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**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

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**Form 10-Q**

 
| **x**                                                   | ** ** | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|---------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------|
|                                                    |
| **For the quarterly period ended March 31,  2009** |
|                                                    |
| **OR**                                                  |
|                                                    |
| **o**                                                   | ** ** | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**For the transition periodfrom            to          **

** **

**Commission File Number001-12593**

** **

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**Atlantic Tele-Network, Inc.**

(Exact name of registrant as specified in its charter)

 
| **Delaware**                                                    | ** ** | **47-0728886**                           |
|-----------------------------------------------------------------|------------|------------------------------------------|
| (State or other jurisdiction of  incorporation or organization) |       | (I.R.S. Employer  Identification Number) |

 

**10 Derby Square**

**Salem, MA 01970**

**(Address of principal executive offices, including zipcode)**

** **

**(978) 619-1300**

**(Registrant’s telephone number, including area code)**

** **

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Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.Yes xNo o

 

Indicate by check mark whether the registrant hassubmitted electronically and posted on its corporate Web site, if any, every InteractiveData File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T (§232.405 of this chapter) during the preceding 12 months (orfor such shorter period that the registrant was required to submit and postsuch files). Yes oNo o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company. Seedefinitions of “large accelerated filer,” “accelerated filer,” and “smallerreporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 
| Large  accelerated filer o                     |   | Accelerated  filer x         |
|------------------------------------------------|--------|-----------------------------------|
|                                           |   |                              |
| Non-accelerated  filer o                       |   | Smaller  reporting company o |
| (Do  not check if a smaller reporting company) |   |                              |

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act):Yes oNo x

 

As of May 8, 2009, the registrant had outstanding15,228,551****shares of its commonstock ($.01 par value).

 

 

 

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**ATLANTIC TELE-NETWORK, INC.**

 

FORM 10-QQuarter Ended March 31, 2009

 
| CAUTIONARY STATEMENT  REGARDING FORWARD-LOOKING STATEMENTS |                                                                                                     |
|------------------------------------------------------------|----------------------------------------------------------------------------------------------------------|
|                                                       |                                                                                                     |   |
| PART I—FINANCIAL  INFORMATION                    | 4                                                                                                        |
|                                                       |                                                                                                     |   |
| Item 1                                                | Unaudited  Condensed Consolidated Financial Statements                                                   | 4 |
|                                                       |                                                                                                     |   |
|                                                       | Condensed Consolidated Balance Sheets at  December 31, 2008 and March 31, 2009                 | 4 |
|                                                       |                                                                                                     |   |
|                                                       | Condensed Consolidated Statements of Operations for  the three months ended March 31, 2008 and 2009 | 5 |
|                                                       |                                                                                                     |   |
|                                                       | Condensed Consolidated Statements of Cash Flows for  the three months ended March 31, 2008 and 2009 | 6 |
|                                                       |                                                                                                     |   |
|                                                       | Notes to Unaudited Condensed Consolidated Financial  Statements                                          | 7 |
|                                                       |                                                                                                     |   |
| Item 2                                                     | Management’s  Discussion and Analysis of Financial Condition and Results of Operations              | 15 |
|                                                       |                                                                                                     |   |
| Item 3                                                     | Quantitative  and Qualitative Disclosures About Market Risk                                              | 25 |
|                                                       |                                                                                                     |   |
| Item 4                                                     | Controls and  Procedures                                                                                 | 25 |
|                                                       |                                                                                                     |   |
| PART II—OTHER  INFORMATION                       |                                                                                                     |
|                                                       |                                                                                                     |   |
| Item 1.                                                    | Legal Proceedings                                                                                        | 26 |
|                                                       |                                                                                                     |   |
| Item1A                                                     | Risk Factors                                                                                             | 26 |
|                                                       |                                                                                                     |   |
| Item 2.                                                    | Unregistered  Sales of Equity Securities and Use of Proceeds                                             |   |
|                                                       |                                                                                                     |   |
| Item 6.                                                    | Exhibits                                                                                                 | 26 |
|                                                       |                                                                                                     |   |
| SIGNATURES                                                 | 28                                                                                                       |
|                                                       |                                                                                                     |   |
| CERTIFICATIONS                                             |                                                                                                     |

 

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**Cautionary Statement Regarding Forward-LookingStatements**

** **

This Quarterly Report on Form 10-Q(or the “Report”) contains forward-looking statements relating to, among othermatters, the future financial performance and results of operations of theCompany; demand for our services and industry trends; the pace of our networkexpansion and improvement, including our realization of the benefits of theseinvestments; and management’s plans and strategy for the future. Theseforward-looking statements are based on estimates, projections, beliefs, andassumptions and are not guarantees of future events or results. Actual futureevents and results could differ materially from the events and resultsindicated in these statements as a result of many factors, including, amongothers, (1) significant political and regulatory risk facing our exclusivelicense to provide local exchange and international voice and data services inGuyana; (2) any significant decline in the price or volume, includingbypass activities, of international long distance calls to Guyana; (3) theregulation of rates that GT&T may charge for local wireline telephoneservice; (4) significant tax disputes between GT&T and the Guyanesetax authorities; (5) the derivation of a significant portion of our U.S.wireless revenue from a small number of customers and the extent to which ourwholesale customers build or acquire overlapping networks; (6) our abilityto maintain favorable roaming arrangements, including the rates Commnet chargesits wholesale customers; (7) the current global economic recession, alongwith difficult and volatile conditions in the capital and credit markets; (8) increasedcompetition; (9) economic, political and other risks facing our foreignoperations; (10) regulatory changes affecting our businesses; (11) theloss of certain FCC licenses; (12) rapid and significant technologicalchanges in the telecommunications industry; (13) our reliance on a limitednumber of key suppliers and vendors for timely supply of equipment and servicesrelating to our network infrastructure; (14) any loss of any key members ofmanagement; (15) the adequacy and expansion capabilities of our networkcapacity and customer service system to support our customer growth; (16)dependence of our wireless and wireline revenues on the reliability andperformance of our network infrastructure; (17) the occurrence of severeweather and natural catastrophes; and (18) our ability to realize the valuethat we believe exists in businesses that we acquire.

 

These and other factorsthat may cause actual future events and results to differ materially from theevents and results indicated in the forward-looking statements above are setforth more fully under Item 1A “Risk Factors” of the Company’s Annual Report onForm 10-K for the year ended December 31, 2008 (the “2008 Form 10-K”),which is on file with the SEC. The Company undertakes no obligation to updatethese forward-looking statements to reflect actual results, changes inassumptions or changes in other factors that may affect such forward-lookingstatements.

 

In this Report the words“we,” “our,” “ours” and “us” refer to Atlantic Tele-Network, Inc. and itssubsidiaries, unless the context indicates otherwise. ClearChoiceTM is a servicemark of one of our subsidiaries. This Report also contains other trademarks,service marks and trade names that are the property of others.

 

References to dollars ($)refer to U.S. dollars unless otherwise specifically indicated.

 

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**PART I—FINANCIAL INFORMATION**

 

**Item 1.  UnauditedCondensed Consolidated Financial Statements**

 

**ATLANTIC TELE-NETWORK, INC. ANDSUBSIDIARIES**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

**(Unaudited)****(Dollars in thousands, except per shareamounts)**

 
| ** **                                                                                                                                                                                                             | ** ** | **December 31,** | ** ** | **March 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|--------------------|------------|
| ** **                                                                                                                                                                                                             | ** ** | **2008**              | ** ** | **2009**           | ** ** |
| **ASSETS**                                                                                                                                                                                                             |       |                  |       |               |       |
| Current Assets:                                                                                                                                                                                                        |       |                  |       |               |       |
| Cash and cash equivalents                                                                                                                                                                                              |       | $                     | 79,665     |               | $          | 81,821 |   |
| Short term investments                                                                                                                                                                                                 |       | 2,956                 |       | 2,956              |       |
| Accounts receivable, net of allowances of $2.5  million and $3.0 million, respectively                                                                                                                                 |       | 26,779                |       | 29,599             |       |
| Materials and supplies                                                                                                                                                                                                 |       | 5,669                 |       | 5,546              |       |
| Prepaid income taxes                                                                                                                                                                                                   |       | 10,708                |       | 7,679              |       |
| Deferred income taxes                                                                                                                                                                                                  |       | 1,443                 |       | 1,443              |       |
| Prepayments and other current assets                                                                                                                                                                                   |       | 4,101                 |       | 3,771              |       |
| Total current assets                                                                                                                                                                                                   |       | 131,321               |       | 132,815            |       |
| Fixed Assets:                                                                                                                                                                                                          |       |                  |       |               |       |
| Property, plant, and equipment                                                                                                                                                                                         |       | 342,059               |       | 346,298            |       |
| Less accumulated depreciation                                                                                                                                                                                          |       | (143,829              | )          | (148,370           | )          |
| Net fixed assets                                                                                                                                                                                                       |       | 198,230               |       | 197,928            |       |
| Licenses                                                                                                                                                                                                               |       | 33,658                |       | 34,024             |       |
| Goodwill                                                                                                                                                                                                               |       | 40,237                |       | 40,361             |       |
| Other intangibles, net                                                                                                                                                                                                 |       | 2,456                 |       | 2,285              |       |
| Deferred income taxes                                                                                                                                                                                                  |       | 8,570                 |       | 8,096              |       |
| Other assets                                                                                                                                                                                                           |       | 5,349                 |       | 5,340              |       |
| Total assets                                                                                                                                                                                                           |       | $                     | 419,821    |               | $          | 420,849 |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                                                          |       |                  |       |               |       |
| Current Liabilities:                                                                                                                                                                                                   |       |                  |       |               |       |
| Current portion of long-term debt                                                                                                                                                                                      |       | $                     | 750        |               | $          | 750 |   |
| Accounts payable and accrued liabilities                                                                                                                                                                               |       | 28,707                |       | 24,254             |       |
| Dividends payable                                                                                                                                                                                                      |       | 2,777                 |       | 2,778              |       |
| Accrued taxes                                                                                                                                                                                                          |       | 8,631                 |       | 8,244              |       |
| Advance payments and deposits                                                                                                                                                                                          |       | 3,652                 |       | 3,741              |       |
| Other current liabilities                                                                                                                                                                                              |       | 3,395                 |       | 4,697              |       |
| Total current liabilities                                                                                                                                                                                              |       | 47,912                |       | 44,464             |       |
| Deferred income taxes                                                                                                                                                                                                  |       | 28,736                |       | 28,736             |       |
| Other liabilities                                                                                                                                                                                                      |       | 8,202                 |       | 7,512              |       |
| Long-term debt, excluding current portion                                                                                                                                                                              |       | 73,311                |       | 73,144             |       |
| Total liabilities                                                                                                                                                                                                      |       | 158,161               |       | 153,856            |       |
| Commitments and contingencies  (Note 11)                                                                                                                                                                          |       |                  |       |               |       |
| Atlantic Tele-Network, Inc.’s Stockholders’  Equity:                                                                                                                                                    |       |                  |       |               |       |
| Preferred stock, $0.01 par value per share;  10,000,000 shares authorized, none issued and outstanding                                                                                                                 |       | —                |       | —             |       |
| Common stock, $0.01 par value per share;  50,000,000 shares authorized; 15,725,057 shares issued; 15,228,610 and  15,228,551 shares outstanding at December 31, 2008 and March 31,  2009,  respectively |       | 157                   |       | 157                |       |
| Treasury stock, at cost; 496,447 and 496,506  shares at December 31, 2008 and March 31, 2009, respectively                                                                                                   |       | (4,560                | )          | (4,575             | )          |
| Additional paid-in capital                                                                                                                                                                                             |       | 107,312               |       | 107,591            |       |
| Retained earnings                                                                                                                                                                                                      |       | 132,866               |       | 138,926            |       |
| Accumulated other comprehensive loss                                                                                                                                                                                   |       | (6,902                | )          | (6,487             | )          |
| Total Atlantic Tele-Network, Inc.’s  stockholders’ equity                                                                                                                                               |       | 228,873               |       | 235,612            |       |
| Non-controlling interests                                                                                                                                                                                              |       | 32,787                |       | 31,381             |       |
| Total stockholders’ equity                                                                                                                                                                                        |       | 261,660               |       | 266,993            |       |
| Total liabilities and equity                                                                                                                                                                                           |       | $                     | 419,821    |               | $          | 420,849 |   |

 

The accompanying notesare an integral part of these condensed consolidated financial statements.

 

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**ATLANTICTELE-NETWORK, INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

**FORTHE THREE MONTHS ENDED MARCH 31, 2008 AND 2009(Unaudited)(Dollars in thousands, except per share amounts)**

 
| ** **                                                                                                             | ** ** | **Three Months Ended  March 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                                             | ** ** | **2008**                                         | ** ** | **2009** | ** ** |
| **REVENUE:**                                                                                                           | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Wireless                                                                                                               |       | $                                                | 19,753     |   | $ | 31,725 |   |
| Local telephone and data                                                                                               |       | 12,246                                           |       | 13,053 |   |
| International long distance                                                                                            |       | 12,556                                           |       | 10,401 |   |
| Other                                                                                                                  |       | 1,075                                            |       | 787 |   |
| Total revenues                                                                                                         |       | 45,630                                           |       | 55,966 |   |
| **OPERATING EXPENSES *(excluding depreciation and amortization unless otherwise indicated)****:*                       | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Termination and access fees                                                                                            |       | 7,588                                            |       | 10,446 |   |
| Internet and programming                                                                                               |       | 899                                              |       | 789 |   |
| Engineering and operations                                                                                             |       | 5,856                                            |       | 6,947 |   |
| Sales and marketing                                                                                                    |       | 2,674                                            |       | 3,592 |   |
| General and administrative                                                                                             |       | 5,882                                            |       | 8,215 |   |
| Depreciation and amortization                                                                                          |       | 7,077                                            |       | 9,200 |   |
| Total operating expenses                                                                                               |       | 29,976                                           |       | 39,189 |   |
|                                                                                                                   |       |                                             |       |   |   |
| Income from operations                                                                                                 |       | 15,654                                           |       | 16,777 |   |
| **OTHER INCOME (EXPENSE):**                                                                                            | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Interest expense                                                                                                       |       | (653                                             | )          | (1,157 | ) |
| Interest income                                                                                                        |       | 569                                              |       | 340 |   |
| Other, net                                                                                                             |       | 225                                              |       | 26 |   |
| Other income (expense), net                                                                                            |       | 141                                              |       | (791 | ) |
| ** **                                                                                                             |       |                                             |       |   |   |
| **INCOME  BEFORE INCOME TAXES**                                                                                        |       | 15,795                                           |       | 15,986 |   |
| Income taxes                                                                                                           |       | 7,390                                            |       | 6,956 |   |
|                                                                                                                   |       |                                             |       |   |   |
| **INCOME  BEFORE EQUITY IN EARNINGS IN UNCONSOLIDATED AFFILIATES**                                                     |       | 8,405                                            |       | 9,030 |   |
| Equity in earnings of unconsolidated affiliates                                                                        |       | 463                                              |       | — |   |
|                                                                                                                   |       |                                             |       |   |   |
| **NET INCOME**                                                                                                         |       | 8,868                                            |       | 9,030 |   |
| Less: Net income attributable to non-controlling  interests, net of tax of $1.0 million and $0.7 million, respectively |       | (1,001                                           | )          | (228 | ) |
| **NET INCOME ATTRIBUTABLE TO  ATLANTIC TELE-NETWORK, INC. STOCKHOLDERS**                                          |       | $                                                | 7,867      |   | $ | 8,802 |   |
| ** **                                                                                                             | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| **NET INCOME PER WEIGHTED AVERAGE  SHARE ATTRIBUTABLE TO ATLANTIC TELE-NETWORK, INC. STOCKHOLDERS:**                   | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Basic                                                                                                                  |       | $                                                | 0.52       |   | $ | 0.58 |   |
| Diluted                                                                                                                |       | $                                                | 0.51       |   | $ | 0.58 |   |
| **WEIGHTED AVERAGE COMMON SHARES  OUTSTANDING:**                                                                       | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Basic                                                                                                                  |       | 15,228                                           |       | 15,229 |   |
| Diluted                                                                                                                |       | 15,303                                           |       | 15,250 |   |
| **DIVIDENDS PER SHARE APPLICABLE  TO COMMON STOCK**                                                                    |       | $                                                | 0.16       |   | $ | 0.18 |   |

 

The accompanying notesare an integral part of these condensed consolidated financial statements.

 

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**ATLANTICTELE-NETWORK, INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

**FORTHE THREE MONTHS ENDED MARCH 31, 2008 AND 2009(Unaudited)(Dollars in thousands)**

 
| ** **                                                                                             | ** ** | **Three Months Ended  March 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                             | ** ** | **2008**                                         | ** ** | **2009** | ** ** |
| **CASH FLOWS FROM OPERATING  ACTIVITIES:**                                                             | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Net income                                                                                             |       | $                                                | 8,868      |   | $ | 9,030 |   |
| Adjustments to reconcile net income to net cash  flows provided by operating activities:               |       |                                             |       |   |   |
| Depreciation and amortization                                                                          |       | 7,077                                            |       | 9,200 |   |
| Provision for doubtful accounts                                                                        |       | 463                                              |       | 408 |   |
| Amortization of debt discount and debt issuance costs                                                  |       | 30                                               |       | 133 |   |
| Stock-based compensation                                                                               |       | 273                                              |       | 300 |   |
| Deferred income taxes                                                                                  |       | 200                                              |       | 199 |   |
| Equity in earnings of unconsolidated affiliates                                                        |       | (463                                             | )          | — |   |
| Dividends received from Bermuda Digital  Communications, Ltd.                                          |       | 553                                              |       | — |   |
| Changes in operating assets and liabilities,  excluding the effects of acquisitions:                   |       |                                             |       |   |   |
| Accounts receivable                                                                                    |       | 177                                              |       | (3,228 | )  |
| Materials and supplies, prepayments, and other  current assets                                         |       | (1,711                                           | )          | 3,482 |   |
| Accounts payable and accrued liabilities, advance  payments and deposits and other current liabilities |       | 4,705                                            |       | (2,348 | ) |
| Accrued taxes                                                                                          |       | (1,034                                           | )          | (387 | ) |
| Other                                                                                                  |       | 34                                               |       | (43 | )  |
| Net cash provided by operating activities                                                              |       | 19,172                                           |       | 16,746 |   |
| **CASH FLOWS FROM INVESTING  ACTIVITIES:**                                                             |       |                                             | ** ** |   | ** ** |
| Capital expenditures                                                                                   | ** ** | (11,647                                          | )          | (9,980 | ) |
| Acquisitions of businesses                                                                             |       | (40                                              | )          | (24 | ) |
| Increase in deposits for acquisition of spectrum                                                       |       | (2,951                                           | )          | — |   |
| Purchase of short term investments                                                                     |       | (66                                              | )          | — |   |
| Decrease in restricted cash                                                                            |       | 1,524                                            |       | — |   |
| Net cash used in investing activities                                                                  |       | (13,180                                          | )          | (10,004 | ) |
| **CASH FLOWS FROM FINANCING  ACTIVITIES:**                                                             |       |                                             | ** ** |   | ** ** |
| Dividends paid on common stock                                                                         | ** ** | (2,435                                           | )          | (2,741 | ) |
| Distributions to non-controlling interests                                                             |       | (326                                             | )          | (1,634 | ) |
| Repayments of long-term debt                                                                           |       | —                                           |       | (188 | ) |
| Purchase of common stock                                                                               |       | —                                           |       | (23 | ) |
| Proceeds from exercise of stock options                                                                |       | 157                                              |       | — |   |
| Net cash used in financing activities                                                                  |       | (2,604                                           | )          | (4,586 | ) |
| **NET CHANGE IN CASH AND CASH  EQUIVALENTS**                                                           |       | 3,388                                            |       | 2,156 |   |
| **CASH AND CASH EQUIVALENTS,  beginning of the period**                                                |       | 71,173                                           |       | 79,665 |   |
| **CASH AND CASH EQUIVALENTS, end  of the period**                                                      |       | $                                                | 74,561     |   | $ | 81,821 |   |

 

The accompanying notesare an integral part of these condensed consolidated financial statements.

 

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**ATLANTIC TELE-NETWORK, INC. ANDSUBSIDIARIES**

**NOTES TO UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

 

**1.  ORGANIZATION ANDBUSINESS OPERATIONS**

 

Atlantic Tele-Network, Inc.(“ATN” or “Company”) provides wireless and wireline telecommunication servicesin the Caribbean and North America through the following operatingsubsidiaries:

 

·                  Guyana Telephone & TelegraphCompany, Ltd. (“GT&T”), the national and international telephonecompany in the Republic of Guyana and the largest wireless service provider inthat country. The Company has owned 80% of the stock of GT&T since January 1991.GT&T generated approximately 55% and 41% of the Company’s consolidatedrevenues for the three months ended March 31, 2008 and 2009, respectively.The reduction in these percentages is principally due to the acquisitions notedbelow and the growth in those acquired operations.

 

·                  Commnet Wireless, LLC (“Commnet”), an owner andoperator of wholesale wireless networks in rural areas of the United States.Commnet provides wireless voice and data communications roaming servicesprincipally to national, regional and local wireless carriers. Commnetgenerated approximately 32% and 39% of the Company’s consolidated revenues forthe three months ended March 31, 2008 and 2009, respectively.

 

·                  Bermuda Digital Communications, Ltd. (“BDC”), thelargest wireless voice and data communications service provider in Bermuda,doing business under the name “Cellular One”. The Company acquired an equityinterest in, and signed a management contract with, BDC in 1998. On May 15,2008, BDC completed a share repurchase of its common stock. ATN did not tenderany shares for repurchase, and, as a result of the transaction, increased itsholdings from approximately 43% to approximately 58% of BDC’s outstandingcommon stock. Prior to this increase in holdings, the Company accounted for itsinvestment in BDC under the equity method and earnings from BDC did not appearin its income from operations, but were instead reflected in equity in earningsof unconsolidated affiliates. Effective with the completion of that sharerepurchase, the Company began consolidating BDC’s balance sheet and results ofoperations. In September 2008, BDC began providing wireless services inTurks and Caicos through Islandcom Telecommunications, Ltd.

 

·                  Sovernet, Inc. (“Sovernet”), a facilities-basedintegrated voice, broadband data communications and dial-up service provider inNew England and New York State. Sovernet’s retail telecommunications service isdelivered to business and residential customers in Vermont and New Hampshire.Through an acquisition made in 2008, Sovernet also delivers wholesale transportservices in New York State through its subsidiary, ION. The Company has owned96% of Sovernet since its acquisition in February 2006.

 

·                  Choice Communications, LLC(“Choice”), is a leading provider of fixed wireless broadband data and dial-upinternet services to retail and business customers in the U.S. Virgin Islands.Choice is a wholly owned subsidiary of the Company.  In March 2009, the Company notified itstelevision customers that it was going to discontinue wireless televisionservice on May 31, 2009 and focus solely on providing wireless broadbanddata and dialup internet services.

 

ATN provides management,technical, financial, regulatory, and marketing services for its subsidiariesand receives a management fee equal to approximately 3% to 6% of theirrespective revenues. Management fees from consolidated subsidiaries areeliminated in consolidation. Management fees from unconsolidated affiliates areincluded in “Other Income” in the accompanying statements of operations.

 

**2.  BASIS OFPRESENTATION**

 

The accompanying condensed consolidated financialstatements have been prepared by the Company pursuant to the rules andregulations of the Securities and Exchange Commission (“SEC”). The financialinformation included herein is unaudited; however, the Company believes suchinformation and the disclosures herein are adequate to make the informationpresented not misleading and reflect all adjustments (consisting only of normalrecurring adjustments) that are necessary for a fair statement of the Company’sfinancial position and results of operations for such periods. The year-endcondensed balance sheet data was derived from audited financial statements, butdoes not include all disclosures required by accounting principles generallyaccepted in the United States of America. Results of interim periods may not be indicative of results for thefull year.  These condensed consolidatedfinancial statements and related notes should be read in conjunction with theCompany’s 2008 Annual Report on Form 10-K.

 

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*** ***

***Consolidation***

 

The consolidatedfinancial statements include the accounts of the Company, its majority-ownedsubsidiaries and certain entities, which are consolidated in accordance withthe provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 46,“Consolidation of Variable Interest Entities, an interpretation on AccountingResearch Bulletin No. 51”, as revised in December 2003 (“FIN No. 46R”)since it is determined that the Company is the primary beneficiary of theseentities. Revenue from these entities constitutes less than 1% of total Companyrevenue.

 

***Recent Accounting Pronouncements***

 

Effective January 1,2009, the Company adopted the provisions of SFAS No. 141 (revised 2007),Business Combinations — a replacement of FASB Statement No. 141 (“SFAS141(R)”), which replaces SFAS No. 141, Business Combinations (“SFAS141”).  Although SFAS 141(R) retains the underlying concept of SFAS141 in that all business combinations are still required to be accounted for atfair value in accordance with the acquisition method, going forward, SFAS 141(R) willrequire the Company to revise its application of the acquisition method in anumber of significant aspects such as requiring the Company to expensetransaction costs and  to recognize 100%of the acquiree’s assets and liabilities rather than a proportional share foracquisitions of less than 100% of a business.  In addition, SFAS 141(R) eliminatesthe step acquisition model and provides that all business combinations, whetherfull, partial, or step acquisitions, will result in all assets and liabilitiesof an acquired business being recorded at their fair values at the acquisitiondate.

 

In April 2009, theFASB issued FASB Staff Position FAS 141(R)-1, Accounting for Assets andLiabilities Assumed in a Business Combination That Arise from Contingencies(“FSP FAS 141(R)-1”), which amends the initial and subsequent measurementguidance and disclosure requirements in SFAS 141(R) for assets andliabilities arising from contingencies in a business combination. FSP FAS141(R)-1 is effective on a prospective basis for all business combinations forwhich the acquisition date is on or after January 1, 2009.

 

In September 2006,the FASB issued SFAS No. 157 Fair Value Measurements (“SFAS 157”) whichdefines fair value, establishes guidelines for measuring fair value and expandsdisclosures regarding fair value measurements. SFAS 157 does not require anynew fair value measurements but rather eliminates inconsistencies in guidancefound in various prior accounting pronouncements. SFAS 157 is effective forfiscal years beginning after November 15, 2007. However, on February 6,2008, the FASB issued FSP FAS 157-2 which defers the effective date of SFAS 157for one year for nonfinancial assets and nonfinancial liabilities except forthose items that are recognized or disclosed at fair value in the financialstatements on a recurring basis at least annually. For 2008, the Company didadopt SFAS 157 except as it applies to those nonfinancial assets andnonfinancial liabilities as noted in FSP FAS 157-2. The partial adoption ofSFAS 157 did not have a material impact on the Company’s financial position,results of operations or cash flows. The adoption of FSB FAS 157-2 in 2009 didnot have a material impact on the Company’s financial position, results ofoperations or cash flows.

 

In December 2007,the FASB issued SFAS No. 160, *Non-controllingInterests in Consolidated Financial Statements — an amendment of ARB No. 51*(“SFAS No. 160”).  SFAS No. 160 requires (i) thatnon-controlling (minority) interests be reported as a component ofstockholders’ equity, (ii) that net income attributable to the parent andthe non-controlling interest be separately identified in the consolidatedstatements of operations, (iii) that changes in a parent’s ownershipinterest while the parent retains the controlling interest be accounted for asequity transactions, (iv) that any retained non-controlling equityinvestment upon the deconsolidation of a subsidiary be initially measured atfair value, and (v) that sufficient disclosures are provided that clearlyidentify and distinguish between the interests of the parent and the interestsof the non-controlling owners.  The Company adopted the provisions ofSFAS No. 160 in the first quarter of 2009.  As a result of theadoption, the Company has reported non-controlling interests as a component ofequity in the condensed consolidated balance sheets and the net incomeattributable to non-controlling interests has been separately identified in thecondensed consolidated statement of operations.  The prior periodpresented have also been reclassified to conform to the current classificationrequired by SFAS No. 160.

 

In March 2008,the FASB issued SFAS No. 161, *Disclosuresabout Derivative Instruments and Hedging Activities—an amendment of FASBStatement No. 133* (“SFAS 161”). Statement of FinancialAccounting Standards No. 161, *Disclosures aboutDerivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133*(“SFAS 161”), amends and expands the disclosure requirements of FASBStatement No. 133  (“SFAS 133”) withthe intent to provide users of financial statements with an enhancedunderstanding of (i) how and why an entity uses derivative instruments, (ii) howderivative instruments and related hedged items are accounted for under SFAS133 and its related interpretations, and (iii) how derivative instrumentsand related hedged items affect an entity’s financial position, financialperformance, and cash flows. SFAS 161 requires qualitative disclosures aboutobjectives and strategies for using derivatives, quantitative disclosures aboutthe fair value of and gains and losses on derivative instruments, anddisclosures about credit-risk-related contingent features in derivativeinstruments. SFAS 161 is effective for the Company beginning January 1,2009. The Company has provided the required disclosures regarding ourinterest rate swap derivative instrument in Note 6.

 

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In September 2008,the FASB issued FASB Staff Position (FSP) No. EITF 03-6-1, *Determining Whether Instruments Granted inShare-Based Payment Transactions Are Participating Securities* (“FSP No. EITF 03-6-1”).Under the provisions of this standard, unvested awards of share-based paymentswith non-forfeitable rights to receive dividends or dividend equivalents areconsidered participating securities for purposes of calculating earnings per share.FSP No. EITF 03-6-1 is effective for financial statements issued forfiscal years and interim periods beginning after December 15, 2008. Weadopted FSP No. EITF 03-6-1 in 2009. The adoption of FSP No. EITF 03-6-1did not have a material impact on the consolidated financial statements.

 

In April 2008,the FASB issued FASB Staff Position No. 142-3, *Determination of the Useful Life of Intangible Assets* (“FSP No. 142-3”).FSP No. 142-3 amends the factors that should be considered in developingrenewal or extension assumptions used to determine the useful life of arecognized intangible asset under FAS No. 142, “Goodwill and OtherIntangible Assets” (“FAS No. 142”). The intent of FSP FAS No. 142-3is to improve the consistency between the useful life of a recognizedintangible asset under FAS No. 142 and the period of expected cash flowsused to measure the fair value of the asset under FAS No. 141R and otherU.S. generally accepted accounting principles. FSP FAS No. 142-3 iseffective for financial statements issued for fiscal years beginning after December 15,2008. The adoption of FSP FAS No. 142-3 did not have a material impact onthe consolidated financial statements.

 

In December 2008,the FASB issued an FSP on SFAS No. 132(R)-1, *Employers’ Disclosures about Postretirement Benefit Plan Assets*(“FSP SFAS 132(R)-1”). FSP SFAS 132(R)-1 provides additional guidanceon an employer’s disclosures about plan assets of a defined benefit pension orother postretirement plan. The adoption of this interpretation will increasethe disclosures in the financial statements related to the assets of anemployers’ defined benefit pension plan. FSP SFAS 132(R)-1 is effective in2010. The Company does not anticipate that FSP SFAS 132(R)-1 will have amaterial impact on the consolidated financial statements.

 

In January 2009,the FASB issued FASB Staff Position No. FSP FAS 107-1 and AccountingPrinciples Board (“APB”) 28-1, *Interim Disclosures aboutFair Value of Financial Instruments* (“FSP FAS 107-1 and APB 28-1”).FSP FAS 107-1 and APB 28-1 amends SFAS No. 107, *Disclosuresabout Fair Values of Financial Instruments*, to require disclosuresabout fair value of financial instruments in interim financial statements aswell as in annual financial statements. Additionally, FSP FAS 107-1 and APB28-1 also amends APB Opinion No. 28, *Interim FinancialReporting*, to require those disclosures in all interim financialstatements. FSP FAS 107-1 and APB 28-1 are effective for interim periods endingafter June 15, 2009, but early adoption is permitted for interim periodsending after March 15, 2009. The Company will amend our disclosuresaccordingly beginning with our 2009 second fiscal quarter Form 10-Q.

 

**3.  USE OF ESTIMATES**

 

The preparation of financial statements in conformitywith accounting principles generally accepted in the United States of Americarequires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingent assets andliabilities at the dates of the financial statements and the reported amountsof revenues and expenses during the reporting periods. The most significantestimates relate to allowance for doubtful accounts, useful lives of theCompany’s fixed and finite-lived intangible assets, allocation of purchaseprice to assets acquired and liabilities assumed in purchase businesscombinations, fair value of indefinite-lived intangible assets, goodwill andincome taxes. Actual results could differ significantly from those estimates.

 

**4.  FAIR VALUE MEASUREMENTS**

 

The Company’s financial instruments at March 31,2009 included cash and cash equivalents, short term investments, accountsreceivable, accounts payable, debt and an interest rate swap agreement. As of March 31,2009, the estimated fair values of all of the Company’s financial instrumentsapproximate their carrying values.

 

SFAS No. 157provides a framework for measuring fair value and requires expanded disclosuresregarding fair value measurements. SFAS No. 157 defines fair value as theprice that would be received for an asset or the exit price that would be paidto transfer a liability in the principal or most advantageous market in anorderly transaction between market participants on the measurement date. SFAS No. 157also establishes a fair value hierarchy that requires an entity to maximize theuse of observable inputs, where available. The following summarizes the threelevels of inputs required by SFAS No. 157, as well as the assets andliabilities that we value using those levels of inputs.

 

The following tablespresent information (in thousands) about our monetary assets and liabilitiesthat are measured and recorded at fair value on a recurring basis as of March 31,2009, and indicates the fair value hierarchy of the valuation and recorded 

 

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techniques we utilized todetermine such fair value. In general, fair values determined by Level 1inputs utilize quoted prices (unadjusted) in active markets for identicalassets or liabilities. Fair values determined by Level 2 inputs utilizedata points that utilize observable such as quoted prices, interest rates andyield curves. Fair values determined by Level 3 inputs are unobservabledata points for the asset or liability, and includes situations where there islittle, if any, market activity for the asset or liability. As of March 31,2009, the Company did not have any Level 3 assets or liabilities.

 
| **Description**                              | ** ** | **Quoted Prices in  Active Markets  (Level 1)** | ** ** | **Significant Other  Observable Inputs  (Level 2)** | ** ** | **Significant  Unobservable Inputs**

**(Level 3)** | ** ** | **Total** | ** ** |
|----------------------------------------------|------------|---------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|-----------|------------|
| Money market funds                           |       | $                                                                   | 23,198     |                                                               | $          | —                                                        |       | $         | —     |   | $ | 23,198 |   |
| Certificates of deposit                      |       | —                                                              |       | 5,468                                                              |       | —                                                        |       | 5,468     |       |
| **Total assets measured at fair  value**     |       | $                                                                   | 23,198     |                                                               | $          | 5,468                                                         |       | $         | —     |   | $ | 28,666 |   |
|                                         |       |                                                                |       |                                                               |       |                                                          |       |      |       |
| Interest  rate swap (Note 6)                 |       | $                                                                   | —     |                                                               | $          | 7,329                                                         |       | $         | —     |   | $ | 7,329 |   |
| **Total liabilities measured at fair value** |       | $                                                                   | —     |                                                               | $          | 7,329                                                         |       | $         | —     |   | $ | 7,329 |   |

 

**5.  LONG-TERM DEBT**

 

Long-term debt comprisesthe following (in thousands):

 

| ** **                          | ** ** | **December 31,  2008** | ** ** | **March 31,  2009** | ** ** |
|-------------------------------------|------------|-----------------------------|------------|--------------------------|------------|
| Note payable- $75 million term loan |       | $                           | 74,625     |                     | $          | 74,438 |   |
| Less: current portion               |       | (750                        | )          | (750                     | )          |
| Total long-term debt                |       | 73,875                      |       | 73,688                   |       |
| Less: debt discount                 |       | (564                        | )          | (544                     | )          |
| Net carrying amount                 |       | $                           | 73,311     |                     | $          | 73,144 |   |

 

***2008 Loan Facility***

 

        OnSeptember 10, 2008, the Company, as borrower, entered into a creditagreement with CoBank, ACB and other lenders as referenced within the creditagreement (the “2008 CoBank Credit Agreement”). The 2008 CoBank CreditAgreement replaced the 2005 Credit Agreement and provides a $75 millionterm loan (the “2008 Term Loan”) as well as a $75 million revolving creditfacility (the “2008 Revolver Facility”, together with the 2008 Term Loan, the “2008Credit Facility”).

 

        The2008 Term Loan matures on September 10, 2015 and requires quarterlyrepayments of principal of $0.2 million through June 30, 2013 andquarterly repayments of principal of $1.4 million from September 30,2013 to June 30, 2015. The remaining outstanding principal balance is tobe repaid on September 10, 2015 when the 2008 Term Loan matures.

 

        The2008 Revolver Facility matures on September 10, 2014 and includes a$5 million letter of credit facility. At March 31, 2009, no amountshave been drawn under the 2008 Revolver Facility.

 

        Allborrowings under the 2008 Credit Facility bear interest at a rate, selected bythe Company from one of the options set forth in the agreement, plus a margin.Such interest rate options include i) a base rate, defined as the greaterof the prime rate or the federal funds rate plus 0.5%, or ii) a LIBORrate. Margins for base rate borrowings range from 0% to 0.5%, depending uponthe Company’s leverage ratio, while margins for LIBOR borrowings range from1.25% to 2% also depending upon the Company’s leverage ratio. Borrowings as of March 31,2009, including the interest rate swap agreement discussed in Note 6, werebearing a weighted average interest rate of 5.35%.

 

        The2008 Credit Facility is guaranteed by the Company’s Commnet, Sovernet andChoice subsidiaries, along with certain of the Company’s other domesticsubsidiaries, and is collateralized by a security interest in substantially allof the assets of the Company and 

 

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the guarantorsubsidiaries, including Commnet, Sovernet and Choice, and a pledge of the stockof certain of the Company’s direct and indirect, domestic and foreign,subsidiaries, including its principal operating subsidiaries, and stock ownedby the Company.

 

        The2008 CoBank Credit Agreement contains certain affirmative and negativecovenants of the Company and its subsidiaries. Among other things, thesecovenants restrict the Company’s ability to incur additional debt in the futureor to incur liens on its property. The 2008 Credit Agreement also requires theCompany to maintain certain financial ratios including a net leverage ratio ofless than or equal to 3.0 to 1, an interest coverage ratio of greater than orequal to 3.5 to 1 and an equity to assets ratio of greater than or equal to 0.4to 1. As of March 31, 2009, the Company was in compliance with all of thefinancial covenants of the 2008 CoBank Credit Agreement.

 

        SeeNote 6 for a discussion regarding the Company’s interest rate swap thatcorresponds to a portion of our variable rate debt in order to effectivelyhedge interest rate risk.

 

**6.DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES**

 

** **As required by SFAS 133, the Companyrecords all derivatives on the balance sheet at fair value.  Theaccounting for changes in the fair value of derivatives depends on the intendeduse of the derivative, whether the Company has elected to designate aderivative in a hedging relationship and apply hedge accounting and whether thehedging relationship has satisfied the criteria necessary to apply hedgeaccounting. Derivatives designated and qualifying as a hedge of the exposure tochanges in the fair value of an asset, liability, or firm commitmentattributable to a particular risk, such as interest rate risk, are consideredfair value hedges. Derivatives designated and qualifying as a hedge of theexposure to variability in expected future cash flows, or other types offorecasted transactions, are considered cash flow hedges. Derivatives may alsobe designated as hedges of the foreign currency exposure of a net investment ina foreign operation. Hedge accounting generally provides for the matching ofthe timing of gain or loss recognition on the hedging instrument with therecognition of the changes in the fair value of the hedged asset or liabilitythat are attributable to the hedged risk in a fair value hedge or the earningseffect of the hedged forecasted transactions in a cash flow hedge.  The Company may enter into derivativecontracts that are intended to economically hedge certain of its risk, eventhough hedge accounting does not apply or the Company elects not to apply hedgeaccounting under SFAS 133.

 

***Risk Management Objective of Using Derivatives***

 

TheCompany is exposed to certain risk arising from both its business operationsand economic conditions.  The Companyprincipally manages its exposures to a wide variety of business and operationalrisks through management of its core business activities. The Company manageseconomic risks, including interest rate, liquidity, and credit risk primarilyby managing the amount, sources, and duration of its debt funding and the useof derivative financial instruments. Specifically, the Company enters into derivative financial instrumentsto manage exposures that arise from business activities that result in thereceipt or payment of future known and uncertain cash amounts, the value ofwhich are determined by interest rates. The Company’s derivative financial instruments are used to managedifferences in the amount, timing, and duration of the Company’s known orexpected cash receipts and its known or expected cash payments principallyrelated to the Company’s investments and borrowings.

 

***Cash Flow Hedges of Interest Rate Risk***

 

TheCompany’s objectives in using interest rate derivatives are to add stability tointerest expense and to manage its exposure to interest rate movements. Toaccomplish this objective, the Company primarily uses interest rate swaps aspart of its interest rate risk management strategy.  Interest rate swaps designated as cash flowhedges involve the receipt of variable-rate amounts from a counterparty inexchange for the Company making fixed-rate payments over the life of theagreements without exchange of the underlying notional amount.

 

Theeffective portion of changes in the fair value of derivatives designated andthat qualify as cash flow hedges is recorded in Accumulated Other ComprehensiveIncome and is subsequently reclassified into earnings in the period that thehedged forecasted transaction affects earnings. During the three months ended March 31,2009, a derivative was used to hedge the variable cash flows associated withexisting variable-rate debt.  Theineffective portion of the change in fair value of the derivatives isrecognized directly in earnings. No hedge ineffectiveness on cash flow hedgeswas recognized during the three months ended March 31, 2009.

 

Amountsreported in accumulated other comprehensive income related to derivatives willbe reclassified to interest expense as interest payments are made on theCompany’s variable-rate debt. During the twelve months ending December 31,2009, the Company estimates that an additional $2.3 million will bereclassified as an increase to interest expense.

 

As of March 31,2009, the Company had one interest rate swap with a notional amount of $68million that was designated as a cash flow hedge of interest rate risk.

 

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Thetable below presents the fair value of the Company’s derivative financialinstruments as well as their classification on the consolidated balance sheetas of March 31, 2009 (in thousands).

 

| ** **                                                         | ** ** | **Liability Derivatives**               | ** ** |
|--------------------------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                                         | ** ** | **as of March 31, 2009** | ** ** |
| ** **                                                         | ** ** | **Balance Sheet  Location**             | ** ** | **Fair Value** | ** ** |
| Derivatives designated as hedging instruments under SFAS 133:      |       |                                         |       |   |   |
| Interest Rate Swap                                                 |       | Other long-term  liabilities                 |       | $ | 7,329 |   |
| Total derivatives designated as hedging instruments under SFAS 133 |       |                                         |       | $ | 7,329 |   |

 

Thetables below present the effect of the Company’s derivative financialinstruments on the statement of operations for the three months ended March 31,2009 (in thousands):

 

| **Derivatives in SFAS  133 Cash Flow  Hedging  Relationships** | ** ** | **Amount of  Gain or  (Loss)  Recognized  in OCI on  Derivative   (Effective  Portion)** | ** ** | **Location of Gain or  (Loss) Reclassified  from Accumulated  OCI into Income  (Effective Portion)** | ** **       | **Amount of  Gain or  (Loss)  Reclassified  from  Accumulated  OCI into  Income  (Effective  Portion)** | ** ** |
|------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------|------------------|------------------------------------------------------------------------------------------------------------------------|------------|
|                                                                               |       |                                                                                                              |       |                                                                                                                                         |             |                                                                                                                   |       |
| Interest Rate Swap                                                                 |       | $                                                                                                                 | 21         |                                                                                                                                         | Interest expense |                                                                                                                   | $          | 659 |   |
|                                                                                    |            |                                                                                                                   |            |                                                                                                                                              |                  |                                                                                                                        |            |  |  |

 

***Credit-risk-related Contingent Features***

 

TheCompany has agreements with each of its derivative counterparties that containa provision where if the Company defaults on any of its indebtedness,including default where repayment of the indebtedness has not beenaccelerated by the lender, then the Company could also be declared indefault on its derivative obligations.

 

As of March 31, 2009,the fair value of the interest rate swap liability position, which includesaccrued interest, related to these agreements was $7.3 million.  As of March 31, 2009, the Company hasnot posted any collateral related to this agreement. If the Company hadbreached any of these provisions at March 31, 2009, it would have beenrequired to settle its obligation under the agreement at its termination valueof $8.8 million.

 

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** **

**7.  RECONCILIATION OF TOTAL EQUITY**

 

Total equity was as follows:

 
| ** **                                                          | ** ** | **Three Months Ended March 31,** | ** ** |
|---------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                          | ** ** | **2008**                                             | ** ** | **2009** | ** ** |
| ** **                                                          | ** ** | **Atlantic Tele-  Network, Inc.**          | ** ** | **Non-Controlling  Interests** | ** ** | **Total Equity** | ** ** | **Atlantic Tele-  Network, Inc.** | ** ** | **Non-Controlling  Interests** | ** ** | **Total  Equity** | ** ** |
| Equity, beginning of period                                         |       | $                                                    | 208,971    |   | $ | 27,236 |   | $ | 236,207 |   | $ | 228,873 |   | $ | 32,787 |   | $ | 261,660 |   |
| Stock based compensation                                            |       | 273                                                  |       | — |   | 273 |   | 300 |   | — |   | 300 |   |
| Comprehensive income:                                               |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| Net income                                                          |       | 7,867                                                |       | 1,001 |   | 8,868 |   | 8,802 |   | 228 |   | 9,030 |   |
| Other comprehensive income- Gain on interest rate swap (net of tax) |       | —                                               |       | — |   | — |   | 401 |   | — |   | 401 |   |
| Total comprehensive income                                          |       | 217,111                                              |       | 28,237 |   | 245,348 |   | 238,376 |   | 33,015 |   | 271,391 |   |
| Issuance of common stock upon exercise of stock options             |       | 158                                                  |       | — |   | 158 |   |   |   |   |   |   |   |
| Dividends on common stock                                           |       | (2,437                                               | )          | (326 | ) | (2,763 | ) | (2,741 | ) | (1,634 | ) | (4,375 | ) |
| Purchase of common shares                                           |       | —                                               |       | — |   | — |   | (23 | ) | — |   | (23 | ) |
| Non-controlling interest in entity acquired                         |       | —                                               |       | 195 |   | 195 |   | — |   | — |   | — |   |
|                                                                |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| Equity, end of period                                               |       | 214,832                                              |       | 28,106 |   | 242,938 |   | 235,612 |   | 31,381 |   | 266,993 |   |
|                                                                     |            |                                                      |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**8.  STOCK-BASED COMPENSATION**

 

Duringeach of the three month periods ended March 31, 2008 and 2009, the Companyrecognized $0.3 million of non-cash compensation expense relating to grantsunder the 1998 Stock Option Plan, the 2005 Restricted Stock and Incentive Planand the 2008 Equity Incentive Plan (the “Share Based Plans”).

 

InMarch 2009, the Company’s Board of Directors approved the grant, tocertain employees, of options to acquire 34,500 shares of the Company’s commonstock at an exercise price equal to the fair value of the Company’s commonstock on the date of grant. In connection with the grant of the options, theCompany will recognize $0.2 million of stock-based compensation which will beamortized over the vesting period of four years.

 

**9.  NET INCOME PERSHARE**

 

For the three months ended March 31, 2008 and2009, the common shares issuable under the Share Based Plans were the onlypotentially dilutive securities.

 

The reconciliation from basic to diluted weightedaverage common shares outstanding is as follows (in thousands):

 

| ** **                                         | ** ** | **Three Months Ended  March 31,** | ** ** |
|----------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                         | ** ** | **2008**                                         | ** ** | **2009** | ** ** |
| Basic weighted average common shares outstanding   |       | 15,228                                           |       | 15,229 |   |
| Stock  options                                     |       | 75                                               |       | 21 |   |
| Diluted weighted average common shares outstanding |       | 15,303                                           |       | 15,250 |   |

 

The above calculation forthe three months ended March 31, 2008 and 2009 does not include 383,000and 334,000 shares, respectively, related to stock options because the effectsof such were anti-dilutive.

 

**10.  SEGMENT REPORTING**

 

TheCompany has five reportable segments for separate disclosure under Statement ofFinancial Accounting Standards No. 131, *DisclosuresAbout Segments of an Enterprise and Related Information.* Those fivesegments are: i) Integrated Telephony-International, which generates allof its revenues in Guyana and has all of its assets located in Guyana,ii) Rural Wireless, which generates all of its revenues in the UnitedStates and has all of its assets located in the United States, iii) IslandWireless, which generates its revenues in and has its assets in Bermuda andTurks and Caicos, iv) Integrated Telephony-Domestic, which generates all ofits revenues and has all of its assets located in the United States andv) Wireless Data, which generates all of its revenues in and has all ofits assets located in the U.S Virgin Islands. The operating segments aremanaged separately because each offers different services and serves differentmarkets.

 

IslandWireless became a reportable segment upon completion of BDC’s share repurchaseand resulting increase in the Company’s equity interest in BDC, effective May 15,2008.  As described above, effective May 31,2009, the Company will discontinue providing wireless televisions services, andtherefore has changed the name of its segment from “Wireless Television andData” to “Wireless Data”.

 

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The following tables, which for 2008 have beenconformed to the 2009 presentation, provide information for each operatingsegment (in thousands):

 
| ** **                        | ** ** | **For the Three Months Ended March 31, 2008** | ** ** |
|-----------------------------------|------------|----------------------------------------------------------------------------------|------------|
| ** **                        | ** ** | **Integrated  Telephony-  International**                                        | ** ** | **Rural  Wireless** | ** ** | **Island  Wireless** | ** ** | **Integrated  Telephony-  Domestic** | ** ** | **Wireless  Data** | ** ** | **Reconciling  Items** | ** ** | **Consolidated** | ** ** |
| Revenues                          |       | $                                                                                | 25,203     |   | $ | 14,543 |   | $ | — |   | $ | 3,700 |   | $ | 2,184 | (1) | $ | — |   | $ | 45,630 |   |
| Depreciation and amortization     |       | 4,183                                                                            |       | 1,992 |   | — |   | 428 |   | 398 |   | 76 |   | 7,077 |   |
| Non-cash stock-based compensation |       | —                                                                           |       | — |   | — |   | 32 |   | — |   | 241 |   | 273 |   |
| Operating income (loss)           |       | 10,889                                                                           |       | 6,748 |   | — |   | 580 |   | (421 | ) | (2,142 | ) | 15,654 |   |
|                                   |            |                                                                                  |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                        | ** ** | **For the Three Months Ended March 31, 2009** | ** ** |
|-----------------------------------|------------|----------------------------------------------------|------------|
| ** **                        | ** ** | **Integrated  Telephony-  International**          | ** ** | **Rural  Wireless** | ** ** | **Island  Wireless** | ** ** | **Integrated  Telephony-  Domestic** | ** ** | **Wireless  Data** | ** ** | **Reconciling  Items** | ** ** | **Consolidated** | ** ** |
| Revenues                          |       | $                                                  | 22,734     |   | $ | 21,639 |   | $ | 5,167 |   | $ | 4,610 |   | $ | 1,816 | (1) | $ | — |   | $ | 55,966 |   |
| Depreciation and amortization     |       | 4,183                                              |       | 3,235 |   | 711 |   | 719 |   |  

278 |   | 74 |   | 9,200 |   |
| Non-cash stock-based compensation |       | —                                             |       | — |   | — |   | 32 |   | — |   | 268 |   | 300 |   |
|                              |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating income (loss)           |       | 9,318                                              |       | 10,252 |   | 210 |   | (494 | ) | (564 | ) | (1,945 | ) | 16,777 |   |
|                                   |            |                                                    |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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(1)          Includes $1.1 million and $0.8 million of wirelesstelevision services for the three months ended March 31, 2008 and 2009,respectively.  This service is scheduledto be discontinued on May 31, 2009.

 
| ** **                      | ** ** | **Segment Assets**                   | ** ** |
|---------------------------------|------------|-------------------------------------------|------------|
| **December 31, 2008** | ** ** | **Integrated  Telephony-  International** | ** ** | **Rural  Wireless** | ** ** | **Island  Wireless** | ** ** | **Integrated  Telephony-  Domestic** | ** ** | **Wireless  Data** | ** ** | **Reconciling  Items** | ** ** | **Consolidated** | ** ** |
| Net fixed assets                |       | $                                         | 111,417    |   | $ | 58,782 |   | $ | 13,224 |   | $ | 9,820 |   | $ | 4,546 |   | $ | 441 |   | $ | 198,230 |   |
| Goodwill                        |       | —                                    |       | 32,148 |   | 618 |   | 7,471 |   | — |   | — |   | 40,237 |   |
| Total assets                    |       | 166,168                                   |       | 123,793 |   | 41,687 |   | 25,952 |   | 5,796 |   | 56,425 |   | 419,821 |   |
|                                 |            |                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                   | ** ** | **Segment Assets**                   | ** ** |
|------------------------------|------------|-------------------------------------------|------------|
| **March 31, 2009** | ** ** | **Integrated  Telephony-  International** | ** ** | **Rural  Wireless** | ** ** | **Island  Wireless** | ** ** | **Integrated  Telephony-  Domestic** | ** ** | **Wireless  Data** | ** ** | **Reconciling  Items** | ** ** | **Consolidated** | ** ** |
| Net fixed assets             |       | $                                         | 109,691    |   | $ | 61,086 |   | $ | 13,043 |   | $ | 9,484 |   | $ | 4,256 |   | $ | 368 |   | $ | 197,928 |   |
| Goodwill                     |       | —                                    |       | 32,148 |   | 722 |   | 7,491 |   | — |   | — |   | 40,361 |   |
| Total assets                 |       | 166,863                                   |       | 132,346 |   | 39,395 |   | 25,157 |   | 5,681 |   | 51,407 |   | 420,849 |   |
|                              |            |                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                             | ** ** | **Capital Expenditures**                  | ** ** |
|----------------------------------------|------------|-------------------------------------------|------------|
| **Three Months Ended  March 31,** | ** ** | **Integrated  Telephony-  International** | ** ** | **Rural  Wireless** | ** ** | **Island  Wireless** | ** ** | **Integrated  Telephony-  Domestic** | ** ** | **Wireless  Data** | ** ** | **Reconciling  Items** | ** ** | **Consolidated** | ** ** |
| 2008                                   |       | $                                         | 3,530      |   | $ | 7,792 |   | $ | — |   | $ | 205 |   | $ | 118 |   | $ | 2 |   | $ | 11,647 |   |
| 2009                                   |       | 3,490                                     |       | 5,720 |   | 530 |   | 240 |   | — |   | — |   | 9,980 |   |
|                                        |            |                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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** **

**11.  COMMITMENTS ANDCONTINGENCIES**

 

**Regulatory and Litigation Matters**

 

TheCompany and its subsidiaries are subject to certain regulatory and legalproceedings and other claims arising in the ordinary course of business, someof which involve claims for damages and taxes that are substantial in amount.The Company believes that, except for the items discussed below and in our 2008Annual Report on Form 10-K for which the Company is currently unable topredict the final outcome, the disposition of proceedings currently pendingwill not have a material adverse effect on the Company’s financial position orresults of operations.

 

Aspreviously disclosed in our prior public reports, the Government of Guyana hasstated its intention to introduce additional competition into Guyana’stelecommunications sector and has held formal discussions with us, mostrecently in early 2008, regarding potential modifications of GT&T’s exclusivityrights.  In October 2008, GT&Twas informally notified that the Government had retained the services of a U.S.based law firm and a consultant to develop the legislative and regulatoryreforms necessary to introduce telecommunication competition in Guyana.  Based on informal discussions with theseparties, we expect draft legislation to be available as early as the secondhalf of 2009.  Our exclusive license hasa stated expiration in December 2010 and is, according to its terms,renewable for an additional 20-year term at our option.

 

Atthis time, ATN and GT&T do not know whether or how any draft legislationwill address GT&T’s exclusive license, and if so, whether it would bepursuant to an agreement between GT&T and the Government.  Other than entering into such an agreement onterms acceptable to us, we would seek to enforce GT&T’s rights by law andcontract to be the exclusive provider of international voice and data servicesin Guyana.  Although we believe that wewould be entitled to damages for any involuntary termination of that license,we cannot guarantee that we would prevail in any court or arbitrationproceeding.  See“Business—Regulation—Regulation of Our GT&T Subsidiary—Regulatory Developments”and “Risk Factors—Our exclusive license to provide local exchange andinternational voice and data services in Guyana is subject to significantpolitical and regulatory risk” in our Annual Report on 2008 Form 10-K.

 

In aletter dated September 8, 2006, the National Frequency Management Unit (“NFMU”)agreed that GT&T’s total spectrum fees should not increase for the years2006 and 2007. However, that letter implied that spectrum fees in 2008 andonward may be increased beyond the amount agreed between GT&T and theGovernment. GT&T restated its position in a September 14, 2006 letterto the Government that, by agreement with the Government, spectrum fees shouldbe capped until the NFMU develops a fee methodology, acceptable to all GSMSpectrum licensees. In correspondence to GT&T in June 2007, the NFMUstated, without indicating whether a fee methodology would be developed, thatthe cap on GSM spectrum fees would be removed in December 2007. In aletter dated July 3, 2007 to the NFMU, GT&T objected to the NFMU’sproposed action and reiterated its position that an increase in fees prior todevelopment of an acceptable methodology would violate the Government’s prioragreement. In a letter dated March 24, 2009, the NFMU requestedinformation from GT&T for use in calculating spectrum fees for 2008.  GT&T is in the process of preparing itsresponse to the NFMU’s request.

 

On May8, 2009, Digicel issued a press release stating that it had filed a lawsuit inGuyana challenging the legality of GT&T’s exclusive license under Guyana’sconstitution.  Digicel has filed thislawsuit against the Attorney General of Guyana in the High Court and neitherATN nor GT&T are named as a party in the lawsuit at this time.  Without having the opportunity to review thecourt filings prior to the filing of this Quarterly Report on Form 10-Q, wecannot comment further on Digicel’s public statement other than the following: webelieve that any legal challenge to GT&T’s exclusive license granted in1990 is without merit and we will vigorously defend against such a legalchallenge.

 

GT&T’sexclusive license has previously been the subject of legal challenge onconstitutional grounds. In July 2002, an individual sued the Attorney Generalof Guyana in the High Court asking, among other things, for a declaration thatthe section of our 1990 agreement with the Government of Guyana granting toGT&T an exclusive right to provide domestic fixed and international voiceand data services in Guyana violated Guyana law and was null and void. InSeptember 2002, GT&T joined the suit to oppose the plaintiff's claims.Although the suit remains pending, there have been no further developmentssince November 2002.  See “LegalProceedings” in our 2008 Annual Report on Form 10-K.

 

Exceptas set forth above, there have been no material developments in regulatory orlitigation matters in the period covered by these interim Financial Statements.For further information concerning pending regulatory and litigation matters,see “Notes to Consolidated Financial Statements, Note 13, Commitments andContingencies — Regulatory and Litigation Matters” in the Company’s 2008 AnnualReport on Form 10-K.

 

**12.  SUBSEQUENT EVENTS**

 

**RecentDevelopments in Guyana**

 

On May7, 2009, in connection with the Annual General Meeting of GT&T, therepresentative of the Government of Guyana on the Board of Directors ofGT&T indicated to representatives of ATN in attendance at the meeting, thatthe Government of Guyana is interested in selling its 20% interest inGT&T.  Specifically, this representativestated that the Government of Guyana is offering to sell its 20% interest inGT&T to ATN, which currently owns 80% of GT&T, and may offer to sellsuch interest to other potential purchasers. This representative did not indicate any proposed purchase price or anyother terms of such a proposed sale, nor a timeframe in which the Government ofGuyana would seek to complete any proposed sale.  

 

Theprincipal terms of our investment in GT&T are set forth in the Agreementbetween The Government of The Co-Operative Republic of Guyana and ATN, datedJune 18, 1990 (the “Guyana Agreement”), which is included as Exhibit 10 to ourQuarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2006, asfiled with the SEC on May 15, 2006.  TheGuyana Agreement does not provide for any right of first refusal or anyspecific procedures in connection with the potential sale by the Government ofGuyana of its 20% interest in GT&T.

 

TheCompany will give due consideration to any formal offer it might receive withrespect to this matter.

 

**Other**

 

                On May 8, 2009, Digicel issued a press releasestating that it had filed a lawsuit in Guyana challenging the legality ofGT&T’s exclusive license under Guyana’s constitution.  See Note 11 for further discussion.

 

**Item 2. Management’s Discussion and Analysis of FinancialCondition and Results of Operations**

 

Thisdiscussion should be read in conjunction with Management’s Discussion andAnalysis of Financial Condition and Results of Operations included in our 2008 Form 10-K.Some of the statements in the discussion are forward-looking statements, whichare subject to risks, uncertainties and other factors that could cause actualresults to differ materially from future results expressed or implied by suchforward-looking statements. These risk factors include those discussed underItem 1A, “Risk Factors” in our 2008 Form 10-K and those set forth in thisReport under “Cautionary Statement Regarding Forward-Looking Statements.”

 

**OVERVIEW**

 

Weprovide wireless and wireline telecommunications services in the Caribbean and NorthAmerica through the following principal operating subsidiaries:

 

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·  Guyana Telephone & TelegraphCompany, Ltd. (“GT&T”), the national and international telephonecompany in the Republic of Guyana and the largest wireless service provider inthat country. The Company has owned 80% of the stock of GT&T since January 1991.GT&T generated approximately 55% and 41% of the Company’s consolidatedrevenues during the three months ended March 31, 2008 and 2009,respectively. The reduction in these percentages is principally due to theacquisitions noted below and the growth in those acquired operations.

 

· Commnet Wireless, LLC (“Commnet”), an owner andoperator of wholesale wireless networks in rural areas of the United States.Commnet provides wireless voice and data communications roaming servicesprimarily to national, regional and local wireless carriers. Commnet generatedapproximately 32% and 39% of the Company’s consolidated revenues for the threemonths ended March 31, 2008 and 2009, respectively

 

· Bermuda Digital Communications, Ltd. (“BDC”), thelargest wireless voice and data communications service provider in Bermuda,doing business under the name “Cellular One”. The Company acquired an equityinterest in, and signed a management contract with, BDC in 1998. On May 15,2008, BDC completed a share repurchase of its common stock. ATN did not tenderany shares for repurchase, and, as a result of the transaction, increased itsholdings from approximately 43% to approximately 58% of BDC’s outstandingcommon stock. Prior to this increase in holdings, the Company accounted for itsinvestment in BDC under the equity method and earnings from BDC did not appearin its income from operations, but were instead reflected in equity in earningsof unconsolidated affiliates. Effective with the completion of that sharerepurchase, the Company began consolidating BDC’s balance sheet and results ofoperations. In September 2008, BDC began providing wireless services inTurks and Caicos through Islandcom Telecommunications, Ltd.

 

·  Sovernet, Inc. (“Sovernet”), a facilities-basedintegrated voice, broadband data communications and dial-up service provider inNew England and New York State. Sovernet’s retail telecommunications service isdelivered to business and residential customers in Vermont and New Hampshire.The Company has owned 96% of Sovernet since its acquisition in February 2006.In August 2008, Sovernet began providing wholesale transport services inNew York State through its subsidiary, ION Holdco LLC.

 

·  Choice Communications, LLC (“Choice”), is aleading provider of fixed wireless broadband data, and dial-up internetservices to retail and business customers in the U.S. Virgin Islands. Choice isa wholly owned subsidiary of the Company. In March 2009, the Company notifiedits television customers that it was going to discontinue wireless televisionservice by the end of May 2009 and focus solely on providing wirelessbroadband data and dialup internet services.

 

As aholding company, we provide management, technical, financial, regulatory, andmarketing services to, and typically receive a management fee equal toapproximately 3% to 6% of revenues from, each operating subsidiary. Managementfees from consolidated subsidiaries are eliminated in consolidation. Managementfees from unconsolidated affiliates are included in “Other Income” in theaccompanying statements of operations.

 

Thefollowing chart summarizes the operating activities of our principalsubsidiaries and the markets they serve as of March 31, 2009:

 
| **Services**             | ** ** | **Segment**                | ** ** | **Operating  Subsidiary** | ** ** | **Markets**                    |
|--------------------------|------------|----------------------------|------------|---------------------------|------------|--------------------------------|
| **Wireless**             |       | Rural Wireless             |       | Commnet                   |       | United States (rural  markets) |
|                     |       |                       |       |                      |       |                           |
|                     |       | Integrated Telephony— |       | GT&T                  |       | Guyana                         |
|                     |       | International              |       | BDC, Islandcom            |       | Bermuda, Turks and  Caicos     |
|                     |       | Island Wireless            |       |                      |       |                           |
|                     |       |                       |       |                      |       |                           |
| **Local  Telephone and** |       | Integrated Telephony— |       | GT&T                  |       | Guyana                         |
| **Data**                 | ** ** | International              |       |                      |       |                           |
| ** **               | ** ** |                       |       |                      |       |                           |
|                     |       | Integrated Telephony— |       | Sovernet, ION             |       | United States (New  England    |
|                     |       | Domestic                   |       |                      |       | and New York State)            |
|                     |       | Wireless Data              |       | Choice (internet  access) |       | U.S. Virgin Islands            |

 

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| **International  Long** |       | Integrated Telephony— |   | GT&T                     |   | Guyana              |
|-------------------------|------------|----------------------------|--------|------------------------------|--------|---------------------|
| **Distance**            | ** ** | International              |   |                         |   |                |
| ** **              | ** ** |                       |   |                         |   |                |
| **Other  (1)**          |       | Wireless Data              |   | Choice (digital  television) |   | U.S. Virgin Islands |

 

----

(1) As describedabove, effective May 31, 2009, the Company will discontinue providingwireless televisions services, and therefore has changed the name of itssegment from “Wireless Television and Data” to “Wireless Data”.

 

Forinformation about our business segments and geographical information about ouroperating revenues and long-lived assets, see Note 10 to the ConsolidatedFinancial Statements in this Report.

 

Overthe last several years, we have significantly diversified our business andreduced our historical dependence on GT&T’s operations for our financialresults. This reduction of GT&T’s contribution is mainly through theacquisition and growth of Commnet as well as the expansion of our Sovernetbusiness and the recent increase in our ownership interest in BDC and relatedacquisitions, as described under the captions “Business—Local Telephone andData Services—U.S. Operations” and “—Wireless Services—Island Operations” inour 2008 Form 10-K. We expect to continue this trend of diversificationand are actively evaluating additional investment and acquisition opportunitiesthat meet our return-on-investment and other acquisition criteria.

 

We aredependent on GT&T and Commnet for a substantial majority of our revenuesand profits. For the three months ended March 31, 2009, approximately 79%of our consolidated revenue and all of our consolidated operating income weregenerated by these two operating subsidiaries.

 

Commnet’srevenues and profits are primarily driven by the number of sites and basestations we operate, the amount voice and data traffic that each of these sitesgenerates, and the rate we get paid from our carrier customers on that traffic.During the first quarter of 2009, Commnet’s contribution to our consolidatedrevenues and operating income was approximately 39% and 61%, respectively, ascompared to 32% and 43% for the first quarter of 2008. Commnet competes, however, with wirelessservice providers that operate networks in its markets and offer wholesaleroaming services. In addition, Commnet’s carrier customers may also elect tobuild or acquire their own infrastructure (including networks that Commnetbuilt out pursuant to its roaming agreements) in a market in which they operate,reducing or eliminating their need for Commnet’s services in that market.  For more information, seeNote 10 to our Consolidated Financial Statements included in this Report.

 

Thelargest single component of GT&T’s revenues and profits has been from itsinternational long distance business, which accounted for approximately 19% ofour consolidated revenue during the three months ended March 31, 2009.While the majority of this international long distance revenue is generated bycalls originated by, or terminating with, wireline and wireless customers, weare currently the exclusive provider of international voice and data andtherefore generate revenue and profit from calls and data originating on ourcompetitor’s wireless network.

 

Theprimary drivers of the long distance business are the population of Guyaneseliving abroad who initiate calls to Guyana and the rate foreign carriers payGT&T for handling the incoming international calls. However, in recentyears, we believe various methods of illegal bypass and alternative and cheapermedia for communication, such as e-mail and text messaging, may have had anegative impact on both voice traffic and on international long distancerevenues. In 2008, we believe there was a substantial increase in illegal bypassactivities. We have taken a number of measures to counter illegal bypass,including taking action against unlicensed operators in Guyana, introducingspecial outbound call center rates and we are examining automated technicalsolutions as well. More recently, we also believe the current economicrecession has impacted the volume of calls into and out of Guyana andnegatively impacted our revenues.

 

Inaddition to our 2009 planned capital expenditures to improve our GT&Tnetwork, we will be investing over the next 18-24 months a total ofadditional $20 million to $25 million in a new submarine fiber opticcable in Guyana. The construction of this new international cable connectingGuyana to Trinidad will provide for continued growth in the provision of highspeed data and internet services into Guyana, as well as giving us a costeffective method of increased redundancy. We believe this is particularlyimportant in the current operating environment of a worldwide shift fromvoice-driven applications to data-driven applications and the growth inbroadband demand.

 

Aspreviously disclosed in our prior public reports, the Government of Guyana hasstated its intention to introduce additional competition into Guyana’stelecommunications sector and has held formal discussions with us, mostrecently in early 2008, regarding 

 

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potential modificationsof GT&T’s exclusivity rights. In October 2008, GT&T was informallynotified that the Government had retained the services of a U.S. based law firmand a consultant to develop the legislative and regulatory reforms necessary tointroduce telecommunication competition in Guyana. Based on informaldiscussions with these parties, we expect draft legislation to be available asearly as the second half of 2009. Our exclusive license has a stated initialterm that ends in December 2010 and is, according to its terms, renewablefor an additional 20-year term at our option.

 

Atthis time, ATN and GT&T do not know whether or how any draft legislationwill address GT&T’s exclusive license, and if so, whether it would bepursuant to an agreement between GT&T and the Government. Other than enteringinto such an agreement on terms acceptable to us, we would seek to enforceGT&T’s rights by law and contract to be the exclusive provider ofinternational voice and data services in Guyana. Although we believe that wewould be entitled to damages for any involuntary termination of that license,we cannot guarantee that we would prevail in any court or arbitrationproceeding. See “Business—Regulation—Regulation of Our GT&TSubsidiary—Regulatory Developments” and “Risk Factors—Our exclusive license toprovide local exchange and international voice and data services in Guyana issubject to significant political and regulatory risk” in our 2008 Form 10-K.

 

**Recent Developments in Guyana**

 

On May 7, 2009, in connection with the AnnualGeneral Meeting of GT&T, the representative of the Government of Guyana onthe Board of Directors of GT&T indicated to representatives of ATN inattendance at the meeting, that the Government of Guyana is interested inselling its 20% interest in GT&T. Specifically, this representative stated that the Government of Guyanais offering to sell its 20% interest in GT&T to ATN, which currently owns80% of GT&T, and may offer to sell such interest to other potentialpurchasers.  This representative did notindicate any proposed purchase price or any other terms of such a proposedsale, nor a timeframe in which the Government of Guyana would seek to completeany proposed sale.

 

The principal terms of our investment in GT&T areset forth in the Agreement between The Government of The Co-Operative Republicof Guyana and ATN, dated June 18, 1990 (the “Guyana Agreement”), which isincluded as Exhibit 10 to our Quarterly Report on Form 10-Q for thefiscal quarter ended March 31, 2006, as filed with the SEC on May 15,2006.  The Guyana Agreement does notprovide for any right of first refusal or any specific procedures in connectionwith the potential sale by the Government of Guyana of its 20% interest inGT&T.

 

The Company will give due consideration to any formaloffer it might receive with respect to this matter.

 

On May 8, 2009, Digicel issued a press releasestating that it had filed a lawsuit in Guyana challenging the legality ofGT&T’s exclusive license under Guyana’s constitution.  Digicel has filed this lawsuit against the AttorneyGeneral of Guyana in the High Court and neither ATN nor GT&T are named as aparty in the lawsuit at this time. Without having the opportunity to review the court filings prior to thefiling of this Quarterly Report on Form 10-Q, we cannot comment further onDigicel’s public statement other than the following: we believe that any legalchallenge to GT&T’s exclusive license granted in 1990 is without merit andwe will vigorously defend against such a legal challenge.

 

GT&T’s exclusive license has previously been thesubject of legal challenge on constitutional grounds. In July 2002, anindividual sued the Attorney General of Guyana in the High Court asking, amongother things, for a declaration that the section of our 1990 agreement with theGovernment of Guyana granting to GT&T an exclusive right to providedomestic fixed and international voice and data services in Guyana violatedGuyana law and was null and void. In September 2002, GT&T joined thesuit to oppose the plaintiff’s claims. Although the suit remains pending, therehave been no further developments since November 2002.  See “Legal Proceedings” in our 2008 AnnualReport on Form 10-K.

 

**Recent U.S. Developments**

 

Verizon Wireless’s January 2009 acquisition of Alltelwill cause some loss of wireless revenue for us because the network assets theyacquired overlap our network in certain areas. We expect that such loss,however, will have an immaterial effect on overall wireless revenue as a resultof our ongoing network expansion. However, in connection with the Alltelacquisition, Verizon Wireless is required to divest itself of certain assetsthat overlap more significant areas of Commnet’s network.  On May 8, 2009, AT&T announced it hasentered into a definitive agreement with Verizon Wireless to acquire themajority of the wireless assets required to be divested.  As compared to Verizon’s acquisition ofAlltel’s assets, this transaction, if approved, by federal and state regulatoryauthorities, will result in a more substantial overlap of our wireless networkcoverage areas by AT&T and a more substantial loss in revenue when and ifAT&T completes a GSM network build in those areas.  AT&T has publicly stated its expectationthat it will complete such an overlay within a year from closing the purchase,or before the end of 2010.  If any suchrevenue loss is not replaced by revenue gains in other areas of our US ruralwireless business or from other sources, it could have a materially adverseimpact on our revenues and operating income.

 

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**Results of Operations**

** **

***ThreeMonths Ended March 31, 2008 and 2009***

 
| ** **                                                               | ** ** | **Three Months Ended  March 31,** | ** ** | **Amount of  Increase** | ** ** | **Percent  Increase** | ** ** |
|--------------------------------------------------------------------------|------------|--------------------------------------------------|------------|------------------------------|------------|-----------------------|------------|
| ** **                                                               | ** ** | **2008**                                         | ** ** | **2009**                     | ** ** | **(Decrease)**        | ** ** | **(Decrease)** | ** ** |
| ** **                                                               | ** ** | **(In thousands)**                          | ** ** |
| **REVENUE:**                                                             |       |                                             |       |                         |       |                  |       |   |   |
| Wireless                                                                 |       | $                                                | 19,753     |                         | $          | 31,725                |       | $ | 11,972 |   | 60.6 | % |
| Local telephone and data                                                 |       | 12,246                                           |       | 13,053                       |       | 807                   |       | 6.6 |   |
| International long distance                                              |       | 12,556                                           |       | 10,401                       |       | (2,155                | )          | (17.2 | ) |
| Other                                                                    |       | 1,075                                            |       | 787                          |       | (288                  | )          | (26.8 | ) |
| Total revenue                                                            |       | 45,630                                           |       | 55,966                       |       | 10,336                |       | 22.7 |   |
| **OPERATING EXPENSES:**                                                  |       |                                             |       |                         |       |                  |       |   |   |
| Termination and access fees                                              |       | 7,588                                            |       | 10,446                       |       | 2,858                 |       | 37.7 |   |
| Internet and programming                                                 |       | 899                                              |       | 789                          |       | (110                  | )          | (12.2 | ) |
| Engineering and operations                                               |       | 5,856                                            |       | 6,947                        |       | 1,091                 |       | 18.6 |   |
| Sales and marketing                                                      |       | 2,674                                            |       | 3,592                        |       | 918                   |       | 34.3 |   |
| General and administrative                                               |       | 5,882                                            |       | 8,215                        |       | 2,333                 |       | 39.7 |   |
| Depreciation and amortization                                            |       | 7,077                                            |       | 9,200                        |       | 2,123                 |       | 30.0 |   |
| Total operating expenses                                                 |       | 29,976                                           |       | 39,189                       |       | 9,213                 |       | 30.7 |   |
| Income from operations                                                   |       | 15,654                                           |       | 16,777                       |       | 1,123                 |       | 7.2 |   |
| **OTHER INCOME (EXPENSE):**                                              |       |                                             |       |                         |       |                  |       |   |   |
| Interest expense                                                         |       | (653                                             | )          | (1,157                       | )          | (504                  | )          | (77.2 | ) |
| Interest income                                                          |       | 569                                              |       | 340                          |       | (229                  | )          | (40.2 | ) |
| Other income (expense), net                                              |       | 225                                              |       | 26                           |       | (199                  | )          | (88.4 | ) |
| Other income (expense), net                                              |       | 141                                              |       | (791                         | )          | (932                  | )          | (661.0 | ) |
| **INCOME BEFORE INCOME TAXES**                                           |       | 15,795                                           |       | 15,986                       |       | 191                   |       | 1.2 |   |
| Income taxes                                                             |       | 7,390                                            |       | 6,956                        |       | (434                  | )          | (5.9 | ) |
| **INCOME BEFORE EQUITY IN EARNINGS OF  UNCONSOLIDATED AFFILIATES**       |       | 8,405                                            |       | 9,030                        |       | 625                   |       | 7.4 |   |
| Equity in earnings of unconsolidated affiliates                          |       | 463                                              |       | —                       |       | (463                  | )          | (100.0 | ) |
|                                                                     |       |                                             |       |                         |       |                  |       |   |   |
| **NET INCOME**                                                           |       | 8,868                                            |       | 9,030                        |       | 162                   |       | 1.8 |   |
| Net income attributable to non-controlling interests                     |       | (1,001                                           | )          | (228                         | )          | 773                   |       | 77.2 |   |
|                                                                     |       |                                             |       |                         |       |                  |       |   |   |
| **NET INCOME ATTRIBUTABLE TO ATLANTIC  TELE-NETWORK, INC. STOCKHOLDERS** |       | $                                                | 7,867      |                         | $          | 8,802                 |       | 935 |   | 11.9 | % |
|                                                                          |            |                                                  |            |                              |            |                       |            |  |  |  |  |  |

 

*Wirelessrevenue.*For 2008, wireless revenue includes wholesale voice and data roaming revenuefrom our rural U.S. operations and retail wireless revenues generated inGuyana.  For 2009, wireless revenue alsoincludes retail wireless revenues generated by our Island Wireless segment.

 

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Wireless revenue increased to $31.7 million for thethree months ended March 31, 2009 from $19.8 million for the three monthsended March 31, 2008, an increase of $11.9 million, or 60%. Our rural U.S.business increased its revenues by $7.1 million, or 49%, to $21.6 million from$14.5 million. The increase in our equity position in, and consolidation ofBDC, which occurred as of May 15, 2008, contributed $5.2 million of theincrease.

 

The increase in wireless revenue from our U.S.wireless business was due primarily to continued deployment of additional GSMand CDMA wireless base stations, which generated growth in minutes of use andincreased data and international roaming revenue, as well as the December 2008acquisition of the wireless network assets of CC Communications, atelecommunications company based in Fallon, Nevada.  As of March 31, 2009 a total of 484 basestations were deployed as compared to 328 base stations as of March 31,2008 (not including 26 analog base stations that were in operation as of March 31,2008 but decommissioned by the end of 2008). Our rural wireless revenue alsoincreased as a result of growth in voice and data traffic (measured in minutesand megabytes) at existing sites and growth in data roaming revenue and internationalroaming revenue.

 

Verizon Wireless’s January 2009 acquisition of Alltelwill cause some loss of wireless revenue for us because the network assets theyacquired overlap our network in certain areas. We expect that such loss,however, will have an immaterial effect on overall wireless revenue as a resultof our ongoing network expansion. However, in connection with the Alltelacquisition, Verizon Wireless is required to divest itself of certain assetsthat overlap more significant areas of Commnet’s network.  On May 8, 2009, AT&T announced it hasentered into a definitive agreement with Verizon Wireless to acquire themajority of the wireless assets required to be divested.  As compared to Verizon’s acquisition ofAlltel’s assets, this transaction, if approved, by federal and state regulatoryauthorities, will result in a more substantial overlap of our wireless networkcoverage areas by AT&T and a more substantial loss in revenue when and ifAT&T completes a GSM network build in those areas.  AT&T has publicly stated its expectationthat it will complete such an overlay within a year from closing the purchase,or before the end of 2010.  If any suchrevenue loss is not replaced by revenue gains in other areas of our US ruralwireless business or from other sources, it could have a materially adverseimpact on our revenues and operating income.

 

While we expect to see a continued increase inwireless revenues from our rural U.S. wireless business, the pace of thatincrease may be slowed as compared to the growth in previous periods due toscheduled reductions in revenue rates.

 

The increase in wireless revenue from our rural U.S.operations was partially offset by a decline in wireless revenue in Guyana. Asdiscussed previously, a large regional wireless competitor is operating itswireless service with aggressive marketing campaigns and handset subsidies inGuyana.  The decline in revenue in thefirst quarter of 2009 primarily reflects the continued impact of that competitionand a decrease in rates. This additional competition in Guyana caused ourwireless subscribers to decrease by 16%, from about 300,000 subscribers as of March 31,2008 to about 255,000 subscribers as of March 31, 2009. These factorsresulted in a $0.3 million decrease in GT&T’s wireless revenue from $5.2million during the first quarter of 2008 to $4.9 million during the same periodof 2009.

 

While we do not expect wireless subscribers or revenuein Guyana to continue to decline at this rate, and saw a small increase insubscribers from December 31, 2008, our competitor could continue to takemarket share with aggressive spending. Additionally, an overall decline in theGuyana market for wireless subscribers could result from reduced spending dueto worsening economic conditions or other factors.

 

*Local telephone and datarevenue.*Local telephone anddata revenue is generated by our wireline operations in Guyana, our integratedvoice and data operations in New England and New York State, and our dataservices in the U.S. Virgin Islands. This revenue includes basic service fees,measured service revenue, and internet access fees, as well as installationcharges for new lines, monthly line rental charges, long distance or tollcharges (excluding international long distance charges in Guyana), maintenanceand equipment sales.

* *

Local telephone and data revenue increased by $0.9million, or 7%, to $13.1 million for the first quarter of 2009 from $12.2million for the first quarter of 2008. The increase is attributable toSovernet, which increased revenues by $0.9 million as a result of theaddition of ION which we acquired on August 15, 2008. Sovernet continuesto add business customers for its voice and data services at a strong rate andimprove profitability; however, its overall revenue increase is partiallyoffset by the decline in its residential data business, particularly itsdial-up internet services. Local telephone and data revenue in Guyana wasconsistent at $7.4 million for the quarters ended March 31, 2008 and 2009.GT&T’s access lines in Guyana grew from approximately 134,000 lines as of March 31,2008 to approximately 140,000 lines as of March 31, 2009 (an increase of4%). Revenue from the growth in access lines has been offset by a decrease inusage due to wireless service alternatives. Data revenue at our Virgin Islands subsidiary remained consistent.  In future periods, we anticipate that localtelephone and data revenue will increase modestly as a result of networkexpansion and subscriber and access line growth in New York, New England andGuyana.

 

*International long distance revenue.* International long distance revenue isgenerated by international telephone calls into and out of Guyana and does notinclude international long distance revenue generated by our other operations. Inboundtraffic, which made up 87% of all international long distance traffic and morethan 70% of international long distance revenue for the three months ended March 31,2009, is settled in U.S. dollars.

 

International long distancerevenue was $10.4 million during the first quarter of 2009, a decrease of $2.2million, or 17%, from $12.6 million in the first quarter of 2008. We are subject to illegal bypass viainternet calling and other methods such as direct 

 

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satellite bypass, which we believe has increasedconsiderably since mid-2008. We also believe we experienced a reduction in thecall volume into Guyana due to the current worldwide economic slowdown. In thefuture, international voice traffic may also decline as a result of the growthof alternative and cheaper media for communications, such as e-mail and textmessaging. Although the other modes of communication may cause a decline inboth voice traffic and in international long distance revenues in futureperiods, we may see a slight increase in traffic and revenues if we areeffective in combating illegal bypass. The outcome of negotiations with theGovernment of Guyana regarding the exclusivity terms of GT&T’s license isalso likely to negatively impact this revenue in the future.

 

*Otherrevenue*.Other revenue represents revenue from wireless digitaltelevision services in the U.S. Virgin Islands, which decreased 27% to $0.8 million for the first quarter of 2009from $1.1 million for the first quarter of 2008. In March 2009, theCompany notified its wireless television customers that it was going todiscontinue wireless television service on May 31, 2009 and focus solelyon providing wireless broadband data and dialup internet services.  We expect the discontinuation of wirelesstelevision services to have an insignificant impact on operating income and netincome.

 

*Termination and access feeexpenses*. Termination and accessfee expenses are charges that we pay for voice and data transport circuits (inparticular, the circuits between our rural wireless sites and our switches),internet capacity and other access fees we pay to terminate our calls.

* *

*Termination and access fees increased by $2.8 million, or37%, from $7.6 million to $10.4 million from the first quarter of 2008 to thefirst quarter of 2009, respectively, as a result of increased traffic atCommnet, the consolidation of BDC’s results for 2009 and an increase inexpenses at Sovernet due to the operating results of ION, which Sovernetacquired in August 2008. These expenses are expected to increase in futureperiods, but remain fairly consistent as compared to their related revenues, asour rural wireless and CLEC operations in Vermont expand.*

* *

*Internet and programmingexpenses.*Internet andprogramming expenses include internet connectivity charges and digitaltelevision programming.

* *

*Internet and programming expenses decreased from $0.9million in the first quarter of*2008 to $0.8 million in the first quarter of2009. This decrease was primarilyfrom lower costs in the U.S. Virgin Islands. We expect that internet andprogramming expenses will remain consistent as a percentage of related revenuesin the near future.

* *

*Engineering and operationsexpenses.*Engineering andoperations expenses include the expenses associated with developing, operating,supporting and expanding our networks, including the salaries and benefits paidfor employees directly involved in the development and operation of ournetworks.

* *

Engineering and operations expenses increased by $1.0million, or 17%, from $5.9 million to $6.9 million for the first quarter of2008 to the first quarter of 2009, respectively. This increase is primarily theresult of the expansion of our wireless networks in the United States as wellas the consolidation of BDC’s results for 2009. We expect that engineering andoperations will continue to increase to further support those networks.

 

*Sales and marketingexpenses.*Sales, marketing and customer service expenses includesalaries and benefits we pay for sales personnel, customer service expenses,sales commissions and the costs associated with the development andimplementation of our promotion and marketing campaigns.

* *

*Sales and marketing expenses increased by $0.9 million, or33%, from $2.7 million to $3.6 million from the first quarter of 2008 to thefirst quarter of 2009, respectively. This increase is the result of theconsolidation of BDC’s results for 2009.*  We expect that salesand marketing expenses will remain consistent as a percentage of relatedrevenues in the near future.

* *

*General and administrativeexpenses.*General and administrative expenses include salaries,benefits and related costs for general corporate functions, including executivemanagement, finance and administration, legal and regulatory, facilities,information technology and human resources.

* *

*General and administrative expenses increased by $2.3million, or*39%, from $5.9 million for the firstquarter of 2008 to $8.2 million for the first quarter of 2009.  Of this increase, $2.1million is the result of ourconsolidation of BDC in 2009.  We expect general and administrativeexpenses to increase in the future to support our growth but remain consistentas compared to our consolidated revenues.

* *

*Depreciation and amortizationexpenses.*Depreciation and amortization expenses represent the depreciation andamortization charges we record on our property and equipment and on ourintangible assets.

 

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Depreciation and amortization expenses increased by$2.1 million, or 30%, from $7.1 million to $9.2 million for the firstquarter of 2008 and the first quarter of**2009,respectively. The increase is primarily due to the addition of fixed assetsfrom our network expansion in our rural U.S. wireless business, theconsolidation of BDC’s results for 2009, and the acquisitions of ION andIslandcom, which occurred in the third quarter of 2008.

 

*Interest expense.* Interest expense represents interestincurred on our outstanding credit facilities. On September 10, 2008, theCompany repaid the then outstanding $50.0 million term loan with theproceeds from a new $75.0 million term loan. At the same time, theCompany’s revolving line of credit facility expanded from $20.0 million to$75.0 million. Also during September 2008, the Company entered intoan interest rate swap agreement which is further detailed in Note 6 to theConsolidated Financial Statements included in this Report.

 

Interest expense increased from $0.7 million for thefirst quarter of**2008 to $1.2 million for thefirst quarter of**2009. The increase in interestexpense was due to the increase in our term loan borrowings. We had nooutstanding borrowings under our revolving line of credit during the firstquarters of 2008 or 2009.

 

*Interest income*. Interest income represents interestearned on our cash, cash equivalent and short term investments.

 

Interest income decreased to $0.3 million from $0.6million for first quarters of 2008 and 2009, respectively.  This decrease is a result of a decrease inthe interest rates that we received on our cash and investments.

 

*Other income (expense).*Other income (expense) representsmiscellaneous non-operational income we earned or expenses we incurred.Included in other income for 2008 were management fees received from BDC which,since May 15, 2008, have been eliminated in consolidation. As a result ofthe consolidation of BDC other income decreased from $0.2 million in the firstquarter of**2008 to zero in the first quarter of**2009.

 

*Incometaxes. *The effective tax rate was 47% for 2008and 44% for 2009.  Income tax expense includes tax at the statutory U.S.federal and state income tax rates as well as the Guyanese income taxes inexcess of the statutory U.S. income tax rates. The effective tax rate isimpacted by the receipt of foreign dividends and, beginning in May 2008,the consolidation of BDC and its subsidiary which operate in tax freejurisdictions.

 

*Equity in earnings of unconsolidatedaffiliates.*    Equityin earnings of unconsolidated affiliates included our share of the earnings ofBDC prior to our consolidation of BDC’s operating results in May 2008.Equity in earnings of unconsolidated affiliates decreased from $0.5 million in2008 to zero in 2009 as a result of the consolidation of BDC beginning in May 2008.

 

*Net IncomeAttributable to Non-Controlling Interests.*For2008,**net income attributable tonon-controlling interests consists of the Guyana government’s 20%interest in GT&T, a non-controlling shareholder’s 4% interest in Sovernet,and other non-controlling shareholders’ interests in certain consolidatedsubsidiaries of Commnet.  For 2009, netincome attributable to non-controlling interests also consists ofnon-controlling shareholders’ 42% equity interest in BDC and subsidiary as wellas consolidated subsidiaries of Sovernet and BDC.

 

Net income attributable tonon-controlling interests decreased from $1.0 million to $0.2 million for the first quarter of**2008 and the first quarter of**2009,respectively. This decrease is a result of the allocation of non-controllingshareholders’ share of losses in our two early stage businesses following theadoption of FAS 160 in 2009. We expect netincome attributable to non-controlling interests to increase in thefuture as our early stage businesses mature.

 

*Net income attributable to AtlanticTele-Network, Inc. Stockholders.*As a result of the above factors, net income increasedby $0.9 million or 11% from $7.9 million for the first quarter of**2008 to $8.8 million for the first quarter of**2009. On a per share basis, net income increased from $0.52per basic and $0.51 per diluted share to $0.58 per basic and diluted share from2008 to 2009, respectively.  We expectthe discontinuation of wireless television services to have an insignificantimpact on net income attributable to Atlantic Tele-Network, Inc. Stockholders.

 

* Segmentresults.*    Wehave five material operating segments, which we manage and evaluate separately:(1) Integrated Telephony—International; (2) Rural Wireless; (3) IslandWireless; (4) Integrated Telephony—Domestic; and (5) Wireless Data.Island Wireless became an operating segment upon completion of BDC’s sharerepurchase and resulting increase in our equity interest in BDC, effective May 15,2008. Segment results are set forth in Note 10 to the ConsolidatedFinancial Statements included in this Report.

 

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**Regulatory and Tax Issues**

** **

Weare involved in a number of regulatory and tax proceedings. See Note 11 tothe Consolidated Financial Statements included in this Report. A material andadverse outcome in one or more of these proceedings could have a materialadverse impact on our financial condition and future operations.

 

**Liquidity and Capital Resources**

** **

We have met, andanticipate that we will meet in the future, our operational liquidity needsthrough a combination of cash on hand and internally generated funds and havefunded capital expenditures and acquisitions with a combination of internallygenerated funds, cash on hand and borrowings under our credit facilities.

 

***Uses of Cash***

*** ***

*Capital Expenditures.* A significant use of our cash has been forcapital expenditures for expanding and upgrading our networks. For the threemonths ended March 31, 2008 and 2009, we spent approximately$11.6 million and $10.0 million on capital expenditures, respectively. Ofthe $10.0 million of 2009 capital expenditures, we spent approximately $5.7million expanding Commnet’s network by increasing the number of base stationsas well as switching and cell site equipment required to expand our geographiccoverage and technical capabilities. In addition, approximately $3.5 millionwas incurred expanding the capacity and coverage of Guyana’s wireline andwireless network and early-stage construction costs on a new fiber opticsubmarine cable into the country.  OurIntegrated Telephony-Domestic and Island Wireless segments accounted for mostof the remainder of our capital expenditures in the quarter.

 

We arecontinuing to invest in expanding the networks of all of our subsidiaries andexpect to incur capital expenditures between $40 million and $45 million duringthe year ending December 31, 2009, with over one-half used in connectionwith Commnet’s network expansion. In addition to these expenditures, we expectto incur an additional $10 million to $15 million of capital expenditures in2009 on the construction of the submarine fiber optic cable in Guyana. Weexpect to fund our current capital expenditures primarily from cash generatedfrom our operations, but may seek additional debt financing outside our bankcredit facility if it is available at satisfactory terms to us.

 

*Acquisitions andInvestments.*We have funded our recent acquisitions with a combination ofcash on hand and borrowings under our credit facilities.

* *

*We continue to explore opportunities to acquirecommunications properties or licenses in the Caribbean, the United States andelsewhere. We also explore opportunities to substantially expand our existingnetworks in the United States and the Caribbean.  Such acquisitions may require externalfinancing. While there can be no assurance as to whether, when or on what termswe will be able to acquire any such businesses or licenses, such acquisitionsmay be accomplished through the issuance of shares, payment of cash orincurrence of debt.*

* *

*Dividends.*We use cash on hand tomake dividend payments to our common stockholders when declared by our Board ofDirectors. For the three months ended March 31, 2009, our dividends to ourstockholders approximated $2.7 million (which reflects dividends paid on January 10,2009). We have paid quarterly dividends for the last 42 fiscal quarters.

* *

*Stock RepurchasePlan*. Our Board of Directors approved a $5.0 million stock buybackplan in September 2004 pursuant to which we have spent $2.1 millionas of March 31, 2009 repurchasing common stock.  We may repurchase shares at any timedepending on market conditions, our available cash and our cash needs.

* *

*Cash Generated by Financing Activities- Credit Facility andInterest Rate Swap.*    OnSeptember 10, 2008, we entered into a credit agreement with CoBank, ACBand other lenders as referenced within the credit agreement (the “2008 CoBankCredit Agreement”). The 2008 CoBank Credit Agreement replaced our previouscredit facility and provides us with $75 million term loan (the “2008 TermLoan”) as well as a $75 million revolving credit facility (the “2008Revolver Facility”, together with the 2008 Term Loan, the “2008 CreditFacility”).

 

The2008 Term Loan matures on September 10, 2015 and requires quarterly repaymentsof principal of $0.2 million through June 30, 2013 and quarterlyrepayments of principal of $1.4 million from September 30, 2013 to June 30,2015. The remaining outstanding principal balance of $60.0 million is tobe repaid on September 10, 2015 when the 2008 Term Loan matures. The 2008Revolver Facility matures on September 10, 2014 and includes a$5 million letter of credit facility.

 

Allborrowings under the 2008 Credit Facility bear interest at a rate, selected byus from one of the options set forth in the agreement, plus a margin. Suchinterest rate options include i) a base rate, defined as the greater ofthe prime rate or the federal funds 

 

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rate plus 0.5%, orii) a LIBOR rate. Margins for base rate borrowings range from 0% to 0.5%,depending upon our leverage ratio, while margins for LIBOR borrowings rangefrom 1.25% to 2.00%, also depending upon our leverage ratio. Borrowings as of March 31,2009, including the interest rate swap agreement described below, were bearinga weighted average interest rate of 5.35%. The 2008 CoBank Credit Agreementcontains certain affirmative and negative covenants of the Company and itssubsidiaries as set forth below under “—Factors Affecting Sources ofLiquidity.” The 2008 Credit Facility is guaranteed by the Company’s Commnet andSovernet subsidiaries and is collateralized by a security interest insubstantially all of the assets of and stock owned by the Company and suchguarantors. As of March 31, 2009, the Company was in compliance with allof the covenants of the 2008 CoBank Credit Agreement.

 

On September 23,2008 the Company executed a forward starting interest rate swap. The Company’sobjective in using the derivative is to add stability to interest expense andto manage our exposure to adverse changes in interest rates. The interest rateswap has an initial notional amount of $68 million, receives 1 monthLIBOR, and pays a fixed rate of 4.42%. The interest rate swap agreementeffectively converts the variable interest payments on the first$68 million of the 2008 Term Loan to a fixed rate of 4.42% plus theapplicable credit spread, over the life of the agreement. The interest rateswap agreement has a maturity date of September 15, 2015.

 

***Sources of Cash***

*** ***

*Total Liquidity at March 31,2009*.    As of March 31, 2009, we hadapproximately $84.8 million in cash, cash equivalents and short terminvestments, an increase of $2.2 million from the December 31, 2008balance of $82.6million. We believe ourexisting cash balances and other capital resources, including the$75.0 million available under the 2008 Revolver Facility, are adequate tomeet our current operating and capital needs.

* *

*Cash Generated byOperations.*Cash provided byoperating activities was $16.7 million for the three months ended March 31,2009 compared to $19.2 million for the three months ended March 31, 2008primarily as a result of a decrease in certain components of our workingcapital.

* *

***Factors AffectingSources of Liquidity***

*** ***

*Internally Generated Funds.*    The key factorsaffecting our internally generated funds are demand for our services,competition, regulatory developments, economic conditions in the markets wherewe operate our businesses and industry trends within the telecommunicationsindustry. For a discussion of tax and regulatory risks in Guyana that couldhave a material adverse impact on our liquidity, see “ Risk Factors—RisksRelating to Our Wireless and Wireline Services in Guyana”, “Business—Regulationof Our GT&T Subsidiary” in our 2008 Form 10-K and Note 11 to theConsolidated Financial Statements included in this Report.

 

*Guyana—U.S.Foreign Currency Exchange.*    GT&T’s functional currencyis the U.S. dollar because a majority of GT&T’s revenues and expenditureshave historically been transacted in U.S. dollars. From 2004 through March 2009,the value of the Guyana dollar has remained at $205 Guyana dollars to one U.S.dollar so we have not experienced any foreign currency gains or losses duringthose periods. If this exchange rate was to fluctuate in the future, this wouldaffect our results of operations to the extent we are required to remeasure anymonetary assets or liabilities denominated in Guyana dollars. Moreover, withthe potential for competition in international services in the future, combinedwith the increases that GT&T hopes to have in local revenue which is billedin Guyana dollars, it is possible that the Guyana dollar will become GT&T’sfunctional currency at some point in the future. This would also expose us toforeign currency risk in the event of exchange rate fluctuations.

 

*RestrictionsUnder Credit Facility.*    The 2008 CoBank Credit Agreement containscertain affirmative and negative covenants of the Company and its subsidiaries.Among other things, these covenants restrict the Company’s ability to incuradditional debt in the future or to incur liens on its property. The 2008CoBank Credit Agreement also requires the Company to maintain certain financialratios including a net leverage ratio of less than or equal to 3.0 to 1, aninterest coverage ratio of greater than or equal to 3.5 to 1 and an equity toassets ratio of greater than or equal to 0.4 to 1. As of March 31, 2009,the Company was in compliance with all of the covenants of the 2008 CoBankCredit Agreement and would be able to fully draw the $75 million availableunder its revolving credit facility.

 

*CapitalMarkets.*    Ourability to raise funds in the capital markets depends on, among other things,general economic conditions, the conditions of the telecommunications industry,our financial performance and the state of the capital markets. In June 2006,the Securities and Exchange Commission declared effective a “universal” shelfregistration statement filed by the Company. This shelf registration statementregistered the potential future offerings by us, from time to time, of up to anaggregate of $200 million of our securities, consisting potentially ofcommon stock, debt securities, and other equity and convertible securities andcombinations of the foregoing. We have approximately $150 million ofsecurities registered for potential future offerings pursuant to the shelfregistration statement, which we may offer and sell until June 2009. TheCompany currently anticipates that it will file with 

 

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the Securities andExchange Commission a renewal of its “universal” shelf registration followingthe expiration of its current registration in June 2009.

 

***Inflation***

*** ***

We do not believe that inflation has had a significantimpact on our consolidated operations in any of the periods presented in theReport.

 

***Recent AccountingPronouncements***

*** ***

Effective January 1,2009, the Company adopted the provisions of SFAS No. 141 (revised 2007),Business Combinations — a replacement of FASB Statement No. 141 (“SFAS141(R)”), which replaces SFAS No. 141, Business Combinations (“SFAS141”).  Although SFAS 141(R) retains the underlying concept of SFAS141 in that all business combinations are still required to be accounted for atfair value in accordance with the acquisition method, going forward, SFAS 141(R) willrequire the Company to revise its application of the acquisition method in anumber of significant aspects such as requiring the Company to expensetransaction costs and  to recognize 100%of the acquiree’s assets and liabilities rather than a proportional share foracquisitions of less than 100% of a business.  In addition, SFAS 141(R) eliminatesthe step acquisition model and provides that all business combinations, whetherfull, partial, or step acquisitions, will result in all assets and liabilitiesof an acquired business being recorded at their fair values at the acquisitiondate.

 

In April 2009, theFASB issued FASB Staff Position FAS 141(R)-1, Accounting for Assets andLiabilities Assumed in a Business Combination That Arise from Contingencies(“FSP FAS 141(R)-1”), which amends the initial and subsequent measurementguidance and disclosure requirements in SFAS 141(R) for assets andliabilities arising from contingencies in a business combination. FSP FAS141(R)-1 is effective on a prospective basis for all business combinations forwhich the acquisition date is on or after January 1, 2009.

 

In September 2006,the FASB issued SFAS No. 157 Fair Value Measurements (“SFAS 157”) whichdefines fair value, establishes guidelines for measuring fair value and expandsdisclosures regarding fair value measurements. SFAS 157 does not require anynew fair value measurements but rather eliminates inconsistencies in guidancefound in various prior accounting pronouncements. SFAS 157 is effective forfiscal years beginning after November 15, 2007. However, on February 6,2008, the FASB issued FSP FAS 157-2 which defers the effective date of SFAS 157for one year for nonfinancial assets and nonfinancial liabilities except forthose items that are recognized or disclosed at fair value in the financialstatements on a recurring basis at least annually. For 2008, we did adopt SFAS157 except as it applies to those nonfinancial assets and nonfinancialliabilities as noted in FSP FAS 157-2. The partial adoption of SFAS 157 did nothave a material impact on our financial position, results of operations or cashflows. The adoption of FSB FAS 157-2 in 2009 did not have a material impact onour financial position, results of operations or cash flows.

 

In December 2007,the FASB issued SFAS No. 160, *Non-controllingInterests in Consolidated Financial Statements — an amendment of ARB No. 51*(“SFAS No. 160”).  SFAS No. 160 requires (i) thatnon-controlling (minority) interests be reported as a component ofstockholders’ equity, (ii) that net income attributable to the parent andthe non-controlling interest be separately identified in the consolidatedstatements of operations, (iii) that changes in a parent’s ownershipinterest while the parent retains the controlling interest be accounted for asequity transactions, (iv) that any retained non-controlling equityinvestment upon the deconsolidation of a subsidiary be initially measured atfair value, and (v) that sufficient disclosures are provided that clearlyidentify and distinguish between the interests of the parent and the interestsof the non-controlling owners.  The Company adopted the provisions ofSFAS No. 160 in the first quarter of 2009.  As a result of theadoption, the Company has reported non-controlling interests as a component ofequity in the condensed consolidated balance sheets and the net income or lossattributable to non-controlling interests has been separately identified in thecondensed consolidated statement of operations.  The prior periodspresented have also been reclassified to conform to the current classificationrequired by SFAS No. 160.

 

In March 2008,the FASB issued SFAS No. 161, *Disclosuresabout Derivative Instruments and Hedging Activities—an amendment of FASBStatement No. 133* (“SFAS 161”). Statement of FinancialAccounting Standards No. 161, *Disclosures aboutDerivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133*(“SFAS 161”), amends and expands the disclosure requirements of FASBStatement No. 133  (“SFAS 133”) withthe intent to provide users of financial statements with an enhancedunderstanding of (i) how and why an entity uses derivative instruments, (ii) howderivative instruments and related hedged items are accounted for under SFAS 133and its related interpretations, and (iii) how derivative instruments andrelated hedged items affect an entity’s financial position, financialperformance, and cash flows. SFAS 161 requires qualitative disclosures aboutobjectives and strategies for using derivatives, quantitative disclosures aboutthe fair value of and gains and losses on derivative instruments, anddisclosures about credit-risk-related contingent features in derivativeinstruments. SFAS 161 is effective for the Company on January 1, 2009. Wehave provided the required disclosures regarding derivative instruments in Note6.

 

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Asrequired by SFAS 133, the Company records all derivatives on the balance sheetat fair value.  The accounting for changes in the fair value ofderivatives depends on the intended use of the derivative, whether the Companyhas elected to designate a derivative in a hedging relationship and apply hedgeaccounting and whether the hedging relationship has satisfied the criterianecessary to apply hedge accounting. Derivatives designated and qualifying as ahedge of the exposure to changes in the fair value of an asset, liability, orfirm commitment attributable to a particular risk, such as interest rate risk,are considered fair value hedges. Derivatives designated and qualifying as ahedge of the exposure to variability in expected future cash flows, or othertypes of forecasted transactions, are considered cash flow hedges. Derivativesmay also be designated as hedges of the foreign currency exposure of a netinvestment in a foreign operation. Hedge accounting generally provides for thematching of the timing of gain or loss recognition on the hedging instrumentwith the recognition of the changes in the fair value of the hedged asset orliability that are attributable to the hedged risk in a fair value hedge or theearnings effect of the hedged forecasted transactions in a cash flowhedge.  The Company may enter intoderivative contracts that are intended to economically hedge certain of itsrisk, even though hedge accounting does not apply or the Company elects not toapply hedge accounting under SFAS 133.

 

In September 2008,the FASB issued FASB Staff Position (FSP) No. EITF 03-6-1, *Determining Whether Instruments Granted inShare-Based Payment Transactions Are Participating Securities* (“FSP No. EITF 03-6-1”).Under the provisions of this standard, unvested awards of share-based paymentswith non-forfeitable rights to receive dividends or dividend equivalents areconsidered participating securities for purposes of calculating earnings pershare. FSP No. EITF 03-6-1 is effective for financial statementsissued for fiscal years and interim periods beginning after December 15,2008. The adoption of FSP No. EITF 03-6-1 did not have a materialimpact on our consolidated financial statements.

 

In April 2008,the FASB issued FASB Staff Position No. 142-3, *Determination of the Useful Life of Intangible Assets* (“FSP No. 142-3”).FSP No. 142-3 amends the factors that should be considered in developingrenewal or extension assumptions used to determine the useful life of arecognized intangible asset under FAS No. 142, “Goodwill and Other IntangibleAssets” (“FAS No. 142”). The intent of FSP FAS No. 142-3 is toimprove the consistency between the useful life of a recognized intangibleasset under FAS No. 142 and the period of expected cash flows used tomeasure the fair value of the asset under FAS No. 141R and other U.S.generally accepted accounting principles. FSP FAS No. 142-3 is effectivefor financial statements issued for fiscal years beginning after December 15,2008. The adoption of FSP FAS No. 142-3 did not have a material impact onthe consolidated financial statements.

 

In December 2008,the FASB issued an FSP on SFAS No. 132(R)-1, *Employers’ Disclosures about Postretirement Benefit Plan Assets*(“FSP SFAS 132(R)-1”). FSP SFAS 132(R)-1 provides additional guidanceon an employer’s disclosures about plan assets of a defined benefit pension orother postretirement plan. The adoption of this interpretation will increasethe disclosures in the financial statements related to the assets of anemployers’ defined benefit pension plan. FSP SFAS 132(R)-1 is effective in2010. The Company does not anticipate that FSP SFAS 132(R)-1 will have amaterial impact on our consolidated financial statements.

 

In January 2009,the FASB issued FASB Staff Position No. FSP FAS 107-1 and AccountingPrinciples Board (“APB”) 28-1, *Interim Disclosures aboutFair Value of Financial Instruments* (“FSP FAS 107-1 and APB 28-1”).FSP FAS 107-1 and APB 28-1 amends SFAS No. 107, *Disclosuresabout Fair Values of Financial Instruments*, to require disclosuresabout fair value of financial instruments in interim financial statements aswell as in annual financial statements. Additionally, FSP FAS 107-1 and APB28-1 also amends APB Opinion No. 28, *Interim FinancialReporting*, to require those disclosures in all interim financialstatements. FSP FAS 107-1 and APB 28-1 are effective for interim periods endingafter June 15, 2009, but early adoption is permitted for interim periodsending after March 15, 2009. We will amend our disclosures accordinglybeginning with our 2009 second fiscal quarter Form 10-Q.

 

**Item 3. Quantitative and Qualitative Disclosuresabout Market Risk**

 

*ForeignCurrency Exchange Sensitivity.*    GT&T’s functional currencyis the U.S. dollar because a significant portion of GT&T’s revenues andexpenditures are transacted in U.S. dollars. The results of future operationsnevertheless may be affected by changes in the value of the Guyana dollar,however since the Guyanese exchange rate has remained at approximately $205Guyana dollars to $1 U.S. dollar since 2004, we have not recorded any foreignexchange gains or losses since that date. All of our other foreign subsidiariesoperate in jurisdictions where the U.S. dollar is the recognized currency.

 

*InterestRate Sensitivity.*    Ourexposure to changes in interest rates is limited and relates primarily to ourvariable interest rate long-term debt. As of March 31, 2009,$68.0 million of our long term debt has a fixed rate by way of aninterest-rate swap that effectively hedges our interest rate risk. Theremaining $6.4 million of long term debt as of March 31, 2009 issubject to interest rate risk. As a result of our hedging policy we believe ourexposure to fluctuations in interest rates is not material.

 

**Item 4. Controls and Procedures**

 

*Evaluation of disclosure controls and procedures.*Our management, with the participation ofour principal executive officer and principal financial officer, evaluated theeffectiveness of our disclosure controls and procedures as of March 31,2009. The term 

 

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“disclosure controls andprocedures,” as defined in Rules 13a-15(e) and 15d-15(e) underthe Exchange Act, means controls and other procedures of a company that aredesigned to ensure that information required to be disclosed by a company inthe reports that it files or submits under the Exchange Act is recorded,processed, summarized and reported, within the time periods specified in the SEC’srules and forms. Disclosure controls and procedures include, withoutlimitation, controls and procedures designed to ensure that informationrequired to be disclosed by a company in the reports that it files or submitsunder the Exchange Act is accumulated and communicated to the company’smanagement, including its principal executive and principal financial officers,as appropriate to allow timely decisions regarding required disclosure.Management recognizes that any controls and procedures, no matter how welldesigned and operated, can provide only reasonable assurance of achieving theirobjectives and management necessarily applies its judgment in evaluating thecost-benefit relationship of possible controls and procedures. Based on theevaluation our disclosure controls and procedures as of March 31, 2009,our principal executive officer and principal financial officer concluded that,as of such date, our disclosure controls and procedures were effective at thereasonable assurance level.

 

*Changes in internal control over financial reporting.*There was no change in the internalcontrol over financial reporting that occurred during the three months ended March 31,2009 that has materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.

 

**PART II—OTHER INFORMATION**

 

**Item 1. Legal Proceedings**

 

On May 8, 2009, Digicel issued a press release statingthat it had filed a lawsuit in Guyana challenging the legality of GT&T’sexclusive license under Guyana’s constitution. See Note 11 to the Consolidated Financial Statements included in thisReport.

 

**Item 1A. Risk Factors**

 

In addition to the otherinformation set forth in this Report, you should carefully consider the factorsdiscussed in Part I, “Item 1A. Risk Factors” in our 2008 Form 10-K,which could materially affect our business, financial condition or futureresults. The risks described in our 2008 Form 10-K are not the only risksfacing our Company. Additional risks and uncertainties not currently known tous or that we currently deem to be immaterial also may materiallyadversely affect our business, financial condition and/or operating results.

 

**Item 2.**    **Unregistered Sales of Equity Securities and Use of Proceeds**

 

 The following table reflects the repurchasesby the Company of its common stock during the quarter ended March 31,2009:

 
| **Period**                                          | ** ** | **(a)  Total Number  of Shares  Purchased(1)** | ** ** | **(b)  Average  Price  Paid per  Share(1)** | ** ** | **(c)  Total Number of  Shares Purchased  As Part of Publicly  Announced Plans  or Programs** | ** ** | **(d)  Maximum  Number (or  Approximate  Dollar Value) of  Shares that May  be Purchased  Under the Plans or  Programs(2)** | ** ** |
|-----------------------------------------------------|------------|----------------------------------------------------------|------------|--------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| January 1, 2009 — January 31, 2009   |       | 850                                                      |       | $                                                | 26.55      |                                                                                                                                  | —     |                                                                                                                                                                     | $          | 2,919,965 |   |
| February 1, 2009 — February 28, 2009 |       | —                                                   |       | —                                           |       | —                                                                                                                                |       | 2,919,965                                                                                                                                                                |       |
| March 1, 2009 — March 31, 2009       |       | —                                                   |       | —                                           |       | —                                                                                                                                |       | 2,919,965                                                                                                                                                                |       |
|                                                     |            |                                                          |            |                                                  |            |                                                                                                                                       |            |                                                                                                                                                                          |            |  |  |

 

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| (1)    | These shares were not  repurchased through the Company’s publicly announced plan described in  footnote 2 below. These shares were withheld by the Company to offset the tax  withholding obligations of John Audet, an employee of the Company, associated  with the vesting of shares of restricted stock previously granted to him  pursuant to the Company’s 2005 Restricted Stock Plan.                                       |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| (2)    | In September 2004, the Board of Directors authorized the Company  to repurchase up to $5.0 million of its common stock. The repurchase  authorizations do not have a fixed termination date and the timing of the buy  back amounts and exact number of shares purchased will depend on market  conditions. The Company did not repurchase any shares of its common stock  under this plan during the period ended March 31, 2009. |

 

**Item 6. Exhibits**

 
| 3.1    | Restated Certificate of Incorporation (incorporated  by reference to Exhibit 4.1 to the Company’s Registration Statement on  Form S-8 (File No. 333-62416) filed on June 6, 2001)                                                                                                        |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                              |
| 3.2    | Certificate of Amendment to the Restated Certificate  of Incorporation, as filed with the Delaware Secretary of State on  August 14, 2006 (incorporated by reference to Exhibit 3.2 of the  Company’s Quarterly Report on Form 10-Q (File No. 001-12593) filed  on August 14, 2006) |
|   |                                                                                                                                                                                                                                                                                                              |
| 3.3    | By-Laws of Atlantic Tele-Network, Inc., as  amended and restated on March 7, 2006 (incorporated by reference to  Exhibit 3.2 to the Company’s Annual Report on Form 10-K (File  No. 001-12593) for the year ended December 31, 2005 filed on  March 31, 2006)        |
|   |                                                                                                                                                                                                                                                                                                              |
| 10.1   | Atlantic  Tele-Network, Inc. Deferred Compensation Plan for Select Employees  (incorporated by reference to Exhibit 10.1 of the Company’s Current  Report on Form 8-K filed on January 6, 2009)                                                                                          |
|   |                                                                                                                                                                                                                                                                                                              |
| 31.1   | Certification of Chief Executive Officer pursuant to  Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                 |

 

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| 31.2   | Certification of Chief Financial Officer pursuant to  Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                              |
| 32.1   | Certification of Chief Executive Officer pursuant to  18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002                                     |
|   |                                                                                                                                                                                              |
| 32.2   | Certification of Chief Financial Officer pursuant to  18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002                                     |

 

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**SIGNATURES**

** **

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 
|                     |   | Atlantic  Tele-Network, Inc.      |
|--------------------------|--------|----------------------------------------|
|                     |   |                                   |
| Date:  May 11, 2009 |   | /s/  Michael T. Prior                  |
|                     |   | Michael  T. Prior                      |
|                     |   | President  and Chief Executive Officer |
|                     |   |                                   |
| Date:  May 11, 2009 |   | /s/  Justin D. Benincasa               |
|                     |   | Justin  D. Benincasa                   |
|                     |   | Chief  Financial Officer and Treasurer |

 

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