**Tableof Contents**

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**UNITED STATES**SECURITIES AND EXCHANGECOMMISSION

**Washington, D.C. 20549**

** **

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**Form 10-Q**

** **

**x****      QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the quarterly period ended September 30,2009**

 

**OR**

 

**o****         TRANSITION REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934**

 

**For the transition period from           to           **

** **

**Commission File Number 001-12593**

** **

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**Atlantic Tele-Network, Inc.**

(Exact name ofregistrant 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**

**(Addressof principle executive offices, including zip code)**

** **

**(978) 619-1300**

**(Registrant’stelephone number, including area code)**

** **

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Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.Yes xNo o

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 ofthis chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files). Yes o No o

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, a non-accelerated filer, or asmaller reporting company. See definitions of “large accelerated filer,” “acceleratedfiler,” and “smaller reporting 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 markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act):Yes oNo x

 

As of November 9,2009, the registrant had outstanding 15,235,876 shares of its common stock($.01 par value).

 

 

 

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**ATLANTIC TELE-NETWORK, INC.**

 

FORM 10-Q

QuarterEnded September 30, 2009

 
| CAUTIONARY  STATEMENT REGARDING FORWARD LOOKING STATEMENTS |                                                                                                            |
|------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------|
|                                                       |                                                                                                            |
| PART I—FINANCIAL  INFORMATION                    |                                                                                                            |
|                                                       |                                                                                                            |
| Item 1                                                | Unaudited Condensed  Consolidated Financial Statements                                                          |   |
|                                                       |                                                                                                            |   |
|                                                       | Condensed  Consolidated Balance Sheets at December 31, 2008 and September 30,  2009                   | 4 |
|                                                       |                                                                                                            |   |
|                                                       | Condensed  Consolidated Income Statements for the three and nine months ended  September 30, 2008 and 2009 | 5 |
|                                                       |                                                                                                            |   |
|                                                       | Condensed  Consolidated Statements of Cash Flows for the nine months ended  September 30, 2008 and 2009    | 6 |
|                                                       |                                                                                                            |   |
|                                                       | Notes to Unaudited Condensed Consolidated Financial  Statements                                                 | 7-17 |
|                                                       |                                                                                                            |   |
| Item 2                                                     | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                     | 17-30 |
|                                                       |                                                                                                            |   |
| Item 3                                                     | Quantitative  and Qualitative Disclosures About Market Risk                                                     | 30 |
|                                                       |                                                                                                            |   |
| Item 4                                                     | Controls and  Procedures                                                                                        | 30 |
|                                                       |                                                                                                            |   |
| PART II—OTHER  INFORMATION                       |                                                                                                            |
|                                                       |                                                                                                            |   |
| Item 1                                                     | Legal Proceedings                                                                                               | 31 |
|                                                       |                                                                                                            |   |
| Item1A                                                     | Risk Factors                                                                                                    | 31 |
|                                                       |                                                                                                            |   |
| Item 2                                                     | Unregistered  Sales of Equity Securities and Use of Proceeds                                                    | 31 |
|                                                       |                                                                                                            |   |
| Item 6                                                     | Exhibits                                                                                                        | 32 |
|                                                       |                                                                                                            |   |
| SIGNATURES                                                 |                                                                                                            |
|                                                       |                                                                                                            |   |
| CERTIFICATIONS                                             |                                                                                                            |

 

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**Cautionary Statement Regarding Forward-LookingStatements**

** **

This Quarterly Report onForm 10-Q (or the “Report”) contains forward-looking statements relatingto, among other matters, the future financial performance and results ofoperations of ATN and its subsidiaries, including the relative contributions ofGT&T, Commnet, Sovernet, Choice and BDC; the benefits and timing of thepending acquisition of wireless assets from Verizon Wireless, including whetherthe transaction will be completed; the competitive environment in our keymarkets, demand for our services and industry trends; the outcome of litigationand regulatory matters; our continued access to the credit and capital markets;the pace of our network expansion and improvement, including our realization ofthe benefits of these investments; and management’s plans and strategy for thefuture.  These forward-looking statementsare based on estimates, projections, beliefs, and assumptions and are notguarantees of future events or results. Actual future events and results could differ materially from the eventsand results indicated in these statements as a result of many factors,including, among others, (1) the ability of ATN to operate a large scale retailwireless business in the United States and integrate these operations into itsexisting operations; (2) the ability to receive the requisite regulatoryconsents and approvals to consummate the Verizon Wireless transaction;(3) the general performance of the acquired operations related to theVerizon Wireless assets to be acquired, including operating margins and thefuture retention and turnover of the acquired subscriber base; (4) theability of ATN to close on financing commitments for the balance of thepurchase price of the wireless assets to be acquired from Verizon Wireless,which is dependent on market conditions; there can be no assurances that suchfinancing will be available to ATN at all or on terms that are favorable toATN; (5) significant political and regulatory uncertainty facing our exclusivelicense to provide local exchange and international voice and data services inGuyana; (6) the derivation of a significant portion of our U.S. wirelessrevenue from a small number of customers and the extent to which our wholesalecustomers build or acquire overlapping networks; (7) any significant decline inthe price or volume, including as a result of bypass activities, ofinternational long distance calls to Guyana; (8) the regulation of ratesthat GT&T may charge for local wireline telephone service;(9) significant tax disputes between GT&T and the Guyanese taxauthorities; (10) our ability to maintain favorable roaming arrangements,including the rates Commnet charges its wholesale customers; (11) thecurrent global economic recession, along with difficult and volatile conditionsin the capital and credit markets; (12) increased competition; (13)economic, political and other risks facing our foreign operations; (14)regulatory changes affecting our businesses; (15) the loss of certain FCClicenses; (16) rapid and significant technological changes in thetelecommunications industry; (17) our reliance on a limited number of keysuppliers and vendors for timely supply of equipment and services relating toour network infrastructure; (18) any loss of any key members of management;(19) the adequacy and expansion capabilities of our network capacity andcustomer service system to support our customer growth; (20) dependence of ourwireless and wireline revenue on the reliability and performance of our networkinfrastructure; (21) the occurrence of severe weather and natural catastrophes;and (22) our ability to realize the value that we believe exists in businessesthat we acquire. These and other additional factors that may cause actualfuture events and results to differ materially from the events and resultsindicated in the forward-looking statements above are set forth more fullyunder Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-Kfor the year ended December 31, 2008, which is on file with the SEC. TheCompany undertakes no obligation to update these forward-looking statements toreflect actual results, changes in assumptions or changes in other factors thatmay affect such forward-looking statements.

 

 

In this Report the words “theCompany”, “we,” “our,” “ours” and “us” refer to Atlantic Tele-Network, Inc.and its subsidiaries, unless the context indicates otherwise. This Reportcontains trademarks, service marks and trade names that are the property ofATN, its subsidiaries and others.

 

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

 

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**PART I—FINANCIALINFORMATION**

**Item 1.  Unaudited Condensed Consolidated FinancialStatements**

 

**ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

**(Unaudited)**

**(Dollars in thousands, except pershare amounts)**

 
| ** **                                                                                                                                                                                     | ** ** | **December 31,  2008** | ** ** | **September 30,  2009** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|------------------------------|------------|
| **ASSETS**                                                                                                                                                                                     |       |                        |       |                         |       |
| Current Assets:                                                                                                                                                                                |       |                        |       |                         |       |
| Cash and cash equivalents                                                                                                                                                                      |       | $                           | 79,665     |                         | $          | 95,442 |   |
| Restricted cash                                                                                                                                                                                |       | —                      |       | 3,578                        |       |
| Short term investments                                                                                                                                                                         |       | 2,956                       |       | —                       |       |
| Accounts receivable, net of allowances of $2.5 million  and $3.9 million, respectively                                                                                                         |       | 26,779                      |       | 31,926                       |       |
| Materials and supplies                                                                                                                                                                         |       | 5,669                       |       | 5,411                        |       |
| Prepaid income taxes                                                                                                                                                                           |       | 10,708                      |       | —                       |       |
| Deferred income taxes                                                                                                                                                                          |       | 1,443                       |       | 1,443                        |       |
| Prepayments and other current assets                                                                                                                                                           |       | 4,101                       |       | 3,205                        |       |
| Total current assets                                                                                                                                                                           |       | 131,321                     |       | 141,005                      |       |
| Fixed asset, net                                                                                                                                                                               |       | 198,230                     |       | 207,647                      |       |
| Licenses                                                                                                                                                                                       |       | 33,658                      |       | 34,606                       |       |
| Goodwill                                                                                                                                                                                       |       | 40,237                      |       | 40,361                       |       |
| Other intangibles, net                                                                                                                                                                         |       | 2,456                       |       | 1,993                        |       |
| Deferred income taxes                                                                                                                                                                          |       | 8,570                       |       | 7,752                        |       |
| Other assets                                                                                                                                                                                   |       | 5,349                       |       | 5,892                        |       |
| Total assets                                                                                                                                                                                   |       | $                           | 419,821    |                         | $          | 439,256 |   |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                                                                                 |       |                        |       |                         |       |
| Current Liabilities:                                                                                                                                                                           |       |                        |       |                         |       |
| Current portion of long-term debt                                                                                                                                                              |       | $                           | 750        |                         | $          | 750 |   |
| Accounts payable and accrued liabilities                                                                                                                                                       |       | 28,707                      |       | 26,012                       |       |
| Dividends payable                                                                                                                                                                              |       | 2,777                       |       | 3,088                        |       |
| Accrued taxes                                                                                                                                                                                  |       | 8,631                       |       | 10,374                       |       |
| Advance payments and deposits                                                                                                                                                                  |       | 3,652                       |       | 3,263                        |       |
| Other current liabilities                                                                                                                                                                      |       | 3,395                       |       | 5,972                        |       |
| Total current liabilities                                                                                                                                                                      |       | 47,912                      |       | 49,459                       |       |
| Deferred income taxes                                                                                                                                                                          |       | 28,736                      |       | 28,736                       |       |
| Other liabilities                                                                                                                                                                              |       | 8,202                       |       | 6,452                        |       |
| Long-term debt, excluding current portion                                                                                                                                                      |       | 73,311                      |       | 72,811                       |       |
| Total liabilities                                                                                                                                                                              |       | 158,161                     |       | 157,458                      |       |
| Commitments and contingencies (Note 12)                                                                                                                                                        |       |                        |       |                         |       |
| 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 and 15,732,382 shares issued, respectively, and  15,228,610 and 15,235,876 shares outstanding, respectively |       | 157                         |       | 157                          |       |
| Treasury stock, at cost; 496,447 and 496,506  shares, respectively                                                                                                                             |       | (4,560                      | )          | (4,576                       | )          |
| Additional paid-in capital                                                                                                                                                                     |       | 107,312                     |       | 108,360                      |       |
| Retained earnings                                                                                                                                                                              |       | 132,866                     |       | 154,709                      |       |
| Accumulated other comprehensive loss                                                                                                                                                           |       | (6,902                      | )          | (5,851                       | )          |
| Total Atlantic Tele-Network, Inc’s stockholders’  equity                                                                                                                             |       | 228,873                     |       | 252,799                      |       |
| Non-controlling interests                                                                                                                                                                      |       | 32,787                      |       | 28,999                       |       |
| Total equity                                                                                                                                                                                   |       | 261,660                     |       | 281,798                      |       |
| Total liabilities and equity                                                                                                                                                                   |       | $                           | 419,821    |                         | $          | 439,256 |   |

 

The accompanyingcondensed notes are an integral part of these condensed consolidatedfinancial statements.

 

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

**CONDENSED CONSOLIDATEDINCOME STATEMENTS**

**FOR THE THREE AND NINEMONTHS ENDED SEPTEMBER 30, 2008 and 2009**

**(Unaudited)**

**(Dollars in thousands,except per share amounts)**

 
| ** **                                                                                                                                                                                                                                                                                        | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                                                                                                                                                                                                                                                                        | ** ** | **2008**                                             | ** ** | **2009**                                       | ** ** | **2008** | ** ** | **2009** | ** ** |
| **REVENUE:**                                                                                                                                                                                                                                                                                      | ** ** | ** **                                           | ** ** | ** **                                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Wireless                                                                                                                                                                                                                                                                                          |       | $                                                    | 30,388     |                                           | $          | 42,880 |   | $ | 74,927 |   | $ | 111,120 |   |
| Local telephone and data                                                                                                                                                                                                                                                                          |       | 12,807                                               |       | 13,918                                         |       | 37,321 |   | 40,471 |   |
| International long distance                                                                                                                                                                                                                                                                       |       | 11,794                                               |       | 9,133                                          |       | 36,736 |   | 29,412 |   |
| Other                                                                                                                                                                                                                                                                                             |       | 919                                                  |       | 11                                             |       | 2,968 |   | 1,200 |   |
| Total revenues                                                                                                                                                                                                                                                                                    |       | 55,908                                               |       | 65,942                                         |       | 151,952 |   | 182,203 |   |
| **OPERATING EXPENSES**(*excluding depreciation and amortization unless otherwise indicated*):                                                                                                                                                                                                     | ** ** | ** **                                           | ** ** | ** **                                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Termination and access fees                                                                                                                                                                                                                                                                       |       | 9,612                                                |       | 11,250                                         |       | 25,544 |   | 32,583 |   |
| Internet and programming                                                                                                                                                                                                                                                                          |       | 869                                                  |       | 422                                            |       | 2,631 |   | 1,609 |   |
| Engineering and operations                                                                                                                                                                                                                                                                        |       | 6,431                                                |       | 6,519                                          |       | 18,217 |   | 20,976 |   |
| Sales and marketing                                                                                                                                                                                                                                                                               |       | 3,123                                                |       | 4,073                                          |       | 8,741 |   | 11,473 |   |
| General and administrative                                                                                                                                                                                                                                                                        |       | 7,228                                                |       | 8,694                                          |       | 19,902 |   | 26,290 |   |
| Acquisition-related charges                                                                                                                                                                                                                                                                       |       | —                                               |       | 2,072                                          |       | 59 |   | 2,479 |   |
| Depreciation and amortization                                                                                                                                                                                                                                                                     |       | 8,289                                                |       | 9,763                                          |       | 22,790 |   | 28,756 |   |
| Total operating expenses                                                                                                                                                                                                                                                                          |       | 35,552                                               |       | 42,793                                         |       | 97,884 |   | 124,166 |   |
| Income from operations                                                                                                                                                                                                                                                                            |       | 20,356                                               |       | 23,149                                         |       | 54,068 |   | 58,037 |   |
| **OTHER INCOME (EXPENSE):**                                                                                                                                                                                                                                                                       | ** ** | ** **                                           | ** ** | ** **                                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Interest expense                                                                                                                                                                                                                                                                                  |       | (733                                                 | )          | (1,228                                         | )          | (2,049 | ) | (3,582 | ) |
| Interest income                                                                                                                                                                                                                                                                                   |       | 344                                                  |       | 354                                            |       | 1,322 |   | 1,063 |   |
| Other income, net                                                                                                                                                                                                                                                                                 |       | (4                                                   | )          | 13                                             |       | 364 |   | 49 |   |
| Other income (expense), net                                                                                                                                                                                                                                                                       |       | (393                                                 | )          | (861                                           | )          | (363 | ) | (2,470 | ) |
| **INCOME BEFORE INCOME TAXES**                                                                                                                                                                                                                                                                    |       | 19,963                                               |       | 22,288                                         |       | 53,705 |   | 55,567 |   |
| Income taxes                                                                                                                                                                                                                                                                                      |       | 8,538                                                |       | 9,919                                          |       | 22,570 |   | 24,217 |   |
| **INCOME BEFORE EQUITY IN  EARNINGS OF UNCONSOLIDATED AFFILIATES**                                                                                                                                                                                                                                |       | 11,425                                               |       | 12,369                                         |       | 31,135 |   | 31,350 |   |
| Equity in earnings of unconsolidated affiliates                                                                                                                                                                                                                                                   |       | —                                               |       | —                                         |       | 735 |   | — |   |
| **NET INCOME**                                                                                                                                                                                                                                                                                    |       | 11,425                                               |       | 12,369                                         |       | 31,870 |   | 31,350 |   |
| Less: Net income attributable to non-controlling  interests, net of tax of $0.8 million and $0.7 million for the three months  ended September 30, 2008 and 2009, respectively, and $2.7 million and  $2.1 million for the nine months ended September 30, 2008 and 2009,  respectively |       | (1,286                                               | )          | (433                                           | )          | (3,659 | ) | (976 | ) |
| **NET INCOME ATTRIBUTABLE TO  ATLANTIC TELE-NETWORK, INC. STOCKHOLDERS**                                                                                                                                                                                                                          |       | $                                                    | 10,139     |                                           | $          | 11,936 |   | $ | 28,211 |   | $ | 30,374 |   |
| **NET INCOME PER WEIGHTED AVERAGE  SHARE ATTRIBUTABLE TO ATLANTIC TELE-NETWORK, INC. STOCKHOLDERS:**                                                                                                                                                                                              | ** ** | ** **                                           | ** ** | ** **                                     | ** ** | ** ** |   | ** ** |   |
| Basic                                                                                                                                                                                                                                                                                             |       | $                                                    | 0.67       |                                           | $          | 0.78 |   | $ | 1.85 |   | $ | 1.99 |   |
| Diluted                                                                                                                                                                                                                                                                                           |       | $                                                    | 0.66       |                                           | $          | 0.78 |   | $ | 1.85 |   | $ | 1.98 |   |
| **WEIGHTED AVERAGE COMMON SHARES  OUTSTANDING:**                                                                                                                                                                                                                                                  | ** ** | ** **                                           | ** ** | ** **                                     | ** ** | ** ** |   | ** ** |   |
| Basic                                                                                                                                                                                                                                                                                             |       | 15,203                                               |       | 15,237                                         |       | 15,216 |   | 15,233 |   |
| Diluted                                                                                                                                                                                                                                                                                           |       | 15,266                                               |       | 15,398                                         |       | 15,281 |   | 15,304 |   |
| **DIVIDENDS PER SHARE APPLICABLE  TO COMMON STOCK**                                                                                                                                                                                                                                               |       | $                                                    | 0.18       |                                           | $          | 0.20 |   | $ | 0.50 |   | $ | 0.56 |   |

 

The accompanyingcondensed notes are an integral part of these condensed consolidatedfinancial statements.

 

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

**CONDENSED CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**FOR THE NINE MONTHS ENDEDSEPTEMBER 30, 2008 AND 2009**

**(Unaudited)**

**(Dollars in thousands)**

 
| ** **                                                                                              | ** ** | **Nine Months Ended  September 30,** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                                              | ** ** | **2008**                                            | ** ** | **2009** | ** ** |
| **CASH FLOWS FROM OPERATING ACTIVITIES:**                                                               | ** ** | ** **                                          | ** ** | ** ** | ** ** |
| Net  income                                                                                             |       | $                                                   | 31,870     |   | $ | 31,350 |   |
| Adjustments  to reconcile net income to net cash flows provided by operating activities:                |       |                                                |       |   |   |
| Depreciation  and amortization                                                                          |       | 22,790                                              |       | 28,756 |   |
| Provision  for doubtful accounts                                                                        |       | 1,204                                               |       | 1,104 |   |
| Amortization  of debt discount and debt issuance costs                                                  |       | 115                                                 |       | 388 |   |
| Stock-based  compensation                                                                               |       | 860                                                 |       | 1,019 |   |
| Deferred  income taxes                                                                                  |       | 400                                                 |       | 596 |   |
| Equity  in earnings of unconsolidated affiliates                                                        |       | (735                                                | )          | — |   |
| Dividends  received from Bermuda Digital Communications, Ltd.                                           |       | 1,106                                               |       | — |   |
| Changes  in operating assets and liabilities, excluding the effects of acquisitions:                    |       |                                                |       |   |   |
| Accounts  receivable                                                                                    |       | 654                                                 |       | (6,251 | ) |
| Materials  and supplies, prepayments, and other current assets                                          |       | 1,368                                               |       | 1,736 |   |
| Prepaid  income taxes                                                                                   |       | —                                              |       | 10,708 |   |
| Accounts  payable and accrued liabilities, advance payments and deposits and other  current liabilities |       | (3,627                                              | )          | 800 |   |
| Accrued  taxes                                                                                          |       | (9,457                                              | )          | 1,267 |   |
| Other                                                                                                   |       | (6,926                                              | )          | (672 | ) |
| Net  cash provided by operating activities                                                              |       | 39,622                                              |       | 70,801 |   |
| **CASH FLOWS FROM INVESTING ACTIVITIES:**                                                               | ** ** | ** **                                          | ** ** | ** ** | ** ** |
| Capital  expenditures                                                                                   |       | (34,611                                             | )          | (40,273 | ) |
| Acquisitions  of businesses, net of cash acquired of $5,736 and $0, respectively                        |       | (23,052                                             | )          | (24 | ) |
| Acquisition  of assets                                                                                  |       | —                                              |       | (25 | ) |
| Purchase  of short-term marketable securities                                                           |       | (162                                                | )          | — |   |
| Maturity  of short-term marketable securities                                                           |       | —                                              |       | 2,956 |   |
| Decrease  (increase) in restricted cash                                                                 |       | 4,831                                               |       | (3,578 | ) |
| Net  cash used in investing activities                                                                  |       | (52,994                                             | )          | (40,944 | ) |
| **CASH FLOWS FROM FINANCING ACTIVITIES:**                                                               | ** ** | ** **                                          | ** ** | ** ** | ** ** |
| Dividends  paid on common stock                                                                         |       | (7,293                                              | )          | (8,224 | ) |
| Distributions  to non-controlling interests                                                             |       | (2,159                                              | )          | (5,543 | ) |
| Borrowings  of long-term debt                                                                           |       | 75,000                                              |       | — |   |
| Repayments  of long-term debt                                                                           |       | (50,188                                             | )          | (564 | ) |
| Investments  made by non-controlling interests                                                          |       | —                                              |       | 200 |   |
| Proceeds  from stock option exercises                                                                   |       | 304                                                 |       | 74 |   |
| Purchase  of common stock                                                                               |       | (1,164                                              | )          | (23 | ) |
| Net  cash provided by (used in) financing activities                                                    |       | 14,500                                              |       | (14,080 | ) |
| **NET CHANGE IN CASH AND CASH EQUIVALENTS**                                                             |       | 1,128                                               |       | 15,777 |   |
| **CASH AND CASH EQUIVALENTS, beginning of the  period**                                                 |       | 71,173                                              |       | 79,665 |   |
| **CASH AND CASH EQUIVALENTS, end of the period**                                                        |       | $                                                   | 72,301     |   | $ | 95,442 |   |

 

The accompanyingcondensed notes are an integral part of these condensed consolidatedfinancial statements.

 

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

**NOTES TO UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

 

**1.  ORGANIZATION AND BUSINESS OPERATIONS**

 

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

 

·                  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 36% and 48% of the Company’s consolidated revenues forthe three months ended September 30, 2008 and 2009, respectively. ATNacquired Commnet in 2005 and currently owns 100% of Commnet’s equity.

 

·                  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 sinceJanuary 1991. GT&T generated approximately 44% and 34% of theCompany’s consolidated revenues for the three months ended September 30,2008 and 2009, respectively.

 

·                  Bermuda Digital Communications, Ltd. (“BDC”), aleading 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. OnMay 15, 2008, BDC completed a share repurchase of its common stock. ATNdid not tender any shares for repurchase, and, as a result of the transaction,increased its holdings from approximately 43% to approximately 58% of BDC’soutstanding common stock. Prior to this increase in holdings, the Companyaccounted for its investment in BDC under the equity method and earnings fromBDC did not appear in its income from operations, but were instead reflected inequity in earnings of unconsolidated affiliates. Effective with the completionof that share repurchase, the Company began consolidating BDC’s balance sheetand results of operations. In September 2008, BDC began providing wirelessservices in Turks 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.

 

·                  Choice Communications, LLC (“Choice”), a leadingprovider of fixed and portable wireless broadband data and dial-up internetservices to retail and business customers in the U.S. Virgin Islands. Choicewas acquired by ATN in 1999 and is a wholly owned subsidiary of theCompany.  Choice discontinued its wireless television service onMay 31, 2009 to focus mainly on providing wireless broadband dataservices.

 

ATN provides management,technical, financial, regulatory, and marketing services to its subsidiariesand typically receives a management fee equal to approximately 3% to 6% oftheir respective revenues. Management fees from consolidated subsidiaries areeliminated in consolidation. ATN received management fees from unconsolidatedaffiliates in 2008, which are included in “Other Income” in the accompanyingstatements of operations.

 

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**2.  BASIS OF PRESENTATION**

 

The accompanyingcondensed consolidated financial statements have been prepared by the Companypursuant to the rules and regulations of the Securities and ExchangeCommission (“SEC”). The financial information included herein is unaudited;however, the Company believes such information and the disclosures herein areadequate to make the information presented not misleading and reflect alladjustments (consisting only of normal recurring adjustments) that arenecessary for a fair statement of the Company’s financial position and resultsof operations for such periods. The year-end condensed balance sheet data wasderived from audited financial statements, but does not include all disclosuresrequired by accounting principles generally accepted in the United States ofAmerica.  Results of interim periods may not be indicative of resultsfor the full year.  These condensed consolidated financial statements andrelated notes should be read in conjunction with the Company’s 2008 AnnualReport on Form 10-K.

 

***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”) authoritativeguidance on the consolidation of variable interest entities, since it isdetermined that the Company is the primary beneficiary of these entities.Revenue from these entities constitutes less than 1% of total Company revenue.

 

***Reclassifications***

 

In December 2007,the FASB issued new authoritative guidance requiring (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 ofthe new guidance 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 periodspresented have also been reclassified to conform to the current classificationrequired by the new guidance.

 

***RecentAccounting Pronouncements***

 

**Recently Adopted Standards**

 

In June 2009, the Financial Accounting StandardsBoard (“FASB”) issued guidance which changed the referencing of financialstandards and the Hierarchy of Generally Accepted Accounting Principles and iseffective for interim or annual financial periods ending afterSeptember 15, 2009. The Company adopted the provisions of the new guidancein the third quarter of 2009 and updated its interim disclosures.

 

In May 2009, the FASB issued guidance that modifiedthe definition of what qualifies as a subsequent event—those events ortransactions that occur following the balance sheet date, but before thefinancial statements are issued, or are available to be issued—and requiredcompanies to disclose the date through which it has evaluated subsequent eventsand the basis for determining that date.  The Company adopted theprovisions of the new guidance in the second quarter of 2009.

 

In April 2009, theFASB issued new authoritative guidance that requires the recognition of another-than-temporary impairment when an entity has the intent to sell a debtsecurity or when it is more likely than not that an entity will be required tosell the debt security before its anticipated recovery in value. Additionally,the new guidance changes the presentation and amount of other-than-temporaryimpairment losses recognized in the income statement for instances in which theCompany does not intend to sell or it is more likely than not that the Companywill not be required to sell a debt security prior to the anticipated recoveryof its remaining cost basis.  In addition to the changes in measurementand presentation, the new guidance expands the disclosures related toother-than-temporary impairments and require all such disclosures to beincluded in both interim and annual periods. The provisions of the new guidance were effective for the three monthperiod ended June, 30, 2009.  The adoption of the provisions of thisguidance did not have a material impact on the Company’s consolidated financialstatements.

 

In April 2009, theFASB issued new authoritative guidance for determining when a transaction isnot orderly and for estimating fair value in accordance with FASB standards**when there has been a significantdecrease in the volume and level of activity for an asset or liability.  The guidance requires the disclosure of theinputs and valuation techniques used, as well as any changes in valuationtechniques and inputs used during the period, to measure fair value in interimand annual periods. In addition, the new guidance requires that thepresentation of the fair value hierarchy be presented by major security type inaccordance with FASB guidance.  Theadoption of the provisions of this guidance did not have a material impact onthe Company’s consolidated financial statements.

 

In December 2007, theFASB issued new authoritative guidance that requires the Company to revise itsapplication of the acquisition method for business combinations in a number ofsignificant aspects such as requiring the Company to expense transaction costsand to recognize 100% of the acquiree’s assets and liabilities rather than aproportional share for acquisitions of less than 100% of a business.  Inaddition, the guidance eliminates the step acquisition model and providesthat all business combinations, whether full, partial, or step acquisitions,results in all assets and liabilities of an acquired business being recorded attheir fair values at the acquisition date. The Company adopted the provisions of this guidance on January 1, 2009.The impact of the provisions of this guidance on the Company’s financialstatements will be dependent upon the number of and magnitude of theacquisitions that are consummated.

 

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In April 2009, theFASB issued new authoritative guidance which amends the initial and subsequentmeasurement guidance and disclosure requirements for assets and liabilitiesarising from contingencies in a business combination. The provisions of thisguidance are effective on a prospective basis for all business combinations forwhich the acquisition date is on or after January 1, 2009.

 

In January 2009, theFASB issued new authoritative guidance that requires disclosures about the fairvalue of financial instruments in interim financial statements as well as inannual financial statements. Additionally, this guidance requires thosedisclosures in all interim financial statements. The Company adopted theprovisions of this guidance, as required, for the period ended June 30,2009. The adoption of the provisions of this guidance did not have a materialimpact on the Company’s consolidated financial statements.

 

**Standards to be Adopted**

 

In December 2008,the FASB issued new authoritative guidance that provides additional guidance onan employer’s disclosures about plan assets of a defined benefit pension orother postretirement plan. The adoption of the provisions of this guidance willincrease the disclosures in the financial statements related to the assets ofan employers’ defined benefit pension plan. This guidance is effective in 2010.The Company does not anticipate that adoption of the provisions of thisguidance will have a material impact on the consolidated financial statements.

 

In June 2009, theFASB issued new authoritative guidance that amends certain guidance fordetermining whether an entity is a variable interest entity (VIE). The guidancerequires an enterprise to perform an analysis to determine whether the Company’svariable interests give it a controlling financial interest in a VIE. A companywould be required to assess whether it has an implicit financial responsibilityto ensure that a VIE operates as designed when determining whether it has thepower to direct the activities of the VIE that most significantly impact theentity’s economic performance. In addition, this guidance amends earlierguidance requiring ongoing reassessments of whether an enterprise is theprimary beneficiary of a VIE. The guidance is effective for the Company forfiscal year 2010. The Company does not anticipate that the adoption of theprovisions of this guidance will have a material impact on the consolidatedfinancial statements.

 

**3.  USE OF ESTIMATES**

 

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the dates of the financialstatements and the reported amounts of revenues and expenses during thereporting periods. The most significant estimates relate to allowance fordoubtful accounts, useful lives of the Company’s fixed and finite-lived intangibleassets, allocation of purchase price to assets acquired and liabilities assumedin purchase business combinations, fair value of indefinite-lived intangibleassets, goodwill and income taxes. Actual results could differ significantlyfrom those estimates.

 

**4.  PENDING ACQUISTION- ALLTEL ASSETS**

 

On June 9, 2009, theCompany entered into a Purchase Agreement (the “Purchase Agreement”) withCellco Partnership d/b/a Verizon Wireless (“Verizon”) to acquire wirelessassets previously acquired by Verizon in its acquisition of Alltel Corporationin certain, primarily rural, markets in Georgia, North Carolina, SouthCarolina, Illinois, Ohio and Idaho. Pursuant to the terms of the PurchaseAgreement, Verizon will cause certain licenses, network assets, tower and otherleases, and other assets and certain related liabilities to be contributed to anewly formed, wholly-owned subsidiary limited liability company, whosemembership interests will

 

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be acquired by theCompany for a purchase price of approximately $200 million (the “AlltelAcquisition”). Verizon is required to divest these assets under consent decreesit entered into with the U.S. Department of Justice related to its purchase ofAlltel Corporation earlier this year.

 

The parties haveagreed to a variety of customary covenants and agreements, including withrespect to confidentiality, cooperation (including with respect to regulatorymatters), the conduct of the business to be acquired in the ordinary courseconsistent with past practice and other restrictions on the operation of suchbusiness prior to the consummation of the Alltel Acquisition, publicannouncements and similar matters. Consummation of the Alltel Acquisition issubject to the satisfaction of certain conditions, including, among others,(i) the receipt of the United States Department of Justice’s approval ofthe Alltel Acquisition, (ii) the receipt of all required consents of theFederal Communications Commission to the transfer, assignment or change incontrol of certain licenses pursuant to the Alltel Acquisition, (iii) thereceipt of required consents from state public utility commissions, if any, and(iv) the absence of any injunction or final judgment prohibiting theconsummation of the Alltel Acquisition. Consummation of the Alltel Acquisitionis not subject to any financing condition. In conjunction with the AlltelAcquisition, the Company has received commitments from lenders for an expandedcredit facility consisting of a $75 million term loan (“Term Loan A”), a $150million term loan (“Term Loan B”) and a $75 million revolving credit facility(the “New Revolver Facility,” and together with Term Loan A and Term Loan B,the “New Credit Facility”).  The NewCredit Facility would replace the 2008 Credit Facility.  The Company plans to use cash on hand, theproceeds from Term Loan B and a portion of the proceeds available under the NewRevolver Facility towards the acquisition purchase price and relatedacquisition expenses and working capital adjustments.  The New Credit Facility is subject to theexecution of definitive documentation and other customary closing conditions.  The Company expects to enter into the NewCredit Facility in the fourth quarter of 2009.

 

**5.  FAIR VALUE MEASUREMENTS**

 

The Company’s financialinstruments at September 30, 2009 included cash and cash equivalents,restricted cash, accounts receivable, accounts payable, debt and an interestrate swap agreement. As of September 30, 2009, the estimated fair valuesof all of the Company’s financial instruments approximate their carryingvalues.

 

The FASB’s authoritativeguidance on fair value measurements provides a framework for measuring fairvalue and requires expanded disclosures regarding fair value measurements. Fairvalue is defined as the price that would be received for an asset or the exitprice that would be paid to transfer a liability in the principal or mostadvantageous market in an orderly transaction between market participants onthe measurement date. The FASB also establishes a fair value hierarchy thatrequires an entity to maximize the use of observable inputs, where available.The following summarizes the three levels of inputs required by theauthoritative guidance, as well as the assets and liabilities that we valueusing 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 and indicatesthe fair value hierarchy of the valuation and recorded

 

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techniques we utilized to determine such fair value.In general, fair values determined by Level 1 inputs utilize quoted prices(unadjusted) in active markets for identical assets or liabilities. Fair valuesdetermined by Level 2 inputs utilize data points that are observable suchas quoted prices, interest rates and yield curves. Fair values determined byLevel 3 inputs are unobservable data points for the asset or liability,and includes situations where there is little, if any, market activity for theasset or liability. As of December 31, 2008 and September 30, 2009, theCompany did not have any Level 3 assets or liabilities.

 
| **December  31, 2008**                       | ** ** |
|----------------------------------------------|------------|
| **Description**                              | ** ** | **Quoted Prices in  Active Markets  (Level 1)** | ** ** | **Significant Other  Observable Inputs  (Level 2)** | ** ** | **Significant  Unobservable Inputs********(Level 3)** | ** ** | **Total** | ** ** |
| Money  market funds                          |       | $ | 19,367 |   | $ | — |   | $ | — |   | $ | 19,367 |   |
| Certificates  of deposit                     |       | — |   | 5,456 |   | — |   | 5,456 |   |
| **Total assets measured at fair value**      |       | $ | 19,367 |   | $ | 5,456 |   | $ | — |   | $ | 24,823 |   |
|                                         |       |   |   |   |   |   |   |   |   |
| Interest  rate swap (Note 7)                 |       | $ | — |   | $ | 8,020 |   | $ | — |   | $ | 8,020 |   |
| **Total liabilities measured at fair value** |       | $ | — |   | $ | 8,020 |   | $ | — |   | $ | 8,020 |   |

 
| **September  30, 2009**                      | ** ** |
|----------------------------------------------|------------|
| **Description**                              | ** ** | **Quoted Prices in  Active Markets  (Level 1)** | ** ** | **Significant Other  Observable Inputs  (Level 2)** | ** ** | **Significant  Unobservable Inputs********(Level 3)** | ** ** | **Total** | ** ** |
| Money  market funds                          |       | $ | 16,212 |   | $ | — |   | $ | — |   | $ | 16,212 |   |
| Certificates  of deposit                     |       | — |   | 4,917 |   | — |   | 4,917 |   |
| **Total assets measured at fair value**      |       | $ | 16,212 |   | $ | 4,917 |   | $ | — |   | $ | 21,129 |   |
|                                         |       |   |   |   |   |   |   |   |   |
| Interest  rate swap (Note 7)                 |       | $ | — |   | $ | 6,269 |   | $ | — |   | $ | 6,269 |   |
| **Total liabilities measured at fair value** |       | $ | — |   | $ | 6,269 |   | $ | — |   | $ | 6,269 |   |

 

**6.  LONG-TERM DEBT**

 

Long-term debt comprises the following (in thousands):

 
| ** **                           | ** ** | **December 31,  2008** | ** ** | **September 30,  2009** | ** ** |
|--------------------------------------|------------|-----------------------------|------------|------------------------------|------------|
| Note  payable- $75 million term loan |       | $                           | 74,625     |                         | $          | 74,062 |   |
| Less:  current portion               |       | (750                        | )          | (750                         | )          |
| Total  long-term debt                |       | 73,875                      |       | 73,312                       |       |
| Less:  debt discount                 |       | (564                        | )          | (501                         | )          |
| Net  carrying amount                 |       | $                           | 73,311     |                         | $          | 72,811 |   |

 

***2008 Loan Facility***

 

On September 10,2008, the Company, as borrower, entered into a credit agreement with CoBank,ACB and other lenders as referenced within the credit agreement (the “2008CoBank Credit Agreement”). The 2008 CoBank Credit Agreement replaced the 2005Credit Agreement and provides a $75 million term loan (the “2008 TermLoan”) as well as a $75 million revolving credit facility (the “2008Revolver Facility”, and together with the 2008 Term Loan, the “2008 CreditFacility”). The 2008 CoBank Credit Agreement also provides, subject to lenderconsent, additional term loan borrowing capacity of up to $50 million withidentical terms as the 2008 Term Loan.

 

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

 

The 2008 RevolverFacility matures on September 10, 2014 and includes a $5 millionletter of credit facility. At September 30, 2009, no amounts had beendrawn under the 2008 Revolver Facility.

 

All borrowings under the2008 Credit Facility bear interest at a rate, selected by the Company from oneof the options set forth in the agreement, plus a margin. Such interest rate optionsinclude i) a base rate, defined as the greater of the prime rate or thefederal funds rate plus 0.5%, or ii) a LIBOR rate. Margins for base rateborrowings range from 0% to 0.5%, depending upon the Company’s leverage ratio,while margins for LIBOR borrowings range from 1.25% to 2% also depending uponthe Company’s leverage ratio. Borrowings as of September 30, 2009,including the interest rate swap agreement discussed in Note 7, were bearing aweighted-average interest rate of 5.25%.

 

The 2008 Credit Facilityis guaranteed by the Company’s Commnet, Sovernet and Choice subsidiaries, alongwith certain of the Company’s other domestic subsidiaries, and iscollateralized by a security interest in substantially all of the assets of theCompany and the guarantor subsidiaries, including Commnet, Sovernet and Choice,and a pledge of the stock of certain of the Company’s direct and indirect,domestic and foreign, subsidiaries, including its principal operatingsubsidiaries, and stock owned by the Company.

 

The 2008 CoBank CreditAgreement contains certain affirmative and negative covenants of the Companyand its subsidiaries. Among other things, these covenants restrict theCompany’s ability to incur additional debt in the future or to incur liens onits property. The 2008 Credit Agreement also requires the Company to maintaincertain financial ratios including a net leverage ratio of

 

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less than or equal to 3.0 to 1, an interest coverageratio of greater than or equal to 3.5 to 1 and an equity to assets ratio ofgreater than or equal to 0.4 to 1. As of September 30, 2009, the Companywas in compliance with all of the financial covenants of the 2008 CoBank CreditAgreement.

 

See Note 7 for adiscussion regarding the Company’s interest rate swap that corresponds to aportion of our variable rate debt in order to effectively hedge interest raterisk.  In conjunction with the AlltelAcquisition, the Company has received commitments from lenders for an expandedcredit facility consisting of a $75 million term loan (“Term Loan A”), a $150million term loan (“Term Loan B”) and a $75 million revolving credit facility(the “New Revolver Facility,” and together with Term Loan A and Term Loan B,the “New Credit Facility”).  The NewCredit Facility would replace the 2008 Credit Facility.  The Company plans to use cash on hand, theproceeds from Term Loan B and a portion of the proceeds available under the NewRevolver Facility towards the acquisition purchase price and relatedacquisition expenses and working capital adjustments.  The New Credit Facility is subject to theexecution of definitive documentation and other customary closingconditions.  The Company expects to enterinto the New Credit Facility in the fourth quarter of 2009.

 

**7. DERIVATIVE INSTRUMENTS AND HEDGINGACTIVITIES**

 

As required by the FASB’sauthoritative guidance on accounting for derivative instruments and hedging activities,the Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on theintended use 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 of forecastedtransactions, are considered cash flow hedges. Hedge accounting generallyprovides for the matching of the timing of gain or loss recognition on thehedging instrument with the recognition of the changes in the fair value of thehedged asset or liability that are attributable to the hedged risk in a fairvalue hedge or the earnings effect of the hedged forecasted transactions in acash flow hedge.  The Company may enter into derivative contracts that areintended to economically hedge certain of its risk, even though hedgeaccounting does not apply or the Company elects not to apply hedge accounting.

 

***Risk ManagementObjective of Using Derivatives***

 

The Company is exposed tocertain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business andoperational risks through management of its core business activities. TheCompany manages economic risks, including interest rate, liquidity, and creditrisk primarily by managing the amount, sources, and duration of its debtfunding and the use of derivative financial instruments.  Specifically,the Company enters into derivative financial instruments to manage exposuresthat arise from business activities that result in the receipt or payment offuture known and uncertain cash amounts, the value of which are determined byinterest rates.  The Company’s derivative financial instruments are usedto manage differences in the amount, timing, and duration of the Company’s knownor expected cash receipts and its known or expected cash payments principallyrelated to the Company’s investments and borrowings.

 

***Cash Flow Hedges ofInterest Rate Risk***

 

The Company’s objectivesin using interest rate derivatives are to add stability to interest expense andto manage its exposure to interest rate movements. To accomplish thisobjective, the Company primarily uses an interest rate swap as part of itsinterest rate risk management strategy.  Interest rate swaps designated ascash flow hedges involve the receipt of variable-rate amounts from acounterparty in exchange for the Company making fixed-rate payments over thelife of the agreements without exchange of the underlying notional amount.

 

The effective portion ofchanges in the fair value of interest rate swaps designated and that qualify ascash flow hedges is recorded in Accumulated Other Comprehensive Income and issubsequently reclassified into earnings in the period that the hedged forecastedtransaction affects earnings. During the three months and nine months endedSeptember 30, 2009, a derivative was used to hedge the variable cash flowsassociated with existing variable-rate debt.  The ineffective portion ofthe change in fair value of the derivatives is recognized directly in earnings.No hedge ineffectiveness was recognized during the three and nine months endedSeptember 30, 2009.

 

Amounts reported inaccumulated other comprehensive income related to the interest rate swap willbe reclassified to interest expense as interest payments are made on theCompany’s variable-rate debt.  ThroughSeptember 30, 2010, the Company estimates that an additional $2.7 million willbe reclassified as an increase to interest expense due to the interest rateswap since the hedge interest rate exceeds the variable interest rate on thedebt.

 

As of September 30,2009, the Company’s sole derivative instrument was an interest rate swap with anotional amount of $68 million that was designated as a cash flow hedge ofinterest rate risk.

 

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The table below presentsthe fair value of the Company’s derivative financial instruments as well astheir classification on the consolidated balance sheet as of September 30,2009 (in thousands):

 
| ** **                                                          | ** ** | **Liability Derivatives**                   | ** ** |
|---------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                          | ** ** | **as of September 30, 2009** | ** ** |
| ** **                                                          | ** ** | **Balance Sheet  Location**                 | ** ** | **Fair Value** | ** ** |
| Derivatives designated as hedging instruments  under SFAS 133:      |       |                                             |       |   |   |
| Interest Rate Swap                                                  |       | Other  long-term liabilities                     |       | $ | 6,269 |   |
| Total derivatives designated as hedging  instruments under SFAS 133 |       |                                             |       | $ | 6,269 |   |

 

The table below presentsthe effect of the Company’s derivative financial instruments on the statementof operations for the three months ended September 30, 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                                                                 |       | $                                                                                                                 | (1,439     | )                                                                                                                                            | Interest  expense |                                                                                                                   | $          | 719 |   |
|                                                                                    |            |                                                                                                                   |            |                                                                                                                                              |                   |                                                                                                                        |            |  |  |

 

The table below presentsthe effect of the Company’s derivative financial instruments on the statementof operations for the nine months ended September 30, 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                                             |       | $                                                                                        | 1,652      |                                                                                                  | Interest  expense |                                                                                                     | $          | 2,067 |   |
|                                                                |            |                                                                                          |            |                                                                                                       |                   |                                                                                                          |            |  |  |

 

***Credit-risk-relatedContingent Features***

 

The Company has agreementswith each of its derivative counterparties that contain a provision where ifthe Company defaults on any of its indebtedness, including default whererepayment of the indebtedness has not been accelerated by thelender, then the Company could also be declared in default on itsderivative obligations.

 

As of September 30,2009, the fair value of the interest rate swap liability position, related tothese agreements was $6.3 million.  As of September 30, 2009, theCompany has not posted any collateral related to this agreement. If the Companyhad breached any of these provisions at September 30, 2009, it would havebeen required to settle its obligation under the agreement at its terminationvalue of $6.4 million.

 

**8. RECONCILIATION OF TOTAL EQUITY**

 

Total equity was asfollows (in thousands):

 
| ** **                                                                            | ** ** | **Nine Months Ended September 30,** | ** ** |
|---------------------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                                            | ** ** | **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                                                             |       | 860                                                     |       | — |   | 860 |   | 1,019 |   | — |   | 1,019 |   |
| Comprehensive  income:                                                                |       |                                                    |       |   |   |   |   |   |   |   |   |   |   |
| Net  income                                                                           |       | 28,211                                                  |       | 3,659 |   | 31,870 |   | 30,374 |   | 976 |   | 31,350 |   |
| Other comprehensive  income(loss)- Gain(loss) on interest rate swap (net of tax) |       | (636                                                    | )          | — |   | (636 | ) | 1,036 |   | — |   | 1,036 |   |
| Total  comprehensive income                                                           |       | 27,575                                                  |       | 3,659 |   | 31,234 |   | 31,410 |   | 976 |   | 32,386 |   |
| Issuance  of common stock upon exercise of stock options                              |       | 304                                                     |       | — |   | 304 |   | 74 |   | — |   | 74 |   |
| Dividends  on common stock                                                            |       | (7,605                                                  | )          | (2,158 | ) | (9,763 | ) | (8,531 | ) | (5,543 | ) | (14,074 | ) |
| Investments  made by minority shareholders                                            |       | —                                                  |       | — |   | — |   | — |   | 781 |   | 781 |   |
| Purchase  of common shares                                                            |       | (1,164                                                  | )          | — |   | (1,164 | ) | (23 | ) | — |   | (23 | ) |
| Non-controlling  interest in entity acquired                                          |       | —                                                  |       | 5,075 |   | 5,075 |   | (23 | ) | (2 | ) | (25 | ) |
|                                                                                  |       |                                                    |       |   |   |   |   |   |   |   |   |   |   |
| Equity,  end of period                                                                |       | $                                                       | 228,941    |   | $ | 33,812 |   | $ | 262,753 |   | $ | 252,799 |   | $ | 28,999 |   | $ | 281,798 |   |

 

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**9.  STOCK-BASED COMPENSATION**

 

During the three monthsended September 30, 2008 and 2009, the Company recognized $0.2 million and$0.4 million, respectively, 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”).  During the nine months ended September 30,2008 and 2009, the Company recognized $0.9 million and $1.0 million,respectively, of non-cash compensation expense relating to grants under theShare Based Plans.

 

**10.  NET INCOME PER SHARE**

 

For the three and ninemonths ended September 30, 2008 and 2009, outstanding stock options werethe only potentially dilutive securities.

 

The reconciliation frombasic to diluted weighted average common shares outstanding is as follows (inthousands):

 
| ** **                                          | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|-----------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                          | ** ** | **2008**                                             | ** ** | **2009**                                            | ** ** | **2008** | ** ** | **2009** | ** ** |
| Basic  weighted average common shares outstanding   |       | 15,203                                               |       | 15,237                                              |       | 15,216 |   | 15,233 |   |
| Stock  options                                      |       | 63                                                   |       | 161                                                 |       | 65 |   | 71 |   |
| Diluted  weighted average common shares outstanding |       | 15,266                                               |       | 15,398                                              |       | 15,281 |   | 15,304 |   |

 

The above calculation forthe three months ended September 30, 2008 does not include 229,000 sharesrelated to certain stock options because the effects of such wereanti-dilutive.  For the nine months endedSeptember 30, 2008 and 2009, the calculation does not include 221,000 and219,000 shares, respectively, related to certain stock options because theeffect of such options were anti-dilutive.

 

**11.SEGMENT REPORTING**

 

The Company has fivereportable segments for separate disclosure in accordance with the FASB’sauthoritative guidance on disclosures about segments of an enterprise*.* Those five segments are:i) Integrated Telephony-International, which generates all of its revenuesin Guyana and has all of its assets located in Guyana, ii) Rural Wireless,which generates all of its revenues in the United States and has all of itsassets located in the United States, iii) Island Wireless, which generatesits revenues in and has its assets in Bermuda and Turks and Caicos,iv) Integrated Telephony-Domestic, which generates all of its revenues andhas all of its assets located in the United States and v) Wireless Data, whichgenerates all of its revenues in and has all of its assets located in the U.SVirgin Islands. The operating segments are managed separately because eachoffers different services and serves different markets.

 

Island Wireless became areportable segment upon completion of BDC’s share repurchase and resultingincrease in the Company’s equity interest in BDC, effective May 15,2008.  Effective May 31, 2009, the Company discontinued providingwireless televisions services, and therefore has changed the name of its segmentfrom “Wireless Television and Data” to “Wireless Data”. The Company determinedthat the wireless television services operations were immaterial for reportingas discontinued operations in the Company’s financial statements.

 

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The following tables,which for 2008 have been conformed to the 2009 presentation, provideinformation for each operating segment (in thousands):

 
| ** **                        | ** ** | **For the Three Months Ended September 30, 2008** | ** ** |
|-----------------------------------|------------|--------------------------------------------------------------------------------------|------------|
| ** **                        | ** ** | **Integrated  Telephony-  International**                                            | ** ** | **Rural  Wireless** | ** ** | **Island  Wireless** | ** ** | **Integrated  Telephony-  Domestic** | ** ** | **Wireless  Data** | ** ** | **Reconciling  Items** | ** ** | **Consolidated** | ** ** |
| Revenues                          |       | $                                                                                    | 24,725     |   | $ | 19,877 |   | $ | 5,109 |   | $ | 4,148 |   | $ | 2,049 | (1) | $ | — |   | $ | 55,908 |   |
| Depreciation and amortization     |       | 4,212                                                                                |       | 2,504 |   | 705 |   | 516 |   | 278 |   | 74 |   | 8,289 |   |
| Non-cash stock-based compensation |       | —                                                                               |       | — |   | — |   | 32 |   | — |   | 174 |   | 206 |   |
| Operating income (loss)           |       | 10,411                                                                               |       | 10,846 |   | 1,228 |   | 147 |   | (601 | ) | (1,675 | ) | 20,356 |   |
|                                   |            |                                                                                      |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                        | ** ** | **For the Three Months Ended September 30, 2009** | ** ** |
|-----------------------------------|------------|--------------------------------------------------------------------------------------|------------|
| ** **                        | ** ** | **Integrated  Telephony-  International**                                            | ** ** | **Rural  Wireless** | ** ** | **Island  Wireless** | ** ** | **Integrated  Telephony-  Domestic** | ** ** | **Wireless  Data** | ** ** | **Reconciling  Items** | ** ** | **Consolidated** | ** ** |
| Revenues                          |       | $                                                                                    | 22,710     |   | $ | 31,837 |   | $ | 5,518 |   | $ | 4,784 |   | $ | 1,093 |   | $ | — |   | $ | 65,942 |   |
| Depreciation and amortization     |       | 4,180                                                                                |       | 3,812 |   | 922 |   | 567 |   | 209 |   | 73 |   | 9,763 |   |
| Non-cash stock-based compensation |       | —                                                                               |       | — |   | — |   | 32 |   | — |   | 332 |   | 364 |   |
| Operating income (loss)           |       | 8,590                                                                                |       | 18,837 |   | 349 |   | 84 |   | (449 | ) | (4,262 | ) | 23,149 |   |
|                                   |            |                                                                                      |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                        | ** ** | **For the Nine Months Ended September 30, 2008** | ** ** |
|-----------------------------------|------------|-------------------------------------------------------------------------------------|------------|
| ** **                        | ** ** | **Integrated  Telephony-  International**                                           | ** ** | **Rural  Wireless** | ** ** | **Island  Wireless** | ** ** | **Integrated  Telephony-  Domestic** | ** ** | **Wireless  Data** | ** ** | **Reconciling  Items** | ** ** | **Consolidated** | ** ** |
| Revenues                          |       | $                                                                                   | 74,615     |   | $ | 51,284 |   | $ | 8,074 |   | $ | 11,578 |   | $ | 6,401 | (1) | $ | — |   | $ | 151,952 |   |
| Depreciation and amortization     |       | 12,559                                                                              |       | 6,710 |   | 981 |   | 1,366 |   | 951 |   | 223 |   | 22,790 |   |
| Non-cash stock-based compensation |       | —                                                                              |       | — |   | — |   | 95 |   | — |   | 765 |   | 860 |   |
| Operating income (loss)           |       | 32,116                                                                              |       | 26,024 |   | 2,166 |   | 1,280 |   | (1,407 | ) | (6,111 | ) | 54,068 |   |
|                                   |            |                                                                                     |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                        | ** ** | **For  the Nine Months Ended September 30, 2009** | ** ** |
|-----------------------------------|------------|---------------------------------------------------|------------|
| ** **                        | ** ** | **Integrated  Telephony-  International**         | ** ** | **Rural  Wireless** | ** ** | **Island  Wireless** | ** ** | **Integrated  Telephony-  Domestic** | ** ** | **Wireless  Data** | ** ** | **Reconciling  Items** | ** ** | **Consolidated** | ** ** |
| Revenues                          |       | $                                                 | 68,140     |   | $ | 79,276 |   | $ | 16,216 |   | $ | 14,122 |   | $ | 4,449 | (1) | $ | — |   | $ | 182,203 |   |
| Depreciation and amortization     |       | 12,560                                            |       | 10,661 |   | 2,396 |   | 1,966 |   | 953 |   | 220 |   | 28,756 |   |
| Non-cash stock-based compensation |       | —                                            |       | — |   | — |   | 95 |   | — |   | 924 |   | 1,019 |   |
| Operating income (loss)           |       | 26,670                                            |       | 42,552 |   | 785 |   | (644 | ) | (2,176 | ) | (9,150 | ) | 58,037 |   |
|                                   |            |                                                   |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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(1)          Includes $0.9 million of wireless television servicesfor the three months ended September 30, 2008. Also includes $3.0 millionand $1.2 million of wireless television services for the nine months ended September 30,2008 and 2009, respectively.  This service was 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**                       | ** ** |
|------------------------|------------|-------------------------------------------|------------|
| **September 30, 2009** | ** ** | **Integrated  Telephony-  International** | ** ** | **Rural  Wireless** | ** ** | **Island  Wireless** | ** ** | **Integrated  Telephony-  Domestic** | ** ** | **Wireless  Data** | ** ** | **Reconciling  Items** | ** ** | **Consolidated** | ** ** |
| Net fixed assets       |       | $                                         | 112,012    |   | $ | 65,920 |   | $ | 16,339 |   | $ | 9,032 |   | $ | 4,109 |   | $ | 235 |   | $ | 207,647 |   |
| Goodwill               |       | —                                    |       | 32,148 |   | 722 |   | 7,491 |   | — |   | — |   | 40,361 |   |
| Total assets           |       | 159,613                                   |       | 142,865 |   | 43,347 |   | 23,877 |   | 5,711 |   | 63,843 |   | 439,256 |   |
|                        |            |                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                          | ** ** | **Capital  Expenditures**                 | ** ** |
|-----------------------------------------------------|------------|-------------------------------------------|------------|
| **Nine Months Ended  September 30,** | ** ** | **Integrated  Telephony-  International** | ** ** | **Rural  Wireless** | ** ** | **Island  Wireless** | ** ** | **Integrated  Telephony-  Domestic** | ** ** | **Wireless  Data** | ** ** | **Reconciling  Items** | ** ** | **Consolidated** | ** ** |
| 2008                                                |       | $                                         | 13,792     |   | $ | 19,097 |   | $ | 890 |   | $ | 418 |   | $ | 400 |   | $ | 14 |   | $ | 34,611 |   |
| 2009                                                |       | 14,975                                    |       | 18,512 |   | 5,511 |   | 787 |   | 474 |   | 14 |   | 40,273 |   |
|                                                     |            |                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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**12.  COMMITMENTS AND CONTINGENCIES**

 

***Regulatory and Litigation Matters***

 

The Company and itssubsidiaries are subject to certain regulatory and legal proceedings and otherclaims arising in the ordinary course of business, some of which involve claimsfor damages and taxes that are substantial in amount. The Company believesthat, except for the items discussed below and in our 2008 Form 10-K forwhich the Company is currently unable to predict the final outcome, thedisposition of proceedings currently pending will not have a material adverseeffect on the Company’s financial position or results of operations.

 

As previously disclosedin our prior public reports, the Government of Guyana has stated its intentionto introduce additional competition into Guyana’s telecommunications sector andheld formal discussions with us in early 2008 regarding potential modificationsof GT&T’s exclusivity rights.  In October 2008, GT&T wasinformally 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 these parties, we currently expect draftlegislation to be available in the first half of 2010.  Our exclusivelicense has a stated expiration in December 2010 and is, according to itsterms, renewable for an additional 20-year term at our option.

 

At this time, ATN andGT&T do not know whether or how any draft legislation will address GT&T’sexclusive license, and if so, whether it would be pursuant to an agreementbetween GT&T and the Government of Guyana.  Other than entering intosuch an agreement on terms acceptable to us, we would seek to enforce GT&T’srights by law and contract to be the exclusive provider of international voiceand data services in Guyana.  Although we believe that we would beentitled to damages for any involuntary termination of that license, we cannotguarantee that we would prevail in any court or arbitration proceeding. See “Business—Regulation—Regulation of Our GT&T Subsidiary—RegulatoryDevelopments” and “Risk Factors—Our exclusive license to provide local exchangeand international voice and data services in Guyana is subject to significantpolitical and regulatory risk” in our 2008 Form 10-K.

 

On May 8, 2009,Digicel filed a lawsuit in Guyana challenging the legality of GT&T’sexclusive license under Guyana’s constitution.  Digicel initially filedthis lawsuit against the Attorney General of Guyana in the High Court.  On May 13, 2009, GT&T petitioned tointervene in the suit in order to oppose Digicel’s claims and that petition wasgranted on May 18, 2009.  GT&Tfiled its answer to the charge on June 22, 2009 and the case ispending.  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 exclusivelicense has previously been the subject of legal challenge on constitutionalgrounds. In July 2002, an individual sued the Attorney General of Guyanain the High Court asking, among other things, for a declaration that thesection 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. In September 2002,GT&T joined the suit to oppose the plaintiff’s claims. Although the suitremains pending, there have been no further developments since November 2002. See “Legal Proceedings” in our 2008 Form 10-K.

 

In a letter dated September 8,2006, the National Frequency Management Unit (“NFMU”) indicated that spectrumfees in 2008 and onward may be increased beyond the amount agreed betweenGT&T and the Government in previous years. In a September 14, 2006letter to the Government, GT&T asserted that, by agreement with theGovernment, spectrum fees should be capped until the NFMU develops a feemethodology acceptable to all GSM spectrum licensees. In correspondence toGT&T in

 

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June 2007,the NFMU stated that the cap on GSM spectrum fees would be removed in December 2007but did not indicate whether a fee methodology would be developed.  In its response to the NFMU, dated July 3,2007, GT&T objected to the NFMU’s proposed action and reiterated itsposition that an acceptable fee calculation methodology is necessary before theGovernment can assess spectrum fees.  Ina letter dated March 24, 2009, the NFMU requested information fromGT&T for use in calculating spectrum fees for 2009.  On October 28,2009, GT&T and Digicel Guyana jointly submitted to the NFMU a proposedmethodology for computing annual spectrum fees for mobile service providers anda proposed process for implementing the new fee structure.  The proposedformula would calculate spectrum fees based on the quantity and frequencies ofassigned bandwidth used by the operator and a value determined by the NFMUbased on technical and use considerations.

 

By letter dated July 17,2009, Digicel notified GT&T that it is terminating the interconnectionagreement between Digicel and GT&T effective in 180 days.  That agreement, which the companies signed onApril 4, 2003, identifies the terms and conditions by which Digicel andGT&T networks are connected for the exchange of telecommunications trafficin Guyana.  Without an interconnectionagreement in place, calls originating on one network cannot be terminated onthe other network and vice versa. Digicel has expressed its desire to renegotiate all terms ofinterconnection and asserts that it is terminating the existing interconnectionagreement to compel GT&T to negotiate new terms and conditions immediately.

 

GT&T has frequentlyexpressed to Digicel its willingness to negotiate a new interconnectionagreement once there is more clarity from the Government of Guyana regardingthe timing, scope and substance of its proposed telecommunications legislation,which is likely to affect any interconnection discussion.  It is GT&T’s belief that proceeding torenegotiate the terms and conditions of the interconnection agreement at thistime would be premature, and that there will be ample time to do so once theGovernment’s liberalization program is prepared and publicized.  Nevertheless, in a letter dated August 25,2009, GT&T proposed that negotiations begin in December 2009, andcommitted not to disconnect Digicel customers, upon effectiveness of Digicel’stermination notification, while negotiations are in progress.

 

Except as set forthabove, or described in Note 14, Subsequent Events, there have been no materialdevelopments in regulatory or litigation matters in the period covered by theseinterim Financial Statements. For further information concerning pendingregulatory and litigation matters, see “Notes to Consolidated FinancialStatements, Note 13, Commitments and Contingencies — Regulatory and LitigationMatters” in the Company’s 2008 Annual Report on Form 10-K.

 

***Pending Acquisition***

 

On June 9, 2009, theCompany entered into a Purchase Agreement with Verizon to acquire wirelessassets in certain, primarily rural, markets in Georgia, North Carolina, SouthCarolina, Illinois, Ohio and Idaho. Pursuant to the terms of the PurchaseAgreement, and subject to certain regulatory consents,Verizon will causecertain licenses, network assets, tower and other leases and other assets andcertain related liabilities to be contributed to a newly formed, wholly-owned subsidiarylimited liability company, whose membership interests will be acquired by theCompany for a purchase price of approximately $200 million. Verizon is requiredto divest these assets under consent decrees it entered into with theDepartment of Justice related to its purchase of Alltel Corporation earlierthis year. For more information, see Note 4 to our Consolidated FinancialStatements included in this Report.

 

**13.  RELATED PARTY TRANSACTION**

***Pending******Sale of Certain Choice Television Assets***

 

On November 3, 2009, upon approval by the Audit Committee of theBoard of Directors, we entered into an agreement with Cornelius B. Prior, Jr.,our Chairman and the father of our Chief Executive Officer, to sell to Mr. Priorthe television assets of Choice for $400,000 in cash.  The assets, which arelocated in the US Virgin Islands, consist primarily of television transmissionfacilities, subscriber equipment and satellite receiver equipment.  In December 2007,we wrote down our investment in these assets and began exploring strategicalternatives for their use or disposition.   Choice discontinued itswireless television service in May 2009.  We expect the sale to becompleted by the end of 2009.

 

**14.  SUBSEQUENT EVENTS**

 

In accordance with theauthoritative guidance issued by the FASB on subsequent events, the Company hasevaluated subsequent events from September 30, 2009 to the filingdate of this report on the Form 10-Q on November 9, 2009. Other thanthe transaction noted in Note 13, there were no subsequent events required tobe recognized or disclosed in the financial statements.

 

**Item 2.Management’s Discussion and Analysis of Financial Condition and Results ofOperations**

 

This discussion should beread in conjunction with Management’s Discussion and Analysis of FinancialCondition and Results of Operations included in our 2008 Form 10-K. Someof the statements in the discussion are forward-looking statements, which aresubject 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.”

 

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** **

**OVERVIEW**

 

We provide wireless andwireline telecommunications services in the Caribbean and North America throughthe following principal operating subsidiaries:

 

·  Commnet Wireless, LLC (“Commnet”),an owner and operator of wholesale wireless networks in rural areas of theUnited States. Commnet provides wireless voice and data communications roamingservices principally to national, regional and local wireless carriers. Commnetgenerated approximately 36% and 48% of the Company’s consolidated revenues forthe three months ended September 30, 2008 and 2009, respectively. ATNacquired Commnet in 2005 and currently owns 100% of Commnet’s equity.

 

·  Guyana Telephone & Telegraph Company, Ltd. (“GT&T”),the national and international telephone company in the Republic of Guyana andthe largest wireless service provider in that country. The Company has owned80% of the stock of GT&T since January 1991. GT&T generatedapproximately 44% and 34% of the Company’s consolidated revenues for the threemonths ended September 30, 2008 and 2009, respectively.

 

·  Bermuda Digital Communications, Ltd. (“BDC”), a leadingwireless voice and data communications service provider in Bermuda, doingbusiness under the name “Cellular One”. The Company acquired an equity interestin, 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 tender anyshares 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 NewHampshire.  Through an acquisition madein 2008, Sovernet also delivers wholesale transport services in New York Statethrough its subsidiary, ION.

 

·  Choice Communications, LLC (“Choice”), a leadingprovider of fixed wireless broadband data and dial-up internet services toretail and business customers in the U.S. Virgin Islands.  ATN acquired Choice in 1999 and owns 100% ofChoice’s equity.  Choice discontinued its wireless television service on May 31,2009 to focus mainly on providing wireless broadband data services.

 

As a holding company, weprovide management, technical, financial, regulatory, and marketing servicesto, and typically receive a management fee equal to approximately 3% to 6% ofrevenues from, each operating subsidiary. Management fees from consolidatedsubsidiaries are eliminated in consolidation. ATN received management fees fromunconsolidated affiliates in 2008, which are included in “Other Income” in theaccompanying statements of operations.

 

The following chartsummarizes the operating activities of our principal subsidiaries and themarkets they serve as of September 30, 2009:

 
| **Services**                       | ** ** | **Segment**                               | ** ** | **Operating Subsidiary** | ** ** | **Markets**                                     |
|------------------------------------|------------|-------------------------------------------|------------|-------------------------------|------------|-------------------------------------------------|
| **Wireless**                       |       | Rural  Wireless                           |       | Commnet                       |       | United  States (rural markets)                  |
|                               |       |                                      |       |                          |       |                                            |
|                               |       | Integrated  Telephony— International |       | GT&T                      |       | Guyana                                          |
|                               |       |                                      |       |                          |       |                                            |
|                               |       | Island  Wireless                          |       | BDC,  Islandcom               |       | Bermuda,  Turks and Caicos                      |
|                               |       |                                      |       |                          |       |                                            |
| **Local Telephone and Data**       |       | Integrated  Telephony— International |       | GT&T                      |       | Guyana                                          |
|                               |       |                                      |       |                          |       |                                            |
|                               |       | Integrated  Telephony— Domestic      |       | Sovernet,  ION                |       | United  States (New England and New York State) |
|                               |       |                                      |       |                          |       |                                            |
|                               |       | Wireless  Data (1)                        |       | Choice  (internet access)     |       | U.S.  Virgin Islands                            |
|                               |       |                                      |       |                          |       |                                            |
| **International Long****Distance** |       | Integrated  Telephony—International  |       | GT&T                      |       | Guyana                                          |

 

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(1) As described above, effective May 31,2009, the Company terminated its wireless televisions services, and thereforehas changed the name of its segment from “Wireless Television and Data” to “WirelessData”.

 

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For information about ourbusiness segments and geographical information about our operating revenues andlong-lived assets, see Note 11 to the Consolidated Financial Statements in thisReport.

 

Over the last severalyears, we have significantly diversified our business and reduced ourhistorical dependence on GT&T’s operations for our financial results. Thisreduction of GT&T’s contribution is due mainly to the acquisition andgrowth of Commnet as well as the expansion of our Sovernet business and therecent increase in our ownership interest in BDC and related acquisitions, asdescribed under the captions “Business—Local Telephone and Data Services—U.S.Operations” and “—Wireless Services—Island Operations” in our 2008 Form 10-K.In addition to our pending Alltel Acquisition, we expect to continue this trendof diversification and are actively evaluating additional investment andacquisition opportunities that meet our return-on-investment and otheracquisition criteria. The pending acquisition of the Alltel wireless assets, ifcompleted, will further substantially reduce both Commnet and GT&T’sportion of our consolidated revenue. For information regarding the pendingAlltel acquisition see “Pending Acquisition’s- Alltel Assets” within thisreport.

 

We are dependent onGT&T and Commnet for a majority of our revenues and profits. For the threemonths ended September 30, 2009, approximately 83% of our consolidated revenueand substantially all of our consolidated operating income were generated bythese two operating subsidiaries.

 

Commnet’s revenues andprofits are primarily driven by the number of sites and base stations weoperate, the amount of voice and data traffic that each of these sitesgenerates, and the rate we get paid from our carrier customers on that traffic’s.The growth of Commnet’s revenues has historically been driven mainly by therate at which we expand the number of base stations we operate. During thethird quarter of 2009, Commnet was the single largest contributor to revenueand operating income. Commnet competes with wireless service providers thatoperate networks in its markets and offer wholesale roaming services as well.In addition, Commnet’s carrier customers may also elect to build or acquiretheir own infrastructure (including networks that Commnet built out pursuant toits roaming agreements) in a market in which they operate, reducing oreliminating their need for Commnet’s services in that market.  Forexample, the recent acquisition by Verizon Wireless of Alltel Corporationassets, and pending acquisition of Alltel assets by AT&T, will result inthose customers of Commnet having their own infrastructure in markets wherethey are currently served by Commnet. This is expected to result in asignificant loss of revenue and operating income for Commnet in future periods,which, if not offset by growth in other revenues generated by Commnet or othersources could materially reduce overall operating profits. For more informationregarding segment reporting on Commnet, see the discussion of “Rural Wireless”in Note 11 to our Consolidated Financial Statements included in thisReport.

 

The largest singlecomponent of GT&T’s revenues and profits has been from its internationallong distance business, which accounted for approximately 14% of ourconsolidated revenue during the three months ended September 30, 2009.While the majority of this international long distance revenue is generated bycalls originated by, or terminating with, our wireline and wireless customers,we are currently the exclusive provider of international voice and data inGuyana and therefore generate revenue and profit from calls and dataoriginating on our competitor’s wireless network pursuant to an interconnectionagreement. Our competitor notified us that it is terminating the agreementeffective January 2010. For more information about our competitor’stermination of its interconnection agreement with us, see Note 12 to theConsolidated Financial Statements in this Report

 

The primary drivers ofGT&T’s long distance business are the population of Guyanese living abroadwho initiate calls to Guyana and the rate foreign carriers pay GT&T forhandling the incoming international calls. However, in recent years, we believevarious methods of illegal bypass and alternative and cheaper media forcommunication, such as e-mail and text messaging, may have had a negativeimpact on both voice traffic and international long distance revenues.Beginning in 2008, we believe there was a substantial increase in illegalbypass activities. We have taken a number of measures to counter illegalbypass, including taking action against unlicensed operators in Guyana,introducing special outbound call center rates, and we are examining automatedtechnical solutions as well. More recently, we also believe the currenteconomic recession has reduced the volume of calls into and out of Guyana andnegatively impacted our revenues.

 

In addition to our 2009planned capital expenditures to improve our GT&T network, we will beinvesting over the next twelve months approximately $15 million to$20 million in a new submarine fiber optic cable in Guyana. Theconstruction of this new international cable connecting Guyana to Trinidad willhave the potential to provide for continued growth in the provision of highspeed data and internet services into Guyana, and give us a cost-effectivemethod of increased redundancy. We believe this is particularly important in thecurrent operating environment of a worldwide shift from voice-drivenapplications to data-driven applications and the growth in broadband demand. Weexpect this cable to be operational mid-year 2010.

 

As previously disclosedin our public reports, the Government of Guyana has repeatedly stated itsintention to introduce additional competition into Guyana’s telecommunicationssector and held formal discussions with us in early 2008 regarding potentialmodifications of GT&T’s exclusivity rights. 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. Basedon informal discussions with these parties, we currently expect draftlegislation to be

 

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available in the first half of 2010. Our exclusivelicense has a stated initial term that ends in December 2010 and is,according to its terms, renewable for an additional 20-year term at our option.The failure to renew our exclusive license could have a materially adverseeffect on GT&T.

 

At this time, ATN andGT&T do not know whether or how any draft legislation will address GT&T’sexclusive license, and if so, whether it would be pursuant to an agreementbetween GT&T and the Government. Other than entering into such an agreementon terms acceptable to us, we would seek to enforce GT&T’s rights by lawand contract to be the exclusive provider of international voice and dataservices in Guyana. Although we believe that we would be entitled to damagesfor any involuntary termination of that license, we cannot guarantee that wewould prevail in any court or arbitration proceeding. See “Business—Regulation—Regulationof Our GT&T Subsidiary—Regulatory Developments” and “Risk Factors—Ourexclusive license to provide local exchange and international voice and dataservices in Guyana is subject to significant political and regulatory risk” inour 2008 Form 10-K.

 

On May 7, 2009, atthe Annual General Meeting of GT&T, the representative of the Government ofGuyana on the Board of Directors of GT&T indicated to representatives ofATN in attendance at the meeting that the Government of Guyana is interested inselling its 20% interest in GT&T. In a letter dated May 21, 2009,the Government of Guyana formally offered to sell its 20% interest in GT&Tto ATN, which currently owns 80% of GT&T, and reserved the right to offerto sell such interest to other potential purchasers if ATN decides not topurchase the Government’s stake. The Board of Directors of ATN consideredthe Government’s offer and, in a letter dated June 22, 2009 indicated thatit was not prepared to make a definitive offer for that interest at this time.

 

The principal terms ofour investment in GT&T are set forth in the Agreement between TheGovernment of The Co-Operative Republic of Guyana and ATN, dated June 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, as filed with the SEC on May 15, 2006.  The Guyana Agreementdoes not provide for any specific procedures in connection with the potentialsale by the Government of Guyana of its 20% interest in GT&T and theGovernment has not indicated a timeframe in which it would seek to complete anyproposed sale.

 

On May 8, 2009,Digicel filed a lawsuit in Guyana challenging the legality of GT&T’sexclusive license under Guyana’s constitution.  Digicel initially filedthis lawsuit against the Attorney General of Guyana in the High Court.  On May 13, 2009, GT&T petitioned tointervene in the suit in order to oppose Digicel’s claims and that petition wasgranted on May 18, 2009.  GT&Tfiled its answer to the charge on June 22, 2009 and the case ispending.  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.

 

OnAugust 20, 2009, Commnet and ION filed applications for stimulus fundsmade available by the US Government under provisions of the American Recoveryand Reinvestment Act of 2009 intended to stimulate the deployment of broadbandinfrastructure and services to rural, unserved and underserved areas.  Commnet and the Navajo Tribal UtilityAuthority submitted a combined request for $35 million of stimulus funds toextend wireless fixed and mobile broadband service in portions of Arizona, NewMexico and Utah.  ION and the DevelopmentAuthority of the North Country submitted requests totaling $40 million toextend broadband fiber between communities in upstate New York. 

 

***PendingAcquisition- Alltel Assets***

 

On June 9, 2009, theCompany entered into a Purchase Agreement (the “Purchase Agreement”) withCellco Partnership d/b/a Verizon Wireless (“Verizon”) to acquire wirelessassets previously acquired by Verizon in its acquisition of Alltel Corporation(“Alltel”) in certain, primarily rural, markets in Georgia, North Carolina,South Carolina, Illinois, Ohio and Idaho. Pursuant to the terms of the PurchaseAgreement, Verizon will cause certain licenses, network assets, tower and otherleases and other assets and certain related liabilities to be contributed to anewly formed, wholly-owned subsidiary limited liability company, whosemembership interests will be acquired by the Company for a purchase price ofapproximately $200 million (the “Alltel Acquisition”).

 

The parties haveagreed to a variety of customary covenants and agreements, including withrespect to confidentiality, cooperation (including with respect to regulatorymatters), the conduct of the business to be acquired in the ordinary courseconsistent with past practice and other restrictions on the operation of suchbusiness prior to the consummation of the Alltel Acquisition, publicannouncements and similar matters. Consummation of the Alltel Acquisition issubject to the satisfaction of certain conditions, including, among others, (i) thereceipt of the United States Department of Justice’s approval of the AlltelAcquisition, (ii) the receipt of all required consents of the FederalCommunications Commission to the transfer, assignment or change in control ofcertain licenses pursuant to the Alltel Acquisition, (iii) the receipt ofrequired consents from state public utility commissions, if any, and (iv) theabsence of any injunction or final judgment prohibiting the consummation of theAlltel Acquisition. Consummation of the Alltel Acquisition is not subject toany financing condition.  In conjunctionwith the Alltel Acquisition, the Company has received commitments from lendersfor an expanded credit facility consisting of a $75 million term loan (“TermLoan A”), a $150 million term loan (“Term Loan B”) and a $75 million revolvingcredit facility (the “New Revolver Facility,” and together with Term Loan A andTerm Loan B, the “New Credit Facility”). The New Credit Facility would replace the 2008 Credit Facility.  The Company plans to use cash on hand, theproceeds from Term Loan B and a portion of the proceeds available under the NewRevolver Facility towards the acquisition purchase price and related acquisitionexpenses and working capital adjustments. The New Credit Facility is subject to the execution of definitivedocumentation and other customary closing conditions.  The Company expects to enter into the NewCredit Facility in the fourth quarter of 2009.

 

Verizon is required todivest these and other assets under consent decrees it entered into with theDepartment of Justice related to its purchase of Alltel in January of thisyear.  On May 8, 2009, AT&Tannounced it has entered into a definitive agreement with Verizon to acquirethe majority of the wireless assets required to be divested (the “AT&TAcquisition”).  ATN has contracted toacquire from Verizon the remainder of the assets required to be divested.

 

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**Resultsof Operations**

 

***Three Months Ended September 30, 2008 and 2009***

*** ***
| ** **                                                               | ** ** | **Three Months Ended  September 30,** | ** ** | **Amount of  Increase** | ** ** | **Percent  Increase** | ** ** |
|--------------------------------------------------------------------------|------------|------------------------------------------------------|------------|------------------------------|------------|-----------------------|------------|
| ** **                                                               | ** ** | **2008**                                             | ** ** | **2009**                     | ** ** | **(Decrease)**        | ** ** | **(Decrease)** | ** ** |
| ** **                                                               | ** ** | **(In thousands)**                              | ** ** |
| **REVENUE:**                                                             |       |                                                 |       |                         |       |                  |       |   |   |
| Wireless                                                                 |       | $                                                    | 30,388     |                         | $          | 42,880                |       | $ | 12,492 |   | 41.1 | % |
| Local telephone and data                                                 |       | 12,807                                               |       | 13,918                       |       | 1,111                 |       | 8.7 |   |
| International long distance                                              |       | 11,794                                               |       | 9,133                        |       | (2,661                | )          | (22.6 | ) |
| Other                                                                    |       | 919                                                  |       | 11                           |       | (908                  | )          | (98.8 | ) |
| Total revenue                                                            |       | 55,908                                               |       | 65,942                       |       | 10,034                |       | 17.9 |   |
| **OPERATING EXPENSES:**                                                  | ** ** | ** **                                           | ** ** | ** **                   |       |                  |       |   |   |
| Termination and access fees                                              |       | 9,612                                                |       | 11,250                       |       | 1,638                 |       | 17.0 |   |
| Internet and programming                                                 |       | 869                                                  |       | 422                          |       | (447                  | )          | (51.4 | ) |
| Engineering and operations                                               |       | 6,431                                                |       | 6,519                        |       | 88                    |       | 1.4 |   |
| Sales and marketing                                                      |       | 3,123                                                |       | 4,073                        |       | 950                   |       | 30.4 |   |
| General and administrative                                               |       | 7,228                                                |       | 8,694                        |       | 1,466                 |       | 20.3 |   |
| Acquisition-related expenses                                             |       | —                                               |       | 2,072                        |       | 2,072                 |       | 100.0 |   |
| Depreciation and amortization                                            |       | 8,289                                                |       | 9,763                        |       | 1,474                 |       | 17.8 |   |
| Total operating expenses                                                 |       | 35,552                                               |       | 42,793                       |       | 7,241                 |       | 20.4 |   |
| Income from operations                                                   |       | 20,356                                               |       | 23,149                       |       | 2,793                 |       | 13.7 |   |
| **OTHER INCOME (EXPENSE):**                                              | ** ** | ** **                                           | ** ** | ** **                   |       |                  |       |   |   |
| Interest expense                                                         |       | (733                                                 | )          | (1,228                       | )          | (495                  | )          | (67.5 | ) |
| Interest income                                                          |       | 344                                                  |       | 354                          |       | 10                    |       | 2.9 |   |
| Other income (expense), net                                              |       | (4                                                   | )          | 13                           |       | 17                    |       | 425 |   |
| Other income (expense), net                                              |       | (393                                                 | )          | (861                         | )          | (468                  | )          | (119.1 | ) |
| **INCOME BEFORE INCOME TAXES**                                           |       | 19,963                                               |       | 22,288                       |       | 2,325                 |       | 11.6 |   |
| Income taxes                                                             |       | 8,538                                                |       | 9,919                        |       | 1,381                 |       | 16.2 |   |
| **INCOME BEFORE EQUITY IN EARNINGS  OF UNCONSOLIDATED AFFILIATES**       |       | 11,425                                               |       | 12,369                       |       | 944                   |       | 8.3 |   |
| Equity in earnings of unconsolidated affiliates                          |       | —                                               |       | —                       |       | —                |       | — |   |
|                                                                     |       |                                                 |       |                         |       |                  |       |   |   |
| **NET INCOME**                                                           |       | 11,425                                               |       | 12,369                       |       | 944                   |       | 8.3 |   |
| Net income attributable to non-controlling  interests                    |       | (1,286                                               | )          | (433                         | )          | 853                   |       | 66.3 |   |
|                                                                     |       |                                                 |       |                         |       |                  |       |   |   |
| **NET INCOME ATTRIBUTABLE TO  ATLANTIC TELE-NETWORK, INC. STOCKHOLDERS** |       | $                                                    | 10,139     |                         | $          | 11,936                |       | 1,797 |   | 17.7 |   |
|                                                                          |            |                                                      |            |                              |            |                       |            |  |  |  |  |  |

 

*Wirelessrevenue.* Wirelessrevenue includes wholesale voice and data roaming revenue from our rural U.S.operations, retail wireless revenues generated in Guyana, and our retailwireless revenues generated by our Island Wireless segment in Bermuda. Wirelessrevenue increased to $42.9 million for the three months ended September 30,2009 from $30.4 million for the three months ended September 30, 2008, anincrease of $12.5 million, or 41%.

 

Our rural U.S. businessincreased its revenues by $11.9 million, or 60%, to $31.8 million from $19.9million. This increase was due primarily to continued deployment of additionalGSM and CDMA wireless base stations and the expansion of our data capabilities,which generated growth in minutes of use and increased data and internationalroaming revenue, as well as the December 2008 acquisition of the wirelessnetwork assets of CC Communications, a telecommunications company based inFallon, Nevada.  As of September 30, 2009, a total of 564 basestations were deployed in the U.S. as compared to 396 base stations as of September 30,2008.  Our rural wireless revenue alsoincreased as a result of growth in voice and data traffic (measured in minutesand megabytes, respectively) at existing sites and growth in data roamingrevenue and international roaming revenue.

 

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Verizon’s acquisition ofAlltel and, if approved by federal and regulatory authorities, the AT&TAcquisition, will cause some loss of wireless revenue for us because thenetwork assets acquired by each of Verizon and AT&T overlap geographicallywith our U.S. network in a substantial number of areas.  In addition, the AT&T Acquisition, ifapproved, would result in a significant additional loss in revenue if AT&Tcompletes its previously announced GSM network build in those areas. AT&T has publicly stated its expectation that it will complete suchan overlay within a year from closing the purchase, or before the end of2010.  This loss in revenue could have a significantly negative impact onour revenues and operating income if it is not offset or replaced by increasedrevenue in other areas of our U.S. rural wireless business or from other sources(including increased revenue in connection with the pending Alltel Acquisition,if completed).

 

While we expect to see acontinued increase in wireless revenues from our rural U.S. wireless businessin geographical areas not impacted by Verizon or AT&T’s acquisition ofAlltel Wireless networks, the pace of that increase in non-Alltel overlap marketsmay be slowed as compared to the growth in previous periods due to scheduledreductions in revenue rates.

 

In Guyana, our wirelesssubscribers increased by 1%, to 277,000 subscribers from 273,000 subscribers asof September 30, 2009 and 2008, respectively. GT&T’s wireless revenueincreased by $0.1 million, or 2%, to $5.5 million from $5.4 million for thequarters ended September 30, 2009 and 2008, respectively.

 

While we have seen anincrease in wireless subscribers from September 30, 2008, including a 12%increase in subscribers from December 31, 2008, our competitor, a largeregional wireless provider, could continue to take market share with aggressivemarketing campaigns and spending, including handset subsidies. In addition, thenumber of our wireless subscribers in Guyana could be reduced as a result ofrecent regulations imposed on Guyana telecommunications carriers, including ourGT&T subsidiary, to collect proof of address and photographicidentification for all new and existing customers.  These requirements mandate that thetelecommunications carriers must obtain this information or discontinueservices to any undocumented subscribers. These regulations, which recently became effective, are part of broaderlegislation enacted by the Government requiring telecommunication carriers toimplement procedures and network changes intended to assist the law enforcementactivities.  In the case of wirelesscustomers, this data collection requirement must be complied with by December18, 2009.  While our GT&T subsidiaryhas been taking steps to obtain this information from its wireless subscribers,it may not be able to obtain this information from all its approximately277,000 wireless subscribers by December 2009, and has requested an extensionfrom the Government.  To the extent thatGT&T is unable to obtain this information from its wireless subscribers bythe required date, it may be required to discontinue wireless services to suchsubscribers, which may negatively affect its wireless subscriber numbers andwireless revenue in Guyana. Additionally, an overall decline in the Guyanamarket for wireless subscribers could result from reduced consumer spending dueto worsening economic conditions or other factors.

 

Our Island Wirelessbusiness increased its wireless revenue by $0.4 million, or 8%, to $5.5 millionfrom $5.1 million for the quarters ended September 30, 2009 and 2008,respectively. Wireless subscribers in Bermuda were level at approximately20,000 for the quarters ended September 30 2008, and 2009, respectively.We expect wireless revenue from our Island Wireless business to grow as webuild out our network in our early stage business in Turks and Caicos and launchnew services in Bermuda.

 

*Localtelephone and data revenue.*Local telephone and data revenue is generated by ourwireline operations in Guyana, our integrated voice and data operations in NewEngland and New York State, and our data services in the U.S. Virgin Islands.This revenue includes basic service fees, measured service revenue, andinternet access fees, as well as installation charges for new lines, monthlyline rental charges, long distance or toll charges (excluding international longdistance charges in Guyana), maintenance and equipment sales.  Local telephone and data revenue increased by$1.1 million, or 9%, to $13.9 million for the third quarter of 2009 from $12.8million for the third quarter of 2008.

 

Sovernet increasedrevenues by $0.7 million, or 17%, to $4.8 million from $4.1 million forthe quarters ended September 30, 2009 and 2008, respectively, as a resultof the addition of ION, which Sovernet acquired on August 15, 2008.Sovernet continues to add business customers for its voice and data services ata strong rate and improve profitability; however, its overall revenue increaseis partially offset by the continued decline in its residential data business,particularly its dial-up internet services, and the operating losses of ION’searly-stage business.

 

Local telephone and datarevenue in Guyana increased $0.6 million, or 8%, from $7.5 million for thequarter ended September 30, 2008 to $8.1 million for the quarter ended September 30,2009. GT&T’s access lines in Guyana grew from approximately 136,000 linesas of September 30, 2008 to approximately 144,000 lines as of September 30,2009 (an increase of 6%). Revenue from the growth in access lines has beenpartially offset by a continuing decrease in usage due to wireless servicealternatives.

 

Data revenue at our U.S.Virgin Islands subsidiary decreased slightly.  In future periods, weanticipate that local telephone and data revenue will increase modestly as aresult of network expansion, subscriber and access line growth, and capacitysales in New York, New England and Guyana.

 

*Internationallong distance revenue.* International long distance revenue is generated by internationaltelephone calls into and out of Guyana and does not include international longdistance revenue generated by our other operations. Inbound traffic, which madeup 82% of all international long distance traffic and 66% of international longdistance revenue for the three months ended September 30, 2009, is settledin U.S. dollars.

 

International long distancerevenue was $9.1 million during the third quarter of 2009, a decrease of $2.7million, or 23%, from $11.8 million in the third quarter of 2008. Ourinternational traffic is vulnerable to illegal bypass via internet calling andother methods such as direct 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. To date, we have taken a number ofmeasures to counter illegal bypass, but have had limited success to date.  These measures include taking action againstunlicensed operators in Guyana, introducing special outbound call center ratesand we are examining automated technical solutions as well. The outcome ofnegotiations with the Government of Guyana regarding the exclusivity terms ofGT&T’s license is also likely to negatively impact this revenue in thefuture.

 

*Otherrevenue*. Otherrevenue represents revenue from wireless digital television services in theU.S. Virgin Islands, which was discontinued in May 2008. The

 

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Company terminated its wireless television services inorder to focus solely on providing wireless broadband data and dialup internet services.  Due to the termination of these services, wewill no longer recognize other revenue relating to digital television services.

 

*Terminationand access fee expenses.*Termination and access fee expenses are charges that we pay for voiceand data transport circuits (in particular, the circuits between our ruralwireless sites and our switches), internet capacity and other access fees wepay to terminate our calls.

 

Termination and accessfees increased by $1.7 million, or 18%, from $9.6 million to $11.3 million fromthe third quarter of 2008 to the third quarter of 2009, respectively, as aresult of increased traffic at Commnet and an increase in expenses at Sovernetas a result of their August 2008 acquisition of ION. These expenses areexpected to increase in future periods, but remain fairly consistent ascompared to their related revenues, as our rural wireless and CLEC operationsin Vermont expand.

 

*Internetand programming expenses.*Internet and programming expenses include internetconnectivity charges and digital television programming.

 

Internet and programmingexpenses decreased from $0.9 million in the third quarter of**2008 to $0.4 million in the third quarterof**2009. This decrease wasprimarily related to our U.S. Virgin Islands operations as we terminated ourdigital television services on May 31, 2009.

 

*Engineeringand operations expenses.*Engineering and operations expenses include the expenses associatedwith developing, operating, supporting and expanding our networks, includingthe salaries and benefits paid for employees directly involved in thedevelopment and operation of our networks.

 

Engineering andoperations expenses increased by $0.1 million, or 2%, from $6.4 million to $6.5million from the third quarter of 2008 to the third quarter of 2009,respectively. This increase is primarily the result of the expansion of ourwireless networks in the United States. We expect that engineering andoperations expenses will continue to increase as our networks expand andrequire additional support.

 

*Salesand marketing expenses.*Sales, marketing and customer service expenses include salaries andbenefits we pay for sales personnel, customer service expenses, salescommissions and the costs associated with the development and implementation ofour promotion and marketing campaigns.

 

Sales and marketingexpenses increased by $1.0 million, or 32%, from $3.1 million to $4.1 millionfrom the third quarter of 2008 to the third quarter of 2009, respectively. Thisincrease is mainly the result of consolidation accounting for BDC in 2008.* *We expect that sales and marketingexpenses will remain consistent as a percentage of related revenues in the nearfuture.

 

*Generaland administrative expenses.*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 andadministrative expenses increased by $1.5 million, or**21%*,* from$7.2 million for the third quarter of 2008 to $8.7 million for the thirdquarter of 2009.  This increase is primarily due to growth in our ruralwireless business, as well as at the parent company.  Weexpect general and administrative expenses to increase in order to support ourgrowth but remain consistent as compared to our consolidated revenues.

 

*Acquisition-related charges.*Acquisition-relatedcharges include theexternal costs directly associated with acquisition related activities, whichare expensed as incurred.

 

For the three months ended September 30, 2009,acquisition-related charges were $2.1 million. Of these costs, $2.0 millionwere associated with the pending Alltel Acquisition. For the remainder of 2009,we expect transaction related costs to increase as a result of the pendingAlltel Acquisition.

 

*Depreciationand amortization expenses.* Depreciation and amortization expenses represent thedepreciation and amortization charges we record on our property and equipmentand on our intangible assets.

 

Depreciation andamortization expenses increased by $1.5 million, or 18%, from $8.3 millionto $9.8 million for the third quarter of 2008 and the third quarter of**2009, respectively. The increase isprimarily due to the addition of fixed assets from our network expansion in ourrural U.S. wireless business and the acquisitions of ION and Islandcom, whichoccurred in the third quarter of 2008.

 

*Interestexpense.* Interestexpense represents interest incurred on our outstanding credit facilities. On September 10,2008, the Company repaid the then outstanding $50.0 million term loan with theproceeds from a new $75.0 million term loan. At the same time, the Company’srevolving line of credit facility expanded from $20.0 million to$75.0 million. Also during September 2008, the

 

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Company entered into an interest rate swap agreementwhich is further detailed in Note 7 to the Consolidated FinancialStatements included in this Report.

 

Interest expenseincreased from $0.7 million for the third quarter of**2008 to $1.2 million for the third quarter of**2009. The increase in interest expensewas due to the increase in our term loan borrowings. We had no outstandingborrowings under our revolving line of credit during the third quarters of 2008or 2009.

 

*Interestincome*. Interestincome represents interest earned on our cash, cash equivalent and short terminvestments.

 

Interest income was $0.3million for the third quarter of 2008, and $0.4 million for the third quarterof 2009.

 

*Incometaxes. *Theeffective tax rate was 43% for the third quarter of 2008 and 44% for the thirdquarter of 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 the operating results of BDCand its subsidiary, which operate in tax-free jurisdictions.

 

*NetIncome Attributable to Non-Controlling Interests.*Net income attributable tonon-controlling interests consists of the Guyana government’s 20% interest inGT&T, a non-controlling shareholder’s 4% interest in Sovernet,non-controlling shareholders’ 42% equity interest in BDC and othernon-controlling shareholders’ interests in certain consolidated subsidiaries ofCommnet, Sovernet and BDC.

 

Net income attributableto non-controlling interests decreased from $1.3 million to $0.4 million forthe third quarter of**2008 and thethird quarter of**2009,respectively. This decrease is a result of the allocation of non-controllingshareholders’ share of losses in our two early stage businesses (ION andIslandcom) following the adoption the FASB’s authoritative guidance onnoncontrolling interests in consolidated financial statements in 2009. Weexpect net income attributable to non-controlling interests to increase in thefuture as our early stage businesses mature.

 

*Netincome attributable to Atlantic Tele-Network, Inc. Stockholders.*As a result of the above factors, netincome increased by $1.8 million, or 18%, from $10.1 million for the thirdquarter of**2008 to $11.9 millionfor the third quarter of**2009. Ona per share basis, net income increased from $0.67 per basic and $0.66 perdiluted share to $0.78 per basic and diluted share from 2008 to 2009,respectively.

 

*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.Segment results are set forth in Note 11 to the Consolidated FinancialStatements included in this Report.

 

***Nine Months Ended September 30, 2008 and 2009***

 
| ** **                                                               | ** ** | **Nine Months Ended  September 30,** | ** ** | **Amount of  Increase** | ** ** | **Percent  Increase** | ** ** |
|--------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|------------------------------|------------|-----------------------|------------|
| ** **                                                               | ** ** | **2008**                                            | ** ** | **2009**                     | ** ** | **(Decrease)**        | ** ** | **(Decrease)** | ** ** |
| ** **                                                               | ** ** | **(In thousands)**                             | ** ** |
| **REVENUE:**                                                             |       |                                                |       |                         |       |                  |       |   |   |
| Wireless                                                                 |       | $                                                   | 74,927     |                         | $          | 111,120               |       | $ | 36,193 |   | 48.3 | % |
| Local telephone and data                                                 |       | 37,321                                              |       | 40,471                       |       | 3,150                 |       | 8.4 |   |
| International long distance                                              |       | 36,736                                              |       | 29,412                       |       | (7,324                | )          | (19.9 | ) |
| Other                                                                    |       | 2,968                                               |       | 1,200                        |       | (1,768                | )          | (59.6 | ) |
| Total revenue                                                            |       | 151,952                                             |       | 182,203                      |       | 30,251                |       | 19.9 |   |
| **OPERATING EXPENSES:**                                                  | ** ** | ** **                                          | ** ** | ** **                   |       |                  |       |   |   |
| Termination and access fees                                              |       | 25,544                                              |       | 32,583                       |       | 7,039                 |       | 27.6 |   |
| Internet and programming                                                 |       | 2,631                                               |       | 1,609                        |       | (1,022                | )          | (38.8 | ) |
| Engineering and operations                                               |       | 18,217                                              |       | 20,976                       |       | 2,759                 |       | 15.1 |   |
| Sales and marketing                                                      |       | 8,741                                               |       | 11,473                       |       | 2,732                 |       | 31.3 |   |
| General and administrative                                               |       | 19,902                                              |       | 26,290                       |       | 6,388                 |       | 32.1 |   |
| Acquisition-related charges                                              |       | 59                                                  |       | 2,479                        |       | 2,420                 |       | 4,101.7 |   |
| Depreciation and amortization                                            |       | 22,790                                              |       | 28,756                       |       | 5,966                 |       | 26.2 |   |
| Total operating expenses                                                 |       | 97,884                                              |       | 124,166                      |       | 26,282                |       | 26.9 |   |
| Income from operations                                                   |       | 54,068                                              |       | 58,037                       |       | 3,969                 |       | 7.3 |   |
| **OTHER INCOME (EXPENSE):**                                              | ** ** | ** **                                          | ** ** | ** **                   |       |                  |       |   |   |
| Interest expense                                                         |       | (2,049                                              | )          | (3,582                       | )          | (1,533                | )          | (74.8 | ) |
| Interest income                                                          |       | 1,322                                               |       | 1,063                        |       | (259                  | )          | (19.6 | ) |
| Other income (expense), net                                              |       | 364                                                 |       | 49                           |       | (315                  | )          | (86.5 | ) |
| Other income (expense), net                                              |       | (363                                                | )          | (2,470                       | )          | (2,107                | )          | (580.4 | ) |
| **INCOME BEFORE INCOME TAXES**                                           |       | 53,705                                              |       | 55,567                       |       | 1,862                 |       | 3.5 |   |
| Income taxes                                                             |       | 22,570                                              |       | 24,217                       |       | 1,647                 |       | 7.3 |   |
| **INCOME BEFORE EQUITY IN EARNINGS  OF UNCONSOLIDATED AFFILIATES**       |       | 31,135                                              |       | 31,350                       |       | 215                   |       | 0.7 |   |
| Equity in earnings of unconsolidated affiliates                          |       | 735                                                 |       | —                       |       | (735                  | )          | (100.0 | ) |
|                                                                     |       |                                                |       |                         |       |                  |       |   |   |
| **NET INCOME**                                                           |       | 31,870                                              |       | 31,350                       |       | (520                  | )          | (1.6 | ) |
| Net income attributable to non-controlling  interests                    |       | (3,659                                              | )          | (976                         | )          | 2,683                 |       | 73.3 |   |
|                                                                     |       |                                                |       |                         |       |                  |       |   |   |
| **NET INCOME ATTRIBUTABLE TO  ATLANTIC TELE-NETWORK, INC. STOCKHOLDERS** |       | $                                                   | 28,211     |                         | $          | 30,374                |       | 2,163 |   | 7.7 |   |
|                                                                          |            |                                                     |            |                              |            |                       |            |  |  |  |  |  |

 

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*Wirelessrevenue.* Wirelessrevenue increased to $111.1 million for the nine months ended September 30,2009 from $74.9 million for the nine months ended September 30, 2008, anincrease of $36.2 million, or 48%. Our rural U.S. business increased itsrevenues by $28.0 million, or 55%, to $79.3 million from $51.3 million for thenine months ended September 30, 2009 and 2008, respectively.

 

The increase in wirelessrevenue from our U.S. wireless business was due primarily to continueddeployment of additional GSM and CDMA wireless base stations and the expansionof our data capabilities, which generated growth in minutes of use and increaseddata 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 September 30,2009 a total of 564 base stations were deployed as compared to 396 basestations as of September 30, 2008. Our rural wireless revenue also increased as a result of growth in voiceand data traffic (measured in minutes and megabytes, respectively) at existingsites and growth in data roaming revenue and international roaming revenue.

 

Wireless revenue in Guyana remained at $15.6 millionfor the nine months ended September 2008, and 2009, respectively.  Wireless subscribers in Guyana increased 1%,from approximately 273,000 subscribers as of September 30, 2008 toapproximately 277,000 subscribers as of September 30, 2009. As discussedpreviously, a large regional wireless competitor is operating its wirelessservice with aggressive marketing campaigns and significant handset subsidiesin Guyana. While GT&T continues to respond to that competition as well as adecrease in rates, subscriber numbers have increased 12% from 248,000 as of December 31,2008.

 

Our Island Wireless businessincreased wireless revenue by $8.1 million, to $16.2 million from $8.1 millionfor the nine months ended September 30, 2009 and 2008, respectively. Theincrease in our equity position in, and consolidation of BDC, which occurred asof May 15, 2008, contributed $7.7 million of the increase. Wirelesssubscribers in Bermuda remained consistent at 20,000 for the quarters ended September 30,2008, and 2009, respectively.

 

*Localtelephone and data revenue.*Local telephone and data revenue increased by $3.2million, or 9%, to $40.5 million for the nine months ended September 30,2009 from $37.3 million for the nine months ended September 30, 2008. Theincrease is mainly attributable to Sovernet, which increased revenues by$2.5 million as a result of the addition of ION, which Sovernet acquiredon August 15, 2008. Sovernet continues to add business customers for itsvoice and data services at a strong rate and improve profitability; however,its overall revenue increase is partially offset by the decline in itsresidential data business, particularly its dial-up internet services. Localtelephone and data revenue in Guyana increased $0.8 million, or 4%, to $23.1million for the nine months ended September 30, 2009 from $22.3 millionfor the nine months ended September 30, 2008. GT&T’s access lines inGuyana grew from approximately 136,000 lines as of September 30, 2008 toapproximately 144,000 lines as of September 30, 2009 (an increase of 6%).Revenue from the growth in access lines has been offset by a decrease in usagedue to wireless service alternatives.  Data revenue at our U.S. VirginIslands subsidiary remained consistent.

 

*Internationallong distance revenue. *International long distance revenue was$29.4 million for the nine months ended September 30, 2009, a decrease of$7.3 million, or 20%, from $36.7 million for the nine months ended September 30,2008. We are subject to illegal bypass via internet calling and other methodssuch as direct satellite bypass, which we believe has increased considerablysince mid-2008. We also believe we experienced a reduction in the call volume intoGuyana due to the current worldwide economic slowdown.

 

*Otherrevenue*. Otherrevenue represents revenue from wireless digital television services in theU.S. Virgin Islands, which decreased 60% to $1.2 million for the nine monthsended September 30, 2009 from $3.0 million for the nine months ended September 30,2008. On May 31, 2009 the Company terminated its digital televisionservices to focus solely on providing wireless broadband data and dialupinternet services.

 

*Terminationand access fee expenses.*Termination and access fees increased by $7.1 million, or 28%, from$25.5 million for the nine months ended September 30, 2008 to $32.6million for the nine months ended September 30, 2009, as a result ofincreased traffic at Commnet, the consolidation of BDC’s results for 2009 andan increase in expenses at Sovernet due to the operating results of ION, whichSovernet acquired in August 2008.

 

*Internetand programming expenses. *Internet and programming expensesdecreased from $2.6 million for the nine months ended September 30,**2008 to $1.6 million for the nine monthsended September 30,**2009.This decrease was primarily from a decrease in expenses from the U.S. VirginIslands, as we terminated our digital television service on May 31, 2009.

 

*Engineeringand operations expenses.* Engineering and operations expenses increased by $2.8 million, or 15%,from $18.2 million for the nine months ended September 30, 2008 to $21.0million for the nine months ended September 30, 2009. This increase isprimarily the result of the expansion of our wireless networks in the UnitedStates as well as the consolidation of BDC’s results for 2009.

 

*Salesand marketing expenses.*Sales and marketing expenses increased by $2.8 million, or 32%, from$8.7 million for the nine months ended September 30, 2008 to $11.5 millionfor the nine months ended September 30, 2009. This increase is the resultof the consolidation of BDC’s results for 2009.

 

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*Generaland administrative expenses. *General and administrative expensesincreased by $6.4 million, or**32%*,* from $19.9 million for the nine monthsended September 30, 2008 to $26.3 million for the nine months ended September 30,2009.  Of this increase, $3.5**millionis the result of our consolidation of BDC in 2009.

 

*Acquisition-related charges**.*For the nine months ending September 30, 2009 acquisition-relatedcharges were $2.5million. Of these costs, $2.4 million were associated with the pending AlltelAcquisition.

 

*Depreciationand amortization expenses.* Depreciation and amortization expenses increased by$6.0 million, or 26%, from $22.8 million for the nine months ended September 30,2008 to $28.8 million for the nine months ended September 30,**2009. The increase is primarily due tothe addition of fixed assets from our network expansion in our rural U.S.wireless business, the consolidation of BDC’s results for 2009, and theacquisitions of ION and Islandcom, which occurred in the third quarter of 2008.

 

*Interestexpense.* On September 10,2008, the Company repaid the then outstanding $50.0 million term loan with theproceeds from a new $75.0 million term loan. At the same time, the Company’srevolving 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 7 tothe Consolidated Financial Statements included in this Report.

 

Interest expenseincreased from $2.0 million for the nine months ended September 30,**2008 to $3.6 million for the nine monthsended September 30,**2009.The increase in interest expense was due to the increase in our term loanborrowings. We had no outstanding borrowings under our revolving line of creditduring the nine months ended of 2008 or 2009.

 

*Interestincome*. Interestincome decreased to $1.1 million from $1.3 million for nine months ended of2009 and 2008, respectively.  This decrease is a result of a decrease inthe interest rates that we received on our cash and investments.

 

*Incometaxes. *Theeffective tax rate was 42% for the nine months ended September 30, 2008and 44% for the nine months ended September 30, 2009.  Income taxexpense includes tax at the statutory U.S. federal and state income tax ratesas well as the Guyanese income taxes in excess of the statutory U.S. income taxrates. The effective tax rate is impacted by the receipt of foreign dividendsand the operating results of BDC and its subsidiary, which operate in tax freejurisdictions.

 

*NetIncome Attributable to Non-Controlling Interests.*For 2008,**net income attributable to non-controlling interests consists of theGuyana government’s 20% interest in GT&T, a non-controlling shareholder’s4% interest in Sovernet, and other non-controlling shareholders’ interests incertain consolidated subsidiaries of Commnet.  For 2009, net incomeattributable to non-controlling interests also consists of non-controllingshareholders’ 42% equity interest in BDC as well as consolidated subsidiariesof Sovernet and BDC.

 

Net incomeattributable to non-controlling interests decreased from $3.7 million for thenine months ended September 30,**2008to $1.0 million for the nine months ended September 30,**2009. This decrease is a result of theallocation of non-controlling shareholders’ share of losses in our two earlystage businesses (ION and Islandcom) following the adoption the FASB’sauthoritative guidance on noncontrolling interests in consolidated financialstatements in 2009.

 

*Netincome attributable to Atlantic Tele-Network, Inc. Stockholders.*As a result of the above factors, netincome increased to $30.4 million for the nine months ended September 30,2009 from $28.2 million for the nine months ended September 30, 2008. On aper share basis, net income increased from $1.85 per basic and diluted share to$1.99 per basic and $1.98 per diluted share from 2008 to 2009, respectively.

 

*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 the resulting increase in our equity interest in BDC, effective May 15,2008. Segment results are set forth in Note 11 to the ConsolidatedFinancial Statements included in this Report.

 

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**Regulatory and Tax Issues**

 

We are involved ina number of regulatory and tax proceedings. See Note 12 to theConsolidated 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 for the next twelve months, our operationalliquidity needs through a combination of cash on hand and internally generatedfunds and have funded capital expenditures and acquisitions with a combinationof internally generated funds, cash on hand and borrowings under our creditfacilities.

 

***Uses of Cash***

 

*CapitalExpenditures.* Asignificant use of our cash has been for capital expenditures for expanding andupgrading our networks. For the nine months ended September 30, 2008 and2009, we spent $34.6 million and $40.3 million on capital equipment,respectively. Of the $40.3 million of 2009 capital expenditures, we spent $18.5million 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 Guyana, we have spent $15.0 million in2009 for capital expenditures, of which $7.4 million is related to early-stageconstruction costs on a new fiber optic submarine cable into the country, whichis expected to be ready for use during mid-2010, while the remainder was forthe expansion of the capacity and coverage of Guyana’s wireline and wirelessnetwork. A majority of the remaining 2009 consolidated capital expenditureswere incurred by our Island Wireless segment in connection with our networkdevelopment in Turks and Caicos, which is scheduled to be operational duringlate 2009.

 

We are continuingto invest in expanding the networks of all of our subsidiaries and expect to incurcapital expenditures between $40 million and $45 million during the year endingDecember 31, 2009, with over one-half used in connection with Commnet’snetwork expansion. In addition to these expenditures, we expect to incur anadditional $5 million to $10 million of capital expenditures in 2009 on theconstruction of the submarine fiber optic cable in Guyana. We expect to fundour current capital expenditures primarily from cash generated from ouroperations, but may seek additional debt financing outside our bank creditfacility if it is available at satisfactory terms to us.

 

*Acquisitionsand Investments.*Wehave funded our recent acquisitions with a combination of cash on hand andborrowings under our credit facilities. In conjunction with the AlltelAcquisition, the Company has received commitments from lenders for an expandedcredit facility consisting of a $75 million term loan (“Term Loan A”), a $150million term loan (“Term Loan B”) and a $75 million revolving credit facility(the “New Revolver Facility,” and together with Term Loan A and Term Loan B,the “New Credit Facility”).  The NewCredit Facility would replace the 2008 Credit Facility.  The Company plans to use cash on hand, theproceeds from Term Loan B and a portion of the proceeds available under the NewRevolver Facility towards the acquisition purchase price and relatedacquisition expenses and working capital adjustments.  The New Credit Facility is subject to theexecution of definitive documentation and other customary closing conditions.  The Company expects to enter into the NewCredit Facility in the fourth quarter of 2009.

 

We continue toexplore opportunities to acquire communications properties or licenses in theCaribbean, the United States and elsewhere. We also explore opportunities tosubstantially expand our existing networks in the United States and theCaribbean.  Such acquisitions may require external financing. While therecan be no assurance as to whether, when or on what terms we will be able toacquire any such businesses or licenses, such acquisitions may be accomplishedthrough the issuance of shares, payment of cash or incurrence of debt.

 

*Dividends.*We use cash onhand to make dividend payments to our common stockholders when declared by ourBoard of Directors. For the nine months ended September 30, 2009, ourdividends to our stockholders were $8.5 million (which reflects dividends paidon October 15, 2009). We have paid quarterly dividends for the last 44fiscal quarters.

 

*StockRepurchase Plan*.Our Board of Directors approved a $5.0 million stock buyback plan in September 2004pursuant to which we have spent $2.1 million as of September 30, 2009repurchasing common stock.  We may repurchase shares at any time dependingon market conditions, our available cash and our cash needs. We did notrepurchase any shares during the three months ended September 30, 2009.

 

*CashGenerated by Financing Activities- Credit Facility and Interest Rate Swap.*    On September 10,2008, we entered into a credit agreement with CoBank, ACB and other lenders asreferenced within the credit agreement (the “2008 CoBank Credit Agreement”).The 2008 CoBank Credit Agreement replaced our previous credit facility andprovides us with a $75.0 million term loan (the “2008 Term Loan”) as wellas a $75.0 million revolving credit facility (the “2008 Revolver Facility”,together with the 2008 Term Loan, the “2008 Credit Facility”). The 2008 CoBankCredit Agreement also provides, subject to lender consent, additional

 

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term loan borrowingcapacity of up to $50 million with identical terms as the 2008 Term Loan. Asdiscussed above, we intend to replace the 2008 Credit Facility with a newCredit Facility in conjunction with the Alltel Acquisition.

 

The 2008 Term Loanmatures on September 10, 2015 and requires quarterly repayments ofprincipal of $0.2 million through June 30, 2013 and quarterly repaymentsof principal of $1.4 million from June 30, 2013 to June 30, 2015. Theremaining outstanding principal balance of $60.0 million is to be repaidon September 10, 2015 when the 2008 Term Loan matures. The 2008 RevolverFacility matures on September 10, 2014 and includes a $5.0 millionletter of credit facility.

 

All borrowingsunder the 2008 Credit Facility bear interest at a rate, selected by us from oneof the options set forth in the agreement, plus a margin. Such interest rateoptions include i) a base rate, defined as the greater of the prime rateor the federal funds rate plus 0.5%, or ii) a LIBOR rate. Margins for baserate borrowings range from 0% to 0.5%, depending upon our leverage ratio, whilemargins for LIBOR borrowings range from 1.25% to 2.00%, also depending upon ourleverage ratio. Borrowings as of September 30, 2009, including theinterest rate swap agreement described below, were bearing a weighted averageinterest rate of 5.23%. The 2008 CoBank Credit Agreement contains certainaffirmative and negative covenants of the Company and its subsidiaries as setforth below under “—Factors Affecting Sources of Liquidity.” The 2008 CreditFacility is guaranteed by the Company’s Commnet and Sovernet subsidiaries andis collateralized by a security interest in substantially all of the assets ofand stock owned by the Company and such guarantors. As of September 30,2009, the Company was in compliance with all of the covenants of the 2008CoBank 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***

 

*TotalLiquidity at September 30, 2009*.*    *Asof September 30, 2009, we had approximately $95.4 million in cash and cashequivalents and short term investments, an increase of $12.8 million from the December 31,2008 balance of $82.6**million. Webelieve our existing cash balances and other capital resources, including the$75.0 million available under the 2008 Revolver Facility, are adequate tomeet our operating and capital needs for the next twelve months.

 

*CashGenerated by Operations.*Cash provided by operating activities was $70.8 million for the ninemonths ended September 30, 2009 compared to $39.6 million for the ninemonths ended September 30, 2008, primarily as a result of improvements incertain components of our working capital, including the timing of certainincome tax payments.

 

***Factors AffectingSources of Liquidity***

 

*InternallyGenerated Funds.*    Thekey factors affecting our internally generated funds are demand for ourservices, competition, regulatory developments, economic conditions in themarkets where we operate our businesses and industry trends within thetelecommunications industry. For a discussion of tax and regulatory risks inGuyana that could have a material adverse impact on our liquidity, see “ RiskFactors—Risks Relating to Our Wireless and Wireline Services in Guyana”, “Business—Regulationof Our GT&T Subsidiary” in our 2008 Form 10-K and Note 12 to theCondensed Consolidated Financial Statements included in this Report.

 

*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 September 30,2009, the Company was in compliance with all of the covenants of the 2008CoBank Credit Agreement and would be able to fully draw the $75 millionavailable under its revolving credit facility.

 

*CapitalMarkets*.  Our ability to raise funds in the capitalmarkets depends on, among other things, general economic conditions, theconditions of the telecommunications industry, our financial performance, thestate of the capital markets and our

 

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compliance with Securitiesand Exchange Commission (“SEC”) requirements for the offering of securities. InJune 2009, the Company’s “universal” shelf registration statement filedwith the SEC expired by its own terms. The Company currently anticipates that it will file with the SEC a new “universal”shelf registration in the second half of 2009, which, if declared effective bythe SEC, will register potential future offerings by the Company, from time totime, of the Company’s securities.

 

***RecentAccounting Pronouncements***

 

**Recently Adopted Standards**

 

In June 2009, theFinancial Accounting Standards Board (“FASB”) issued guidance which changed thereferencing of financial standards and the Hierarchy of Generally AcceptedAccounting Principles and is effective for interim or annual financial periodsending after September 15, 2009. The Company adopted the provisions of thenew guidance in the third quarter of 2009 and updated its interim disclosures.

 

In May 2009, theFASB issued guidance that modified the definition of what qualifies as asubsequent event—those events or transactions that occur following the balancesheet date, but before the financial statements are issued, or are available tobe issued—and required companies to disclose the date through which it hasevaluated subsequent events and the basis for determining thatdate.  The Company adopted the provisions of the new guidance in thesecond quarter of 2009.

 

In April 2009, theFASB issued new authoritative guidance that requires the recognition of another-than-temporary impairment when an entity has the intent to sell a debtsecurity or when it is more likely than not that an entity will be required tosell the debt security before its anticipated recovery in value. Additionally,the new guidance changes the presentation and amount of other-than-temporaryimpairment losses recognized in the income statement for instances in which theCompany does not intend to sell or it is more likely than not that the Companywill not be required to sell a debt security prior to the anticipated recoveryof its remaining cost basis.  In addition to the changes in measurementand presentation, the new guidance expands the disclosures related toother-than-temporary impairments and require all such disclosures to beincluded in both interim and annual periods. The provisions of the new guidance were effective for the three monthperiod ended June, 30, 2009.  The adoption of the provisions of thisguidance did not have a material impact on the Company’s consolidated financialstatements.

 

In April 2009, theFASB issued new authoritative guidance for determining when a transaction isnot orderly and for estimating fair value in accordance with FASB standards**when there has been a significantdecrease in the volume and level of activity for an asset or liability.  The guidance requires the disclosure of theinputs and valuation techniques used, as well as any changes in valuationtechniques and inputs used during the period, to measure fair value in interimand annual periods. In addition, the new guidance requires that thepresentation of the fair value hierarchy be presented by major security type inaccordance with FASB guidance.  Theadoption of the provisions of this guidance did not have a material impact onthe Company’s consolidated financial statements.

 

In December 2007,the FASB issued new authoritative guidance that requires the Company to reviseits application of the acquisition method for business combinations in a numberof significant aspects such as requiring the Company to expense transactioncosts and to recognize 100% of the acquiree’s assets and liabilities ratherthan a proportional share for acquisitions of less than 100% of abusiness.  In addition, the guidance eliminates the step acquisitionmodel and provides that all business combinations, whether full, partial, orstep acquisitions, results in all assets and liabilities of an acquiredbusiness being recorded at their fair values at the acquisition date.  The Company adopted the provisions of thisguidance on January 1, 2009. The impact of the provisions of this guidanceon the Company’s financial statements will be dependent upon the number of andmagnitude of the acquisitions that are consummated.

 

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In April 2009, theFASB issued new authoritative guidance which amends the initial and subsequentmeasurement guidance and disclosure requirements for assets and liabilities arisingfrom contingencies in a business combination. The provisions of this guidanceare effective on a prospective basis for all business combinations for whichthe acquisition date is on or after January 1, 2009.

 

In January 2009, theFASB issued new authoritative guidance that requires disclosures about the fairvalue of financial instruments in interim financial statements as well as inannual financial statements. Additionally, this guidance requires thosedisclosures in all interim financial statements. The Company adopted theprovisions of this guidance, as required, for the period ended June 30,2009. The adoption of the provisions of this guidance did not have a materialimpact on the Company’s consolidated financial statements.

 

**Standards to be Adopted**

 

In December 2008,the FASB issued new authoritative guidance that provides additional guidance onan employer’s disclosures about plan assets of a defined benefit pension orother postretirement plan. The adoption of the provisions of this guidance willincrease the disclosures in the financial statements related to the assets ofan employers’ defined benefit pension plan. This guidance is effective in 2010.The Company does not anticipate that adoption of the provisions of thisguidance will have a material impact on the consolidated financial statements.

 

In June 2009, theFASB issued new authoritative guidance that amends certain guidance fordetermining whether an entity is a variable interest entity (VIE). The guidancerequires an enterprise to perform an analysis to determine whether the Company’svariable interests give it a controlling financial interest in a VIE. A companywould be required to assess whether it has an implicit financial responsibilityto ensure that a VIE operates as designed when determining whether it has thepower to direct the activities of the VIE that most significantly impact theentity’s economic performance. In addition, this guidance amends earlierguidance requiring ongoing reassessments of whether an enterprise is theprimary beneficiary of a VIE. The guidance is effective for the Company forfiscal year 2010. The Company does not anticipate that the adoption of theprovisions of this guidance will have a material impact on the consolidatedfinancial statements.

 

**Item 3.Quantitative and Qualitative Disclosures about Market Risk**

 

*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 September 2009,the value of the Guyana dollar has remained fixed at $205 Guyana dollars to oneU.S. dollar so we have not experienced any foreign currency gains or lossesduring those periods. If this exchange rate was to fluctuate in the future,this would affect our results of operations to the extent we are required toremeasure any monetary assets or liabilities denominated in Guyana dollars.Moreover, with the potential for competition in international services in thefuture, combined with the increases that GT&T hopes to have in localrevenue which is billed in Guyana dollars, it is possible that the Guyanadollar will become GT&T’s functional currency at some point in the future.This would also expose us to foreign currency risk in the event of exchangerate fluctuations.

 

*InterestRate Sensitivity.*    Ourexposure to changes in interest rates is limited and relates primarily to ourvariable interest rate long-term debt. As of September 30, 2009,$68.0 million of our long term debt had a fixed rate by way of aninterest-rate swap that effectively hedges our interest rate risk. Theremaining $6.1 million of long term debt as of September 30, 2009 wassubject 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**

 

*Evaluationof disclosure controls and procedures.*Our management, with the participation of ourprincipal executive and principal financial officers, evaluated the effectivenessof our disclosure controls and procedures as of September 30, 2009. Theterm “disclosure controls and procedures,” as defined in Rules 13a-15(e) and15d-15(e) under the Exchange Act, means controls and other procedures of acompany that are designed to ensure that information required to be disclosedby a company in the reports that it files or submits under the Exchange Act isrecorded, processed, summarized and reported, within the time periods specifiedin the SEC’s rules and forms. Disclosure controls and procedures include,without limitation, 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 of our disclosure controls and procedures as of September 30,2009, our principal executive officer and principal financial officer concludedthat, as of such date, our disclosure controls and procedures were effective atthe reasonable assurance level.

 

*Changesin internal control over financial reporting.*There was no change in the internal control overfinancial reporting that occurred during the three months ended September 30,2009 that has materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.

 

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**PART II—OTHER INFORMATION**

 

**Item 1.Legal Proceedings**

 

See Note 12 to theCondensed Consolidated Financial Statements included in this Report.

 

**Item1A. 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 andUse of Proceeds**

 

In September 2004,the Board of Directors authorized the Company to repurchase up to $5.0 millionof common stock. The repurchase authorizations do not have a fixed terminationdate and the timing of the buyback amounts and exact number of shares purchasedwill depend on market conditions.

 

Thefollowing table reflects the repurchases by the Company of its common stockduring the quarter ended September 30, 2009:

 
| **Period**                                             | ** ** | **(a)  Total Number  of Shares  Purchased** | ** ** | **(b)  Average  Price  Paid per  Share** | ** ** | **(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** | ** ** |
|--------------------------------------------------------|------------|--------------------------------------------------|------------|-----------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| July 1, 2009 –  July 31, 2009           |       | —                                           |       | $                                             | —     |                                                                                                                             | —     |                                                                                                                                                             | $          | 2,919,965 |   |
| August 1, 2009 –  August 31, 2009       |       | —                                           |       | —                                        |       | —                                                                                                                           |       | 2,919,965                                                                                                                                                        |       |
| September 1, 2009 –  September 30, 2009 |       | —                                           |       | —                                        |       | —                                                                                                                           |       | 2,919,965                                                                                                                                                        |       |
|                                                        |            |                                                  |            |                                               |            |                                                                                                                                  |            |                                                                                                                                                                  |            |  |  |

 

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**Item 6.Exhibits**

 
| 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 |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                              |
| 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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**Table of Contents**

** **

**SIGNATURES**

** **

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
|                        |   | Atlantic  Tele-Network, Inc.     |
|-----------------------------|--------|---------------------------------------|
|                        |   |                                  |
| Date: November 9, 2009 |   | /s/ Michael T. Prior                  |
|                        |   | Michael T. Prior                      |
|                        |   | President and Chief Executive Officer |
|                        |   |                                  |
| Date: November 9, 2009 |   | /s/ Justin D. Benincasa               |
|                        |   | Justin D. Benincasa                   |
|                        |   | Chief Financial Officer and Treasurer |

 

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