchange
notes for credit to the accounts of the acquirors (or to other accounts as they
may direct) at DTC, or Morgan Guaranty Trust Company of New York, Brussels
Office, as operator of the Euroclear System, or Cedel Bank, societe anonyme. See
"The Exchange Offer--Book-entry transfer."
The global notes may be transferred, in whole and not in part, solely to
another nominee of DTC or to a successor of DTC or its nominee. Beneficial
interests in the global notes may not be exchanged for exchange notes in
physical, certificated form ("certificated exchange notes") except in the
limited circumstances described below.
All interests in the global notes, including those held through Euroclear or
Cedel, may be subject to the procedures and requirements of DTC. Those interests
held through Euroclear or Cedel may also be subject to the procedures and
requirements of those systems.
BOOK-ENTRY PROCEDURES FOR THE GLOBAL NOTES
The descriptions of the operations and procedures of DTC, Euroclear and
Cedel set forth below are provided as a matter of convenience. These operations
and procedures are solely within the control of the settlement systems and are
subject to change by them from time to time. We take no responsibility for these
operations or procedures, and you are urged to contact the relevant system or
its participants directly to discuss these matters.
DTC has advised us that it is:
(i) a limited purpose trust company organized under the laws of the State of
New York,
(ii) a "banking organization" within the meaning of the New York Banking
Law,
(iii) a member of the Federal Reserve System,
(iv) a "clearing corporation" within the meaning of the Uniform Commercial
Code, as amended, and
(v) a "clearing agency" registered pursuant to Section 17A of the Exchange
Act.
DTC was created to hold securities for its participants (collectively, the
"participants") and facilitates the clearance and settlement of securities
transactions between participants through electronic book-entry changes to the
accounts of its participants, eliminating the need for physical transfer and
delivery of certificates. DTC's participants include securities brokers and
dealers (including the initial purchasers in the private offering of the old
notes), banks and trust companies, clearing corporations and similar
organizations. Indirect access to DTC's system is also available to other
entities, such as banks, brokers, dealers and trust companies (collectively, the
"indirect participants") that clear through or maintain a custodial relationship
with a participant, either directly or indirectly. Investors who are not
participants may beneficially own securities held by or on behalf of DTC only
through participants or indirect participants.
We expect that pursuant to procedures established by DTC, ownership of the
exchange notes will be shown on, and the transfer of ownership thereof will be
effected only through, records maintained by DTC (with respect to the interests
of participants) and the records of participants and the indirect participants
(with respect to the interests of persons other than participants).
The laws of some jurisdictions may require that purchasers of securities
take physical delivery of purchased securities in definitive form. Accordingly,
the ability to transfer interests in the exchange
144
notes represented by a global note to those persons may be limited. In addition,
because DTC can act only on behalf of its participants, who in turn act on
behalf of persons who hold interests through participants, the ability of a
person having an interest in exchange notes represented by a global note to
pledge or transfer that interest to persons or entities that do not participate
in DTC's system, or to otherwise take actions in respect of that interest, may
be affected by the lack of a physical definitive security in respect of that
interest.
So long as DTC or its nominee is the registered owner of a global note, DTC
or its nominee will be considered the sole owner or holder of the exchange notes
represented by the global note for all purposes under the indenture. Except as
provided below, owners of beneficial interests in a global note will not be
entitled to have exchange notes represented by that global note registered in
their names, will not receive or be entitled to receive physical delivery of
certificated exchange notes and will not be considered the owners or holders
thereof under the indenture for any purpose, including with respect to the
giving of any direction, instruction or approval to the trustee. Accordingly,
each holder owning a beneficial interest in a global note must rely on the
procedures of DTC and, if the holder is not a participant or an indirect
participant, on the procedures of the participant through which the holder owns
its interest, to exercise any rights of a holder of exchange notes under the
indenture or the global note. We understand that under existing industry
practice, in the event that we request any action of holders of exchange notes,
or a holder that is an owner of a beneficial interest in a global note desires
to take any action that DTC, as the holder of that global note, is entitled to
take, DTC would authorize the participants to take that action and the
participants would authorize holders owning through the participants to take
that action or would otherwise act upon the instruction of the holders. Neither
we nor the trustee will have any responsibility or liability for any aspect of
the records relating to or payments made on account of exchange notes by DTC, or
for maintaining, supervising or reviewing any records of DTC relating to
exchange notes.
Payments with respect to the principal of, and premium, if any, Liquidated
Damages, if any, and interest on, any exchange notes represented by a global
note registered in the name of DTC or its nominee on the applicable record date
will be payable by the trustee to or at the direction of DTC or its nominee in
its capacity as the registered holder of the global note representing the
exchange notes under the indenture. Under the terms of that indenture, we and
the trustee may treat the persons in whose names the exchange notes, including
the global notes, are registered as the owners thereof for the purpose of
receiving payment thereon and for any and all other purposes whatsoever.
Accordingly, neither we nor the trustee has or will have any responsibility or
liability for the payment of these amounts to owners of beneficial interests in
a global note (including principal, premium, if any, Liquidated Damages, if any,
and interest). Payments by the participants and the indirect participants to the
owners of beneficial interests in a global note will be governed by standing
instructions and customary industry practice and will be the responsibility of
the participants or the indirect participants and DTC.
DTC management is aware that some computer applications, systems, and the
like for processing data that are dependent upon calendar dates, including dates
before, on, and after January 1, 2000, may encounter year 2000 problems. DTC has
informed its participants and other members of the financial community that it
has developed and is implementing a program so that its systems, as they relate
to the timely payment of distributions (including principal and income payments)
to securityholders, book-entry deliveries, and settlement of trades within DTC,
continue to function appropriately. This program includes a technical assessment
and a remediation plan, each of which is complete. Additionally, DTC's plan
includes a testing phase, which is expected to be completed within appropriate
time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including but not limited to issuers and their agents, as
well as third party vendors from whom DTC licenses software and hardware, and
third party vendors on whom DTC relies for information or the provision of
services, including telecommunication and electrical utility service providers,
among others.
145
DTC has informed the industry that it is contacting (and will continue to
contact) third party vendors from whom DTC acquires services to:
- impress upon them the importance of their services being year 2000
compliant; and
- determine the extent of their efforts for year 2000 remediation (and, as
appropriate, testing) of their services.
In addition, DTC is in the process of developing the contingency plans that
it deems appropriate.
According to DTC, the foregoing information with respect to DTC has been
provided to the industry for informational purposes only and is not intended to
serve as a representation, warranty, or contract modification of any kind.
Transfers between participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds. Transfers between
participants in Euroclear or Cedel will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
exchange notes, cross-market transfers between the participants in DTC, on the
one hand, and Euroclear or Cedel participants, on the other hand, will be
effected through DTC in accordance with DTC's rules on behalf of Euroclear or
Cedel, as the case may be, by its respective depositary. However, these
cross-market transactions will require delivery of instructions to Euroclear or
Cedel by the counterparty in the appropriate system in accordance with the rules
and procedures and within the established deadlines (Brussels time) of the
appropriate system. Euroclear or Cedel will, if the transaction meets its
settlement requirements, deliver instructions to its respective depositary to
take action to effect final settlement on its behalf by delivering or receiving
interests in the relevant global notes in DTC and making or receiving payment in
accordance with normal procedures for same-day funds settlement applicable to
DTC. Euroclear participants and Cedel participants may not deliver instructions
directly to the depositories for Euroclear or Cedel.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a global note from a participant in
DTC will be credited, and that crediting will be reported to the relevant
Euroclear or Cedel participant, during the securities settlement processing day
(which must be a business day for Euroclear and Cedel) immediately following the
settlement date of DTC. Cash received in Euroclear or Cedel as a result of sales
of interest in a global note by or through a Euroclear or Cedel participant to a
participant in DTC will be received with value on the settlement date of DTC,
but will be available in the relevant Euroclear or Cedel cash account only as of
the business day for Euroclear or Cedel following DTC's settlement date.
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures to
facilitate transfers of interests in the global notes among participants in DTC,
Euroclear and Cedel, they are under no obligation to perform or to continue to
perform these procedures, and these procedures may be discontinued at any time.
Neither we nor the trustee will have any responsibility for the performance by
DTC, Euroclear or Cedel or their participants or indirect participants of their
obligations under the rules and procedures governing their operations.
CERTIFICATED EXCHANGE NOTES
If:
(i) we notify the trustee in writing that DTC is no longer willing or able
to act as a depositary or DTC ceases to be registered as a clearing
agency under the Exchange Act and a successor depositary is not
appointed within 90 days of that notice or cessation;
146
(ii) we, at our option, notify the trustee in writing that we elect to cause
the issuance of exchange notes in definitive form under the indenture;
or
(iii) upon the occurrence of other events as provided in the indenture,
then, upon surrender by DTC of the global notes, certificated exchange notes
will be issued to each person that DTC identifies as the beneficial owner of the
exchange notes represented by the global notes. Upon that issuance, the trustee
is required to register the certificated exchange notes in the name of that
person (or the nominee of any thereof) and cause the same to be delivered to
that person.
Neither we nor the trustee shall be liable for any delay by DTC or any
participant or indirect participant in identifying the beneficial owners of the
related exchange notes, and each beneficial owner of exchange debentures may
conclusively rely on, and shall be protected in relying on, instructions from
DTC for all purposes (including with respect to the registration and delivery,
and the respective principal amounts, of the exchange notes to be issued).
147
FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes the material U.S. federal income tax
consequences of the acquisition, ownership and disposition of exchange notes as
of the date hereof by a Non-U.S. Holder (as defined below). Except where noted,
this summary deals only with exchange notes held as capital assets by Non-U.S.
Holders. As used in this section the term "Non-U.S. Holder" means any person or
entity that is not a "U.S. Holder." A "U.S. Holder" is any beneficial owner of
an exchange note that is:
- a citizen or resident of the United States for U.S. federal income tax
purposes;
- a corporation or other entity taxable as a corporation created or
organized in or under the laws of the U.S. or any political subdivision of
the U.S. (including the States and the District of Columbia);
- an estate the income of which is includible in gross income for U.S.
federal income tax purposes regardless of its source;
- a trust which is subject to the supervision of a court within the U.S. and
the control of one or more U.S. persons as described in section
7701(a)(30) of the Internal Revenue Code of 1986, as amended (the "Code");
or
- a person whose worldwide income or gain is otherwise subject to U.S.
federal income taxation on a net income basis.
For purposes of this section only, references to "we," "our" and "us" refer only
to Alaska Communications Systems Holdings, Inc. and not to any of its
subsidiaries.
The discussion below is based upon the provisions of the Code and
regulations, rulings and judicial decisions under the Code as of the date of
this prospectus, and these authorities may be repealed, revoked or modified so
as to result in U.S. federal income tax consequences different from those
discussed below. PERSONS CONSIDERING THE PURCHASE, OWNERSHIP OR DISPOSITION OF
EXCHANGE NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL
INCOME TAX CONSEQUENCES IN LIGHT OF THEIR PARTICULAR SITUATIONS AS WELL AS ANY
CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTION.
THE EXCHANGE OFFER
The issuance of the exchange notes to U.S. Holders or Non-U.S. Holders of
the old notes pursuant to the terms set forth in this prospectus will not
constitute an exchange for federal income tax purposes. Consequently, no gain or
loss will be recognized by U.S. Holders or Non-U.S. Holders of the old notes
upon receipt of the exchange notes, and ownership of the exchange notes will be
considered a continuation of ownership of the old notes. For purposes of
determining gain or loss upon the subsequent sale or exchange of the exchange
notes, a holder's basis in the exchange notes should be the same as the holder's
basis in the old notes exchanged. A holder's holding period for the exchange
notes should include the holder's holding period for the old notes exchanged.
The issue price and other tax characteristics of the exchange notes should be
identical to the issue price and other tax characteristics of the old notes
exchanged.
148
THE EXCHANGE NOTES
Under present U.S. federal income and estate tax law, and subject to the
discussion below concerning backup withholding:
(1) no withholding of U.S. federal income tax will be required with respect
to the payment by us or any paying agent of principal or interest on an exchange
note owned by a Non-U.S. Holder; PROVIDED that:
- the beneficial owner does not actually or constructively own 10% or more
of the total combined voting power of all classes of our stock entitled to
vote within the meaning of section 871(h)(3) of the Code and the
regulations thereunder;
- the beneficial owner is not a controlled foreign corporation that is
related to us through stock ownership;
- the beneficial owner is not a bank whose receipt of interest on an
exchange note is described in section 881(c)(3)(A) of the Code; and
- the beneficial owner satisfies the statement requirement (described
generally below) set forth in section 871(h) and section 881(c) of the
Code and the regulations under the Code;
(2) no withholding of U.S. federal income tax will be required with respect
to any gain or income realized by a Non-U.S. Holder upon the sale, exchange,
retirement or other disposition of an exchange note; and
(3) an exchange note beneficially owned by an individual who at the time of
death is a Non-U.S. Holder will not be subject to U.S. federal estate tax as a
result of that individual's death; PROVIDED that that individual does not
actually or constructively own 10% or more of the total combined voting power of
all classes of our stock entitled to vote within the meaning of section
871(h)(3) of the Code and PROVIDED that the interest payments with respect to
the exchange note would not have been, if received at the time of that
individual's death, effectively connected with the conduct of a U.S. trade or
business by that individual.
It is unclear whether the payment of liquidated damages to a Non-U.S. Holder
would be subject to withholding of U.S. federal income tax.
To satisfy the statement referred to in item (1) above, the beneficial owner
of the exchange note, or a financial institution holding the exchange note on
behalf of the owner, must provide, in accordance with specified procedures, a
paying agent with a statement to the effect that the beneficial owner is not a
U.S. Holder. Currently, these requirements will be met if:
- the beneficial owner provides the owner's name and address, and certifies,
under penalties of perjury, that the owner is not a U.S. Holder (which
certification may be made on an Internal Revenue Service Form W-8 (or
successor form)) or
- a financial institution holding the exchange note on behalf of the
beneficial owner certifies, under penalties of perjury, that the
beneficial owner's statement has been received by it and furnishes a
paying agent with a copy thereof.
Under recently finalized Treasury regulations, the statement requirement
referred to in item (1) above may also be satisfied with other documentary
evidence for interest paid after December 31, 2000 with respect to an offshore
account or through foreign intermediaries.
If a Non-U.S. Holder is engaged in a trade or business in the U.S. and
interest on the exchange note is effectively connected with the conduct of that
trade or business, the Non-U.S. Holder, although exempt from the withholding tax
discussed above, will be subject to U.S. federal income tax on that interest on
a net income basis in the same manner as if it were a U.S. Holder. In addition,
if the holder is a foreign corporation, it may be subject to a branch profits
tax equal to 30% (or lower
149
applicable treaty rate) of its effectively connected earnings and profits for
the taxable year subject to adjustments. For this purpose, interest on an
exchange note will be included in a foreign corporation's earnings and profits.
Any gain or income realized upon the sale, exchange, retirement or other
disposition of an exchange note generally will not be subject to U.S. federal
income tax unless (1) the gain or income is effectively connected with the
conduct of a trade or business in the U.S. by the Non-U.S. Holder or (2) in the
case of a Non-U.S. Holder who is an individual, the individual is present in the
United States for 183 days or more in the taxable year of the sale, exchange,
retirement or other disposition, and various other conditions are met.
Special rules may apply to Non-U.S. Holders, such as "controlled foreign
corporations," "passive foreign investment companies," U.S. expatriates and
"foreign personal holding companies," that are subject to special treatment
under the Code. These entities should consult their own tax advisors to
determine the U.S. federal, state, local and other tax consequences that may be
relevant to them.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, no information reporting or backup withholding will be required
with respect to payments made by us or any paying agent to Non-U.S. Holders if a
statement described in item (1) above has been received (and the payor does not
have actual knowledge (or, after December 31, 2000, reason to believe) that the
beneficial owner is a U.S. person).
In addition, backup withholding and information reporting will not apply if
payments of the principal, interest or premium on an exchange note are paid or
collected by a foreign office of a custodian, nominee or other foreign agent on
behalf of the beneficial owner of the exchange note, or if a foreign office of a
broker (as defined in applicable Treasury regulations) pays the proceeds of the
sale of an exchange note to the owner thereof. If, however, the nominee,
custodian, agent or broker is, for U.S. federal income tax purposes, a U.S.
person, a controlled foreign corporation or a foreign person that derives 50% or
more of its gross income for specified periods of time from the conduct of a
trade or business in the U.S., or, for payments made after December 31, 2000:
- a foreign partnership in which one or more U.S. persons, in the aggregate,
own more than 50% of the income or capital interests in the partnership,
or
- a foreign partnership that is engaged in a trade or business in the U.S.,
those payments will not be subject to backup withholding but will be subject to
information reporting, unless:
- the custodian, nominee, agent or broker has documentary evidence in its
records that the beneficial owner is not a U.S. person and various other
conditions are met, or
- the beneficial owner otherwise establishes an exemption.
Payments of principal, interest and premium on an exchange note paid to the
beneficial owner of an exchange note by a U.S. office of a custodian, nominee or
agent, or the payment by the United States office of a broker of the proceeds of
sale of an exchange note, will be subject to both backup withholding and
information reporting unless:
- the beneficial owner provides the statement referred to in clause (1)(d)
above and the payor does not have actual knowledge (or, after December 31,
2000, reason to believe) that the beneficial owner is a U.S. person, or
- the beneficial owner otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules will be allowed as a
refund or a credit against a holder's U.S. federal income tax liability provided
the required information is furnished to the IRS.
150
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account in the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of the exchange notes. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of exchange notes received in exchange for old notes where the old
notes were acquired as a result of market-making activities or other trading
activities. We have agreed that, for at least 90 days after the exchange offer
is completed, we will make this prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any resale of exchange
notes.
We will not receive any proceeds from any sales of the exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the exchange notes or a combination of methods of
resale, at market prices prevailing at the time of resale, at prices related to
those prevailing market prices or at negotiated prices. Any resale may be made
directly to the purchaser or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from the broker-dealer
and/or the purchasers of the exchange notes. Any broker-dealer that resells the
exchange notes that were received by it for its own account pursuant to the
exchange offer and any broker or dealer that participates in a distribution of
the exchange notes may be deemed to be an "underwriter" within the meaning of
the Securities Act and any profit on any resale of exchange notes and any
commissions or concessions received by any of those persons may be deemed to be
underwriting compensation under the Securities Act. The letter of transmittal
states that, by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
We have agreed to pay the expenses incident to the exchange offer, other
than commission or concessions of any brokers or dealers and the fees of any
counsel or other advisors or experts retained by the holders of old notes, and
will indemnify the holders of the exchange notes (including any broker-dealers)
against related liabilities, including liabilities under the Securities Act.
151
AVAILABLE INFORMATION
We have filed with the SEC a registration statement on Form S-4 under the
Securities Act for the registration of the exchange notes offered in this
prospectus. This prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in the registration
statement, some of which is contained in exhibits and schedules to the
registration statement as permitted by the rules and regulations of the SEC. For
further information with respect to us or the exchange notes offered in this
prospectus, you should refer to the registration statement, including the
related exhibits and financial statement. With respect to each document filed
with the SEC as an exhibit to the registration statement, you should refer to
the exhibit for a more complete description of the matter involved, and each
discussion in this prospectus of any document filed as an exhibit to the
registration statement qualified in its entirety by reference to the relevant
exhibit.
In connection with the exchange offer, we will become subject to the
information requirements of the Exchange Act, and, in accordance therewith, will
file reports and other information with the SEC. The registration statement and
the reports and other information we file can be inspected and copied at the
Public Reference Room of the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549 and the regional offices of the SEC located at 7 World Trade Center, New
York, New York 10048 and 500 West Madison Street, 14th Floor, Chicago, Illinois
60661. Copies of these materials may be obtained from the Public Reference
Section of the SEC, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549 and at its public reference facilities in New York, New York and Chicago,
Illinois at prescribed rates. Information on the operation of the Public
Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. We will
make our filings with the SEC electronically. The SEC maintains an internet site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically, which information can be
accessed at < http://www.sec.gov >.
As a result of the offering of the exchange notes, each of the guarantors
will become subject to the informational requirements of the Exchange Act. We
will fulfill our obligations with respect to these requirements by filing
periodic reports with the SEC on our own behalf or, in the case of the
guarantors, by including information regarding the guarantors in our periodic
reports. In addition, we will send to each holder of exchange notes copies of
annual reports and quarterly reports containing the information required to be
filed under the Exchange Act. So long as we are subject to the periodic
reporting requirements of the Exchange Act, we are required to furnish the
information required to be filed with the SEC to the trustee and the holders of
the old notes and the exchange notes. We have agreed that, even if we are not
required under the Exchange Act to furnish this information to the SEC, we will
nonetheless continue to furnish information that would be required to be
furnished by us by Section 13 of the Exchange Act to the Trustee and the holders
of the old notes or exchange notes as if we were subject to these periodic
reporting requirements.
152
EXPERTS
The consolidated financial statements of Alaska Communications Systems
Holdings, Inc. as of December 31, 1998 and for the period from July 16, 1998
(date of inception) through December 31, 1998 included in this prospectus have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
report herein and are included in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
The combined financial statements of CenturyTel's Alaska Properties (also
known as PTI Alaska) as of December 31, 1998 and for the year then ended have
been included herein and in the registration statement in reliance upon the
report of KPMG LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
The combined financial statements of CenturyTel's Alaska Properties (also
known as PTI Alaska) as December 31, 1997 and for the year ended December 31,
1996, eleven months ended November 30, 1997, and one month ended December 31,
1997 included in this prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report herein and are included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
The combined financial statements of Telephone Fund of Fairbanks Municipal
Utilities Services as of October 6, 1997 and for the year ended December 31,
1996 and the period ended October 6, 1997 included in this prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report herein and are included in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
The financial statements of the Municipality of Anchorage Telephone Utility
Fund as of December 31, 1998, and for each of the years in the three-year period
ended December 31, 1998, have been included herein and in the registration
statement in reliance upon the report of KPMG LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
VALIDITY OF THE EXCHANGE NOTES
The validity of the exchange notes will be passed upon for us by Wachtell,
Lipton, Rosen & Katz, New York, New York.
153
Until , all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
INDEX TO FINANCIAL STATEMENTS
Alaska Communications Systems Holdings, Inc.
Independent Auditors' Report....................................................... F-2
Consolidated Balance Sheets--December 31, 1998 and March 31, 1999.................. F-3
Consolidated Statement of Cash Flows--Period from July 16, 1998 (Date of Inception)
through December 31, 1998 and Three Months Ended March 31, 1999.................. F-4
Notes to Consolidated Financial Statements--Period from July 16, 1998 (Date of
Inception) through December 31, 1998 (Notes for Three Months Ended March 31, 1998
and 1999 Are Unaudited).......................................................... F-5
CenturyTel Alaska Properties
Independent Auditors' Reports...................................................... F-8
Combined Balance Sheets--December 31, 1997, December 31, 1998 and March 31, 1999... F-10
Combined Statements of Income and Retained Earnings--Year Ended December 31, 1996,
Eleven Months Ended November 30, 1997, One Month Ended December 31, 1997,
Year Ended December 31, 1998 and Three Months Ended March 31, 1998 and 1999...... F-11
Combined Statements of Cash Flows--Year Ended December 31, 1996, Eleven Months
Ended November 30, 1997, One Month Ended December 31, 1997, Year Ended December
31, 1998 and Three Months Ended March 31, 1998 and 1999.......................... F-12
Notes to Combined Financial Statements--Year Ended December 31, 1996, Eleven Months
Ended November 30, 1997, One Month Ended December 31, 1997, Year Ended December
31, 1998 (Notes for Three Months Ended March 31, 1998 and 1999 Are Unaudited).... F-13
Telephone Fund of Fairbanks Municipal Utilities Services
Independent Auditors' Report....................................................... F-26
Combined Balance Sheet--October 6, 1997............................................ F-27
Combined Statements of Income and Fund Equity--Year Ended December 31, 1996 and
Period Ended October 6, 1997..................................................... F-28
Combined Statements of Cash Flows--Year Ended December 31, 1996 and Period Ended
October 6, 1997.................................................................. F-29
Notes to Combined Financial Statements--Year Ended December 31, 1996 and Period
Ended October 6, 1997............................................................ F-30
Municipality of Anchorage Telephone Utility Fund
Independent Auditors' Report....................................................... F-33
Balance Sheets--December 31, 1997, December 31, 1998 and March 31, 1999............ F-34
Statements of Revenues, Expenses, and Changes in Retained Earnings--Years Ended
December 31, 1996, 1997 and 1998 and Three Months Ended March 31, 1998 and March
31, 1999......................................................................... F-35
Statements of Cash Flows--Years Ended December 31, 1996, 1997 and 1998 and Three
Months Ended March 31, 1998 and March 31, 1999................................... F-36
Notes to Financial Statements--Years Ended December 31, 1996, 1997 and 1998 (Notes
for Three Months Ended March 31, 1998 and 1999 Are Unaudited).................... F-37
F-1
INDEPENDENT AUDITORS' REPORT
Board of Directors
Alaska Communications Systems Holdings, Inc.
Anchorage, Alaska
We have audited the consolidated balance sheet of Alaska Communications
Systems Holdings, Inc. and Subsidiaries (the "Company") as of December 31, 1998,
and the related consolidated statement of cash flows for the period from July
16, 1998 (date of inception) through December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Alaska
Communications Systems Holdings, Inc. and Subsidiaries as of December 31, 1998,
and their cash flows for the period from July 16, 1998 (date of inception)
through December 31, 1998 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Portland, Oregon
March 24, 1999
F-2
ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, MARCH 31,
1998 1999
------------ ------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash............................................................................... $ 281,236 $ 180,422
Receivable from employees and related party (Note 2)............................... 41,771 44,770
------------ ------------
Total current assets........................................................... 323,007 225,192
PROPERTY, PLANT, AND EQUIPMENT, Net (Notes 1 and 3).................................. 36,536 565,482
DEFERRED ACQUISITION AND FINANCING COSTS (Note 1).................................... 248,637 1,709,089
DEPOSITS............................................................................. 11,820 15,720
------------ ------------
$ 620,000 $ 2,515,483
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accrued Liabilities................................................................ $ -- $ 495,483
Advances payable to stockholder (Note 2)........................................... 620,000 2,020,000
------------ ------------
Total current liabilities...................................................... 620,000 2,515,483
COMMITMENTS AND CONTINGENCIES (Notes 4 and 5)........................................ -- --
STOCKHOLDER'S EQUITY:
Common stock, $.01 par value; authorized, 1,000 shares; outstanding, 1 share....... -- --
------------ ------------
$ 620,000 $ 2,515,483
------------ ------------
------------ ------------
See notes to consolidated financial statements.
F-3
ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIOD FROM
JULY 16,
1998
(DATE OF
INCEPTION)
THROUGH THREE MONTHS
DECEMBER 31, ENDED
1998 MARCH 31, 1999
------------ --------------
(UNAUDITED)
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for property, plant, and equipment...................................... $ (36,536) $ (528,946)
Deferred acquisition costs....................................................... (248,637) (1,460,452)
Deposits......................................................................... (11,820) (3,900)
Accounts receivable from employees and related party............................. (41,771) (2,999)
Accrued liabilities.............................................................. 495,483
------------ --------------
Net cash used in investing activities........................................ (338,764) (1,500,814)
------------ --------------
------------ --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from advances from stockholder.......................................... 620,000 1,400,000
------------ --------------
------------ --------------
NET (DECREASE) INCREASE IN CASH.................................................... 281,236 (100,814)
CASH, BEGINNING OF PERIOD.......................................................... -- 281,236
------------ --------------
CASH, END OF PERIOD................................................................ $ 281,236 $ 180,422
------------ --------------
------------ --------------
See notes to consolidated financial statements.
F-4
ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM JULY 16, 1998 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements for Alaska Communications Systems
Holdings, Inc. and Subsidiaries (the "Company") represent the operating results
of the following three legal entities:
Alaska Communications Systems Holdings, Inc. (formerly ALEC Acquisition
Corporation)
ALEC Acquisition Sub Corp., Inc.
Alaska Communications Systems, Inc.
The Company was organized in 1998 as the principal entity to acquire and
manage telecommunication operations in Alaska. The principal activities in 1998
were the preparation of systems and obtaining financing for pending acquisitions
(see Note 5). In May of 1999, the Company was acquired and became a wholly owned
subsidiary of ALEC Holdings, Inc.
A summary of significant accounting policies followed by the Company is set
forth below:
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of commitments and contingencies at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.
PROPERTY, PLANT, AND EQUIPMENT is stated at cost. At December 31, 1998, the
Company was in the early stages of opening its Corporate Headquarters in
Anchorage. No depreciation was claimed in 1998 since the assets in service were
acquired at year end.
DEFERRED ACQUISITION AND FINANCING COSTS are stated at cost and are direct
costs incurred in connection with the Company's acquisitions and related
financings.
REVENUES--No revenues or expenses have been generated since the Company was
not in operation as of December 31, 1998.
2. TRANSACTIONS WITH RELATED PARTIES
Fox Paine Capital Fund, the majority stockholder of the Company's parent,
ALEC Holdings, Inc., has advanced cash to allow the Company to operate until
permanent funding is put in place at the closing of the acquisitions (see Note
5). Outstanding advances were $620,000 as of December 31, 1998. Fox Paine
Capital Fund will continue to fund the Company until permanent funding is
obtained at the closing of the acquisitions.
The Company advanced cash to a related party to perform certain consulting
services in connection with the Company's pending acquisitions. Cash used is
capitalized as deferred acquisition costs. Any unused cash that was advanced to
this related party is to be repaid to the Company. As of December 31, 1998, the
total amount of unused cash was $41,771.
F-5
ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM JULY 16, 1998 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1998
3. PROPERTY, PLANT, AND EQUIPMENT
The balances by category of property, plant, and equipment, at December 31,
1998 are:
Office furniture, equipment, and other............................. $ 3,049
Construction work in progress...................................... 33,487
---------
Total property, plant, and equipment............................. 36,536
Less: Accumulated depreciation..................................... --
---------
Property, plant, and equipment, net.............................. $ 36,536
---------
---------
4. LEASES
The Company has entered into an operating lease for office space in
Anchorage, Alaska for its corporate headquarters. The lease is for 60 months
and, under this lease agreement, future minimum annual rental payments are as
follows:
YEAR ENDING DECEMBER 31,
- ----------------------------------------------------------------------------------
1999.............................................................................. $ 278,772
2000.............................................................................. 139,060
2001.............................................................................. 141,841
2002.............................................................................. 144,678
2003.............................................................................. 147,571
----------
Total......................................................................... $ 851,922
----------
----------
5. COMMITMENTS AND CONTINGENCIES
The Company has announced two purchase agreements that will allow the
Company to enter the telecommunications industry. The first agreement involves
the acquisition of CenturyTel's Alaska holdings including Telephone Utilities of
Alaska, Inc., Telephone Utilities of the Northland, Inc., PTI Communications of
Alaska, Inc., Pacific Telecom of Alaska PCS, Inc., and Pacific Telecom Cellular
of Alaska, Inc. and the second is with the Municipality of Anchorage to acquire
all of its telecommunication investments. Upon completion of these two
contracts, the Company will have in excess of 300,000 local telephone, 70,000
cellular, 20,000 long distance, and 16,000 internet access lines. The combined
purchase price is approximately $700 million. The Company is being funded by a
$145 million equity contribution from its parent, ALEC Holdings, Inc., and the
remainder with bank financed debt.
It is currently anticipated that by mid-1999 all regulatory approvals will
have been granted and the acquisitions will be completed. At that time, the
Company's primary business will be to provide traditional local telephone, long
distance, cellular, and internet service throughout the state of Alaska. Until
the completion of the acquisitions, the Company is incurring costs to facilitate
certain transition and financing activities.
F-6
ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM JULY 16, 1998 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1998
6. BASIS OF PRESENTATION FOR UNAUDITED QUARTERLY INFORMATION
The accompanying unaudited financial information at March 31, 1999 and for
the three months ended March 31, 1998 and 1999 have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting only of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three month period ended March 31, 1999 are
not necessarily indicative of the results that may be expected for the full
fiscal year or for any future period.
F-7
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Century Telephone Enterprises, Inc.:
We have audited the accompanying combined balance sheet of CenturyTel's
Alaska Properties as of December 31, 1998, and the related combined statement of
income and retained earnings, and cash flows for the year then ended. These
combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of CenturyTel's Alaska
Properties as of December 31, 1998, and the results of their operations and
their cash flows for the year ended December 31,1998, in conformity with
generally accepted accounting principles.
KPMG LLP
Shreveport, Louisiana
February 26, 1999
F-8
INDEPENDENT AUDITORS' REPORT
Board of Directors
Century Telephone Enterprises, Inc.
Monroe, Louisiana
We have audited the combined balance sheet of CenturyTel Alaska Properties
as of December 31, 1997, and the related combined statements of income and
retained earnings and of cash flows for the year ended December 31, 1996, eleven
months ended November 30, 1997, and one month ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of CenturyTel Alaska
Properties as of December 31, 1997, and the results of their operations and
their cash flows for the year ended December 31, 1996, eleven months ended
November 30, 1997, and one month ended December 31, 1997, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Portland, Oregon
March 25, 1999
F-9
CENTURYTEL ALASKA PROPERTIES
COMBINED BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31,
-------------------- MARCH 31,
1997 1998 1999
--------- --------- -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..................................................... $ 871 $ 5,728 $ 10,739
Accounts receivable:
Customers, less allowance for doubtful accounts of $376, $164 and $162 at
December 31, 1997 and 1998, and March 31, 1999, respectively.............. 5,071 8,446 8,362
Affiliates (Note 8)......................................................... 20,404 31,922 38,361
Connecting companies........................................................ 4,146 10,984 6,596
Receivable from sale of cellular license.................................... 5,022 -- --
Miscellaneous accounts receivable and other................................. 2,760 1,213 1,326
Material and supplies (at cost)............................................... 2,653 2,072 2,058
Prepayments................................................................... 1,513 610 602
--------- --------- -----------
Total current assets...................................................... 42,440 60,975 68,044
--------- --------- -----------
PROPERTY, PLANT AND EQUIPMENT, Net (Note 4)..................................... 158,590 161,710 157,866
--------- --------- -----------
OTHER ASSETS:
Excess cost of net assets acquired, less accumulated amortization of $5,056,
$6,853 and $8,455 at December 31, 1997 and 1998, and March 31, 1999,
respectively (Note 1)....................................................... 248,948 242,632 241,030
Investments, at cost.......................................................... 997 976 976
Other, net.................................................................... 8,200 6,367 5,753
--------- --------- -----------
Total other assets........................................................ 258,145 249,975 247,759
--------- --------- -----------
TOTAL ASSETS.................................................................... $ 459,175 $ 472,660 $ 473,669
--------- --------- -----------
--------- --------- -----------
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt (Note 5)................................. $ 1,316 $ 1,427 $ 1,451
Accounts payable.............................................................. 3,275 5,322 2,589
Accrued expenses and other accrued liabilities:
Salaries and benefits....................................................... 2,434 1,949 2,321
Taxes....................................................................... 1,123 1,008 1,937
Other....................................................................... 684 1,849 1,841
Advance billings and customer deposits (Note 1)............................... 1,643 2,019 2,026
--------- --------- -----------
Total current liabilities................................................. 10,475 13,574 12,165
--------- --------- -----------
LONG-TERM DEBT (Note 5)......................................................... 41,634 41,981 41,643
--------- --------- -----------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes (Note 6)................................................ 11,297 13,523 13,914
Deferred investment tax credits............................................... 1,421 909 780
Other......................................................................... 3,034 1,711 1,282
--------- --------- -----------
Total deferred credits and other liabilities.............................. 15,752 16,143 15,976
--------- --------- -----------
SHAREHOLDER'S EQUITY:
Common stock (103, 104 and 104 shares authorized and 23, 24, and 24 issued and
outstanding, respectively).................................................. 23 24 24
Paid-in capital............................................................... 393,026 393,026 393,026
Retained earnings............................................................. (1,735) 7,912 10,835
--------- --------- -----------
Total shareholder's equity................................................ 391,314 400,962 403,885
--------- --------- -----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY...................................... $ 459,175 $ 472,660 $ 473,669
--------- --------- -----------
--------- --------- -----------
See accompanying notes to combined financial statements.
F-10
CENTURYTEL ALASKA PROPERTIES
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS)
THREE MONTHS
ELEVEN ONE MONTH ENDED MARCH 31,
YEAR ENDED MONTHS ENDED ENDED YEAR ENDED ------------------------
DECEMBER 31, NOVEMBER 30, DECEMBER 31, DECEMBER 31, 1998 1999
1996 1997 1997 1998 ----------- -----------
------------ ------------ ------------ ------------ (UNAUDITED) (UNAUDITED)
OPERATING REVENUES:
Telephone........................... $ 71,810 $ 73,472 $ 9,267 $ 109,822 $ 25,390 $ 27,203
Cellular............................ 4,823 5,120 181 2,576 408 546
------------ ------------ ------------ ------------ ----------- -----------
Total operating revenues........ 76,633 78,592 9,448 112,398 25,798 27,749
------------ ------------ ------------ ------------ ----------- -----------
OPERATING EXPENSES:
Cost of sales and operating
expenses--telephone............... 37,314 36,572 5,817 61,611 14,646 14,500
Cost of sales and operating
expenses--cellular................ 3,381 3,082 147 2,128 330 396
Depreciation and amortization....... 15,348 15,823 2,466 30,459 7,209 7,785
------------ ------------ ------------ ------------ ----------- -----------
Total operating expenses........ 56,043 55,477 8,430 94,198 22,185 22,681
------------ ------------ ------------ ------------ ----------- -----------
OPERATING INCOME...................... 20,590 23,115 1,018 18,200 3,613 5,068
------------ ------------ ------------ ------------ ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense.................... (3,176) (3,027) (253) (3,588) (797) (965)
Interest income (Note 8)............ 1,180 858 82 2,183 495 607
Other income (expense), net......... (33) (298) 53 356 357 80
Nonregulated income (expense),
net............................... (335) 26 371 1,714 772 842
------------ ------------ ------------ ------------ ----------- -----------
Total other income (expense).... (2,364) (2,441) 253 665 827 564
------------ ------------ ------------ ------------ ----------- -----------
INCOME BEFORE INCOME TAX EXPENSE...... 18,226 20,674 1,271 18,865 4,440 5,632
INCOME TAX EXPENSE (Note 6)........... 6,737 7,746 736 9,218 2,214 2,709
------------ ------------ ------------ ------------ ----------- -----------
NET INCOME............................ 11,489 12,928 535 9,647 2,226 2,923
------------ ------------ ------------ ------------ ----------- -----------
RETAINED EARNINGS AT BEGINNING OF
PERIOD.............................. 63,216 61,079 -- (1,735) (1,735) 7,912
Less dividends to shareholder......... 13,626 7,080 2,270 -- -- --
------------ ------------ ------------ ------------ ----------- -----------
RETAINED EARNINGS AT END OF PERIOD.... $ 61,079 $ 66,927 $ (1,735) $ 7,912 $ 491 $ 10,835
------------ ------------ ------------ ------------ ----------- -----------
------------ ------------ ------------ ------------ ----------- -----------
See accompanying notes to combined financial statements.
F-11
CENTURYTEL ALASKA PROPERTIES
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
ELEVEN ONE MONTH THREE MONTHS
YEAR ENDED MONTHS ENDED ENDED YEAR ENDED ENDED MARCH 31,
DECEMBER 31, NOVEMBER 30, DECEMBER 31, DECEMBER 31, --------------------------
1996 1997 1997 1998 1998 1999
------------- --------------- ------------- ------------- ------------- -----------
(UNAUDITED) (UNAUDITED)
OPERATING ACTIVITIES:
Net income......................... $ 11,489 $ 12,928 $ 535 $ 9,647 $ 2,226 $ 2,923
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization.... 15,348 15,823 2,466 30,459 7,209 7,785
Deferred income taxes and
unamortized investment tax
credits, net................... 1,538 1,160 65 24 148 66
Change in current assets and
liabilities:
Accounts receivable............ 14,476 (1,383) 3,873 (3,644) (2,105) 4,359
Accounts payable............... (6,828) (2,986) (1,527) 1,479 (282) (2,733)
Other current assets and
liabilities, net............. (1,434) (4,329) 176 2,427 1,588 1,322
Other, net..................... -- -- -- (2,101) 2,241 381
------------- ------- ------------- ------------- ------------- -----------
Net cash provided by
operating activities....... 34,589 21,213 5,588 38,291 11,025 14,103
------------- ------- ------------- ------------- ------------- -----------
INVESTING ACTIVITIES:
Payments for property, plant, and
equipment........................ (20,465) (14,575) (1,825) (26,799) (2,321) (2,200)
Other, net......................... (146) 1,021 (1,454) 135 4,268 (139)
------------- ------- ------------- ------------- ------------- -----------
Net cash provided (used) by
investing activities....... (20,611) (13,554) (3,279) (26,664) 1,947 (2,339)
FINANCING ACTIVITIES:
Proceeds from issuance of long-term
debt............................. 1,739 -- -- -- -- --
Dividends paid..................... (13,626) (7,080) (2,270) -- -- --
Payments of long-term debt......... (1,060) (1,129) (293) (1,322) (2,047) (314)
Change in affiliate balance........ -- -- -- (5,448) (9,540) (6,439)
------------- ------- ------------- ------------- ------------- -----------
Net cash used by financing
activities................. (12,947) (8,209) (2,563) (6,770) (11,587) (6,753)
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................ 1,031 (550) (254) 4,857 1,385 5,011
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR............................ 644 1,675 1,125 871 871 5,728
------------- ------- ------------- ------------- ------------- -----------
CASH AND CASH EQUIVALENTS, END OF
YEAR............................... $ 1,675 $ 1,125 $ 871 $ 5,728 $ 2,256 $ 10,739
------------- ------- ------------- ------------- ------------- -----------
------------- ------- ------------- ------------- ------------- -----------
SUPPLEMENTAL CASH FLOW INFORMATION:
Net assets of acquisitions
contributed as paid-in capital,
including push-down of goodwill
of $32,159....................... $ -- $ 89,132 $ -- $ -- $ -- $ --
Push-down of excess costs of
Alaskan entities from CenturyTel
acquisition...................... -- -- 208,389 -- -- --
Paydown of minority interest
liability through transfer of
property, plant, and equipment... -- -- 1,525 -- -- --
Income tax paid.................... 5,344 4,653 3,207 600 1,428 2,076
Interest paid...................... 3,510 2,706 261 3,434 577 954
See accompanying notes to combined financial statements.
F-12
CENTURYTEL ALASKA PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996, ELEVEN MONTHS ENDED NOVEMBER 30, 1997,
ONE MONTH ENDED DECEMBER 31, 1997 AND YEAR ENDED DECEMBER 31, 1998
(INFORMATION AS OF MARCH 31, 1998 AND 1999 AND FOR THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS)
1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL--The combined financial statements for CenturyTel Alaska Properties
(the "Company") represent the operating results of the following legal entities
("Alaskan Entities"):
Telephone Utilities of Alaska, Inc. ("TUA")
Telephone Utilities of the Northland, Inc. ("TUN")
PTI Communications of Alaska, Inc. ("PTICA")
Pacific Telecom of Alaska PCS, Inc. ("PTAPCS")
Pacific Telecom Cellular of Alaska, Inc. ("PTCA"), excluding the assets,
liabilities and equity of Alaska RSA #1
TUA, TUN, PTICA, and PTAPCS were wholly owned subsidiaries of Pacific
Telecom, Inc. ("PTI") and PTCA was a wholly owned subsidiary of Pacific Telecom
Cellular, Inc., which was a wholly owned subsidiary of PTI. Until December 1,
1997, PacifiCorp Holdings owned 100% of the voting securities of PTI. The
Company was acquired on December 1, 1997 as a result of Century Telephone
Enterprises, Inc.'s ("CenturyTel") acquisition of Pacific Telecom, Inc. (the
"Acquisition") (Note 13). The financial statements beginning December 1, 1997
reflect the excess cost of net assets acquired and the subsequent amortization
expense which was allocated to the Alaska properties in accordance with purchase
accounting.
TUA, TUN, PTICA, and PTAPCS became wholly owned subsidiaries of CenturyTel
of the Northwest, Inc. ("CNI") which is a wholly owned subsidiary of CenturyTel.
PTCA is a wholly owned subsidiary of CenturyTel Wireless, Inc. ("CT Wireless")
which is a wholly owned subsidiary of CenturyTel.
The Company's primary business is to provide traditional and cellular
telephone service to its customers which are located in the state of Alaska. The
Company was dependent on PTI and certain subsidiaries prior to the Acquisition
and is dependent upon CenturyTel and certain CenturyTel subsidiaries to provide
construction and maintenance services, materials and supplies and managerial,
technical and accounting services. Intercompany billings include a return on
investment to the related company.
The Company's telephone operations are regulated in nature and its telephone
accounting records are maintained in accordance with the rules and regulations
of the Alaska Public Utilities Commission ("APUC") which substantially adhere to
the rules and regulations of the Federal Communications Commission. The
Company's regulated operations are subject to the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 71, ACCOUNTING FOR THE EFFECTS OF
CERTAIN TYPES OF REGULATION.
ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles 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
F-13
CENTURYTEL ALASKA PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996, ELEVEN MONTHS ENDED NOVEMBER 30, 1997,
ONE MONTH ENDED DECEMBER 31, 1997 AND YEAR ENDED DECEMBER 31, 1998
(INFORMATION AS OF MARCH 31, 1998 AND 1999 AND FOR THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS)
1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results may differ from those estimates.
REVENUE RECOGNITION--Revenues are recognized when earned. The Company
participates in toll revenue pools with other telephone companies. Such pools
are funded by toll revenue and/or access charges regulated by the APUC within
the intrastate jurisdiction and the Federal Communications Commission within the
interstate jurisdiction. Much of the toll service revenue earned through various
pooling processes is initially recorded based on estimates. These estimates are
subject to subsequent adjustment in future accounting periods as refined
operational information becomes available.
PROPERTY, PLANT, AND EQUIPMENT--Telephone plant is stated substantially at
original cost of construction. Telephone plant retired in the ordinary course of
business, together with cost of removal, less salvage, is charged to accumulated
depreciation with no gain or loss recognized. Renewals and betterments of
telephone plant are capitalized while repairs, as well as renewals of minor
items, are charged to operating expense.
The Company provides depreciation for telephone plant on the straight-line
method, using rates approved by the regulatory authorities. Depreciation expense
for telephone plant amounted to $13,774, $14,406, $1,737, and $23,550 for the
year ended December 31, 1996, eleven months ended November 30, 1997, one month
ended December 31, 1997, and year ended December 31, 1998, respectively.
Included in 1998 expense is additional depreciation of approximately $1,506
which was approved by the regulatory authorities. The composite depreciation
rate was 5.7% for the year ended December 31, 1996, 5.8% for the eleven months
ended November 30, 1997 and the one month ended December 31, 1997, and 6.1% for
the year ended December 31, 1998.
Non-telephone plant is stated at cost and, when sold or retired, a gain or
loss is recognized. Depreciation of such property is provided on the
straight-line method over its estimated service lives ranging from 7 to 15
years. Depreciation for non-telephone plant amounted to $1,198, $922, $190, and
$583 for the year ended December 31, 1996, eleven months ended November 30,
1997, one month ended December 31, 1997, and the year ended December 31, 1998,
respectively.
LONG-LIVED ASSETS AND EXCESS COST OF NET ASSETS ACQUIRED (GOODWILL)--The
carrying value of long-lived assets, including allocated goodwill, is reviewed
for impairment at least annually, or whenever events or changes in circumstances
indicate that such carrying value may not be recoverable, by assessing the
recoverability of such carrying value through estimated undiscounted future net
cash flows expected to be generated by the assets. The excess cost of net assets
acquired is being amortized over 40 years. Amortization expense was $333 for the
year ended December 31, 1996, $455 during the eleven months ended November 30,
1997, $537 during the one month ended December 31, 1997, and $6,326 for the year
ended December 31, 1998.
F-14
CENTURYTEL ALASKA PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996, ELEVEN MONTHS ENDED NOVEMBER 30, 1997,
ONE MONTH ENDED DECEMBER 31, 1997 AND YEAR ENDED DECEMBER 31, 1998
(INFORMATION AS OF MARCH 31, 1998 AND 1999 AND FOR THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS)
1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES--Prior to the Acquisition, the Company was included in the
consolidated federal income tax return of PacifiCorp Holdings and CenturyTel in
subsequent periods. For financial accounting purposes, federal income taxes are
computed and recorded as if the Company filed a separate federal income tax
return, except that, (i) in the event the Company generates a net tax loss which
is utilized in the respective consolidated return, the Company will be given the
benefit of such loss, and (ii) income taxes are calculated based upon the
statutory tax rate in effect for PacifiCorp prior to the Acquisition and
CenturyTel and its subsidiaries for subsequent periods on a consolidated basis.
The Company periodically settles amounts owed to CenturyTel for federal income
taxes. The Company is included in a consolidated Alaska state income tax return.
The Company uses the asset and liability method of accounting for income
taxes under which deferred tax assets and liabilities are established for the
future tax consequences attributable to differences between the financial
statement carrying amounts of assets and liabilities and their respective tax
bases. Investment tax credits related to plant have been deferred and are being
amortized as a reduction of federal income tax expense over the estimated useful
lives of the assets giving rise to the credits.
Pursuant to SFAS 71, the regulatory liability, net of the related tax
impact, is being amortized as a reduction of federal income tax expense over the
estimated remaining lives of the assets which generated the deferred taxes.
CASH EQUIVALENTS--For purposes of the statement of cash flows, the Company
considers all demand deposits, central depository bank account ("CDA") deposits,
and all short-term investments with a maturity at date of purchase of three
months or less to be cash equivalents.
INVESTMENTS--The Rural Telephone Bank ("RTB") requires borrowers of RTB
funds to purchase RTB stock as a percentage of loan funds provided. These
investments have been accounted for using the cost method.
ADVANCE BILLINGS--Advance billings creditable to revenue accounts in future
months are recorded in advance billings until the service is rendered.
EARNINGS PER SHARE--The common stock of the Company is not traded in a
public market; therefore, earnings per share amounts are not presented in
accordance with SFAS 128, EARNINGS PER SHARE.
2. PCS LICENSE ACQUISITION COSTS
In early 1997, the Company was awarded three 10 MHz licenses to provide
personal communications services ("PCS") in Alaska. The Company paid $3,023 for
such licenses, which will be amortized over the useful economic lives once
construction is complete. At this time, construction has not yet begun. These
licenses are included in Other Assets on the balance sheet.
F-15
CENTURYTEL ALASKA PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996, ELEVEN MONTHS ENDED NOVEMBER 30, 1997,
ONE MONTH ENDED DECEMBER 31, 1997 AND YEAR ENDED DECEMBER 31, 1998
(INFORMATION AS OF MARCH 31, 1998 AND 1999 AND FOR THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS)
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLE, ACCOUNTS PAYABLE, ACCRUED
EXPENSES, AND CUSTOMER DEPOSITS--The carrying amount approximates the fair value
due to the short maturity of these instruments.
OTHER INVESTMENTS--The Company's other investments are represented by its
investment in RTB stock. The carrying amount of such investment approximates the
fair market value of these instruments.
LONG-TERM DEBT--The carrying value of the Company's long-term debt had a
fair value of $42,669 at December 31, 1997 and $45,853 at December 31, 1998. The
fair value was estimated by discounting the scheduled payment streams to present
value based upon rates currently offered to the Company for debt of similar
remaining maturities. Prepayment penalties and other costs of debt retirement
are not reflected in the estimates.
4. PROPERTY, PLANT, AND EQUIPMENT, NET
The following table summarizes the major classes of property, plant, and
equipment as of December 31, 1997 and 1998:
1997 1998
----------- -----------
General support..................................................... $ 33,508 $ 31,811
Central office...................................................... 113,040 120,613
IOT................................................................. 21,283 5,652
Cable and wire...................................................... 221,428 232,819
Construction in progress............................................ 5,633 9,345
Nonregulated and other.............................................. 677 8,452
----------- -----------
Telephone property, plant, and equipment.......................... 395,569 408,692
Less accumulated depreciation....................................... (238,228) (248,915)
----------- -----------
Net telephone property, plant, and equipment...................... 157,341 159,777
----------- -----------
Wireless property, plant, and equipment............................. 1,340 2,617
Less accumulated depreciation....................................... (91) (684)
----------- -----------
Net wireless property, plant, and equipment....................... 1,249 1,933
----------- -----------
Property, plant, and equipment, net............................... $ 158,590 $ 161,710
----------- -----------
----------- -----------
The Company retired approximately $1,762 of telephone property, plant, and
equipment and a like amount of accumulated depreciation in 1998.
F-16
CENTURYTEL ALASKA PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996, ELEVEN MONTHS ENDED NOVEMBER 30, 1997,
ONE MONTH ENDED DECEMBER 31, 1997 AND YEAR ENDED DECEMBER 31, 1998
(INFORMATION AS OF MARCH 31, 1998 AND 1999 AND FOR THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS)
5. LONG-TERM DEBT
Long-term debt as of December 31, 1997 and 1998 is summarized below:
1997 1998
--------- ---------
First mortgage notes:
5.0%--6.5%, due in installments to 2027............................... $ 29,226 $ 28,546
7.2%--9.4%, due in installments to 2020............................... 10,820 10,588
10.1%--11.8%, due in installments to 2017............................. 2,904 2,672
Unsecured note at 3%, due in installments to 2007....................... -- 1,602
--------- ---------
Subtotal............................................................ 42,950 43,408
Less current maturities................................................. (1,316) (1,427)
--------- ---------
Total long-term debt, excluding current maturities.................. $ 41,634 $ 41,981
--------- ---------
--------- ---------
The approximate annual debt maturities for the five years subsequent to
December 31, 1998 are as follows: 1999, $1,427; 2000, $1,527; 2001, $1,637;
2002, $1,755; and 2003, $1,551.
At December 31, 1998, under the most restrictive covenant of the Company's
long-term debt agreement, all of the Company's retained earnings were available
for the payment of cash dividends.
Substantially all of the Company's telephone property, plant, and equipment
is pledged to secure the first mortgage notes.
6. INCOME TAXES
Income tax expense consists of the following components:
ELEVEN MONTHS
YEAR ENDED ENDED ONE MONTH ENDED YEAR ENDED
DECEMBER 31, NOVEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1997 1997 1998
------------- --------------- --------------- -------------
Federal:
Current................................... $ 4,733 $ 5,689 $ 575 $ 7,093
Deferred.................................. 265 109 (12) (177)
State:
Current................................... 1,388 1,708 170 2,101
Deferred.................................. 351 240 3 201
------ ------ ----- ------
Income tax expense...................... $ 6,737 $ 7,746 $ 736 $ 9,218
------ ------ ----- ------
------ ------ ----- ------
F-17
CENTURYTEL ALASKA PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996, ELEVEN MONTHS ENDED NOVEMBER 30, 1997,
ONE MONTH ENDED DECEMBER 31, 1997 AND YEAR ENDED DECEMBER 31, 1998
(INFORMATION AS OF MARCH 31, 1998 AND 1999 AND FOR THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS)
6. INCOME TAXES (CONTINUED)
The following is a reconciliation from the statutory federal income tax rate
to the Company's effective income tax rate:
ELEVEN MONTHS
YEAR ENDED ENDED ONE MONTH ENDED YEAR ENDED
DECEMBER 31, NOVEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1997 1997 1998
--------------- --------------- --------------- ---------------
Statutory federal income tax rate........... 35.00% 35.00% 35.00% 35.00%
State income taxes, net of federal income
tax benefit............................... 6.00% 6.00% 8.44% 7.90%
Amortization of nondeductible excess cost of
net assets acquired....................... -- -- 14.20% 10.10%
Amortization of excess deferred income
taxes..................................... (1.67)% (1.32 )% (2.18 )% (1.60 )%
Amortization of deferred investment tax
credits................................... (3.15 )% (2.27 )% (3.76 )% (2.70 )%
Other, net.................................. 0.78% 0.06% 6.20% 0.20%
----- ----- ----- -----
Effective income tax rate................. 36.96% 37.47% 57.90% 48.90%
----- ----- ----- -----
----- ----- ----- -----
The tax effects of temporary differences that gave rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1997 and 1998 were as follows:
1997 1998
---------- ----------
Deferred tax assets:
Regulatory liability................................................ $ 18 $ 388
Deferred investment tax credits..................................... 991 374
Other............................................................... 829 567
---------- ----------
Total gross deferred tax assets..................................... 1,838 1,329
Less: Valuation allowances........................................ -- --
---------- ----------
Net Deferred tax assets........................................... 1,838 1,329
Deferred tax liabilities:
Property, plant, and equipment, primarily due to depreciation
differences....................................................... (13,088) (14,112)
Excess costs of net assets acquired................................. (47) (740)
---------- ----------
Total gross deferred tax liabilities................................ (13,135) (14,852)
---------- ----------
Net deferred tax liability.......................................... $ (11,297) $ (13,523)
---------- ----------
---------- ----------
F-18
CENTURYTEL ALASKA PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996, ELEVEN MONTHS ENDED NOVEMBER 30, 1997,
ONE MONTH ENDED DECEMBER 31, 1997 AND YEAR ENDED DECEMBER 31, 1998
(INFORMATION AS OF MARCH 31, 1998 AND 1999 AND FOR THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS)
7. EMPLOYEE BENEFIT PLANS
Substantially all employees of the Company, except those which are members
of the International Brotherhood of Electrical Workers ("IBEW"), are covered by
a pension plan (the "Plan") which is sponsored by PTI before the Acquisition and
CNI subsequently which includes other affiliated companies. The Plan provides
benefits based upon employees' total years of service and the highest five years
compensation during their last 10 years of service. The Company's portion of
pension income was $57 during the year ended December 31, 1996, $219 during the
eleven months ended November 30, 1997, $23 during the one month ended December
31, 1997, and $384 for the year ended December 31, 1998. Because actuarial
information regarding the status of the Plan is computed for the Plan in total,
the Company does not separately determine its portion of the actuarial present
value of the accumulated plan benefits, projected benefit obligation, or net
assets available for benefits.
In accordance with the purchase agreement with Alaska Communications Systems
Holdings, Inc., formerly known as ALEC Acquisition Corporation ("ALEC") (see
Note 13), the Plan assets and obligations will be valued at the closing date.
Based on this valuation, assets equaling the actuarial present value of the
accrued benefits of the Company's employees, plus an additional $250, will be
transferred to a replacement plan.
The Company participates in a postretirement health care and insurance plan
(the "PRB Plan") which is sponsored by PTI prior to acquisition and by CNI
subsequently which includes other affiliated companies.
The Company recognizes the cost of other postretirement benefits over the
active service period of its employees. PTI's policy was to fund annually an
amount of the postretirement benefit liability that will systematically reduce
that liability using available funds and allow deductibility for federal income
tax purposes. Due to income tax regulations that restrict the deductibility of
certain contributions for postretirement benefits, PTI elected to make non-tax
contributions to meet funding requirements imposed by state regulatory
commissions. PTI recognized the transition obligation, which represents the
previously unrecognized prior service cost, over a period of 20 years. Because
actuarial information regarding the status of the PRB Plan is computed for the
PRB Plan in total, PTI did not separately determine its portion of the actuarial
present value of the accumulated plan benefit, projected benefit obligations or
net assets available for benefits. At December 31, 1997, the date of the latest
actuarial evaluation for the PRB Plan, plan assets were less than the projected
benefit obligation by approximately $46,246 and the unamortized portion of the
transition obligation was $26,099. The Company's portion of the net periodic
postretirement benefit cost was $846 during the year ended December 31,
F-19
CENTURYTEL ALASKA PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996, ELEVEN MONTHS ENDED NOVEMBER 30, 1997,
ONE MONTH ENDED DECEMBER 31, 1997 AND YEAR ENDED DECEMBER 31, 1998
(INFORMATION AS OF MARCH 31, 1998 AND 1999 AND FOR THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS)
7. EMPLOYEE BENEFIT PLANS (CONTINUED)
1996, $485 during the eleven months ended November 30, 1997, $41 during the one
month ended December 31, 1997, and $471 during the year ended December 31, 1998,
as follows
Service cost......................................................... $ 183
Interest cost........................................................ 392
Amortization of transition obligation................................ 116
Amortization of unrecognized prior service cost...................... (4)
Expected return on assets............................................ (216)
---------
Net periodic postretirement benefit cost......................... $ 471
---------
---------
At the time of adoption of SFAS 106, EMPLOYERS' ACCOUNTING FOR
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS, the Company elected to amortize the
transition obligation, at the date of implementation, over 20 years.
In accordance with the purchase agreement with ALEC (see Note 13), the
purchaser assumes the liability for postretirement benefits related to employees
that retire subsequent to the closing date.
8. CERTAIN TRANSACTIONS
The Company purchases certain plant materials and other services (including
certain operating expenses) from PTI, CenturyTel, and other affiliated
companies. Materials and services purchased by the Company from PTI prior to
acquisition and CenturyTel and its subsidiaries subsequently totaled
approximately $9,227 for the year ended December 31, 1996, $8,581 for the eleven
months ended November 30, 1997, $1,626 for the one month ended December 31,
1997, and $29,306 (which included $15,648 of operating expenses) during the year
ended December 31, 1998.
Prior to the Acquisition, short-term advances were made to PTI under an
agreement providing interest at the prime commercial rate for funds held more
than 90 days. Interest income on these advances was $1,052 during the year ended
December 31, 1996, $797 during the eleven months ended November 30, 1997, and
$81 during the one month ended December 31, 1997.
Subsequent to the Acquisition, the Company participates in a Central
Depository Account ("CDA") with CenturyTel and other affiliates. The Company is
assessed or receives interest on the net amount of its CDA balance and the net
accounts receivable or payable to CenturyTel and its affiliates. Related
interest income amounted to $2,156 for the year ended December 31, 1998. The
rate used to calculate the related interest income was the three month U.S.
T-Bill rate. Related interest expense amounted to $637 for the year ended
December 31, 1998. The rate used to calculate the related interest expense was
the weighted average rate of CenturyTel's debt.
F-20
CENTURYTEL ALASKA PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996, ELEVEN MONTHS ENDED NOVEMBER 30, 1997,
ONE MONTH ENDED DECEMBER 31, 1997 AND YEAR ENDED DECEMBER 31, 1998
(INFORMATION AS OF MARCH 31, 1998 AND 1999 AND FOR THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS)
9. BUSINESS AND CREDIT CONCENTRATIONS
The Company provides telephone services to customers (business and
residential) located in the state of Alaska. Receivables from connecting
companies represent the amounts due from various long distance carriers such as
AT&T and the Bell operating companies.
The ultimate realization of the Company's balance in the CDA discussed above
is dependent upon the financial resources of CenturyTel.
10. COMMITMENTS AND CONTINGENCIES
Expenditures for property, plant, and equipment are anticipated to be
approximately $19,469 for telephone operations and $615 for wireless operations
during 1999.
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of the matters will not have a material adverse effect on the
Company's financial position or results of operations.
The Company's operations are subject to federal, state and local laws and
regulations governing the use, storage, disposal of, and exposure to, hazardous
materials, the release of pollutants into the environment and the remediation of
contamination. As an owner or operator of property and a generator of hazardous
wastes, the Company could be subject to certain environmental laws that impose
liability for the entire cost of cleanup at contaminated sites, regardless of
fault or the lawfulness of the activity that resulted in contamination. The
Company believes, however, that its operations are in substantial compliance
with applicable environmental laws and regulations.
Many of the Company's properties formerly contained, or currently contain,
underground and aboveground storage tanks used for the storage of fuel or
wastes. Some of these tanks have leaked. The Company believes that known
contamination caused by these leaks has been, or is being, investigated or
remediated. The Company cannot be sure, however, that it has discovered all
contamination or that the regulatory authorities will not request additional
remediation at sites that have previously undergone remediation.
F-21
CENTURYTEL ALASKA PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996, ELEVEN MONTHS ENDED NOVEMBER 30, 1997,
ONE MONTH ENDED DECEMBER 31, 1997 AND YEAR ENDED DECEMBER 31, 1998
(INFORMATION AS OF MARCH 31, 1998 AND 1999 AND FOR THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS)
11. BUSINESS SEGMENTS
The Company is engaged in providing local exchange telephone services and
cellular telephone services in Alaska. The following tables illustrate selected
financial data for each segment:
YEAR ENDED DECEMBER 31, 1996 TELEPHONE WIRELESS TOTAL
- ----------------------------------------------------------- ---------- ----------- ----------
Operating revenues......................................... $ 71,810 $ 4,823 $ 76,633
Depreciation and amortization.............................. 14,383 965 15,348
Operating income........................................... 20,113 477 20,590
Capital expenditures....................................... 19,694 771 20,465
ELEVEN MONTHS ENDED NOVEMBER 30, 1997 TELEPHONE WIRELESS TOTAL
- ----------------------------------------------------------- ---------- ----------- ----------
Operating revenues......................................... $ 73,472 $ 5,120 $ 78,592
Depreciation and amortization.............................. 15,090 733 15,823
Operating income........................................... 21,810 1,305 23,115
Capital expenditures....................................... 14,225 350 14,575
ONE MONTH ENDED DECEMBER 31, 1997 TELEPHONE WIRELESS TOTAL
- ----------------------------------------------------------- ---------- ----------- ----------
Operating revenues......................................... $ 9,267 $ 181 $ 9,448
Depreciation and amortization.............................. 2,375 91 2,466
Operating income (loss).................................... 1,075 (57) 1,018
Capital expenditures....................................... 1,732 93 1,825
Total assets............................................... 450,155 9,020 459,175
YEAR ENDED DECEMBER 31, 1998 TELEPHONE WIRELESS TOTAL
- ----------------------------------------------------------- ---------- ----------- ----------
Operating revenues......................................... $ 109,822 $ 2,576 $ 112,398
Depreciation and amortization.............................. 29,734 725 30,459
Operating income (loss).................................... 18,476 (276) 18,200
Capital expenditures....................................... 26,664 135 26,799
Total assets............................................... 470,649 2,011 472,660
F-22
CENTURYTEL ALASKA PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996, ELEVEN MONTHS ENDED NOVEMBER 30, 1997,
ONE MONTH ENDED DECEMBER 31, 1997 AND YEAR ENDED DECEMBER 31, 1998
(INFORMATION AS OF MARCH 31, 1998 AND 1999 AND FOR THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS)
11. BUSINESS SEGMENTS (CONTINUED)
The following is a reconciliation of operating income to income before
income tax expense:
ELEVEN MONTHS ONE MONTH
YEAR ENDED ENDED ENDED YEAR ENDED
DECEMBER 31, NOVEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1997 1997 1998
------------ -------------- ------------- ------------
Operating income.................. $ 20,590 $ 23,115 $ 1,018 $ 18,200
Interest expense.................. (3,176) (3,027) (253) (3,588)
Nonregulated income (expense)..... (335) 26 371 1,714
Interest income................... 1,180 858 82 2,183
Other income (expense), net....... (33) (298) 53 356
------------ ------- ------ ------------
Income before income tax
expense......................... $ 18,226 $ 20,674 $ 1,271 $ 18,865
------------ ------- ------ ------------
------------ ------- ------ ------------
12. ACCOUNTING FOR THE EFFECTS OF REGULATION
The Company currently accounts for its regulated telephone operations in
accordance with the provisions of SFAS 71. While the ongoing applicability of
SFAS 71 to the Company's telephone operations is being monitored due to the
changing regulatory, competitive, and legislative environments, the Company
believes that SFAS 71 still applies. However, it is possible that changes in
regulation or legislation or anticipated changes in competition or in the demand
for regulated services or products could result in the Company's telephone
operations not being subject to SFAS 71 in the near future. In that event,
implementation of SFAS 101, REGULATED ENTERPRISES--ACCOUNTING FOR THE
DISCONTINUANCE OF APPLICATION OF FASB STATEMENT NO. 71, would require the
write-off of previously established regulatory assets and liabilities, along
with an adjustment of certain accumulated depreciation accounts to reflect the
difference between recorded depreciation and the amount of depreciation that
would have been recorded had the Company's telephone operations not been subject
to rate regulation. Such discontinuance of the application of SFAS 71 would
result in a material, noncash charge against earnings which would be reported as
an extraordinary item. While the effect of implementing SFAS 101 cannot be
precisely estimated at this time, management believes that the noncash,
after-tax, extraordinary charge would be between $25,000 and $28,000.
13. ACQUISITIONS AND DISPOSITIONS
On September 8, 1997, the Company acquired the outstanding stock of
Polarnet, Inc., an internet service provider. The purchase price was
approximately $1,100 and was accounted for by the purchase method. The excess of
the purchase price over the estimated fair value of net assets acquired amounted
to approximately $968, which is included in goodwill. The results of operations
of Polarnet, Inc. from September 8, 1997 are included in the statement of
income.
F-23
CENTURYTEL ALASKA PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996, ELEVEN MONTHS ENDED NOVEMBER 30, 1997,
ONE MONTH ENDED DECEMBER 31, 1997 AND YEAR ENDED DECEMBER 31, 1998
(INFORMATION AS OF MARCH 31, 1998 AND 1999 AND FOR THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS)
13. ACQUISITIONS AND DISPOSITIONS (CONTINUED)
On October 6, 1997, PTI acquired the net assets of the local exchange
utilities ("PTI-Fairbanks") from the City of Fairbanks. The purchase price was
approximately $87 million and was accounted for by the purchase method. The
excess of the purchase price over the estimated fair value of net assets
acquired amounted to approximately $31 million, which is included in goodwill.
The results of operations of PTI-Fairbanks from October 6, 1997 are included in
the statements of income. Assets and liabilities acquired were as follows:
Fair value of assets acquired..................................... $ 86,750
Cash paid for net assets.......................................... (85,000)
---------
Liabilities assumed............................................. $ 1,750
---------
---------
On December 1, 1997, PTI was sold to CenturyTel for approximately $2.2
billion (including assumed debt). As a result of this transaction, the Company
recorded all previously retained earnings as paid-in capital and pushed down
excess costs of approximately $208 million to the Alaskan entities to reflect
the change from PTI's to CenturyTel's basis of accounting.
In August 1998 CNI and CT Wireless entered into a definitive agreement to
sell the stock of the Company to ALEC for approximately $409 million, subject to
certain adjustments. The transaction is anticipated to close in 1999 subject to
regulatory approvals and various closing conditions.
14. YEAR 2000 (UNAUDITED)
The Company has initiated a plan ("Year 2000 Plan") to identify, assess, and
remediate "Year 2000" issues within each of its significant computer programs
and certain equipment which contain micro-processors. The Year 2000 Plan is
addressing the issue of computer programs and embedded computer chips being
unable to distinguish between the year 1900 and the year 2000, if a program or
chip uses only two digits rather than four to define the applicable year. The
Company has divided the Year 2000 Plan into four major phases--assessment,
planning, implementation, and testing. After completing the assessment and
planning phases earlier this year, the Company is currently in the
implementation and testing phases. Systems which have been determined not to be
Year 2000 compliant are being either replaced or reprogrammed, and thereafter
tested for Year 2000 compliance. The Year 2000 Plan anticipates that by October
1999 the implementation and testing phases will be completed.
The Company is identifying and contacting critical suppliers and customers
whose computerized systems interface with the Company's systems, regarding their
plans and progress in addressing their Year 2000 issues. The Company has
received varying information from such third parties on the state of compliance
or expected compliance. Contingency plans are being developed in the event that
any critical supplier or customer is not compliant.
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect
F-24
CENTURYTEL ALASKA PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996, ELEVEN MONTHS ENDED NOVEMBER 30, 1997,
ONE MONTH ENDED DECEMBER 31, 1997 AND YEAR ENDED DECEMBER 31, 1998
(INFORMATION AS OF MARCH 31, 1998 AND 1999 AND FOR THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS)
14. YEAR 2000 (UNAUDITED) (CONTINUED)
the Company's operations, liquidity, and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third-party suppliers and customers,
the Company is unable to determine at this time whether consequences of Year
2000 failures will have a material impact on the Company's operations,
liquidity, or financial condition.
15. BASIS OF PRESENTATION FOR UNAUDITED QUARTERLY INFORMATION.
The accompanying unaudited financial information at March 31, 1999 and for
the three months ended March 31, 1998 and 1999 have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting only of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three month period ended March 31, 1999 are
not necessarily indicative of the results that may be expected for the full
fiscal year or for any future period.
F-25
INDEPENDENT AUDITORS' REPORT
Board of Directors
Century Telephone Enterprises, Inc.
Monroe, Louisiana
We have audited the combined balance sheet of Telephone Fund of Fairbanks
Municipal Utilities Services (the "Company") as of October 6, 1997, and the
related combined statements of income and fund equity and of cash flows for the
period ended October 6, 1997 and the year ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Telephone Fund of
Fairbanks Municipal Utilities Services as of October 6, 1997, and the results of
their operations and their cash flows for the period ended October 6, 1997 and
the year ended December 31, 1996 in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Portland, Oregon
March 25, 1999
F-26
TELEPHONE FUND OF FAIRBANKS
MUNICIPAL UTILITIES SERVICES
COMBINED BALANCE SHEET
OCTOBER 6, 1997
(IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Accounts receivable:
Customers, less allowance for doubtful accounts of $156........................ $ 903
Connecting companies and other................................................. 1,949
Material and supplies (at cost).................................................. 2,608
Prepayments...................................................................... 23
---------
Total current assets........................................................... 5,483
PROPERTY, PLANT, AND EQUIPMENT, Net................................................ 50,279
---------
$ 55,762
---------
---------
LIABILITIES AND FUND EQUITY
CURRENT LIABILITIES:
Accounts payable................................................................. $ 290
Accrued expenses and other accrued liabilities................................... 2,869
Advance billings and customer deposits (Note 1).................................. 1,140
Capital leases................................................................... 262
---------
Total current liabilities...................................................... 4,561
DEFERRED CREDIT (Note 1)........................................................... 1,180
FUND EQUITY........................................................................ 50,021
---------
$ 55,762
---------
---------
See accompanying notes to combined financial statements.
F-27
TELEPHONE FUND OF FAIRBANKS
MUNICIPAL UTILITIES SERVICES
COMBINED STATEMENTS OF INCOME AND FUND EQUITY
PERIOD ENDED OCTOBER 6, 1997 AND YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
YEAR ENDED PERIOD ENDED
DECEMBER 31, OCTOBER 6,
1996 1997
------------ ------------
OPERATING REVENUES--Telephone........................................................ $ 25,084 $ 19,768
------------ ------------
OPERATING EXPENSES:
Cost of sales and operating expenses--telephone.................................... 14,523 11,136
Depreciation and amortization...................................................... 5,172 4,249
------------ ------------
Total operating expenses......................................................... 19,695 15,385
------------ ------------
OPERATING INCOME..................................................................... 5,389 4,383
------------ ------------
OTHER INCOME (EXPENSE):
Interest expense................................................................... (1,552) (1,520)
Interest income.................................................................... 462 416
Other income, net.................................................................. 121 104
Nonregulated income, net........................................................... 797 203
------------ ------------
Total other expense.............................................................. (172) (797)
------------ ------------
NET INCOME........................................................................... 5,217 3,586
FUND EQUITY, BEGINNING OF YEAR....................................................... 48,298 49,690
DIVIDENDS............................................................................ (3,825) (3,255)
------------ ------------
FUND EQUITY, END OF YEAR............................................................. $ 49,690 $ 50,021
------------ ------------
------------ ------------
See accompanying notes to combined financial statements.
F-28
TELEPHONE FUND OF FAIRBANKS
MUNICIPAL UTILITIES SERVICES
COMBINED STATEMENTS OF CASH FLOWS
PERIOD ENDED OCTOBER 6, 1997 AND YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
YEAR ENDED PERIOD ENDED
DECEMBER 31, OCTOBER 6,
1996 1997
------------ -------------
OPERATING ACTIVITIES:
Net income......................................................................... $ 5,216 $ 3,586
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.................................................... 5,172 4,249
Change in current assets and liabilities:
Accounts receivable............................................................ 167 996
Accounts payable............................................................... (563) (2,133)
Other current assets and liabilities, net...................................... 132 529
------------ -------------
Net cash provided by operating activities.................................... 10,124 7,227
------------ -------------
INVESTING ACTIVITIES:
Payments for property, plant, and equipment........................................ (6,023) (3,452)
------------ -------------
FINANCING ACTIVITIES:
Dividends paid to MUS.............................................................. (3,825) (3,255)
Payments of lease obligation....................................................... (276) (520)
------------ -------------
Net cash used in financing activities........................................ (4,101) (3,775)
------------ -------------
INCREASE (DECREASE) IN CASH.......................................................... -- --
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR......................................... -- --
------------ -------------
CASH AND CASH EQUIVALENTS, END OF YEAR............................................... $ -- $ --
------------ -------------
------------ -------------
See notes to combined financial statements.
F-29
TELEPHONE FUND OF FAIRBANKS MUNICIPAL UTILITIES SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS
PERIOD ENDED OCTOBER 6, 1997 AND YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Telephone Utility of Fairbanks Municipal Utilities Services' (the
"Company") primary business is to provide telephone service to its customers who
are located in the City of Fairbanks and surrounding local areas. The Company's
telephone operations are regulated in nature and its telephone accounting
records are maintained in accordance with the rules and regulations of the
Alaska Public Utilities Commission ("APUC") which substantially adhere to the
rules and regulations of the Federal Communications Commission. The Company's
regulated operations are subject to the provisions of Statement of Financial
Accounting Standards No. 71 ("SFAS 71"), ACCOUNTING FOR THE EFFECTS OF CERTAIN
TYPES OF REGULATION. In an asset purchase agreement effective October 6, 1997,
the Company was sold by the Municipal Utilities System ("MUS"), an enterprise
fund of the City of Fairbanks, to PTI Communications of Alaska, Inc. and began
doing business as PTI-Fairbanks. The financial statements do not reflect any
purchase adjustments from this transaction. The financial statements also
exclude the cellular fund which operates the RSA #1 A-Side cellular property
site license.
The accompanying financial statements represent the financial position of
the Company as of October 6, 1997 and the results of its operations and cash
flows for the period ended October 6, 1997 and the year ended December 31, 1996.
A summary of significant accounting policies followed by the Company is set
forth below:
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires Management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of commitments and contingencies 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.
PROPERTY, PLANT, AND EQUIPMENT--The Company states its property, plant and
equipment at cost. Additions to plant include direct costs and related indirect
charges. Depreciation is provided using the straight-line method based primarily
on the estimated service lives of the various classes of depreciable assets. The
composite depreciation rate for depreciable telecommunications plant was 5.7%
for the period ended October 6, 1997 and 4.9% for the year ended 1996.
INCOME TAXES--As MUS is a public entity, it is exempt from paying any
federal, state or local taxes. In place of property taxes, MUS makes a payment
in lieu of taxes (see Note 2).
REVENUE RECOGNITION--The Company participates in access revenue pools for
certain interstate and intrastate revenues, which are initially recorded based
on estimates. Certain network access revenues are estimated under cost
separations procedures that base revenues on current operating costs and
investments in facilities to provide such services. These estimates are subject
to subsequent adjustment in future accounting periods as refined operational
information becomes available.
ADVANCE BILLINGS--Advance billings creditable to revenue accounts in future
months are recorded in advance billings until the service is rendered.
F-30
TELEPHONE FUND OF FAIRBANKS MUNICIPAL UTILITIES SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
PERIOD ENDED OCTOBER 6, 1997 AND YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED CREDIT--In prior years contributions were made by outside third
parties to fund construction of certain property, plant, and equipment of the
Company. These contributions have been recorded as a deferred credit and are
being amortized over the lives of the funded assets.
2. TRANSACTIONS WITH RELATED PARTIES
The Company purchases certain administrative, engineering, personnel, and
legal services from the City of Fairbanks. These services, which are charged at
cost to various capital and expense accounts, were $596 for the period ended
October 6, 1997 and $853 for the year ended December 31, 1996.
The Company makes payments in lieu of taxes at 4% of gross revenue, with
payments capped at $2,243, plus a 3% supplemental, with payments capped at
$1,300 for all utilities. Payments in lieu of taxes to the City of Fairbanks
General Fund by the Company amounted to $1,536 for the period ended October 6,
1997 and $1,715 for the year ended December 31, 1996.
MUS also allocates interest expense on revenue bonds as well as interest
income earned on short-term investments to each of its utilities as part of its
centralized cash management program. The amount of interest expense and income
allocated to the Company was $1,520 and $416 during the period ended October 6,
1997 and $1,552 and $462 during the year ended December 31, 1996.
3. PROPERTY, PLANT, AND EQUIPMENT, NET
The balances by category of property, plant, and equipment, net at October
6, 1997 are:
Central office equipment.......................................... $ 25,533
Poles, cable, and conduit......................................... 60,195
Buildings......................................................... 6,675
Office furniture, equipment, and other............................ 25,884
Construction work in progress..................................... 4,897
---------
Total property, plant, and equipment, gross..................... 123,184
Accumulated depreciation.......................................... (72,905)
---------
Property, plant, and equipment, net............................. $ 50,279
---------
---------
4. EMPLOYEE BENEFIT PLANS
All permanent employees of the Company are eligible to participate as
members of the State of Alaska Public Employees Retirement System ("PERS"), a
defined benefit agent multiple-employer public employee retirement system that
acts as a common investment and administrative agent for the State of Alaska and
any political subdivision or public organization that elects to join the system.
Eligible employees contribute 6.75% of their gross salary to PERS. The Company
is required to contribute the remaining amounts necessary to fund PERS, using
the actuarial basis specified by the PERS Board. Because actuarial information
regarding the status of the PERS plan is computed for the Plan in total, the
Company does not separately determine its portion of the actuarial present value
for the accumulated plan benefits, projected benefit obligation, or net assets
available for benefits. At June 30,
F-31
TELEPHONE FUND OF FAIRBANKS MUNICIPAL UTILITIES SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
PERIOD ENDED OCTOBER 6, 1997 AND YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
4. EMPLOYEE BENEFIT PLANS (CONTINUED)
1997, the date of the latest actuarial evaluation for the Plan, Plan assets of
$70,726 exceeded the projected benefit obligation by approximately $33,837.
Certain employees of the Company are members of the International
Brotherhood of Electrical Workers ("IBEW") and are eligible to participate in
two different union-sponsored multiple employer defined benefit plans, a pension
plan and a thrift plan. Under the pension plan, the Company contributed between
$4 and $5.09 per compensable hour to the Alaska Electrical Pension Fund and the
total contribution was $782 for the period ended October 6, 1997 and $864 for
the year ended December 31, 1996. Under the thrift plan, the Company pays a
minimum of 4% of the participant's gross wages into the plan plus after one year
it matches the employee's contributions, to a maximum of 3%. The Company's
contributions to the thrift plan was $332 for the period ended October 6, 1997
and $298 for the year ended December 31, 1996.
5. EMPLOYEES' DEFERRED COMPENSATION
The Company offers its employees three deferred compensation plans which are
part of the MUS multiemployer plan. The plans are available to all Company
employees and permit them to defer a portion of their salary until future years.
Participants' rights under the plans are equal to those of general creditors of
MUS in an amount equal to the fair market value of the deferred account for each
participant. The fair market value of both the assets and liabilities for the
Plan in total at October 6, 1997 was $13,247.
6. COMMITMENTS AND CONTINGENCIES
Expenditures under the Company's 1998 construction and capital expenditure
program are expected to approximate $7,193.
* * * * * *
F-32
INDEPENDENT AUDITORS' REPORT
The Honorable Mayor and Members of the Assembly
Municipality of Anchorage:
We have audited the accompanying balance sheets of the Municipality of
Anchorage Telephone Utility Fund (Utility) as of December 31, 1998 and 1997, and
the related statements of revenues, expenses, and changes in retained earnings,
and cash flows for each of the years in the three-year period ended December 31,
1998. These financial statements are the responsibility of the Utility's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The financial statements present only the Municipality of Anchorage
Telephone Utility Fund and are not intended to present fairly the financial
position and results of operations of the Municipality of Anchorage in
conformity with generally accepted accounting principles.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Municipality of
Anchorage Telephone Utility Fund as of December 31, 1998 and 1997, and the
results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 1998 in conformity with generally accepted
accounting principles.
The year 2000 supplementary information on pages F-49 and F-50 is not a
required part of the financial statements, but is supplementary information
required by the Governmental Accounting Standards Board, and we did not audit
and do not express an opinion on such information. Further, we were unable to
apply to the information certain procedures prescribed by professional standards
because of the nature of the matter underlying the disclosure requirements and
because sufficiently specific criteria regarding the matters to be disclosed
have not been established. In addition, we do not provide assurance that the
Municipality of Anchorage Telephone Utility Fund is or will become year 2000
compliant, that year 2000 remediation efforts will be successful in whole or in
part, or that parties with which the Municipality of Anchorage Telephone Utility
Fund does business are or will become year 2000 compliant.
KPMG LLP
Anchorage, Alaska
February 19, 1999
F-33
MUNICIPALITY OF ANCHORAGE
TELEPHONE UTILITY FUND
BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31,
---------------------- MARCH 31,
1997 1998 1999
---------- ---------- -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash...................................................................... $ 10,474 $ 25,755 $ 23,034
Accounts receivable, net of uncollectibles of $1,586, $1,343 and $1,735 in
1998, 1997 and March 31, 1999........................................... 21,216 23,733 24,026
Inventories............................................................... 4,415 3,074 3,138
---------- ---------- -----------
Total current assets.................................................... 36,105 52,562 50,198
RESTRICTED INVESTMENTS...................................................... 14,962 15,592 17,309
NET TELEPHONE PLANT......................................................... 250,669 257,703 255,184
OTHER ASSETS
Cellular licenses......................................................... 9,670 16,315 16,203
Minority investments...................................................... 7,983 5,535 5,107
Other..................................................................... 3,735 2,538 2,695
---------- ---------- -----------
Total other assets...................................................... 21,388 24,388 24,005
---------- ---------- -----------
TOTAL ASSETS................................................................ $ 323,124 $ 350,245 $ 346,696
---------- ---------- -----------
---------- ---------- -----------
FUND EQUITY AND LIABILITIES
CURRENT LIABILITIES
Accounts payable.......................................................... $ 23,211 $ 24,366 $ 22,967
Accrued interest.......................................................... 1,730 2,227 1,779
Compensated absences payable.............................................. 3,297 2,786 2,857
Accrued employee benefits................................................. 2,141 1,938 2,313
Advance billings and customer deposits.................................... 4,386 4,523 3,790
Current installments of long-term obligations............................. 16,719 17,614 17,249
---------- ---------- -----------
Total current liabilities............................................... 51,484 53,454 50,955
LONG-TERM OBLIGATIONS....................................................... 135,226 154,907 150,369
FUND EQUITY
Retained Earnings......................................................... 136,414 141,884 145,372
---------- ---------- -----------
TOTAL FUND EQUITY AND LIABILITIES........................................... $ 323,124 $ 350,245 $ 346,696
---------- ---------- -----------
---------- ---------- -----------
See accompanying notes to financial statements.
F-34
MUNICIPALITY OF ANCHORAGE
TELEPHONE UTILITY FUND
STATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN RETAINED EARNINGS
(IN THOUSANDS)
THREE MONTHS ENDED MARCH
YEARS ENDED DECEMBER 31, 31,
---------------------------------- ------------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
OPERATING REVENUES
Local telephone.................................. $ 99,071 $ 101,857 $ 105,663 $ 25,830 $ 27,164
Cellular......................................... 16,897 21,845 29,225 5,879 6,710
Long distance.................................... 2 1,541 6,815 1,144 2,683
---------- ---------- ---------- ----------- -----------
Total operating revenue...................... 115,970 125,243 141,703 32,853 36,557
---------- ---------- ---------- ----------- -----------
OPERATING EXPENSES
Cost of sales and operating
expenses--local................................ 62,075 60,300 59,191 14,179 15,474
Cost of sales and operating expenses--
cellular....................................... 12,379 14,455 19,961 4,048 4,740
Cost of sales and operating expenses--long
distance....................................... 543 4,644 10,395 1,898 3,243
Depreciation and amortization.................... 20,496 26,839 29,608 7,099 7,434
---------- ---------- ---------- ----------- -----------
Total operating expenses..................... 95,493 106,238 119,155 27,224 30,891
OPERATING INCOME................................... 20,477 19,005 22,548 5,629 5,666
Interest expense................................... (9,187) (9,308) (9,394) (2,448) (1,996)
Equity in earnings (loss) of minority
investments...................................... (45) 158 (2,945) (250) (509)
Interest income.................................... 2,347 2,540 2,967 608 411
Net nonregulated income (loss) and other........... 265 (277) 394 (80) (84)
---------- ---------- ---------- ----------- -----------
Net other expense............................ (6,620) (6,887) (8,978) (2,170) (2,178)
---------- ---------- ---------- ----------- -----------
NET INCOME....................................... 13,857 12,118 13,570 3,459 3,488
RETAINED EARNINGS, JANUARY 1....................... 126,839 132,596 136,414 136,414 141,884
Utility Revenue Distribution to Municipality of
Anchorage........................................ (8,100) (8,300) (8,100) 0 0
---------- ---------- ---------- ----------- -----------
RETAINED EARNINGS, PERIOD END...................... $ 132,596 $ 136,414 $ 141,884 $ 139,873 $ 145,372
---------- ---------- ---------- ----------- -----------
---------- ---------- ---------- ----------- -----------
See accompanying notes to financial statements.
F-35
MUNICIPALITY OF ANCHORAGE
TELEPHONE UTILITY FUND
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
THREE MONTHS ENDED MARCH
YEARS ENDED DECEMBER 31, 31,
------------------------------- ------------------------
1996 1997 1998 1998 1999
--------- --------- --------- ----------- -----------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Income from operations................................. $ 20,477 $ 19,005 $ 22,548 $ 5,629 $ 5,666
Adjustments to reconcile income from operations to net
cash provided by operating activities
Depreciation and amortization........................ 20,496 26,839 29,608 7,099 7,434
Provision for uncollectible accounts................. 1,112 1,113 1,643 441 944
Loss on disposition of fixed assets.................. 288 100 174 56 --
Nonregulated income and other........................ 439 43 95 (464) (165)
Changes in assets and liabilities which increase
(decrease) cash
Accounts receivable................................ (996) (4,040) (4,160) (1,184) (1,237)
Inventory of materials, supplies, and goods for
resale........................................... 159 (504) 1,341 63 (64)
Other assets....................................... (364) 120 1,244 751 (157)
Accounts payable................................... (25) 4,172 1,155 (4,290) (1,399)
Accrued employee benefits and compensated absences
payable.......................................... 1,198 194 (713) 408 446
Customer deposits.................................. (620) (262) (292) (115) (733)
Advance billings................................... 306 558 428 -- --
Other liabilities.................................. (350) (697) 136 -- --
--------- --------- --------- ----------- -----------
Net cash provided by operating activities................ 42,120 46,641 53,207 8,394 10,735
--------- --------- --------- ----------- -----------
CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES
Utility revenue distribution--Municipality of
Anchorage............................................ (8,100) (8,300) (8,100) -- --
CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES
Acquisition of telephone plant......................... (24,958) (35,187) (29,644) 8,404 3,383
Short-term advance from Municipality of Anchorage
General Fund......................................... (12,000) -- -- -- --
Principal payments on long-term obligations............ (22,002) (19,617) (17,340) (2,497) (6,475)
Bond issuance.......................................... 43,659 24,790 29,592 29,592 --
Interest payments on long-term obligations............. (6,513) (7,952) (8,011) (2,060) (2,292)
Cost of removal of telephone plant..................... (181) (650) (77) -- --
--------- --------- --------- ----------- -----------
Net cash used by capital and related financing
activities........................................... (21,995) (38,616) (25,480) 16,631 (12,150)
--------- --------- --------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Interest............................................... 2,347 2,325 2,968 744 411
Minority investments................................... (2,398) (5,227) (7,283) (7,283) --
Proceeds from sale of restricted investments........... 12,865 12,109 13,912 13,912 15,655
Purchase of restricted investments..................... (13,601) (12,872) (15,256) (15,417) (17,634)
--------- --------- --------- ----------- -----------
Net cash used by investing activities.................. (787) (3,665) (5,659) (8,044) (1,568)
--------- --------- --------- ----------- -----------
NET CHANGE IN CASH....................................... 11,238 (3,940) 13,968 16,981 (2,983)
CASH, JANUARY 1.......................................... 5,243 16,481 12,541 12,541 26,509
--------- --------- --------- ----------- -----------
CASH, PERIOD END......................................... $ 16,481 $ 12,541 $ 26,509 $ 29,522 $ 23,526
--------- --------- --------- ----------- -----------
NON-CASH CAPITAL, FINANCING, AND INVESTING ACTIVITIES
Retirement of telephone plant.......................... $ 7,124 $ 9,077 $ 3,401 -- --
Write down of long-term investments.................... -- -- 1,888 -- --
Financed equipment purchased........................... -- -- 6,655 -- 1,420
--------- --------- --------- ----------- -----------
Total Non-cash Capital, Financing, and Investing
Activities........................................... $ 7,124 $ 9,077 $ 11,944 -- $ 1,420
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
See accompanying notes to financial statements.
F-36
MUNICIPALITY OF ANCHORAGE
TELEPHONE UTILITY FUND
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The accompanying financial statements include the activities of the
Telephone Utility Fund (Utility), a public utility of the Municipality of
Anchorage (Municipality), ATU Communications, Inc. (ACI), a holding company,
MACtel, Inc. (MACtel) and ATU Long Distance, Inc. (ATU LD), wholly owned
subsidiaries of ACI. All significant intercompany transactions have been
eliminated.
The regulated arm of the Utility provides local telecommunications service
and access to long distance telecommunications service to the Anchorage Bowl
area and to Girdwood and other small communities in the area south of the
Anchorage Bowl both inside and outside the boundaries of the Municipality. The
nonregulated arm of the Utility sells, rents, and leases customer premise
equipment to customers throughout the State of Alaska. MACtel is a
wholesale/retail cellular service provider that operates in Anchorage, the Kenai
Peninsula, and the North Star and North Slope Boroughs. ATU LD provides long
distance service to customers in Anchorage, Fairbanks, Juneau, the Kenai
Peninsula and the Matanuska Valley. Approximately 70% of the Utility's employees
are covered under a labor contract with the International Brotherhood of
Electrical Workers (IBEW) which expires on August 31, 1999.
On January 5, 1998, MACtel acquired certain assets of Pacific Telecom
Cellular of Alaska RSA #1, Inc. and stock of Prudhoe Communications, Inc.,
collectively d/b/a Cellulink, a cellular service company in Fairbanks, Alaska
for $8,900.
The purchase price was allocated as follows:
Property and equipment.............................................. $ 1,817
Cellular licenses................................................... 7,083
---------
$ 8,900
---------
---------
Results of operations for the acquired companies have been included in 1998
operations since the date of acquisition. Pro forma information for prior
periods is not presented because it is not material.
SALE OF UTILITY
During 1998, the Municipal Assembly accepted a bid in the amount of $295,000
from Alaska Communications Systems, Inc. to acquire substantially all of the
assets and assume substantially all of the liabilities of the Utility. The sale
will become effective after review and approval by the Alaska Public Utilities
Commission (APUC), the Federal Communications Commission (FCC), and non-action
by the United States Department of Justice under the Hart-Scott-Rodino Act. The
sales price will be adjusted based upon levels of cash and net plant on the
closing date.
F-37
MUNICIPALITY OF ANCHORAGE
TELEPHONE UTILITY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REGULATION
The Utility is subject to rate regulation by the FCC for interstate
telecommunication service, and the APUC for intrastate and local exchange
telecommunication service. The Utility, as required by the FCC, accounts for
such activity separately.
The services of ATU LD are subject to rate regulation as a non-dominant
interexchange carrier by the FCC for interstate telecommunication services and
the APUC for intrastate telecommunication services. The operations of MACtel are
not subject to rate regulation.
BASIS OF ACCOUNTING
The accounting records of the Utility conform to Part 32 Uniform System of
Accounts as prescribed by the FCC and the APUC.
The accompanying financial statements are prepared on the accrual basis of
accounting. The accounting policies of the Utility are in conformity with the
requirements of the FCC and the APUC. The Utility prepares its financial
statements in accordance with Statement of Financial Accounting Standards (SFAS)
No. 71, "Accounting for the Effects of Certain Types of Regulation." Accounting
under SFAS No. 71 is appropriate as long as rates are established by or subject
to approval by independent third-party regulators; rates are designed to recover
the specific enterprise's cost-of-service; and in view of demand for service, it
is reasonable to assume that rates are set at levels that will recover costs and
can be collected from customers.
Under Governmental Accounting Standards Board (GASB) Statement No. 20,
ACCOUNTING AND FINANCIAL REPORTING FOR PROPRIETARY FUNDS AND OTHER GOVERNMENTAL
ENTITIES THAT USE PROPRIETARY FUND ACCOUNTING, the Utility applies all
applicable GASB pronouncements and all Financial Accounting Standards Board
(FASB) Statements and Interpretations, Accounting Principles, Board Opinions and
Accounting Research Bulletins, unless they conflict with or contradict GASB
pronouncements.
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the date
of the balance sheet and revenues and expenses for the period. Actual results
could differ from those estimates. The more significant accounting and reporting
policies and estimates applied in the preparation of the accompanying financial
statements are discussed below.
CASH POOLS AND RESTRICTED INVESTMENTS
The Municipality uses a central treasury to account for all cash and
investments to maximize interest income. Interest income from cash pool
investments is allocated to the Utility based on its monthly closing cash pool
equity balance. Restricted investments are recorded at fair value. All amounts
in the cash pools and in restricted investments are interest bearing and consist
primarily of repurchase agreements, banker's acceptances or U.S. Government
securities. The Utility adopted GASB
F-38
MUNICIPALITY OF ANCHORAGE
TELEPHONE UTILITY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Statement No. 31, ACCOUNTING AND FINANCIAL REPORTING FOR CERTAIN INVESTMENTS AND
FOR EXTERNAL INVESTMENT POOLS, during 1998. The impact of adopting this
statement was not material to the financial statements.
Under GASB Statement No. 3, DEPOSITS WITH FINANCIAL INSTITUTIONS,
INVESTMENTS (INCLUDING REPURCHASE AGREEMENTS), AND REVERSE REPURCHASE
AGREEMENTS, the Utility's cash and investments are classified in credit risk
category 1 because they are insured or registered or are securities held by the
Utility or its agent in the Utility's name.
STATEMENT OF CASH FLOWS
The Utility has adopted GASB Statement No. 9, REPORTING CASH FLOWS OF
PROPRIETARY AND NONEXPENDABLE TRUST FUNDS AND GOVERNMENTAL ENTITIES THAT USE
PROPRIETARY FUND ACCOUNTING. For purposes of the statement of cash flows, the
Utility has defined cash as the demand deposits and investments maintained in
the general and construction cash pools, including restricted and unrestricted
balances, as well as cash balances maintained separately from the cash pools.
Maturity periods of investments have been disregarded, since the Utility uses
the general and construction cash pools as demand deposit accounts.
Cash consists of the following at December 31:
1996 1997 1998
--------- --------- ---------
Equity in general cash pool.................................. $ 14,427 $ 9,401 $ 19,254
Cash......................................................... 963 1,073 6,501
--------- --------- ---------
Total cash............................................... 15,390 10,474 25,755
Amounts included with restricted investments:
Equity in construction cash pool............................. -- 927 --
Equity in general cash pool reserved for customer deposits... 1,091 830 537
Cash included in revenue bond reserve investments............ -- 310 217
--------- --------- ---------
$ 16,481 $ 12,541 $ 26,509
--------- --------- ---------
--------- --------- ---------
INVENTORIES
The Utility's inventories, consisting primarily of parts and supplies, are
valued at the lower of weighted average cost or market.
TELEPHONE PLANT
Telephone plant is stated at cost. The additions to telephone plant in
service are recorded at the original cost of contracted services, direct
materials and labor, and indirect overhead charges. When
F-39
MUNICIPALITY OF ANCHORAGE
TELEPHONE UTILITY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
property is retired, the cost of the property unit, plus removal costs, less
salvage, is charged to accumulated depreciation. Gain or loss on the retirement
of regulated telephone plant is not recognized except for extraordinary
retirements.
The Utility's depreciation is computed using the straight-line method over
the estimated lives of the assets. Current rates on regulated plant were
implemented January 1, 1997 and were based on APUC Docket U-96-78. MACtel and
ATU LD property and equipment are depreciated using the straight-line and
declining balance methods over the estimated useful asset lives.
The estimated life in years of major plant and equipment categories follows:
PLANT AND EQUIPMENT ESTIMATED LIFE
- ------------------------------------------------------------------------------- ---------------
Buildings...................................................................... 56
Central office equipment....................................................... 9-10
Cable, wire and conduit........................................................ 12-46
Furniture, computers and support equipment..................................... 7-22
Vehicles....................................................................... 11-19
Leasehold improvements......................................................... 2-3
Nonregulated................................................................... 3-10
MINORITY INVESTMENTS
Minority investments consist of investments in companies which are accounted
for using the equity method.
CELLULAR LICENSES
Cellular licenses are stated at net book value. Amortization is computed on
the straight-line method over an estimated useful life of 40 years.
DISCOUNT ON REVENUE BONDS PAYABLE
The discount on revenue bonds payable is amortized over the life of the
related bond issue using the effective interest method.
REVENUE RECOGNITION
Recurring revenues are billed one month in advance and are deferred until
the month earned. Nonrecurring revenues are billed in arrears and are recognized
when earned.
During 1998 the Utility participated in both interstate and intrastate
common line pooled settlements. During 1998 the Utility did not participate in
any traffic-sensitive pools. Pooled revenues are based on settlements with the
applicable pool's administrator. Intrastate pooled revenues are settled on a
monthly basis with the Alaska Exchange Carrier Association (AECA) and are final
at the time of
F-40
MUNICIPALITY OF ANCHORAGE
TELEPHONE UTILITY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
settlement. Participation in the AECA pool was discontinued effective January 1,
1999. Interstate pooled revenues are settled on a monthly basis with the
National Exchange Carrier Association (NECA). The NECA settlements may be
adjusted for a period of up to twenty-four months. Interstate traffic sensitive
revenue is based on rates and charges defined in the Utility's interstate tariff
approved by the FCC. Interstate traffic sensitive revenue is recognized when
earned for both recurring and nonrecurring charges.
To the extent that disputes arise over revenue settlement procedures, the
Utility's policy is to defer revenue collected until settlement methodologies
are resolved and finalized.
MUNICIPAL UTILITY SERVICE ASSESSMENT
The Municipal Utility Service Assessment (MUSA) is assessed by the
Municipality and is calculated based on the net book value of telephone plant in
the prior year. Net book value for each tax district is multiplied by the
current mill rate to determine the assessment. The Utility also pays a gross
receipt tax, which is 1.25% of gross operating revenues, excluding nonregulated
revenues.
ADVERTISING
Advertising costs are expensed in the period in which they are incurred.
INCOME TAXES
The Internal Revenue Code provides that gross income for tax purposes does
not include income accruing to a state or territory, or any political
subdivision thereof, which is derived from the exercise of any essential
governmental function or from any public utility. The Utility is a public
utility of the Municipality and is therefore exempt from federal and state
income taxes. ACI and its subsidiaries are exempt from federal and state income
taxes because ACI is a holding company owned 100% by the Utility.
GASB NO. 27
The Utility adopted GASB Statement No. 27, ACCOUNTING FOR PENSIONS BY STATE
AND LOCAL GOVERNMENTAL EMPLOYERS, during 1998. GASB No. 27 establishes standards
for the measurement, recognition and display of pension expense and related
liabilities, assets, note disclosure and applicable required supplementary
information in the financial reports of state and local governmental employers.
The impact of adopting GASB No. 27 was not material to the financial statements.
IMPAIRMENT OF LONG-LIVED ASSETS
The Utility has adopted FASB Statement No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF.
Under the provisions of this statement, the Utility has evaluated its long-lived
assets for financial impairments and will continue to evaluate them if events or
changes in circumstance indicate the carrying amount of such assets may not be
fully recoverable.
F-41
MUNICIPALITY OF ANCHORAGE
TELEPHONE UTILITY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain reclassifications have been made to the December 31, 1997 and 1996
financial statements to conform to the current year's presentation.
(2) TELEPHONE PLANT
A summary of telephone plant and equipment at December 31, follows:
1997 1998
----------- -----------
Plant in Service
Cable, wire and conduit........................................... $ 166,055 $ 169,705
Central office equipment.......................................... 124,199 126,364
Buildings......................................................... 43,908 44,207
Furniture, computers and support equipment........................ 21,580 21,380
Nonregulated equipment............................................ 30,413 36,269
Vehicles.......................................................... 7,523 7,499
Land.............................................................. 5,101 5,168
Leasehold improvements............................................ 468 741
----------- -----------
399,247 411,333
Less accumulated depreciation..................................... (162,990) (187,179)
----------- -----------
Net plant in service............................................ 236,257 224,154
Construction work in progress..................................... 14,412 33,549
----------- -----------
Net telephone plant............................................. $ 250,669 $ 257,703
----------- -----------
----------- -----------
F-42
MUNICIPALITY OF ANCHORAGE
TELEPHONE UTILITY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
(3) LONG-TERM OBLIGATIONS
Long-term obligations consist of the following at December 31:
Bonds payable:
1997 1998
---------- ----------
1993 Series, effective interest rate of 5.49%, due in 2013.......... $ 17,390 $ 16,670
1994 Series, effective interest rate of 4.38%, due in 2010.......... 66,210 54,265
1996 Series, effective interest rate of 5.71%, due in 2016.......... 42,745 41,430
1997 Series, effective interest rate of 5.18%, due in 2017.......... 25,000 24,275
1998 Series, effective interest rate of 4.44%, due in 2010.......... -- 30,000
---------- ----------
151,345 166,640
Less: Unamortized loss on refunding................................. (2,295) (1,643)
Less: Current portion............................................... (14,705) (16,370)
Less: Unamortized discount.......................................... (257) (226)
Plus: Unamortized premium........................................... 238 678
---------- ----------
Net long-term revenue bonds payable................................... 134,326 149,079
---------- ----------
Equipment financing obligations, interest rates range from
approximately 4-5%, final payment due in 2004....................... -- 6,034
Less: Current portion............................................... -- (1,071)
---------- ----------
Net equipment financing obligations................................... -- 4,963
---------- ----------
Note payable:
Note payable, effective interest rate of 5.98%, due in 1999......... 2,187 173
Less: Current portion............................................... (2,014) (173)
---------- ----------
Net note payable...................................................... 173 --
---------- ----------
Arbitrage payable..................................................... 727 865
---------- ----------
Total long-term obligations........................................... $ 135,226 $ 154,907
---------- ----------
---------- ----------
Debt service requirements are the following for the years ended December 31:
PRINCIPAL INTEREST TOTAL
---------- --------- ----------
1999....................................................... $ 17,614 $ 8,272 $ 25,886
2000....................................................... 17,686 7,592 25,278
2001....................................................... 18,381 6,853 25,234
2002....................................................... 19,176 6,063 25,239
2003....................................................... 9,989 5,152 15,141
2004-2008.................................................. 41,461 18,580 60,041
2009-2013.................................................. 30,825 9,164 39,989
2014-2017.................................................. 17,715 1,720 19,435
---------- --------- ----------
$ 172,847 $ 63,396 $ 236,243
---------- --------- ----------
---------- --------- ----------
F-43
MUNICIPALITY OF ANCHORAGE
TELEPHONE UTILITY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
(3) LONG-TERM OBLIGATIONS (CONTINUED)
The 1993 revenue bond covenants require the establishment of reserves over a
five-year period equal to the maximum annual debt service on all outstanding
bonds. The 1994 refunding bond covenants require establishment of a reserve in
the amount of $9,750. The 1996 revenue bond covenants require an amount equal to
the lesser of $4,400 or the maximum annual debt service to be funded in equal
installments over four years. The 1997 revenue bond covenants require an amount
equal to the lessor of $2,500 or the maximum annual debt service to be funded in
equal installments over four years. The 1998 revenue bond covenants require an
amount equal to the lessor of $3,000 or the maximum annual debt service to be
funded in equal installments over four years. The revenue bond covenants further
stipulate that revenues less expenses will be equal to at least 1.4 times the
debt service requirements for that year. Expenses are defined as costs for
operation and maintenance of the system, excluding depreciation and MUSA for
each year. For the years ended December 31, 1998, 1997 and 1996, the Utility
complied with the revenue bond covenants.
(4) REFUNDING OF LONG-TERM OBLIGATIONS
In 1994, the Utility issued refunding bond issues for the purpose of
redeeming certain bond issues when they become due or callable. The net proceeds
of the refunding bond issue were used to purchase US Government securities which
were deposited in an irrevocable trust with an escrow agent to provide all
future debt service payments on the refunded bonds. Since payment of these
advance refunded issues has been provided, as described above, neither the
liability nor the assets irrevocably pledged, including related interest income
and expense, are reflected in the accompanying financial statements.
Defeased bonds as of December 31, 1998 total $11,390 for the 1990 issue.
(5) RETIREMENT PLANS
Substantially all employees are covered by one of the following plans.
INTERNATIONAL BROTHERHOOD OF ELECTRICAL WORKERS (IBEW) PLAN
The IBEW Plan is a union sponsored defined benefit pension plan for members
of the IBEW #1547 Union. The Utility contributed $3.67 per compensable employee
hour to the Alaska Electrical Trust Fund in 1998, 1997 and 1996. Utility
contributions to this plan were $3,130, $3,379 and $3,608 for the years ended
December 31, 1998, 1997 and 1996, respectively. The hourly rate paid by the
Utility is determined by the collective bargaining process. The Utility's
obligation for IBEW employee retirement is limited to the amount paid to the
Alaska Electrical Trust Fund.
STATE OF ALASKA PUBLIC EMPLOYEES' RETIREMENT SYSTEM PLAN
As discussed in note 1, the Utility adopted the provisions of GASB Statement
No. 27, ACCOUNTING FOR PENSIONS BY STATE AND LOCAL GOVERNMENTAL EMPLOYERS (GASB
27), in 1998.
F-44
MUNICIPALITY OF ANCHORAGE
TELEPHONE UTILITY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
(5) RETIREMENT PLANS (CONTINUED)
STATE OF ALASKA PUBLIC EMPLOYEES' RETIREMENT SYSTEM
A. PLAN DESCRIPTION
The Utility contributes to the State of Alaska Public Employees'
Retirement System (PERS), a defined benefit, agent multiple-employer
public employee retirement system which was established and is
administered by the State of Alaska (State) to provide pension,
postemployment healthcare, death and disability benefits to eligible
employees.
All full-time Utility employees not covered by the IBEW Plan are eligible
to participate in PERS. Benefit and contribution provisions are
established by State law and may be amended only by the State
Legislature.
Each fiscal year, PERS issues a publicly available financial report that
includes financial statements and required supplementary information.
That report may be obtained by writing to the State of Alaska, Department
of Administration, Division of Retirement and Benefits, P.O. Box 110203,
Juneau, Alaska, 99811-0203 or by calling (907) 465-4460.
B. FUNDING POLICY AND ANNUAL PENSION COST
Employee contribution rates are 6.75% as required by State statute. The
funding policy for PERS provides for periodic employer contributions at
actuarially determined rates that, expressed as a percentage of annual
covered payroll, are sufficient to accumulate sufficient assets to pay
benefits when due.
The Utility's annual pension cost for the current year and the related
information is as follows:
POSTEMPLOYMENT
PENSION HEALTHCARE
--------------------------- ---------------
Contribution rates:
Employee...................................... 4.86% 1.89%
Employer...................................... 6.36% 2.47%
Annual pension cost............................. $750 $291
Contributions made.............................. $750 $291
Actuarial valuation date........................ June 30, 1996 Same
Actuarial cost method........................... Projected unit credit Same
Amortization method............................. Level dollar, open Same
Amortization period............................. Rolling 25 years Same
Asset valuation method.......................... 5-year smoothed market Same
Actuarial assumptions:
Inflation rate................................ 4% Same
Investment return............................. 8.25% Same
Projected salary increase..................... 5.5% N/A
Health cost trend............................... N/A 5.5%
F-45
MUNICIPALITY OF ANCHORAGE
TELEPHONE UTILITY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
(5) RETIREMENT PLANS (CONTINUED)
The components of annual pension cost for the year ended December 31, 1998
are as follows:
Annual required contribution (ARC).................................. $ 1,041
Interest on the net pension obligation (NPO)........................ --
Adjustment to the ARC............................................... --
---------
Annual pension cost (APC)........................................... 1,041
Contributions made.................................................. 1,041
Increase in NPO..................................................... --
NPO, beginning of year.............................................. --
---------
NPO, end of year.................................................... $ --
---------
---------
Three year trend information follows:
PERCENTAGE
YEAR ENDED OF APC
DECEMBER 31 APC CONTRIBUTED NPO
--------------- --------- ----------- ---------
Pension.......................................... 1996 $ 1,032 100% $
1997 827 100% --
1998 750 100% --
Postemployment healthcare........................ 1996 $ 382 100% $ --
1997 306 100% --
1998 291 100% --
In the current year (the transition year), the Utility determined, in
accordance with provisions of GASB No. 27, that no pension liability (asset)
existed to PERS and there was no previously reported liability (asset) to PERS.
Information regarding funding progress follows:
UNFUNDED
ACTUARIAL ACTUARIAL ACTUARIAL UAAL AS A
VALUATION ACTUARIAL ACCRUED ACCRUED PERCENTAGE
YEAR ENDED VALUE OF LIABILITY LIABILITY FUNDED COVERED OF COVERED
JUNE 30 PLAN ASSETS (AAL) (ASSET) (UAAL) RATIO PAYROLL PAYROLL
------------- ----------- --------- --------------- ----------- --------- -----------
Pension benefits 1995 $ 5,417 $ 4,457 $ (960) 122% $ 11,288 (9)%
1996 6,656 5,702 (954) 117% 11,436 (8)%
1997 10,180 7,419 (2,761) 137% 12,290 (22)%
Postemployment healthcare 1995 $ 2,036 $ 1,675 $ (361) 122% $ 11,288 (3)%
benefits 1996 2,565 2,198 (367) 117% 11,436 (3)%
1997 3,794 2,765 (1,029) 137% 12,290 (8)%
Total 1995 $ 7,453 $ 6,132 $ (1,321) 122% $ 11,288 (12)%
1996 9,221 7,900 (1,321) 117% 11,436 (11)%
1997 13,974 10,184 (3,790) 137% 12,290 (31)%
F-46
MUNICIPALITY OF ANCHORAGE
TELEPHONE UTILITY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
(6) OTHER EMPLOYEE BENEFITS
The Municipality offers its employees, including employees of the Utility, a
deferred compensation plan (Plan) created in accordance with Internal Revenue
Code Section 457. The Plan, available to all Municipal employees, permits them
to defer a portion of their salary until future years. The deferred compensation
is not available to employees until termination, retirement, death or
unforeseeable emergency. It is the opinion of the Municipality's legal counsel
that the Municipality has no liability for losses under the Plan but does have
the duty of due care that would be required of an ordinary prudent investor. The
Municipality believes that it is unlikely that it will use the assets to satisfy
the claims of general creditors in the future.
In accordance with labor agreements, IBEW employees' medical/dental coverage
is provided through the Alaska Electrical Health and Welfare Trust Fund. Utility
contributions to this fund were $2,859, $3,143 and $2,888 for the years ended
December 31, 1998, 1997 and 1996, respectively.
(7) MINORITY INVESTMENTS
Minority investments held consist of the following at December 31:
1997 1998 OWNERSHIP %
--------- --------- ---------------
Alaskan Choice Television, LLC.............................. $ 4,627 $ 2,651 33%
Alaska Network Systems, Inc................................. 2,353 2,015 47%
Internet Alaska, Inc........................................ 803 500 30%
Security One, LLC........................................... 200 369 20%
--------- ---------
$ 7,983 $ 5,535
--------- ---------
--------- ---------
The Utility is one of three members of a limited liability company, Alaskan
Choice Television, LLC (ACTV). ACTV has accumulated substantial losses since
inception and is not generating sufficient cash flow to sustain operations.
These factors, among others, indicate that ACTV may be unable to continue as a
going concern for a reasonable period of time. ACTV's continuation as a going
concern is dependent upon its ability to attain additional equity and debt
financing and achieve positive cash flow and profitability. ACTV is in
negotiation with a potential investor who will provide working capital. The
other two members of the limited liability company have agreed to sell their
interests to this investor. ACTV expects to complete this transaction in the
second quarter of 1999. Additionally, ACTV is in discussion with several
financial institutions to provide the necessary debt financing. Pursuant to
Statement of Financial Accounting Standards Board Statement No. 121, "Accounting
for the Impairment of Long-Lived Assets", the Utility assessed the
recoverability of its investment in ACTV during 1998 and adjusted the carrying
value of the investment to its estimated fair value resulting in a noncash
impairment loss of approximately $1,500.
F-47
MUNICIPALITY OF ANCHORAGE
TELEPHONE UTILITY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
(8) RELATED PARTY TRANSACTIONS
INTRAGOVERNMENTAL CHARGES
Certain general and administrative functions of the Municipality, including
data processing, workers' compensation insurance and medical/dental/life
insurance, are centralized and the related cost is allocated to the various
funds of the Municipality, including the Utility. Such costs allocated to the
Utility totaled $3,187, $3,672, and $3,204 for the years ended December 31,
1998, 1997, and 1996, respectively.
(9) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument represents the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced sale or liquidation. Significant differences can arise
between the fair value and carrying amount of financial instruments that are
recognized at historical cost amounts.
The following methods and assumptions were used by the Utility in estimating
fair value disclosures for financial instruments:
Cash, restricted investments, accounts receivable, accounts payable and
accrued liabilities, accrued interest, customer deposits and accrued
employee benefits--The carrying amounts at December 31, 1998 and 1997
approximate the fair values due to the short maturity of these instruments.
Long-term debt--The fair value of the Utility's long-term debt is
estimated by discounting the future cash flows of the various instruments at
rates currently available to the Utility for similar debt instruments of
comparable maturities.
The carrying amount of long-term debt and its estimated fair value at
December 31 are as follows:
1997 1998
---------- ----------
Carrying amount....................................................... $ 153,532 $ 172,847
Fair value............................................................ 161,000 181,000
(10) BUSINESS SEGMENTS
The Utility has adopted FASB Statement No. 131, DISCLOSURES ABOUT SEGMENTS
OF AN ENTERPRISE AND RELATED INFORMATION. The Utility has three reportable
segments: local telephone, long distance and cellular. The accounting policies
of the segments are the same as those described in the summary of significant
accounting policies. Each reportable segment is a strategic business offering
different services and is managed separately.
F-48
MUNICIPALITY OF ANCHORAGE
TELEPHONE UTILITY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
(10) BUSINESS SEGMENTS (CONTINUED)
The following table illustrates selected financial data for each segment for
the years ended December 31.
LOCAL LONG
TELEPHONE DISTANCE CELLULAR TOTAL
---------- --------- --------- ----------
1996
Operating income (loss)......................... $ 18,536 $ (542) $ 2,483 $ 20,477
Depreciation and amortization................... 18,460 -- 2,036 20,496
Capital expenditures............................ 22,280 -- 4,992 27,272
Total assets.................................... 278,354 81 30,375 308,810
1997
Operating income (loss)......................... $ 17,846 $ (3,218) $ 4,377 $ 19,005
Depreciation and amortization................... 23,712 114 3,013 26,839
Capital expenditures............................ 28,922 664 6,201 35,787
Total assets.................................... 287,419 1,757 33,948 323,124
1998
Operating income (loss)......................... $ 21,145 $ (3,744) $ 5,147 $ 22,548
Depreciation and amortization................... 25,327 164 4,117 29,608
Capital expenditures............................ 26,751 275 9,431 36,457
Total assets.................................... 295,810 2,532 51,903 350,245
(11) COMMITMENTS AND CONTINGENCIES
CONSTRUCTION COMMITMENTS
The Municipal Assembly has approved the Utility's 1999 capital budget of
$29,200.
CONTINGENCIES
The Utility is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of the matters will not have a material adverse effect on the
Utility's financial position or results of operations.
(12) REQUIRED SUPPLEMENTARY INFORMATION--YEAR 2000 (UNAUDITED)
Some of the Utility's older computer programs identify years with two digits
instead of four. This may cause problems because these programs may recognize
the year 2000 as the year 1900. These problems could result in a system failure
or miscalculations disrupting operations, including a temporary inability to
process transactions, send invoices or engage in similar, normal business
activities. In addition, the Utility faces the risk that suppliers of products,
services and systems do not comply with the year 2000 requirements.
F-49
MUNICIPALITY OF ANCHORAGE
TELEPHONE UTILITY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
(12) REQUIRED SUPPLEMENTARY INFORMATION--YEAR 2000 (UNAUDITED) (CONTINUED)
While management believes that the conversions or installations of
replacement systems will proceed smoothly, unforeseen interruption or failures
in our systems or in the systems of our vendors may occur. The
telecommunications industry is susceptible to the year 2000 issue. Should the
year 2000 issue cause problems across our infrastructure, service could be
interrupted.
In order to understand the Utility's vulnerability to the year 2000 issue,
management conducted a complete systems assessment of year 2000 compliance. Many
systems have been represented by the respective vendors of these systems to be
year 2000 compliant and the Utility has initiatives in progress that we believe
will address all outstanding year 2000 issues.
As of January 1, 1999, the Utility completed its installation of SAP, an
integrated financial and accounting system. In March, 1999, the Utility
completed its installation of Saville, a state-of-the-art customer care and
billing system. MACtel and ATULD will continue to operate their existing
financial management and billing systems. Each of the foregoing systems has been
represented by the vendor to be year 2000 compliant.
Since January 1, 1997, the Utility has spent approximately $23 million to
upgrade and maintain its information technology systems. While each of these
upgrades related to systems that, based on representations by the vendors,
management believes are year 2000 compliant, the expenditures for upgrading
these systems also included costs of replacing otherwise obsolete systems. The
Utility expects to spend an additional $4 million to make the information
technology systems year 2000 compliant by the end of the third quarter of 1999.
Given the progress made to date, we do not anticipate delays in finalizing
and implementing year 2000 readiness solutions. The Utility cannot accurately
estimate the uncertainty of completing the year 2000 readiness plan,
particularly as it relates to any failure by third parties that have material
relationships with us and fail to achieve their own year 2000 readiness. Any
failures by these third parties to appropriately address their own year 2000
readiness challenges could affect our financial condition however, management
believes that its contingency planning will minimize such impacts.
(13) BASIS OF PRESENTATION FOR UNAUDITED QUARTERLY INFORMATION.
The accompanying unaudited financial information at March 31, 1999 and for
the three months ended March 31, 1998 and 1999 have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting only of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three month period ended March 31, 1999 are
not necessarily indicative of the results that may be expected for the full
fiscal year or for any future period.
F-50
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("DGCL") provides that a
corporation has the power to indemnify its officers, directors, employees and
agents (or persons serving in such positions in another entity at the request of
the corporation) against expenses, including attorneys' fees, judgments, fines
or settlement amounts actually and reasonably incurred by them in connection
with the defense of any action by reason of being or having been directors or
officers, if such person shall have acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
corporation (and, with respect to any criminal action, had no reasonable cause
to believe the person's conduct was unlawful), except that if such action shall
be by or in the right of the corporation, no such indemnification shall be
provided as to any claim, issue or matter as to which such person shall have
been judged to have been liable to the corporation unless and to the extent that
the Court of Chancery of the State of Delaware, or another court in which the
suit was brought, shall determine upon application that, in view of all of the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity. The Registrant's Certificate of Incorporation provides that the
Registrant will indemnify its officers and directors to the fullest extent
permitted by Delaware law.
As permitted by Section 102 of the DGCL, the Registrant's Certificate of
Incorporation provides that no director shall be liable to the Registrant or its
stockholders for monetary damages for any breach of fiduciary duty as a director
other than (i) for breaches of the director's duty of loyalty to the Registrant
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) for the
unlawful payment of dividends or unlawful stock purchases or redemptions under
Section 174 of the DGCL, or (iv) for any transaction from which the director
derived an improper personal benefit.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
-------------------------------------------------------------------------------------
2.1 Purchase Agreement, dated as of August 14, 1998, as amended, by and among ALEC
Acquisition Sub Corp., CenturyTel of the Northwest, Inc. and CenturtyTel Wireless,
Inc.
2.2 Asset Purchase Agreement, dated as of October 20, 1998, by and between Alaska
Communications Systems, Inc. and the Municipality of Anchorage.
3.1 Certificate of Incorporation of the Registrant.
3.2 By-Laws of the Registrant.
3.3 Certificate of Incorporation of ALEC Holdings, Inc.
3.4 By-Laws of ALEC Holdings, Inc.
3.5 Certificate of Incorporation of ALEC Acquisition Sub Corp.
3.6 By-Laws of ALEC Acquisition Sub Corp.
3.7 Certificate of Incorporation of Alaska Communication Systems, Inc.
3.8 By-Laws of Alaska Communications Systems, Inc.
3.9 Certificate of Incorporation of Telephone Utilities of the Northland, Inc.
3.10 By-Laws of Telephone Utilities of the Northland, Inc.
3.11 Certificate of Incorporation of Telephone Utilities of Alaska, Inc.
3.12 By-Laws of Telephone Utilities of Alaska, Inc.
II-1
3.13 Certificate of Incorporation of Pacific Telecom Cellular of Alaska, Inc.
3.14 By-Laws of Pacific Telecom Cellular of Alaska, Inc.
3.15 Certificate of Incorporation of Pacific Telecom of Alaska PCS, Inc.
3.16 By-Laws of Pacific Telecom of Alaska PCS, Inc.
3.17 Certificate of Incorporation of PTI Communications of Alaska, Inc.
3.18 By-Laws of PTI Communications of Alaska, Inc.
3.19 Certificate of Incorporation of MACtel, Inc.
3.20 By-Laws of MACtel, Inc.
3.21 Certificate of Incorporation of MACtel License Sub, Inc.
3.22 By-Laws of MACtel License Sub, Inc.
3.23 Certificate of Incorporation of MACtel Fairbanks, Inc.
3.24 By-Laws of MACtel Fairbanks, Inc.
3.25 Certificate of Incorporation of MACtel Fairbanks License Sub, Inc.
3.26 By-Laws of MACtel Fairbanks License Sub, Inc.
3.27 Certificate of Incorporation of Prudhoe Communications, Inc.
3.28 By-Laws of Prudhoe Communications, Inc.
3.29 Certificate of Incorporation of ATU Communications, Inc.
3.30 By-Laws of ATU Communications, Inc.
3.31 Certificate of Incorporation of ATU Long Distance, Inc.
3.32 By-Laws of ATU Long Distance, Inc.
3.33 Certificate of Incorporation of Peninsula Cellular Services, Inc.
3.34 By-Laws of Peninsula Cellular Services, Inc.
3.35 Certificate of Incorporation of PTINet, Inc.
3.36 By-Laws of PTINet, Inc.
4.1 Indenture, dated as of May 14, 1999, by and among the Registrant, the Guarantors (as
defined therein) and IBJ Whitehall Bank & Trust Company.
4.2 Purchase Agreement, dated as of May 11, 1999, by and among the Registrant, the
Guarantors, Chase Securities Inc., CIBC World Markets Corp. and Credit Suisse First
Boston Corporation.
4.3 Indenture, dated as of May 14, 1999, by and between ALEC Holdings, Inc. and The Bank
of New York.
4.4 Purchase Agreement, dated as of May 11, 1999, by and among ALEC Holdings, Inc., DLJ
Investment Partners, L.P., DLJ Investment Funding, Inc. and DLJ ESC II, L.P.
5.1 Opinion of Wachtell, Lipton, Rosen & Katz (including consent).
10.1 Exchange and Registration Rights Agreement, dated as of May 14, 1999, by and among
the Registrant, the Guarantors, Chase Securities Inc., CIBC World Markets Corp. and
Credit Suisse First Boston Corporation.
10.2 Exchange and Registration Rights Agreement, dated as of May 14, 1999, by and among
ALEC Holdings, Inc., DLJ Investment Partners, L.P., DLJ Investment Funding, Inc. and
DLJ ESC II, L.P.
II-2
10.3 Credit Agreement, dated as of May 14, 1999, by and among the Registrant, ALEC
Holdings, Inc., the financial institutions Lenders party thereto, The Chase Manhattan
Bank, Credit Suisse First Boston and Canadian Imperial Bank of Commerce.
10.4 Stockholders' Agreement, dated as of May 14, 1999, by and among ALEC Holdings, Inc.
and the Investors listed on the signature pages thereto.
10.5 Employment Agreement, dated as of March 12, 1999, by and among the Registrant, ALEC
Holdings, Inc. and Charles E. Robinson.
10.6 Employment Agreement, dated as of March 12, 1999, by and among the Registrant, ALEC
Holdings, Inc. and Wesley E. Carson.
10.7 Employment Agreement, dated as of April 19, 1999, by and among the Registrant, ALEC
Holdings, Inc. and Michael E. Holmstrom.
10.8 ALEC Holdings, Inc. 1999 Stock Incentive Plan.
12.1 Statements re computation of ratios.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Deloitte & Touche LLP relating to the audited financial statements of
Alaska Communications Systems Holdings, Inc. as of December 31, 1998 and for the
period from June 16, 1998 (date of inception) through December 31, 1998.
23.2 Consent of KPMG LLP relating to the audited combined financial statements of
CenturyTel's Alaska Properties as of December 31, 1998 and for the year then ended.
23.3 Consent of Deloitte & Touche LLP relating to the audited financial statements of
Telephone Fund of Fairbanks Municipal Utilities Services as of October 6, 1997 and
for the period ended October 6, 1997 and the year ended December 31, 1996 (included
in Exhibit No. 23.1).
23.4 Consent of KPMG LLP relating to the audited financial statements of Municipality of
Anchorage Telephone Utility Fund as of December 31, 1997 and 1998 and for each of the
years in the three-year period ended December 31, 1998.
23.5 Consent of Wachtell, Lipton, Rosen & Katz (included in Exhibit No. 5.1).
24.1 Powers of Attorney (included in signature pages to Registration Statement).
25.1 Statement of Eligibility and Qualification of Trustee on Form T-1 of IBJ Whitehall
Bank & Trust Company under the Trust Indenture Act of 1939.
27.1 Financial Data Schedule.
99.1 Form of Letter of Transmittal for the 9 3/8% New Senior Subordinated Notes due 2009.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Guidelines for Certification of Taxpayer Identification Number on Substitute Form
W-9.
99.4 Form of Institutions Letter
99.5 Form of Client Letter
(b) Financial Statement Schedule.
-------------------------------------------------------------------------------------
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
II-3
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the Registration Statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change in such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to
be the initial BONA FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(c) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in the documents filed
subsequent to the effective date of the Registration Statement through the date
of responding to the request.
(d) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Municipality of Anchorage, State
of Alaska, on July 7, 1999.
ALASKA COMMUNICATIONS SYSTEMS
HOLDINGS, INC.
By: /s/ MICHAEL E. HOLMSTROM
-----------------------------------------
Michael E. Holmstrom
Senior Vice President and Chief Financial
Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Charles E. Robinson, Wesley E. Carson and Michael
E. Holmstrom, and each of them, his attorney-in-fact with power of substitution
for him in any and all capacities, to sign any amendments, supplements,
subsequent registration statements relating to the offering to which this
Registration Statement relates, or other instruments he deems necessary or
appropriate, and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorney-in-fact or his substitute may do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ CHARLES E. ROBINSON Chairman of the Board,
- ------------------------------ President and Chief July 7, 1999
Charles E. Robinson Executive Officer
/s/ MICHAEL E. HOLMSTROM
- ------------------------------ Senior Vice President and July 7, 1999
Michael E. Holmstrom Chief Financial Officer
/s/ WESLEY E. CARSON
- ------------------------------ Executive Vice President July 7, 1999
Wesley E. Carson and Assistant Secretary
/s/ DONN T. WONNELL Executive Vice President,
- ------------------------------ General Counsel and July 7, 1999
Donn T. Wonnell Secretary
/s/ DEAN A. RYLAND
- ------------------------------ Vice President, Controller July 7, 1999
Dean A. Ryland and Assistant Treasurer
/s/ SAUL A. FOX
- ------------------------------ Director July 7, 1999
Saul A. Fox
/s/ W. DEXTER PAINE, III
- ------------------------------ Director July 7, 1999
W. Dexter Paine, III
/s/ J. RUSSELL TRIEDMAN
- ------------------------------ Director July 7, 1999
J. Russell Triedman
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Municipality of Anchorage, State
of Alaska, on July 7, 1999.
ALEC HOLDINGS, INC.
By: /s/ MICHAEL E. HOLMSTROM
-----------------------------------------
Michael E. Holmstrom
Senior Vice President and Chief Financial
Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Charles E. Robinson, Wesley E. Carson and Michael
E. Holmstrom, and each of them, his attorney-in-fact with power of substitution
for him in any and all capacities, to sign any amendments, supplements,
subsequent registration statements relating to the offering to which this
Registration Statement relates, or other instruments he deems necessary or
appropriate, and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorney-in-fact or his substitute may do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ CHARLES E. ROBINSON Chairman of the Board,
- ------------------------------ President and Chief July 7, 1999
Charles E. Robinson Executive Officer
/s/ MICHAEL E. HOLMSTROM
- ------------------------------ Senior Vice President and July 7, 1999
Michael E. Holmstrom Chief Financial Officer
/s/ WESLEY E. CARSON
- ------------------------------ Executive Vice President July 7, 1999
Wesley E. Carson and Assistant Secretary
/s/ DONN T. WONNELL Executive Vice President,
- ------------------------------ General Counsel and July 7, 1999
Donn T. Wonnell Secretary
/s/ DEAN A. RYLAND
- ------------------------------ Vice President, Controller July 7, 1999
Dean A. Ryland and Assistant Treasurer
/s/ SAUL A. FOX
- ------------------------------ Director July 7, 1999
Saul A. Fox
/s/ W. DEXTER PAINE, III
- ------------------------------ Director July 7, 1999
W. Dexter Paine, III
/s/ J. RUSSELL TRIEDMAN
- ------------------------------ Director July 7, 1999
J. Russell Triedman
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Municipality of Anchorage, State
of Alaska, on July 7, 1999.
ALEC ACQUISITION SUB CORP.
By: /s/ MICHAEL E. HOLMSTROM
-----------------------------------------
Michael E. Holmstrom
Senior Vice President and Chief Financial
Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Charles E. Robinson, Wesley E. Carson and Michael
E. Holmstrom, and each of them, his attorney-in-fact with power of substitution
for him in any and all capacities, to sign any amendments, supplements,
subsequent registration statements relating to the offering to which this
Registration Statement relates, or other instruments the deems necessary or
appropriate, and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorney-in-fact or his substitute may do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ CHARLES E. ROBINSON Chairman of the Board,
- ------------------------------ President and Chief July 7, 1999
Charles E. Robinson Executive Officer
/s/ MICHAEL E. HOLMSTROM Senior Vice President,
- ------------------------------ Chief Financial Officer July 7, 1999
Michael E. Holmstrom and Director
/s/ WESLEY E. CARSON Executive Vice President,
- ------------------------------ Assistant Secretary and July 7, 1999
Wesley E. Carson Director
/s/ DONN T. WONNELL Executive Vice President,
- ------------------------------ General Counsel, July 7, 1999
Donn T. Wonnell Secretary and Director
/s/ DEAN A. RYLAND
- ------------------------------ Vice President, Controller July 7, 1999
Dean A. Ryland and Assistant Secretary
/s/ BENJAMIN L. JARVIS
- ------------------------------ Senior Vice President July 7, 1999
Benjamin L. Jarvis
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Municipality of Anchorage, State
of Alaska, on July 7, 1999.
ALASKA COMMUNICATIONS SYSTEMS, INC.
By: /s/ MICHAEL E. HOLMSTROM
-----------------------------------------
Michael E. Holmstrom
Senior Vice President and Chief Financial
Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Charles E. Robinson, Wesley E. Carson and Michael
E. Holmstrom, and each of them, his attorney-in-fact with power of substitution
for him in any and all capacities, to sign any amendments, supplements,
subsequent registration statements relating to the offering to which this
Registration Statement relates, or other instruments he deems necessary or
appropriate, and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorney-in-fact or his substitute may do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ CHARLES E. ROBINSON Chairman of the Board,
- ------------------------------ President and Chief July 7, 1999
Charles E. Robinson Executive Officer
/s/ MICHAEL E. HOLMSTROM Senior Vice President,
- ------------------------------ Chief Financial Officer July 7, 1999
Michael E. Holmstrom and Director
/s/ WESLEY E. CARSON Executive Vice President,
- ------------------------------ Assistant Secretary and July 7, 1999
Wesley E. Carson Director
/s/ DONN T. WONNELL Executive Vice President,
- ------------------------------ General Counsel, July 7, 1999
Donn T. Wonnell Secretary and Director
/s/ DEAN A. RYLAND
- ------------------------------ Vice President, Controller July 7, 1999
Dean A. Ryland and Assistant Treasurer
/s/ BENJAMIN L. JARVIS
- ------------------------------ Senior Vice President July 7, 1999
Benjamin L. Jarvis
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Municipality of Anchorage, State
of Alaska, on July 7, 1999.
TELEPHONE UTILITIES OF THE
NORTHLAND, INC.
By: /s/ MICHAEL E. HOLMSTROM
-----------------------------------------
Michael E. Holmstrom
Senior Vice President and Chief Financial
Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Charles E. Robinson, Wesley E. Carson and Michael
E. Holmstrom, and each of them, his attorney-in-fact with power of substitution
for him in any and all capacities, to sign any amendments, supplements,
subsequent registration statements relating to the offering to which this
Registration Statement relates, or other instruments he deems necessary or
appropriate, and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorney-in-fact or his substitute may do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ CHARLES E. ROBINSON Chairman of the Board,
- ------------------------------ President and Chief July 7, 1999
Charles E. Robinson Executive Officer
/s/ MICHAEL E. HOLMSTROM Senior Vice President,
- ------------------------------ Chief Financial Officer July 7, 1999
Michael E. Holmstrom and Director
/s/ WESLEY E. CARSON Executive Vice President,
- ------------------------------ Assistant Secretary and July 7, 1999
Wesley E. Carson Director
/s/ DONN T. WONNELL Executive Vice President
- ------------------------------ and General Counsel and July 7, 1999
Donn T. Wonnell Secretary
/s/ DEAN A. RYLAND
- ------------------------------ Vice President, Controller July 7, 1999
Dean A. Ryland and Assistant Treasurer
/s/ BENJAMIN L. JARVIS
- ------------------------------ Senior Vice President and July 7, 1999
Benjamin L. Jarvis Director
II-9
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Municipality of Anchorage, State
of Alaska, on July 7, 1999.
TELEPHONE UTILITIES OF ALASKA, INC.
By: /s/ MICHAEL E. HOLMSTROM
-----------------------------------------
Michael E. Holmstrom
Senior Vice President and Chief Financial
Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Charles E. Robinson, Wesley E. Carson and Michael
E. Holmstrom, and each of them, his attorney-in-fact with power of substitution
for him in any and all capacities, to sign any amendments, supplements,
subsequent registration statements relating to the offering to which this
Registration Statement relates, or other instruments he deems necessary or
appropriate, and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorney-in-fact or his substitute may do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ CHARLES E. ROBINSON Chairman of the Board,
- ------------------------------ President and Chief July 7, 1999
Charles E. Robinson Executive Officer
/s/ MICHAEL E. HOLMSTROM Senior Vice President,
- ------------------------------ Chief Financial Officer July 7, 1999
Michael E. Holmstrom and Director
/s/ WESLEY E. CARSON Executive Vice President,
- ------------------------------ Assistant Secretary and July 7, 1999
Wesley E. Carson Director
/s/ DONN T. WONNELL Executive Vice President,
- ------------------------------ General Counsel and July 7, 1999
Donn T. Wonnell Secretary
/s/ DEAN A. RYLAND
- ------------------------------ Vice President, Controller July 7, 1999
Dean A. Ryland and Assistant Treasurer
/s/ BENJAMIN L. JARVIS
- ------------------------------ Senior Vice President and July 7, 1999
Benjamin L. Jarvis Director
II-10
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Municipality of Anchorage, State
of Alaska, on July 7, 1999.
PTI COMMUNICATIONS OF ALASKA, INC.
By: /s/ MICHAEL E. HOLMSTROM
-----------------------------------------
Michael E. Holmstrom
Senior Vice President and Chief Financial
Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Charles E. Robinson, Wesley E. Carson and Michael
E. Holmstrom, and each of them, his attorney-in-fact with power of substitution
for him in any and all capacities, to sign any amendments, supplements,
subsequent registration statements relating to the offering to which this
Registration Statement relates, or other instruments he deems necessary or
appropriate, and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorney-in-fact or his substitute may do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ CHARLES E. ROBINSON Chairman of the Board,
- ------------------------------ President and Chief July 7, 1999
Charles E. Robinson Executive Officer
/s/ MICHAEL E. HOLMSTROM Senior Vice President,
- ------------------------------ Chief Financial Officer July 7, 1999
Michael E. Holmstrom and Director
/s/ WESLEY E. CARSON Executive Vice President,
- ------------------------------ Assistant Secretary and July 7, 1999
Wesley E. Carson Director
/s/ DONN T. WONNELL Executive Vice President,
- ------------------------------ General Counsel and July 7, 1999
Donn T. Wonnell Secretary
/s/ DEAN A. RYLAND
- ------------------------------ Vice President, Controller July 7, 1999
Dean A. Ryland and Assistant Treasurer
/s/ BENJAMIN L. JARVIS
- ------------------------------ Senior Vice President and July 7, 1999
Benjamin L. Jarvis Director
II-11
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Municipality of Anchorage, State
of Alaska, on July 7, 1999.
PACIFIC TELECOM CELLULAR OF ALASKA, INC.
By: /s/ MICHAEL E. HOLMSTROM
-----------------------------------------
Michael E. Holmstrom
Senior Vice President and Treasurer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Charles E. Robinson, Wesley E. Carson and Michael
E. Holmstrom, and each of them, his attorney-in-fact with power of substitution
for him in any and all capacities, to sign any amendments, supplements,
subsequent registration statements relating to the offering to which this
Registration Statement relates, or other instruments he deems necessary or
appropriate, and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorney-in-fact or his substitute may do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ CHARLES E. ROBINSON
- ------------------------------ Chairman of the Board July 7, 1999
Charles E. Robinson
/s/ MICHAEL E. HOLMSTROM
- ------------------------------ Senior Vice President, July 7, 1999
Michael E. Holmstrom Treasurer and Director
/s/ WESLEY E. CARSON Executive Vice President,
- ------------------------------ Assistant Secretary and July 7, 1999
Wesley E. Carson Director
/s/ DONN T. WONNELL Executive Vice President,
- ------------------------------ General Counsel and July 7, 1999
Donn T. Wonnell Secretary
/s/ RUTH A. SANDSTROM
- ------------------------------ Vice President and Chief July 7, 1999
Ruth A. Sandstrom Financial Officer
/s/ F. SCOTT DAVIS
- ------------------------------ President, Chief Executive July 7, 1999
F. Scott Davis Officer and Director
II-12
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Municipality of Anchorage, State
of Alaska, on July 7, 1999.
PACIFIC TELECOM OF ALASKA PCS, INC.
By: /s/ MICHAEL E. HOLMSTROM
-----------------------------------------
Michael E. Holmstrom
Senior Vice President and Treasurer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Charles E. Robinson, Wesley E. Carson and Michael
E. Holmstrom, and each of them, his attorney-in-fact with power of substitution
for him in any and all capacities, to sign any amendments, supplements,
subsequent registration statements relating to the offering to which this
Registration Statement relates, or other instruments he deems necessary or
appropriate, and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorney-in-fact or his substitute may do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ CHARLES E. ROBINSON Chairman of the Board,
- ------------------------------ President and Chief July 7, 1999
Charles E. Robinson Executive Officer
/s/ MICHAEL E. HOLMSTROM
- ------------------------------ Senior Vice President, July 7, 1999
Michael E. Holmstrom Treasurer and Director
/s/ WESLEY E. CARSON Executive Vice President,
- ------------------------------ Assistant Secretary and July 7, 1999
Wesley E. Carson Director
/s/ DONN T. WONNELL Executive Vice President,
- ------------------------------ General Counsel and July 7, 1999
Donn T. Wonnell Secretary
/s/ RUTH A. SANDSTROM
- ------------------------------ Vice President and Chief July 7, 1999
Ruth A. Sandstrom Financial Officer
/s/ F. SCOTT DAVIS
- ------------------------------ President, Chief Executive July 7, 1999
F. Scott Davis Officer and Director
II-13
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Municipality of Anchorage, State
of Alaska, on July 7, 1999.
MACTEL, INC.
By: /s/ MICHAEL E. HOLMSTROM
-----------------------------------------
Michael E. Holmstrom
Senior Vice President and Treasurer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Charles E. Robinson, Wesley E. Carson and Michael
E. Holmstrom, and each of them, his attorney-in-fact with power of substitution
for him in any and all capacities, to sign any amendments, supplements,
subsequent registration statements relating to the offering to which this
Registration Statement relates, or other instruments he deems necessary or
appropriate, and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorney-in-fact or his substitute may do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ CHARLES E. ROBINSON
- ------------------------------ Chairman of the Board July 7, 1999
Charles E. Robinson
/s/ F. SCOTT DAVIS
- ------------------------------ Chief Executive Officer, July 7, 1999
F. Scott Davis President and Director
/s/ MICHAEL E. HOLMSTROM
- ------------------------------ Senior Vice President, July 7, 1999
Michael E. Holmstrom Treasurer and Director
/s/ WESLEY E. CARSON Executive Vice President,
- ------------------------------ Assistant Secretary and July 7, 1999
Wesley E. Carson Director
/s/ DONN T. WONNELL
- ------------------------------ Executive Vice President July 7, 1999
Donn T. Wonnell and General Counsel
/s/ RUTH A. SANDSTROM
- ------------------------------ Vice President and Chief July 7, 1999
Ruth A. Sandstrom Financial Officer
II-14
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Municipality of Anchorage, State
of Alaska, on July 7, 1999.
MACTEL LICENSE SUB, INC.
By: /s/ MICHAEL E. HOLMSTROM
-----------------------------------------
Michael E. Holmstrom
Senior Vice President and Treasurer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Charles E. Robinson, Wesley E. Carson and Michael
E. Holmstrom, and each of them, his attorney-in-fact with power of substitution
for him in any and all capacities, to sign any amendments, supplements,
subsequent registration statements relating to the offering to which this
Registration Statement relates, or other instruments he deems necessary or
appropriate, and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorney-in-fact or his substitute may do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ CHARLES E. ROBINSON
- ------------------------------ Chairman of the Board July 7, 1999
Charles E. Robinson
/s/ F. SCOTT DAVIS
- ------------------------------ Chief Executive Officer, July 7, 1999
F. Scott Davis President and Director
/s/ MICHAEL E. HOLMSTROM
- ------------------------------ Senior Vice President, July 7, 1999
Michael E. Holmstrom Treasurer and Director
/s/ WESLEY E. CARSON Executive Vice President,
- ------------------------------ Assistant Secretary and July 7, 1999
Wesley E. Carson Director
/s/ DONN T. WONNELL Executive Vice President,
- ------------------------------ General Counsel and July 7, 1999
Donn T. Wonnell Secretary
/s/ RUTH A. SANDSTROM
- ------------------------------ Vice President and Chief July 7, 1999
Ruth A. Sandstrom Financial Officer
II-15
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Municipality of Anchorage, State
of Alaska, on July 7, 1999.
MACTEL FAIRBANKS, INC.
By: /s/ MICHAEL E. HOLMSTROM
-----------------------------------------
Michael E. Holmstrom
Senior Vice President and Treasurer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Charles E. Robinson, Wesley E. Carson and Michael
E. Holmstrom, and each of them, his attorney-in-fact with power of substitution
for him in any and all capacities, to sign any amendments, supplements,
subsequent registration statements relating to the offering to which this
Registration Statement relates, or other instruments he deems necessary or
appropriate, and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorney-in-fact or his substitute may do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ CHARLES E. ROBINSON
- ------------------------------ Chairman of the Board July 7, 1999
Charles E. Robinson
/s/ F. SCOTT DAVIS
- ------------------------------ Chief Executive Officer, July 7, 1999
F. Scott Davis President and Director
/s/ MICHAEL E. HOLMSTROM
- ------------------------------ Senior Vice President, July 7, 1999
Michael E. Holmstrom Treasurer and Director
/s/ WESLEY E. CARSON Executive Vice President,
- ------------------------------ Assistant Secretary and July 7, 1999
Wesley E. Carson Director
/s/ DONN T. WONNELL Executive Vice President,
- ------------------------------ General Counsel and July 7, 1999
Donn T. Wonnell Secretary
/s/ RUTH A. SANDSTROM
- ------------------------------ Vice President and Chief July 7, 1999
Ruth A. Sandstrom Financial Officer
II-16
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Municipality of Anchorage, State
of Alaska, on July 7, 1999.
MACTEL FAIRBANKS LICENSE SUB, INC.
By: /s/ MICHAEL E. HOLMSTROM
-----------------------------------------
Michael E. Holmstrom
Senior Vice President and Treasurer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Charles E. Robinson, Wesley E. Carson and Michael
E. Holmstrom, and each of them, his attorney-in-fact with power of substitution
for him in any and all capacities, to sign any amendments, supplements,
subsequent registration statements relating to the offering to which this
Registration Statement relates, or other instruments he deems necessary or
appropriate, and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorney-in-fact or his substitute may do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ CHARLES E. ROBINSON
- ------------------------------ Chairman of the Board July 7, 1999
Charles E. Robinson
/s/ F. SCOTT DAVIS
- ------------------------------ Chief Executive Officer, July 7, 1999
F. Scott Davis President and Director
/s/ MICHAEL E. HOLMSTROM
- ------------------------------ Senior Vice President, July 7, 1999
Michael E. Holmstrom Treasurer and Director
/s/ WESLEY E. CARSON
- ------------------------------ Executive Vice President, July 7, 1999
Wesley E. Carson Secretary and Director
/s/ DONN T. WONNELL Executive Vice President,
- ------------------------------ General Counsel and July 7, 1999
Donn T. Wonnell Secretary
/s/ RUTH A. SANDSTROM
- ------------------------------ Vice President and Chief July 7, 1999
Ruth A. Sandstrom Financial Officer
II-17
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Municipality of Anchorage, State
of Alaska, on July 7, 1999.
PRUDHOE COMMUNICATIONS, INC.
By: /s/ MICHAEL E. HOLMSTROM
-----------------------------------------
Michael E. Holmstrom
Senior Vice President and Treasurer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Charles E. Robinson, Wesley E. Carson and Michael
E. Holmstrom, and each of them, his attorney-in-fact with power of substitution
for him in any and all capacities, to sign any amendments, supplements,
subsequent registration statements relating to the offering to which this
Registration Statement relates, or other instruments he deems necessary or
appropriate, and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorney-in-fact or his substitute may do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ CHARLES E. ROBINSON
- ------------------------------ Chairman of the Board July 7, 1999
Charles E. Robinson
/s/ MICHAEL E. HOLMSTROM
- ------------------------------ Senior Vice President, July 7, 1999
Michael E. Holmstrom Treasurer and Director
/s/ WESLEY E. CARSON Executive Vice President,
- ------------------------------ Assistant Secretary and July 7, 1999
Wesley E. Carson Director
/s/ DONN T. WONNELL Executive Vice President,
- ------------------------------ General Counsel and July 7, 1999
Donn T. Wonnell Secretary
/s/ RUTH A. SANDSTROM
- ------------------------------ Vice President and Chief July 7, 1999
Ruth A. Sandstrom Financial Officer
/s/ F. SCOTT DAVIS
- ------------------------------ President, Chief Executive July 7, 1999
F. Scott Davis Officer and Director
II-18
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Municipality of Anchorage, State
of Alaska, on July 7, 1999.
ATU LONG DISTANCE, INC.
By: /s/ MICHAEL E. HOLMSTROM
-----------------------------------------
Michael E. Holmstrom
Senior Vice President and Chief Financial
Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Charles E. Robinson, Wesley E. Carson and Michael
E. Holmstrom, and each of them, his attorney-in-fact with power of substitution
for him in any and all capacities, to sign any amendments, supplements,
subsequent registration statements relating to the offering to which this
Registration Statement relates, or other instruments he deems necessary or
appropriate, and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorney-in-fact or his substitute may do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ CHARLES E. ROBINSON
- ------------------------------ Chairman of the Board and July 7, 1999
Charles E. Robinson Chief Executive Officer
/s/ MARK FOSTER
- ------------------------------ President and Director July 7, 1999
Mark Foster
/s/ MICHAEL E. HOLMSTROM Senior Vice President,
- ------------------------------ Chief Financial Officer July 7, 1999
Michael E. Holmstrom and Director
/s/ WESLEY E. CARSON Executive Vice President,
- ------------------------------ Assistant Secretary and July 7, 1999
Wesley E. Carson Director
/s/ DONN T. WONNELL Executive Vice President,
- ------------------------------ General Counsel, July 7, 1999
Donn T. Wonnell Secretary and Director
/s/ DEAN A. RYLAND Vice President,
- ------------------------------ Controller, Assistant July 7, 1999
Dean A. Ryland Treasurer and Assistant
Secretary
II-19
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Municipality of Anchorage, State
of Alaska, on July 7, 1999.
ATU COMMUNICATIONS, INC.
By: /s/ MICHAEL E. HOLMSTROM
-----------------------------------------
Michael E. Holmstrom
Senior Vice President and Chief Financial
Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Charles E. Robinson, Wesley E. Carson and Michael
E. Holmstrom, and each of them, his attorney-in-fact with power of substitution
for him in any and all capacities, to sign any amendments, supplements,
subsequent registration statements relating to the offering to which this
Registration Statement relates, or other instruments he deems necessary or
appropriate, and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorney-in-fact or his substitute may do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ CHARLES E. ROBINSON Chairman of the Board,
- ------------------------------ President and Chief July 7, 1999
Charles E. Robinson Executive Officer
/s/ MICHAEL E. HOLMSTROM Senior Vice President,
- ------------------------------ Chief Financial Officer July 7, 1999
Michael E. Holmstrom and Director
/s/ WESLEY E. CARSON Executive Vice President,
- ------------------------------ Assistant Secretary and July 7, 1999
Wesley E. Carson Director
/s/ DONN T. WONNELL Executive Vice President,
- ------------------------------ General Counsel, July 7, 1999
Donn T. Wonnell Secretary and Director
/s/ DEAN A. RYLAND
- ------------------------------ Vice President, Controller July 7, 1999
Dean A. Ryland and Assistant Treasurer
II-20
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Municipality of Anchorage, State
of Alaska, on July 7, 1999.
PENINSULA CELLULAR SERVICES, INC.
By: /s/ MICHAEL E. HOLMSTROM
-----------------------------------------
Michael E. Holmstrom
Senior Vice President and Treasurer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Charles E. Robinson, Wesley E. Carson and Michael
E. Holmstrom, and each of them, his attorney-in-fact with power of substitution
for him in any and all capacities, to sign any amendments, supplements,
subsequent registration statements relating to the offering to which this
Registration Statement relates, or other instruments he deems necessary or
appropriate, and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorney-in-fact or his substitute may do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ CHARLES E. ROBINSON
- ------------------------------ Chairman of the Board July 7, 1999
Charles E. Robinson
/s/ MICHAEL E. HOLMSTROM
- ------------------------------ Senior Vice President, July 7, 1999
Michael E. Holmstrom Treasurer and Director
/s/ WESLEY E. CARSON Executive Vice President,
- ------------------------------ Assistant Secretary and July 7, 1999
Wesley E. Carson Director
/s/ DONN T. WONNELL Executive Vice President,
- ------------------------------ General Counsel and July 7, 1999
Donn T. Wonnell Secretary
/s/ RUTH A. SANDSTROM
- ------------------------------ Vice President and Chief July 7, 1999
Ruth A. Sandstrom Financial Officer
/s/ F. SCOTT DAVIS
- ------------------------------ President, Chief Executive July 7, 1999
F. Scott Davis Officer and Director
II-21
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Municipality of Anchorage, State
of Alaska, on July 7, 1999.
PTINET, INC.
By: /s/ MICHAEL E. HOLMSTROM
-----------------------------------------
Michael E. Holmstrom
Senior Vice President and Chief Financial
Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Charles E. Robinson, Wesley E. Carson and Michael
E. Holmstrom, and each of them, his attorney-in-fact with power of substitution
for him in any and all capacities, to sign any amendments, supplements,
subsequent registration statements relating to the offering to which this
Registration Statement relates, or other instruments he deems necessary or
appropriate, and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorney-in-fact or his substitute may do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ CHARLES E. ROBINSON Chairman of the Board,
- ------------------------------ President and Chief July 7, 1999
Charles E. Robinson Executive Officer
/s/ MICHAEL E. HOLMSTROM Senior Vice President,
- ------------------------------ Chief Financial Officer July 7, 1999
Michael E. Holmstrom and Director
/s/ WESLEY E. CARSON Executive Vice President,
- ------------------------------ Assistant Secretary and July 7, 1999
Wesley E. Carson Director
/s/ DONN T. WONNELL Executive Vice President,
- ------------------------------ General Counsel, July 7, 1999
Donn T. Wonnell Secretary and Director
/s/ DEAN A. RYLAND
- ------------------------------ Vice President, Controller July 7, 1999
Dean A. Ryland and Assistant Treasurer
II-22