ATN International, Inc.
ATLANTIC TELE NETWORK INC /DE (Form: 10-Q, Received: 05/10/2011 14:51:25)

Table of Contents

 

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

Form 10-Q

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2011

 

OR

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from         to         

 

Commission File Number 001-12593

 


 

Atlantic Tele-Network, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

47-0728886

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification Number)

 

600 Cummings Center

Beverly, MA 01915

(Address of principle executive offices, including zip code)

 

(978) 619-1300

(Registrant’s telephone number, including area code)

 


 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   x    No   o

 

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

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” 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 mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes   o    No   x

 

As of May 10, 2011, the registrant had outstanding 15,392,930 shares of its common stock ($.01 par value).

 

 

 



Table of Contents

 

ATLANTIC TELE-NETWORK, INC.

 

FORM 10-Q

 

Quarter Ended March 31, 2011

 

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS

3

 

 

PART I—FINANCIAL INFORMATION

4

 

 

Item 1

Unaudited Condensed Consolidated Financial Statements

4

 

 

 

 

Condensed Consolidated Balance Sheets at December 31, 2010 and March 31, 2011

4

 

 

 

 

Condensed Consolidated Income Statements for the Three Months Ended March 31, 2010 and 2011

5

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2010 and 2011

6

 

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

7-17

 

 

 

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17-28

 

 

 

Item 3

Quantitative and Qualitative Disclosures About Market Risk

28

 

 

 

Item 4

Controls and Procedures

28

 

 

PART II—OTHER INFORMATION

28

 

 

Item 1

Legal Proceedings

28

 

 

 

Item1A

Risk Factors

28

 

 

 

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

29

 

 

 

Item 5

Other Information

29

 

 

 

Item 6

Exhibits

29

 

 

 

SIGNATURES

 

 

 

CERTIFICATIONS

 

 

2



Table of Contents

 

Cautionary Statement Regarding Forward-Looking Statements

 

This Quarterly Report on Form 10-Q (or the “Report”) contains forward-looking statements relating to, among other matters, our future financial performance and results of operations; the competitive environment in our key markets, demand for our services and industry trends; the outcome of litigation and regulatory matters; our continued access to the credit and capital markets; the pace of our network expansion and improvement, including our level of estimated future capital expenditures and our realization of the benefits of these investments; and management’s plans and strategy for the future.  These forward-looking statements are based on estimates, projections, beliefs, and assumptions and are not guarantees of future events or results.  Actual future events and results could differ materially from the events and results indicated in these statements as a result of many factors, including, among others, (1) our ability to operate a large scale retail wireless business in the United States and to complete the timely and efficient integration of these operations into our existing operations; (2)  the general performance of our U.S. operations, including operating margins, and the future retention and turnover of our subscriber base; (3) our ability to maintain favorable roaming arrangements; (4) increased competition; (5) economic, political and other risks facing our foreign operations; (6) the loss of certain FCC and other licenses and other regulatory changes affecting our businesses; (7) rapid and significant technological changes in the telecommunications industry; (8) any loss of any key members of management; (9) our reliance on a limited number of key suppliers and vendors for timely supply of equipment and services relating to our network infrastructure and retail wireless business; (10) the adequacy and expansion capabilities of our network capacity and customer service system to support our customer growth; (11) the occurrence of severe weather and natural catastrophes; (12) the current difficult global economic environment, along with difficult and volatile conditions in the capital and credit markets; and (13) our ability to realize the value that we believe exists in businesses that we may or have acquired. These and other additional factors that may cause actual future events and results to differ materially from the events and results indicated in the forward-looking statements above are set forth more fully under Item 1A “Risk Factors” of this Report as well as the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, filed with the SEC on March 16, 2011. The Company undertakes no obligation to update these forward-looking statements to reflect actual results, changes in assumptions or changes in other factors that may affect such forward-looking statements.

 

In this Report, the words “the Company”, “we,” “our,” “ours,” “us” and “ATN” refer to Atlantic Tele-Network, Inc. and its subsidiaries, unless the context indicates otherwise. This Report contains trademarks, service marks and trade names such as “ Alltel ”, “ CellularOne ”, “ Cellink ”, “ Islandcom ”, “ Choice ”, “ Sovernet ” and “ ION ” that are the property of, or licensed by, ATN, and its subsidiaries.

 

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

 

3



Table of Contents

 

PART I—FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements

 

ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollars in thousands, except per share amounts)

 

 

 

December 31,
2010

 

March 31,
2011

 

ASSETS

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash and cash equivalents

 

$

37,330

 

$

47,043

 

Restricted cash

 

467

 

 

Accounts receivable, net of allowances of $13.8 million and $12.8 million, respectively

 

59,870

 

51,990

 

Materials and supplies

 

26,614

 

21,867

 

Deferred income taxes

 

15,787

 

15,787

 

Prepayments and other current assets

 

14,221

 

11,159

 

Total current assets

 

154,289

 

147,846

 

Property, plant and equipment, net

 

463,891

 

457,981

 

Telecommunications licenses

 

80,843

 

80,933

 

Goodwill

 

44,397

 

44,397

 

Trade name license, net

 

13,491

 

13,371

 

Customer relationships, net

 

49,031

 

46,406

 

Deferred income taxes

 

5,252

 

4,611

 

Other assets

 

17,002

 

18,353

 

Total assets

 

$

828,196

 

$

813,898

 

LIABILITIES AND EQUITY

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Current portion of long-term debt

 

$

12,194

 

$

14,992

 

Accounts payable and accrued liabilities

 

54,731

 

39,194

 

Dividends payable

 

3,394

 

3,396

 

Accrued taxes

 

9,413

 

8,275

 

Advance payments and deposits

 

17,398

 

17,511

 

Other current liabilities

 

41,172

 

35,469

 

Total current liabilities

 

138,302

 

118,837

 

Deferred income taxes

 

58,505

 

58,505

 

Other liabilities

 

30,304

 

27,519

 

Long-term debt, excluding current portion

 

272,049

 

277,492

 

Total liabilities

 

499,160

 

482,353

 

Commitments and contingencies (Note 11)

 

 

 

 

 

Atlantic Tele-Network, Inc.’s Stockholders’ Equity:

 

 

 

 

 

Preferred stock, $0.01 par value per share; 10,000,000 shares authorized, none issued and outstanding

 

 

 

Common stock, $0.01 par value per share; 50,000,000 shares authorized; 15,882,359 and 15,894,859 shares issued, respectively, and 15,383,181 and 15,392,930 shares outstanding, respectively

 

159

 

159

 

Treasury stock, at cost; 499,178 and 501,929 shares, respectively

 

(4,724

)

(4,815

)

Additional paid-in capital

 

113,002

 

114,080

 

Retained earnings

 

182,390

 

183,498

 

Accumulated other comprehensive loss

 

(7,059

)

(6,174

)

Total Atlantic Tele-Network, Inc.’s stockholders’ equity

 

283,768

 

286,748

 

Non-controlling interests

 

45,268

 

44,797

 

Total equity

 

329,036

 

331,545

 

Total liabilities and equity

 

$

828,196

 

$

813,898

 

 

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

 

4



Table of Contents

 

ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED INCOME STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 and 2011

(Unaudited)

(Dollars in thousands, except per share amounts)

 

 

 

Three Months Ended March  31,

 

 

 

2010

 

2011

 

REVENUE:

 

 

 

 

 

U.S. Wireless:

 

 

 

 

 

Retail

 

$

 

$

99,669

 

Wholesale

 

22,936

 

44,697

 

International Wireless

 

10,918

 

14,943

 

Wireline

 

20,520

 

20,671

 

Equipment and Other

 

458

 

8,174

 

Total revenue

 

54,832

 

188,154

 

OPERATING EXPENSES ( excluding depreciation and amortization unless otherwise indicated ):

 

 

 

 

 

Termination and access fees

 

11,256

 

51,975

 

Engineering and operations

 

6,412

 

21,835

 

Sales and marketing

 

3,394

 

32,108

 

Equipment expense

 

713

 

21,192

 

General and administrative

 

10,773

 

25,613

 

Acquisition-related charges

 

4,793

 

250

 

Depreciation and amortization

 

10,069

 

24,791

 

Total operating expenses

 

47,410

 

177,764

 

Income from operations

 

7,422

 

10,390

 

OTHER INCOME (EXPENSE):

 

 

 

 

 

Interest expense

 

(1,266

)

(3,812

)

Interest income

 

154

 

120

 

Equity in earnings of an unconsolidated affiliate

 

 

516

 

Other income, net

 

4

 

595

 

Other income (expense), net

 

(1,108

)

(2,581

)

INCOME BEFORE INCOME TAXES

 

6,314

 

7,809

 

Income tax expense

 

2,456

 

3,830

 

NET INCOME

 

3,858

 

3,979

 

Net loss attributable to non-controlling interests, net of tax of $0.7 million and $ 0.4 million, respectively

 

148

 

518

 

NET INCOME ATTRIBUTABLE TO ATLANTIC TELE-NETWORK, INC. STOCKHOLDERS

 

$

4,006

 

$

4,497

 

NET INCOME PER WEIGHTED AVERAGE SHARE ATTRIBUTABLE TO ATLANTIC TELE-NETWORK, INC. STOCKHOLDERS

 

 

 

 

 

Basic

 

$

0.26

 

$

0.29

 

Diluted

 

$

0.26

 

$

0.29

 

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:

 

 

 

 

 

Basic

 

15,260

 

15,384

 

Diluted

 

15,447

 

15,485

 

DIVIDENDS PER SHARE APPLICABLE TO COMMON STOCK

 

$

0.20

 

$

0.22

 

 

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

 

5



Table of Contents

 

ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2011

(Unaudited)

(Dollars in thousands)

 

 

 

Three Months Ended
March 31,

 

 

 

2010

 

2011

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net income

 

$

3,858

 

$

3,979

 

Adjustments to reconcile net income to net cash flows provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

10,069

 

24,791

 

Provision for (reduction of) doubtful accounts

 

(139

)

3,468

 

Amortization of debt discount and debt issuance costs

 

287

 

391

 

Stock-based compensation

 

355

 

1,078

 

Deferred income taxes

 

(235

)

59

 

Equity in earnings of an unconsolidated affiliate

 

 

(516

)

Changes in operating assets and liabilities, excluding the effects of acquisitions:

 

 

 

 

 

Accounts receivable

 

(560

)

4,412

 

Materials and supplies, prepayments, and other current assets

 

941

 

7,810

 

Accounts payable and accrued liabilities, advance payments and deposits and other current liabilities

 

(1,022

)

(21,115

)

Accrued taxes

 

(3,534

)

(1,138

)

Other

 

68

 

(2,225

)

Net cash provided by operating activities

 

10,088

 

20,994

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Capital expenditures

 

(16,889

)

(16,270

)

Decrease in restricted cash

 

2,862

 

467

 

Acquisitions of assets

 

(57

)

 

Net cash used in investing activities

 

(14,084

)

(15,803

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Proceeds from borrowings under revolver loan, net of repayments

 

 

11,000

 

Principal repayments of term loan

 

(923

)

(3,048

)

Dividends paid on common stock

 

(3,055

)

(3,384

)

Distributions to non-controlling interests

 

(31

)

(462

)

Payments of debt issuance costs

 

(3,339

)

 

Investments made by non-controlling interests

 

125

 

507

 

Purchase of common stock

 

 

(91

)

Net cash (used in) provided by financing activities

 

(7,223

)

4,522

 

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

(11,219

)

9,713

 

CASH AND CASH EQUIVALENTS, beginning of the period

 

90,247

 

37,330

 

CASH AND CASH EQUIVALENTS, end of the period

 

$

79,028

 

$

47,043

 

 

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

 

6



Table of Contents

 

ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1. ORGANIZATION AND BUSINESS OPERATIONS

 

The Company provides wireless and wireline telecommunications services in North America, Bermuda and the Caribbean. Through its operating subsidiaries, the Company offers the following principal services:

 

·                   Wireless.  In the United States, the Company offers wireless voice and data services to retail customers under the “Alltel” name in rural markets located principally in the Southeast and Midwest. Additionally, the Company offers wholesale wireless voice and data roaming services to national, regional and local wireless carriers and selected international wireless carriers in rural markets located principally in the Southwest and Midwest United States. The Company also offers wireless voice and data services to retail customers in Bermuda under the “CellularOne” name, in Guyana under the “Cellink” name, and in other smaller markets in the Caribbean and the United States.

 

·                   Wireline.  The Company’s local telephone and data services include its operations in Guyana and the mainland United States. The Company is the exclusive provider of domestic wireline local and long distance telephone services in Guyana and international voice and data communications into and out of Guyana. The Company also offers facilities-based integrated voice and data communications services to enterprise and residential customers in New England, primarily in Vermont, and wholesale transport services in New York State.

 

In the second quarter of 2010, the Company completed the acquisition of its U.S. retail wireless business, which provides wireless voice and data services in rural markets of the United States under the “Alltel” brand name (the “Alltel Acquisition”). Since 2005, revenue from U.S. operations has significantly grown as a percentage of consolidated revenue and as a result of the Alltel Acquisition, a substantial majority of the Company’s consolidated revenue is now generated in the United States, mainly through mobile wireless operations. The Company continues to actively evaluate additional investment and acquisition opportunities in the United States and the Caribbean that meet its return-on-investment and other acquisition criteria. For more information about the Alltel Acquisition, see Note 4 to the Consolidated Financial Statements included in this Report.

 

In the second quarter of 2011, the Company continued its expansion, entering into a joint venture with the Navajo Tribal Utility Authority to provide retail wireless services on the Navajo Nation, and completed the merger of its Bermuda operations with M3 Wireless, Ltd., a leading retail wireless provider in Bermuda. For more information on the Navajo joint venture and Bermuda merger, see Note 12 to the Consolidated Financial Statements included in this Report.

 

The following chart summarizes the operating activities of the Company’s principal subsidiaries, the segments in which the Company reports its revenue and the markets it served as of March 31, 2011:

 

Services

 

Segment

 

Markets

 

Tradenames

Wireless

 

U.S. Wireless

 

United States (rural markets)

 

Alltel, Choice

 

 

International Integrated Telephony

 

Guyana

 

Cellink

 

 

Island Wireless

 

Aruba, Bermuda, Turks and Caicos, U.S. Virgin Islands

 

Mio, CellularOne, Islandcom, Choice

Wireline

 

International Integrated Telephony

 

Guyana

 

GT&T, Emagine

 

 

U.S. Wireline

 

United States (New England and New York State)

 

Sovernet, ION

 

The Company provides management, technical, financial, regulatory, and marketing services to its subsidiaries and typically receives a management fee equal to a percentage of their respective revenue. Management fees from consolidated subsidiaries are eliminated in consolidation. For information about the Company’s business segments and geographical information about its revenue, operating income and long-lived assets, see Note 10 to the Consolidated Financial Statements included in this Report.

 

2.  BASIS OF PRESENTATION

 

The accompanying condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The financial information included herein is unaudited; however, the Company believes such information and the disclosures herein are adequate to make the information presented not misleading and reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair statement of the Company’s financial position and results of operations for such periods. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United

 

7



Table of Contents

 

States of America.  Results of interim periods may not be indicative of results for the full year.  These condensed consolidated financial statements and related notes should be read in conjunction with the Company’s 2010 Annual Report on Form 10-K.

 

Consolidation

 

The consolidated financial statements include the accounts of the Company, its majority-owned subsidiaries and certain entities, which are consolidated in accordance with the provisions of the Financial Accounting Standards Board (“FASB”) authoritative guidance on the consolidation of variable interest entities since it is determined that the Company is the primary beneficiary of these entities.

 

Recent Accounting Pronouncements

 

In January 2010, the FASB issued updated guidance to amend the disclosure requirements related to recurring and nonrecurring fair value measurements. This update requires new disclosures on significant transfers of assets and liabilities in and out of Level 1 and Level 2 of the fair value hierarchy (including the reasons for these transfers) and also requires a reconciliation of recurring Level 3 measurements about purchases, sales, issuances and settlements on a gross basis. In addition to these new disclosure requirements, this update clarifies certain existing disclosure requirements. For example, this update clarifies that reporting entities are required to provide fair value measurement disclosures for each class of assets and liabilities rather than each major category of assets and liabilities. This update also clarifies the requirement for entities to disclose information about both the valuation techniques and inputs used in estimating Level 2 and Level 3 fair value measurements. This update was effective for companies with interim and annual reporting periods beginning after December 15, 2009, except for the requirement to provide the Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which became effective for interim and annual reporting periods beginning after December 15, 2010. The Company has adopted the updated guidance in the first quarter of 2010 and the adoption did not have an impact on our financial position, results of operations, or cash flows.

 

In June 2009, the FASB issued new authoritative guidance that amends certain guidance for determining whether an entity is a variable interest entity (VIE). The guidance requires an enterprise to perform an analysis to determine whether the Company’s variable interests give it a controlling financial interest in a VIE. A company would be required to assess whether it has an implicit financial responsibility to ensure that a VIE operates as designed when determining whether it has the power to direct the activities of the VIE that most significantly impact the entity’s economic performance. In addition, this guidance amends earlier guidance requiring ongoing reassessments of whether an enterprise is the primary beneficiary of a VIE. The adoption of the provisions of this guidance, which was effective January 1, 2010, did not have a material impact on the consolidated financial statements.

 

In December 2007, the FASB issued new authoritative guidance that requires the Company to revise its application of the acquisition method for business combinations in a number of significant aspects such as requiring the Company to expense transaction costs and to recognize 100% of the acquiree’s assets and liabilities rather than a proportional share for acquisitions of less than 100% of a business. In addition, the guidance eliminates the step acquisition model and provides that all business combinations, whether full, partial, or step acquisitions, results in all assets and liabilities of an acquired business being recorded at their 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 financial statements will be dependent upon the number of and magnitude of the acquisitions that are consummated. Under this new authoritative guidance, the Company expensed acquisition-related costs of $4.8 million and $0.3 million during three months ended March 31, 2010 and 2011, respectively.

 

Other new pronouncements issued but not effective until after March 31, 2011 are not expected to have a material impact on our financial position, results of operations or liquidity.

 

3.  USE OF ESTIMATES

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. The most significant estimates relate to the allowance for doubtful accounts, useful lives of the Company’s fixed and finite-lived intangible assets, allocation of purchase price to assets acquired and liabilities assumed in purchase business combinations, fair value of indefinite-lived intangible assets, goodwill and income taxes. Actual results could differ significantly from those estimates.

 

4.  ACQUISITIONS

 

On April 26, 2010, the Company completed its previously-announced acquisition of wireless assets from Cellco Partnership d/b/a Verizon Wireless (“Verizon”) pursuant to the Purchase Agreement, dated June 9, 2009, between the Company and Verizon (the “Alltel Acquisition”). Pursuant to the Purchase Agreement, Verizon contributed certain licenses, network assets, tower and other

 

8



Table of Contents

 

leases and other assets and certain related liabilities to its wholly-owned subsidiary limited liability company, whose membership interests were acquired by Allied Wireless Communications Corporation (“AWCC”), the Company’s subsidiary.

 

The Company funded the purchase price of $221.4 million, which included the purchase of $15.8 million of net working capital, as defined in the agreement, with cash-on-hand and borrowings under its available credit facility. On April 26, 2010, the Company drew down a $150 million term loan under the Amended and Restated Credit Agreement, dated as of January 20, 2010, by and among the Company, certain of the Company’s subsidiaries, as Guarantors, CoBank, ACB, as Administrative Agent, Arranger, Issuer Lender and Lender, and the other Lenders named therein. In addition, the Company also borrowed $40 million under its previously undrawn revolving credit facility. The remaining $31.4 million of consideration was funded using cash on hand.

 

The Alltel Acquisition was accounted for using the purchase method and AWCC’s results of operations since April 26, 2010 have been included in the Company’s U.S. Wireless segment as reported in Note 10. The total purchase consideration of $221.4 million cash was allocated to the assets acquired and liabilities assumed at their estimated fair values as of the date of acquisition as determined by management. The table below represents the assignment of the total acquisition cost to the tangible and intangible assets and liabilities of AWCC based on their acquisition date fair values:

 

Total cash consideration

 

$

221,359

 

Purchase price allocation:

 

 

 

Net working capital

 

$

15,817

 

Property, plant and equipment

 

176,393

 

Customer relationships

 

55,500

 

Telecommunications licenses

 

44,000

 

Trade name license

 

13,400

 

Other long term assets

 

11,500

 

Other long term liabilities

 

(34,211

)

Deferred tax liabilities

 

(18,016

)

Non-controlling interests

 

(16,000

)

Net assets acquired

 

$

248,383

 

Gain on bargain purchase, net of deferred taxes of $18,016

 

$

27,024

 

 

The gain related to the Alltel Acquisition was a result of a bargain purchase generated by the forced divesture of the assets that was required to be completed by Verizon within a required timeframe to a limited class of potential buyers that resulted in a favorable price to the Company for these assets. This gain, recognized on the bargain purchase, was included in Other Income in the Company’s results during the second quarter of 2010.  The weighted average amortization period of the amortizable intangible assets (customer relationships and trade name license) is 12.7 years.

 

In connection with the Alltel Acquisition, the Company incurred $4.8 million of external acquisition-related costs during the three months ended March 31, 2010 relating to legal, accounting and consulting services.

 

The following table reflects the unaudited pro forma results of operations of the Company for the three months ended March 31, 2010 as if the Alltel Acquisition had occurred on January 1, 2010 (presented in thousands, except per share data):

 

 

 

Three Months Ended March 31, 2010

 

 

 

As Reported

 

As Adjusted

 

Revenue

 

$

54,832

 

$

253,347

 

Net income

 

4,006

 

17,166

 

Earnings per share:

 

 

 

 

 

Basic

 

$

0.26

 

$

1.12

 

Diluted

 

0.26

 

1.11

 

 

The unaudited pro forma data is presented for illustrative purposes only and is not necessarily indicative of the operating results that would have occurred if the Alltel Acquisition had been consummated on this date or of future operating results of the combined company following this transaction.

 

9



Table of Contents

 

Caribbean Telecom Partners, LLC

 

In June 2010, the Company entered into a joint venture to purchase a controlling interest in a wireless telecommunications enterprise in bankruptcy proceedings and operating on the island of Aruba. The joint venture is conducted through a newly-created company named Caribbean Telecom Partners, LLC (“CTP”), in which the Company invested $3.1 million in exchange for a 51% controlling interest.

 

5.  FAIR VALUE MEASUREMENTS

 

In accordance with the provisions of fair value accounting, a fair value measurement assumes that a transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability and defines fair value based upon an exit price model.

 

The fair value measurement guidance establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance describes three levels of inputs that may be used to measure fair value:

 

Level 1

 

Quoted prices in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset and liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 assets and liabilities include money market funds, debt and equity securities and derivative contracts that are traded in an active exchange market.

 

 

 

Level 2

 

Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes corporate obligations and non-exchange traded derivative contracts.

 

 

 

Level 3

 

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

 

Assets and liabilities of the Company measured at fair value on a recurring basis as of December 31, 2010 and March 31, 2011 are summarized as follows:

 

 

 

December 31, 2010

 

Description

 

Quoted Prices in
Active Markets
(Level 1)

 

Significant Other
Observable Inputs
(Level 2)

 

Total

 

Certificates of deposit

 

$

3,360

 

$

 

$

3,360

 

Money market funds

 

5,962

 

 

5,962

 

Total assets measured at fair value

 

$

9,322

 

$

 

$

9,322

 

Interest rate derivative (Note 7)

 

$

 

$

7,687

 

$

7,687

 

Total liabilities measured at fair value

 

$

 

$

7,687

 

$

7,687

 

 

 

 

March 31, 2011

 

Description

 

Quoted Prices in
Active Markets
(Level 1)

 

Significant Other
Observable Inputs
(Level 2)

 

Total

 

Certificates of deposit

 

$

3,360

 

$

 

$

3,360

 

Money market funds

 

5,892

 

 

5,892

 

Total assets measured at fair value

 

$

9,252

 

$

 

$

9,252

 

Interest rate derivative (Note 7)

 

$

 

$

6,234

 

$

6,234

 

Total liabilities measured at fair value

 

$

 

$

6,234

 

$

6,234

 

 

10



Table of Contents

 

Money Market Funds and Certificates of Deposit

 

As of December 31, 2010 and March 31, 2011, this asset class consisted of time deposits at financial institutions denominated in U.S. dollars and a money market portfolio that comprises Federal government and U.S. Treasury securities. The asset class is classified within Level 1 of the fair value hierarchy because its underlying investments are valued using quoted market prices in active markets for identical assets.

 

Derivatives

 

The Company is exposed to certain risks arising from both its business operations and economic conditions. When deemed appropriate, the Company manages economic risks related to interest rates primarily by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company entered into derivative financial instruments to manage exposures that arise from business activities that result in the payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of its known or expected cash payments principally related to the Company’s borrowings.

 

6.  LONG-TERM DEBT

 

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

 

 

 

December 31,
2010

 

March 31,
2011

 

Notes payable:

 

 

 

 

 

Term loans

 

$

264,306

 

$

261,257

 

Revolver loan

 

24,000

 

35,000

 

Total outstanding debt

 

288,306

 

296,257

 

Less: current portion

 

(12,194

)

(14,992

)

Total long-term debt

 

276,112

 

281,265

 

Less: debt discount

 

(4,063

)

(3,773

)

Net carrying amount

 

$

272,049

 

$

277,492

 

 

Loan Facilities

 

On January 20, 2010, the Company amended and restated its existing credit facility with CoBank as Administrative Agent (the “2010 CoBank Credit Agreement”).   The 2010 CoBank Credit Agreement provided for a $298.9 million credit facility, consisting of (i) a $73.9 million term loan (the “2010 Term Loan A”) which was the amount then outstanding under the 2008 Term Loan, (ii) a new $150.0 million term loan (the “2010 Term Loan B”), (iii) a $75.0 million revolver loan (the “2010 Revolver Loan”) and (iv) one or more additional term loans up to an aggregate $50.0 million, subject to lender and administrative agent approval (together with the 2010 Term Loan A, the 2010 Term Loan B and the 2010 Revolver Loan, the “2010 Credit Facility”). As discussed in Note 4, the Company partially funded the purchase price of the Alltel Acquisition with the $150 million 2010 Term Loan B and borrowed $40 million under the 2010 Revolver Loan.

 

On September 30, 2010, the Company entered into a second amended and restated credit facility with CoBank as Administrative Agent (the “Amended 2010 CoBank Credit Agreement”). The Amended 2010 CoBank Credit Agreement provides for a $370.2 million credit facility, consisting of (i) a $72.0 million term loan (the “Amended 2010 Term Loan A”), (ii) a $148.1 million term loan (the “Amended 2010 Term Loan B”), (iii) a new $50.0 million term loan (the “2010 Term Loan C”) and (iv) an expanded $100.0 million revolver loan of which the Company may use up to $10.0 million for standby or trade letters of credit and may use up to $10 million under a swingline sub-facility (the “Amended 2010 Revolver Loan,” and together with the Amended 2010 Term Loan A, Amended 2010 Term Loan B and 2010 Term Loan C, the “Amended 2010 Credit Facility”). The Amended 2010 Credit Facility also provides for one or more additional term loans up to an aggregate $50.0 million, subject to lender and administrative agent approval.

 

11



Table of Contents

 

Upon the closing of the Amended 2010 Credit Facility, $72.0 million under the Amended 2010 Term Loan A and $148.1 million under the Amended 2010 Term Loan B remained outstanding from the Company’s prior credit facility. Also upon the closing of the Amended 2010 Credit Facility, the Company drew down $50.0 million under the 2010 Term Loan C, a portion of which was used to repay outstanding borrowings under the Company’s prior revolving loan. As of March 31, 2011, $35.0 million was outstanding under our Amended 2010 Revolver Loan.

 

The Amended 2010 Term Loan A, the Amended 2010 Term Loan B and the 2010 Term Loan C each mature on September 30, 2014, with certain quarterly repayment obligations described below, unless accelerated pursuant to an event of default, as described below. The Amended 2010 Revolver Loan matures on September 10, 2014, unless accelerated pursuant to an event of default, as described below. Amounts borrowed under the Amended 2010 Term Loan A, Amended 2010 Term Loan B, 2010 Term Loan C and the Amended 2010 Revolver Loan bear interest at a rate equal to, at the Company’s option, either (i) the London Interbank Offered Rate (LIBOR) plus an applicable margin ranging between 3.50% to 4.75% or (ii) a base rate plus an applicable margin ranging from 2.50% to 3.75% (or, in the case of amounts borrowed under the swingline sub-facility to the Amended 2010 Revolver Loan, an applicable margin ranging from 2.00% to 3.25%). The Company is not required to apply a minimum LIBOR percentage for any loans bearing interest at the LIBOR rate. The base rate is equal to the higher of either (i) 1.50% plus the higher of (x) the one-week LIBOR and (y) the one-month LIBOR and (ii) the prime rate (as defined in the Amended 2010 CoBank Credit Agreement). The applicable margin is determined based on the ratio of the Company’s indebtedness to its EBITDA (each as defined in the Amended 2010 CoBank Credit Agreement). Borrowings as of March 31, 2011, after considering the effect of the interest rate swap agreements as described in Note 7, bore a weighted-average interest rate of 5.68%.

 

All amounts outstanding under the Amended 2010 Revolver Loan will be due and payable on September 10, 2014 or the earlier acceleration of the loan upon an event of default. Amounts outstanding under the Amended 2010 Term Loan A and the Amended 2010 Term Loan B became due and payable commencing on September 30, 2010, in quarterly payments equal to 1.25% of the initial principal amount outstanding under each loan, increasing to 2.50% of the initial principal amount outstanding commencing on March 31, 2012. The 2010 Term Loan C became due and payable commencing on December 31, 2010, in quarterly payments equal to $250,000. Remaining balances will be due and payable upon the final maturity date of September 30, 2014, unless the loans are earlier accelerated upon an event of default. The Company may prepay the Amended 2010 Credit Facility at any time without premium or penalty, other than customary fees for the breakage of LIBOR loans. Under the terms of the Amended 2010 Credit Facility, the Company must also pay a fee ranging from 0.50% to 0.75% of the average daily unused portion of the Amended 2010 Revolver Loan over each calendar quarter, which fee is payable in arrears on the last day of each calendar quarter.

 

Certain of our subsidiaries, including our principal wholly-owned domestic operating subsidiaries, are guarantors of our obligations under the Amended 2010 CoBank Credit Agreement. Further, our obligations are secured by (i) a first priority, perfected lien on substantially all of our property and assets and that of the guarantor subsidiaries, and (ii) a pledge of 100% of the Company’s equity interests in certain domestic subsidiaries and up to 65% of the equity interests outstanding of certain foreign subsidiaries, in each case, including the Company’s principal operating subsidiaries.

 

The Amended 2010 CoBank Credit Agreement contains customary representations, warranties and covenants, including covenants by the Company limiting additional indebtedness, liens, guaranties, mergers and consolidations, substantial asset sales, investments and loans, sale and leasebacks, transactions with affiliates and fundamental changes. In addition, the Amended 2010 CoBank Credit Agreement contains financial covenants by the Company that (i) impose a maximum ratio of indebtedness to EBITDA, (ii) require a minimum ratio of EBITDA to cash interest expense, (iii) require a minimum ratio of equity to consolidated assets and (iv) require a minimum ratio of EBITDA to fixed charges. As of March 31, 2011, the Company was in compliance with all of the financial covenants of the Amended 2010 CoBank Credit Agreement.

 

The Amended 2010 CoBank Agreement provides for events of default customary for credit facilities of this type, including but not limited to non-payment, defaults on other debt, misrepresentation, breach of covenants, representations and warranties, insolvency and bankruptcy. After the occurrence of an event of default and for so long as it continues, the administrative agent or the requisite lenders (as defined in the Amended 2010 Credit Agreement) may increase the interest rate then in effect on all outstanding obligations by 2.0%. Upon an event of default relating to insolvency, bankruptcy or receivership, the amounts outstanding under the Amended 2010 CoBank Credit Facility will become immediately due and payable and the lender commitments will be automatically terminated. Upon the occurrence and continuation of any other event of default, the administrative agent and/or the requisite lenders may accelerate payment of all obligations and terminate the lenders’ commitments under the Amended 2010 CoBank Credit Agreement.

 

12



Table of Contents

 

7.  DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

 

Cash Flow Hedge of Interest Rate Risk

 

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses an interest rate swap as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

 

The effective portion of changes in the fair value of interest rate swaps designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The Company uses its derivatives to hedge the variable cash flows associated with existing variable-rate debt. The ineffective portion of the change in fair value of the derivative is recognized directly in earnings. No hedge ineffectiveness was recognized during any of the periods presented.

 

As of March 31, 2010, the Company’s sole derivative instrument was an interest rate swap with a notional amount of $68 million that was designated as a cash flow hedge of interest rate risk. On July 26, 2010 and on December 31, 2010, the Company executed additional interest rate swaps with notional amounts of $30 million and $50 million, respectively, that were also designated as cash flow hedges of interest rate risk bringing the total notional amount of cash flow hedges to $148 million as of March 31, 2011.

 

Amounts reported in accumulated other comprehensive income related to the interest rate swaps are reclassified to interest expense as interest payments are accrued on the Company’s variable-rate debt. Through March 31, 2012, the Company estimates that an additional $ 3.9 million will be reclassified as an increase to interest expense due to the interest rate swaps since the hedge interest rate exceeds the variable interest rate on the debt.

 

The table below presents the fair value of the Company’s derivative financial instrument as well as its classification on the consolidated balance sheet as of December 31, 2010 and March 31, 2011 (in thousands):

 

 

 

Liability Derivatives

 

 

 

 

 

Fair Value as of

 

 

 

Balance Sheet
Location

 

December 31,
2010

 

March 31,
2011

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

Interest Rate Swaps

 

Other liabilities

 

$

7,687

 

$

6,234

 

Total derivatives designated as hedging instruments

 

 

 

$

7,687

 

$

6,234

 

 

The table below presents the effect of the Company’s derivative financial instruments on the consolidated income statements for the three months ended March 31, 2010 and 2011 (in thousands):

 

Three Months Ended March 31,

 

Derivative in Cash Flow
Hedging Relationships

 

Amount of Gain or
(Loss) Recognized
in Other
Comprehensive
Income on Derivative
(Effective Portion)

 

Location of Gain or
(Loss) Reclassified
from Accumulated
Other
Comprehensive
Income into Income
(Effective Portion)

 

Amount of Gain or
(Loss) Reclassified
from Accumulated
Other
Comprehensive
Income into Income
(Effective Portion)

 

2010

 

Interest Rate Swap

 

$

(820

)

Interest expense

 

$

713

 

2011

 

Interest Rate Swap

 

(1,524

)

Interest expense

 

1,030

 

 

Credit-risk-related Contingent Features

 

The Company has agreements with its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations.

 

As of March 31, 2011, the fair value of the interest rate swaps liability position related to these agreements was $6.2   million. As of March 31, 2011, the Company has not posted any collateral related to these agreements. If the Company had breached any of these provisions at March 31, 2011, it would have been required to settle its obligations under these agreements at their termination values of $6.2 million.

 

13



Table of Contents

 

8.  RECONCILIATION OF TOTAL EQUITY

 

Total equity was as follows (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2010

 

2011

 

 

 

Atlantic Tele-
Network, Inc.

 

Non-Controlling
Interests

 

Total Equity

 

Atlantic Tele-
Network, Inc.

 

Non-Controlling
Interests

 

Total
Equity

 

Equity, beginning of period

 

$

255,746

 

$

26,687

 

$

282,433

 

$

283,768

 

$

45,268

 

$

329,036

 

Stock based compensation

 

355

 

 

355

 

1,078

 

 

1,078

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

4,006

 

(148

)

3,858

 

4,497

 

(518

)

3,979

 

Other comprehensive income(loss)-

 

 

 

 

 

 

 

 

 

 

 

 

 

Translation Adjustment

 

 

 

 

12

 

 

12

 

Gain (loss) on interest rate swap (net of tax)

 

(492

)

 

(492

)

872

 

 

872

 

Total comprehensive income

 

3,514

 

(148

)

3,366

 

5,381

 

(518

)

4,863

 

Issuance of common stock upon exercise of stock options

 

 

 

 

 

 

 

Dividends declared on common stock

 

 

 

 

(3,386

)

 

(3,386

)

Distributions to non-controlling interests

 

 

(31

)

(31

)

 

(462

)

(462

)

Investments made by minority shareholders

 

 

125

 

125

 

 

507

 

507

 

Purchase of common shares

 

 

 

 

(91

)

 

(91

)

Equity, end of period

 

$

259,615

 

$

26,633

 

$

286,248

 

$

286,750

 

$

44,795

 

$

331,545

 

 

9.  NET INCOME PER SHARE

 

For the three months ended March 31, 2010 and 2011, outstanding stock options were the only potentially dilutive securities.

 

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

 

 

 

Three Months Ended
March 31,

 

 

 

2010

 

2011

 

Basic weighted average common shares outstanding

 

15,260

 

15,384

 

Stock options

 

187

 

101

 

Diluted weighted average common shares outstanding

 

15,447

 

15,485

 

 

The above calculations for the three months ended March 31, 2010 and 2011 do not include 60,000 and 195,000 shares, respectively, related to certain stock options because the effects of such were anti-dilutive.

 

10. SEGMENT REPORTING

 

Upon the completion of the Alltel Acquisition, the Company restructured how it manages its business, and accordingly, modified its reportable segments. The previously reported Rural Wireless segment has been combined with the operating results of Alltel and is now being reported as the U.S. Wireless segment, which generates all of its revenue and has all of its assets located in the United States. In addition, the previously reported Wireless Data segment has been merged into the Island Wireless segment which generates its revenue, and has its assets, in Bermuda, Turks and Caicos, the U.S. Virgin Islands and Aruba. Integrated Telephony—International has been renamed International Integrated Telephony and has its assets located in Guyana. Integrated Telephony—Domestic has been renamed U.S. Wireline, and has its assets located in the United States. The operating segments are managed separately because each offers different services and serves different markets. Reconciling items refer to corporate overhead matters including general and administrative expenses and acquisition-related charges.

 

14



Table of Contents

 

The following tables provide information for each operating segment (in thousands).  Previously reported periods have been revived, showing the effects of the new segment structure:

 

 

 

For the Three Months Ended March 31, 2010

 

 

 

U.S. Wireless

 

International
Integrated
Telephony

 

Island
Wireless

 

U.S.
Wireline

 

Reconciling
Items

 

Consolidated

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Wireless:

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

$

 

$

 

$

 

$

 

$

 

$

 

Wholesale

 

22,936

 

 

 

 

 

22,936

 

International Wireless

 

 

5,565

 

5,353

 

 

 

10,918

 

Wireline

 

 

15,594

 

 

4,926

 

 

20,520

 

Equipment and Other

 

 

 

458

 

 

 

458

 

Total Revenue

 

22,936

 

21,159

 

5,811

 

4,926

 

 

54,832

 

Depreciation and amortization

 

4,070

 

4,689

 

976

 

699

 

(365

)

10,069

 

Non-cash stock-based compensation

 

 

 

 

 

10

 

345

 

355

 

Operating income (loss)

 

9,069

 

7,049

 

(998

)

(115

)

(7,582

)

7,423

 

 

 

 

For the Three Months Ended March 31, 2011

 

 

 

U.S. Wireless

 

International
Integrated
Telephony

 

Island
Wireless

 

U.S.
Wireline

 

Reconciling
Items

 

Consolidated

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Wireless:

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

$

99,669

 

$

 

$

 

$

 

$

 

$

99,669

 

Wholesale

 

44,697

 

 

 

 

 

44,697

 

International Wireless

 

 

6,747

 

8,196

 

 

 

14,943

 

Wireline

 

139

 

15,502

 

 

5,030

 

 

20,671

 

Equipment and Other

 

7,601

 

 

573

 

 

 

8,174

 

Total Revenue

 

152,106

 

22,249

 

8,769

 

5,030

 

 

188,154

 

Depreciation and amortization

 

17,408

 

4,742

 

1,853

 

786

 

2

 

24,791

 

Non-cash stock-based compensation

 

308

 

 

 

 

770

 

1,078

 

Operating income (loss)

 

9,523

 

5,044

 

(1,936

)

(189

)

(2,052

)

10,390

 

 

 

 

Segment Assets

 

 

 

U.S. Wireless

 

International
Integrated
Telephony

 

Island
Wireless

 

U.S.
Wireline

 

Reconciling
Items

 

Consolidated

 

December 31, 2010:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net fixed assets

 

$

290,985

 

$

129,222

 

$

31,916

 

$

8,437

 

$

3,331

 

$

463,891

 

Goodwill

 

32,148

 

 

4,758

 

7,491

 

 

44,397

 

Total assets

 

536,341

 

169,006

 

65,549

 

22,847

 

34,453

 

828,196

 

March  31, 2011:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net fixed assets

 

$

287,034

 

$

124,365

 

31,771

 

8,361

 

6,450

 

457,981

 

Goodwill

 

32,148

 

 

4,758

 

7,491

 

 

44,397

 

Total assets

 

522,076

 

165,666

 

67,012

 

23,425

 

35,719

 

813,898

 

 

 

 

Capital Expenditures

 

 

 

U.S. Wireless

 

International
Integrated
Telephony

 

Island
Wireless

 

U.S.
Wireline

 

Reconciling
Items

 

Consolidated

 

Three Months Ended March 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

2010

 

$

5,970

 

$

4,435

 

$

5,487

 

$

335

 

$

662

 

$

16,889

 

2011

 

10,940

 

2,167

 

1,692

 

586

 

885

 

16,270

 

 

15



Table of Contents

 

11.  COMMITMENTS AND CONTINGENCIES

 

Regulatory and Litigation Matters

 

The Company and its subsidiaries are subject to certain regulatory and legal proceedings and other claims arising in the ordinary course of business, some of which involve claims for damages and taxes that are substantial in amount. The Company believes that, except for the items discussed below and those discussed in our Annual Report on Form 10-K for the year ended December 31, 2010, for which the Company is currently unable to predict the final outcome, the disposition of proceedings currently pending will not have a material adverse effect on the Company’s financial position or results of operations.

 

Regulatory

 

The Company’s wireless and wireline operations in the United States and in the U.S. Virgin Islands are governed by the Communications Act of 1934, as amended, the implementing regulations adopted thereunder by the Federal Communications Commission, judicial and regulatory decisions and other federal and state statutes.  In addition, certain of the Company’s subsidiaries are subject to additional regulation in the United States in connection with their acceptance of stimulus award grants pursuant to the American Recovery and Reinvestment Act of 2009.  The Company’s Bermuda operations are subject to Bermuda’s Telecommunications Act of 1986.  The Company’s Turks and Caicos operations are subject to the Turks and Caicos Islands Telecommunications Ordinance of 2004.

 

The Company is subject to regulation in Guyana under the provisions of our licenses to provide telecommunications services in Guyana and under the Guyana Public Utilities Commission Act of 1999 and the Guyana Telecommunications Act of 1990.  The Company also has certain significant rights and obligations pursuant to the agreement with the Government of Guyana by which the Company acquired its interest in GT&T in 1991.  Finally, because of the large volume of traffic that our Guyana operations have with the United States, they can also be significantly affected by orders of U.S. regulatory agencies.

 

Currently, the Company holds an exclusive license to provide domestic fixed services and international voice and data services in Guyana.  The license, whose initial term of twenty years was scheduled to expire at the end of 2010, allowed for the Company, at its option, to extend the term for an additional twenty years, until December 2030.  The Company exercised its extension right, in accordance with the terms of its agreement with the Government of Guyana in November of 2009.  In early October 2010, the Government of Guyana released to existing telecommunications providers in Guyana certain materials, including drafts of legislation, regulations, and licenses (“Draft Laws”), that, if enacted, would permit other telecommunications carriers to receive licenses to provide domestic fixed services and international voice and data services in Guyana, in contravention of the Company’s existing exclusive license.  In exercising the Company’s option to renew its licenses in 2009, the Company reiterated to the Government that the Company would be willing to voluntarily relinquish the exclusivity aspect of our licenses, but only as part of an overall settlement agreement with the Government.  At this time, the Company does not know when or if the Draft Laws will be adopted by the Government of Guyana, or if changes will be made to the substance of the Draft Laws, including the termination of ATN’s exclusivity rights.  Although we believe that we would be entitled to damages or other compensation for any involuntary termination of the exclusive license, we cannot guarantee that we would prevail in a proceeding to enforce our rights or that our actions would effectively halt any unilateral action by the Government.

 

Litigation

 

Since October 2010, we have been negotiating the renewal of our contract with the Guyana Postal and Telecommunications Workers Union (the “Guyana Union”), which represents more than half of our Guyana full-time work force.  Although the contract expired in October 2010, we have continued to operate under the expired contract’s terms and conditions. In April 2011, the Guyana Union notified the Company, via a letter to our Chairman, of its request to the Guyana Ministry of Labour for arbitration of the terms of the new contract.  In response, the Guyana Ministry of Labour has notified the parties that arbitration is premature, and has encouraged the parties to continue to follow collective bargaining procedures. At this time, the Company intends to continue good faith negotiations with the Guyana Union in hopes of reaching a mutual agreement.

 

Historically, the Company has been subject to litigation proceedings and other disputes in Guyana that while not conclusively resolved, to its knowledge have not been the subject of discussions or other significant activity in the last five years. It is possible, but not likely, that these disputes may be revived. The Company believes that none of these additional proceedings would, in the event of an adverse outcome, have a material impact on its consolidated financial position, results of operation or liquidity.  For all of the

 

16



Table of Contents

 

regulatory, litigation, or related matters listed in our Form 10-K for the year ended December 31, 2010, the Company believes some adverse outcome is probable and has accordingly accrued $5.0 million as of March 31, 2011.

 

12.  SUBSEQUENT EVENTS

 

NTUA Wireless, LLC

 

In April 2011, the Company entered into a joint venture with the Navajo Tribal Utility Authority (“NTUA”) to provide 3G wireless cell phone service and the first 4G broadband service to residents of the Navajo Nation, which spans across parts of Arizona, New Mexico and Utah.  Commnet Wireless, LLC, through its wholly-owned subsidiary, contributed network-related equipment and other assets in exchange for a 49% controlling interest in the joint venture.  The joint venture, which will have its results of operations consolidated in the Company’s financial statements,  is also being partially funded by a $32.1 million broadband grant to NTUA from the National Telecommunications & Information Association as part of the American Reinvestment and Recovery Act.

 

Bermuda Digital Communications, Ltd.

 

In May 2011, the Company completed the merger of its Bermuda wireless operations, Bermuda Digital Communications, Ltd. (“BDC”), with that of M3 Wireless, Ltd. (“M3”), a leading wireless provider in Bermuda.  As part of the merger, M3 merged with and into BDC, and the combined entity will continue to operate under BDC’s CellularOne brand under the leadership of BDC’s existing management team.  As a result of the merger offset by the Company’s redemption of a portion of debt owed to it by BDC in exchange for additional equity interests, the Company’s 58% ownership interest in BDC was reduced to a controlling 42% interest in the surviving entity. Keytech Limited, a telecommunications provider and former parent of M3, also owns approximately 42% of the merged BDC, while the remaining 16% is owned by current management and other pre-merger minority shareholders of BDC.   The Company will consolidate the results of the combined entity in its consolidated financial statements effective on the date of merger.

 

ITEM 2.  MANAGEMENT ’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The discussion and analysis of our financial condition and results of operations that follows are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities at the date of our financial statements. Actual results may differ significantly from these estimates under different assumptions or conditions. This discussion should be read in conjunction with our condensed consolidated financial statements herein and the accompanying notes thereto, and our Annual Report on Form 10-K for the year ended December 31, 2010, in particular, the information set forth therein under Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

 

Overview

 

We provide wireless and wireline telecommunications services in North America, Bermuda and the Caribbean. Through our operating subsidiaries, we offer the following principal services:

 

·       Wireless.  In the United States, we offer wireless voice and data services to retail customers under the “Alltel” name in rural markets located principally in the Southeast and Midwest. Additionally, we offer wholesale wireless voice and data roaming services to national, regional, local and selected international wireless carriers in rural markets located principally in the Southwest and Midwest United States. We also offer wireless voice and data services to retail customers in Bermuda under the “CellularOne” name, in Guyana under the “Cellink” name, and in other smaller markets in the Caribbean and the United States.

 

·       Wireline.  Our local telephone and data services include our operations in Guyana and the mainland United States. We are the exclusive provider of domestic wireline local and long distance telephone services in Guyana and international voice and data communications into and out of Guyana. We also offer facilities-based integrated voice and data communications services to enterprise and residential customers in New England, primarily in Vermont, and wholesale transport services in New York State.

 

17



Table of Contents

 

In the second quarter of 2010, we completed the acquisition of a portion of the former Alltel network from Verizon Wireless through our U.S. retail wireless business, which now provides wireless voice and data services in rural markets of the United States under the “Alltel” brand name (the “Alltel Acquisition”). Since 2005, revenue from our U.S. operations has significantly grown as a percentage of consolidated revenue and, as a result of our Alltel Acquisition, a substantial majority of our consolidated revenue is now generated in the United States mainly through mobile wireless operations. We continue to actively evaluate additional investment and acquisition opportunities in the United States and the Caribbean that meet our return-on-investment and other acquisition criteria.

 

In the second quarter of 2011, the Company continued its expansion, entering into a joint venture with the Navajo Tribal Utility Authority to provide retail wireless services on the Navajo Nation, and completed the merger of its Bermuda operations with M3 Wireless, Ltd., a leading retail wireless provider in Bermuda. For more information on the Navajo joint venture and Bermuda merger, see Note 12 to the Consolidated Financial Statements included in this Report.

 

The following chart summarizes the operating activities of the Company’s principal subsidiaries, the segments in which the Company reports its revenue and the markets it served as of March 31, 2011:

 

Services

 

Segment

 

Markets

 

Tradenames

Wireless

 

U.S. Wireless

 

United States (rural markets)

 

Alltel, Choice

 

 

International Integrated Telephony

 

Guyana

 

Cellink

 

 

Island Wireless

 

Aruba, Bermuda, Turks and Caicos, U.S. Virgin Islands

 

Mio, CellularOne, Islandcom, Choice

Wireline

 

International Integrated Telephony

 

Guyana

 

 

 

 

U.S. Wireline

 

United States (New England and New York State)

 

Sovernet, ION

 

The Company provides management, technical, financial, regulatory, and marketing services to its subsidiaries and typically receives a management fee equal to a percentage of their respective revenue. Management fees from consolidated subsidiaries are eliminated in consolidation.

 

As discussed above, we have historically been dependent on our wholesale U.S. wireless business and International Integrated Telephony operations for a majority of our revenue and profits. The addition of our retail U.S. wireless business following the Alltel Acquisition on April 26, 2010 has shifted our reliance substantially to our U.S. Wireless segment, which now includes both our wholesale and retail U.S. wireless businesses. For the three months ended March 31, 2011, approximately 81% of our consolidated revenue was generated by our U.S. Wireless segment, while only 12 % was generated by our International Integrated Telephony segment. In comparison, for the three months ended March 31, 2010, approximately 42% of our consolidated revenue was generated by our U.S. Wireless segment (then our “Rural Wireless” segment, as we did not own a U.S. retail wireless business), while 39% was generated by our International Integrated Telephony segment.

 

As of March 31, 2011, our U.S. retail wireless services were offered in six states to approximately 674,000 customers under the “Alltel” brand name. Our wireless licenses provide mobile data and voice coverage to a network footprint covering a population of approximately six million people as of March 31, 2011. Through the Alltel Acquisition, we acquired a regional, non-contiguous wireless network that we anticipate will require network expansion and improvements as well as roaming support to ensure ongoing nationwide coverage. Our Alltel service offerings provide rate plans, advanced devices and features that include local and nationwide voice and data services on either a postpaid or prepaid basis. We offer several rate plans designed for customers to choose the flexibility that they desire for their calling preferences, and believe that the ability to offer nationwide calling to our customers is a key factor in our ability to remain competitive in the telecommunications market.

 

Our U.S. retail wireless revenue is primarily driven by the number of wireless retail subscribers, their adoption of our enhanced service offerings and their related voice and data usage. The number of our retail subscribers and their usage volumes and patterns also has a major impact on the profitability of our U.S. retail wireless operations. Our customer activity may be influenced by traditional retail selling periods, which may be seasonal in nature, and other factors that arise in connection with our rural customer base. We are currently in a transition period as we move from the legacy Alltel information technology systems and platforms to our own. During this transition, which we expect to be substantially completed by the middle of 2011, we have experienced, and expect to continue to experience a decline in our U.S. retail wireless revenue as our ability to drive subscriber additions, control churn and optimize our offerings is constrained. During this time, we also expect to continue to experience higher economic-related churn as we eliminate certain sales and credit practices implemented by the management of the trust that operated the Alltel assets from 2009 through the completion of the Alltel Acquisition. During this time, we may engage in sales and promotional activities designed to retain or increase our customer base, but may be affected by other factors, including general economic conditions, the roaming and usage of our existing customer base and actions by our competitors, which may reduce or outweigh the success of our marketing or promotional efforts. Once this transition period expires, we expect that our churn will gradually improve as we are able to refine our service offerings. The mix of our

 

18



Table of Contents

 

customers and their patterns of usage, particularly usage outside our network footprint, will have a significant impact on the level of profits for our U.S. retail wireless business. In general, we compete with national and regional wireless providers that offer both prepaid and postpaid services whose scale, resources and U.S. network footprint are generally significantly greater than ours. Our ability to remain competitive and to maintain reasonable profit margins will depend, in part, on our ability to provide competitive pricing for our customers, to provide the latest mobile voice and data services in all of the areas where they wish to access those services and to anticipate and respond to various competitive factors.

 

In addition, our U.S. wireless wholesale revenue is an important part of our overall U.S. Wireless revenue because this revenue has a higher margin of profitability than retail revenue. Wholesale revenue is primarily driven by the number of sites and base stations we operate, the amount of voice and data traffic from the subscribers of other carriers that each of these sites generates, and the rate we get paid from other carrier customers for serving that traffic. We provide wholesale roaming services in a number of areas in the U.S. (mainly in the western United States). As a result of the Alltel Acquisition, our reported wholesale wireless revenue includes roaming revenue generation in areas in which we have retail wireless operations. Historically, the growth in same site voice and data volumes and the number of operated sites has outpaced the decline in rates. However, during 2010, a significant decrease in the rates, particularly data rates, almost offset overall voice and data traffic growth, and we expect that growth in 2011 will be partially offset by further decreased rates. We compete with other wireless service providers that operate networks in their markets and offer wholesale roaming services as well.

 

However, the most significant competitive factor we face in our U.S. wholesale wireless business is the extent to which our carrier customers elect to build or acquire their own infrastructure (including networks that we built out pursuant to certain roaming agreements) in a market in which they operate or choose not to roam on our networks, reducing or eliminating their need for our services in those markets. For example, the 2009 acquisition by Verizon Wireless of Alltel Corporation and subsequent 2010 acquisition of certain divested Alltel assets by AT&T resulted in our wholesale customers acquiring their own infrastructure in certain markets where they were historically served by us. This has already resulted in some loss, and is expected to continue to result in a significant loss, of wireless wholesale revenue and related operating income in future periods, which, if not offset by growth in other wholesale revenue generated or other sources, could materially reduce our overall operating profits. While we are not able to forecast the extent of this revenue impact precisely, we expect that at the very least such loss may more than offset any other organic growth in U.S. wholesale wireless revenue during these periods.

 

Acquisition of Alltel Assets

 

On April 26, 2010, we completed our acquisition of a portion of the former Alltel network from Verizon Wireless pursuant to the Purchase Agreement, dated June 9, 2009, by and between the Company and Verizon Wireless. Pursuant to the Alltel Acquisition, Verizon Wireless contributed certain licenses, network assets, tower and other leases and other assets and certain related liabilities to a wholly-owned subsidiary limited liability company whose membership interests were acquired by our wholly-owned subsidiary. In connection with the acquisition, the Company and Verizon Wireless entered into roaming and transition services arrangements and we obtained the rights to use the Alltel brand and related service marks for up to twenty eight years in connection with the continuing operation of the acquired assets. The purchase price of the acquisition was $200 million, plus approximately $21.4 million in connection with a customary net working capital adjustment and other fees and expenses.

 

Stimulus Grants

 

In 2009 and 2010, we filed several applications for stimulus funds made available by the U.S. Government under provisions of the American Recovery and Reinvestment Act of 2009 intended to stimulate the deployment of broadband infrastructure and services to rural, unserved and underserved areas.

 

In December 2009, we were named to receive a $39.7 million federal stimulus grant to fund our ION Upstate New York Rural Broadband Initiative, which involves building ten new segments of fiber-optic, middle-mile broadband infrastructure, serving more than 70 rural communities in upstate New York and parts of Pennsylvania and Vermont. The new project is being undertaken through our public-private partnership with the Development Authority of the North Country (“DANC”), a New York State public benefit corporation that owns and operates 750 miles of fiber optic network and provides wholesale telecommunications transport services to voice, video, data and wireless service providers. The $39.7 million grant, awarded to us by the National Telecommunications and Information Administration of the U.S. Department of Commerce (“NTIA”), under its Broadband Technology Opportunities Program, will be paid over the course of the three-year project period as expenses are incurred. An additional $9.9 million will be invested in the project by us and by DANC. The funding and build of this new project began in the third quarter of 2010. The results of our U.S. fiber optic transport business are included in our “U.S. Wireline” segment.

 

On March 25, 2010 the NTIA awarded the Navajo Tribal Utility Authority (“NTUA”) a $32.1 million federal stimulus grant. The grant, along with partial matching funds, will provide broadband infrastructure access to the Navajo Nation across Arizona, New Mexico and Utah. As part of the project, in April 2011, we formed a joint venture with NTUA and contributed network-related and

 

19



Table of Contents

 

other assets to provide last mile services through a 4G LTE network to be constructed as a part of this project. Our partnership with NTUA will receive a portion of the total grant to build-out the last mile infrastructure. This network will allow the joint venture to supply both fixed and mobile customers with high-speed broadband access. The funding of this project is not scheduled to begin until the second half of 2011, once the necessary environmental site work is completed. Accordingly, we did not recognize any of the granted funds during the three months ended March 31, 2011. The results of our wholesale U.S. wireless business are included in our “U.S. Wireless” segment.

 

On July 7, 2010, in partnership with the Vermont Telecommunications Authority (the “VTA”), we were awarded a $33.4 million federal stimulus grant by the NTIA. The grant, along with partial matching funds to be contributed by us (through a Vermont subsidiary) and the VTA, will be invested in building a new fiber-optic middle mile network in Vermont to provide broadband and wireless services to community schools, colleges, libraries and state-owned buildings in the area. The funding of this project is not scheduled to occur until the end of the second quarter of 2011, once the necessary environmental site work is completed. Accordingly, we did not recognize any of the granted funds during the three months ended March 31, 2011. The results of our U.S. wireline business are included in our “U.S. Wireline” segment.

 

Results of Operations

 

Three Months Ended March 31, 2010 and 2011

 

 

 

Three Months Ended
March 30,

 

Amount of
Increase

 

Percent
Increase

 

 

 

2010

 

2011

 

(Decrease)

 

(Decrease)

 

 

 

(In thousands)

 

REVENUE:

 

 

 

 

 

 

 

 

 

US Wireless:

 

 

 

 

 

 

 

 

 

Retail

 

$

 

$

99,669

 

$

99,669

 

%

Wholesale

 

22,936

 

44,697

 

21,761

 

94.9

 

International Wireless

 

10,918

 

14,943

 

4,025

 

36.9

 

Wireline

 

20,520

 

20,671

 

151

 

0.7

 

Equipment and Other

 

458

 

8,174

 

7,716

 

1,684.7

 

Total revenue

 

54,832

 

188,154

 

133,322

 

243.1

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

Termination and access fees

 

11,256

 

51,975

 

40,719

 

361.8

 

Engineering and operations

 

6,412

 

21,835

 

15,423

 

240.5

 

Sales, marketing and customer services

 

3,394

 

32,108

 

28,714

 

846.0

 

Equipment expense

 

713

 

21,192

 

20,479

 

2,872.2

 

General and administrative

 

10,773

 

25,613

 

14,840

 

137.8

 

Acquisition-related charges

 

4,793

 

250

 

(4,543

)

(94.8

)

Depreciation and amortization

 

10,069

 

24,791

 

14,722

 

146.2

 

Total operating expenses

 

47,410

 

177,764

 

130,354

 

275.0

 

Income from operations

 

7,422

 

10,390

 

2,968

 

40.0

 

OTHER INCOME (EXPENSE):

 

 

 

 

 

 

 

 

 

Interest expense

 

(1,266

)

(3,812

)

(2,546

)

201.1

 

Interest income

 

154

 

120

 

(34

)

(22.1

)

Equity in earnings of unconsolidated affiliate

 

 

516

 

516

 

 

Other income (expense), net

 

4

 

595

 

591

 

 

Other income, net

 

(1,108

)

(2,581

)

(1,473

)

132.9

 

INCOME BEFORE INCOME TAXES

 

6,314

 

7,809

 

1,495

 

23.7

 

Income taxes

 

2,456

 

3,830

 

1,374

 

55.9

 

NET INCOME

 

3,858

 

3,979

 

121

 

3.1

 

Net loss attributable to non-controlling interests

 

148

 

518

 

370

 

250.0

 

NET INCOME ATTRIBUTABLE TO ATLANTIC TELE-NETWORK, INC. STOCKHOLDERS

 

$

4,006

 

$

4,497

 

$

491

 

12.3

%

 

U.S. Wireless revenue.   U.S. Wireless revenue includes voice and data services revenue from our prepaid and postpaid retail operations as well as our wholesale roaming operations. Retail revenue is derived from access by our retail customers to and usage of our networks and facilities, including airtime, roaming and long distance as well as enhanced services such as caller identification, call waiting, voice mail and other features. Wholesale revenue is generated from providing mobile voice or data services to the customers

 

20



Table of Contents

 

of other wireless carriers and also includes revenue from other, related, wholesale services such as the provision of network switching services and certain wholesale transport services.

 

The retail portion of our U.S. Wireless revenue was $99.7 million for the three months ended March 31, 2011, substantially all of which is attributable to revenue generated by assets we acquired in the Alltel Acquisition. We had no U.S. retail wireless revenue prior to the closing of our Alltel Acquisition in April 2010.

 

As of March 31, 2011, we had approximately 674,000 U.S. retail wireless subscribers (including 504,000 postpaid subscribers and 170,000 prepaid subscribers), a decrease of 44,000 from the approximate 718,000 subscribers we had as of December 31, 2010.  Gross additions to the U.S. retail wireless subscriber base were approximately 47,000 for the three months ended March 31, 2011, as compared with approximately 52,000 for the three months ended December 31, 2010.  We expect to experience moderately improved gross additions to our subscriber base in future periods as a result of recent new handset and service plan offerings.

 

Our overall U.S. retail wireless churn decreased from 4.5% for the three months ended December 31, 2010 to 4.3% for the three months ended March 31, 2011.  This improvement was the result of a more proactive approach in managing delinquent accounts by tightening our collection policies and procedures, eliminating certain high-churn distribution channels and providing our customers with better handset and service offerings.  We expect that the level of churn will decrease moderately in future periods as we continue to improve our credit policies, continue to provide quality handset and service offers and transition many subscribers from one-year contracts that were signed prior to our acquisition of Alltel to more traditional two-year contracts.

 

We are currently in a transition period as we move from the legacy Alltel network, information technology, and other systems, platforms and processes to our own. During this transition period, which we expect to be substantially completed by the middle of 2011, our ability to drive subscriber additions, control churn and optimize our offerings has been somewhat constrained contributing to a continued decline in our U.S. retail wireless revenue.

 

Verizon’s acquisition of Alltel in 2009 has caused some loss of wireless wholesale revenue and also impacted our ability to grow wholesale wireless revenue as certain network assets acquired by Verizon overlap geographically with areas of our legacy U.S. roaming network where we previously provided wholesale roaming services to Verizon. Similarly, and of greater importance to us, AT&T’s 2010 acquisition of certain Alltel assets and the completion of its previously announced UMTS network build in those areas overlapping our network in the southwestern United States is expected to negatively impact wireless wholesale revenue in 2011. We expect this loss in wireless wholesale revenue to have a negative impact on our operating income in future periods if it is not offset or replaced by increased operating income from other sources.

 

The wholesale portion of our U.S. Wireless revenue increased to $44.7 million for the three months ended March 31, 2011 from $22.9 million for the three months ended March 31, 2010, an increase of $21.8 million. The increase in wireless wholesale revenue was due to the $22.3 million of roaming revenue generated by the networks we acquired in the Alltel Acquisition offset by a   $0.5 million decrease in revenues from our legacy U.S. roaming network. Such decrease from our legacy U.S. roaming network was a result of the overlapping of the Company’s networks with the networks of Verizon and AT&T as discussed above, as well as a decline in the rates we charge our carrier customers. Our Alltel Acquisition also increased our base stations from 586 as of March 31, 2010 to 1,588 as of March 31, 2011.

 

While we expect to see some increase in wireless wholesale revenue from our U.S. wireless business in geographical areas not impacted by Verizon’s or AT&T’s acquisition of Alltel networks, the pace of that increase in non-Alltel overlap markets is currently expected to be slower as compared to the growth in previous periods due to a reduction in the number of new sites and base stations added and recent reductions in roaming rates. Additional rate reductions, under previously contracted agreements, may also negatively affect our revenue growth in upcoming periods.

 

International Wireless revenue.   International Wireless revenue includes retail and wholesale voice and data wireless revenue from international operations in Bermuda and the Caribbean.

 

International Wireless revenue increased by $4.0 million to $14.9 million for the three months ended March 31, 2011, from $10.9 million for the three months ended March 31, 2010. This increase was primarily generated by increased subscribers, volume, and new service launches in our Caribbean operations. Wireless subscribers in Guyana increased 6%, from approximately 286,000   subscribers as of March 31, 2010 to approximately 303,000 subscribers as of March 31, 2011.

 

While we have experienced recent subscriber growth in Guyana, competition remains strong, and the largely prepaid subscriber base means that subscribers and revenue could shift relatively quickly in future periods. In addition, the overall number of our wireless subscribers in Guyana could be reduced as a result of recent regulations imposed on telecommunications carriers, including our operations, to collect proof of address and photographic identification for all new and existing customers.

 

In May 2011, we completed the merger of our Bermuda wireless operations, Bermuda Digital Communications, Ltd. (“BDC”), with that of M3 Wireless, Ltd. (“M3”), a leading wireless provider in Bermuda.  As part of the merger, M3 merged with and into BDC, and the combined entity will continue to operate under BDC’s CellularOne brand under the leadership of BDC’s existing management team.  To effect the merger, we redeemed a portion of debt owed to us by BDC and exchanged our 58% ownership interest in BDC for a controlling 42% interest in the surviving entity. Keytech Limited, a telecommunications provider and former parent of M3 Wireless, also owns 42% of the merged BDC, while the remaining 16% is owned by current management and other pre-merger minority shareholders.  We will consolidate the results of the combined entity in its consolidated financial statements effective on the date of merger. Partly as a result of this merger, we expect that our International Wireless revenue will increase in future periods.

 

Wireline revenue.   Wireline revenue is generated by our wireline operations in Guyana, including international telephone calls into and out of that country, our integrated voice and data operations in New England and our wholesale transport operations in

 

21



Table of Contents

 

New York State and in the western United States. This revenue includes basic service fees, measured service revenue, and internet access fees, as well as installation charges for new lines, monthly line rental charges, long distance or toll charges, maintenance and equipment sales.

 

Wireline revenue increased by $0.2 million to $20.7 million for the three months ended March 31, 2011 from $20.5 million for the three months ended March 31, 2010. A $1.8 million decrease in international long distance revenue was offset by data revenue growth in Guyana and an increase in U.S. revenue and growth generated by the July 2010 launch of our new fiber optic submarine cable in Guyana. Our access lines in Guyana grew from approximately 148,000 lines as of March 31, 2010 to approximately 150,000 lines as of March 31, 2011, an increase of 1 %. Revenue from the growth in access lines has been partially offset by a decrease in usage of those lines that is likely due to growth in usage of wireless service alternatives.

 

We also believe the decrease in international long distance revenue was a result of continued and considerable illegal bypass activities resulting in lost revenue opportunities, as well as an overall reduction in call volume into Guyana attributable to the current difficult global economic environment. In the U.S., we saw moderately increased revenue from our upstate New York network transport service business. We continue to add business customers in the U.S. for our voice and data services; however, the overall revenue increase is partially offset by the decline in the residential data business, including dial-up internet services.

 

In future periods, we anticipate that wireline revenue from our international long distance business in Guyana may continue to decrease, but such decreases may be offset by increased revenue from data services to consumer enterprises in Guyana, wholesale transport services in New York and integrated voice and data in Vermont and New Hampshire. We are in the process of expanding our network in New York and have been receiving a portion of a $39.7 million stimulus grant since the second half of 2010. We also expect to begin to receive stimulus funds beginning at the end of the second quarter of 2011 in connection with the expansion of our network in Vermont.

 

Equipment and Other revenue.   Equipment and other revenue represent revenue from wireless equipment sales, primarily handsets to retail customers, and other miscellaneous revenue items.

 

Equipment and Other revenue increased by $7.7 million to $8.2 million for the three months ended March 31, 2011, from $0.5 million for the three months ended March 31, 2010. The increase is due to equipment sales from our Alltel Acquisition. We have experienced increased equipment revenue as a result of a high rate of one-year subscriber contracts, signed prior to our acquisition of Alltel, coming up for renewal.  We expect that equipment revenue may decrease in future periods as we transition these subscribers from the one-year contracts to more traditional two-year contracts.

 

Termination and access fee expenses.   Termination and access fee expenses are charges that we pay for voice and data transport circuits (in particular, the circuits between our wireless sites and our switches), internet capacity and other access fees we pay to terminate our calls, as well as customer bad debt expense.

 

Termination and access fees increased by $40.7 million from $11.3 million for the three months ended March 31, 2010 to $52.0 million for the three months ended March 31, 2011, of which $39.0 million of the increase resulted from the expansion of operations due to the Alltel Acquisition.

 

Termination and access fees are expected to increase in future periods, but remain fairly proportionate to their related revenue as our networks expand.

 

Engineering and operations expenses.   Engineering and operations expenses include the expenses associated with developing, operating, supporting and expanding our networks, including the salaries and benefits paid to employees directly involved in the development and operation of our networks.

 

Engineering and operations expenses increased by $15.4 million from $6.4 million for the three months ended March 31, 2010 to $21.8 million for the three months ended March 31, 2011 as a result of the Alltel Acquisition. Until we complete the transition of the network that we acquired as part of the Alltel Acquisition, we will incur higher than normal engineering and operations expenses.  Once that transition is substantially completed in the middle of 2011, we expect that engineering and operations expenses will continue to increase, albeit at a slower pace, as our networks expand and require additional support.

 

Sales, marketing and customer service expenses.   Sales and marketing expenses include salaries and benefits we pay to sales personnel, customer service expenses, sales commissions and the costs associated with the development and implementation of our promotion and marketing campaigns.

 

Sales and marketing expenses increased by $28.7 million from $3.4 million for the three months ended March 31, 2010 to $32.1 million for the three months ended March 31, 2011.  Of this increase, $27.2 million was the result of the Alltel Acquisition as we incurred additional expenses primarily related to some overlap of expenses from the transition services being performed in connection with the Alltel Acquisition as well as an accelerated pace of customer contract renewals and extensions.

 

22



Table of Contents

 

We expect that sales and marketing expenses will decrease as a percentage of revenue once the transition services are completed in the middle of 2011 but will remain higher than normal for the short term as we incur retention costs in an attempt to offset customer churn.

 

Equipment expenses.   Equipment expenses include the costs of our handset and customer resale equipment at our retail wireless businesses.

 

Equipment expenses increased from $0.7 million for the three months ended March 31, 2010 to $21.2 million for the three months ended March 31, 2011 as a result of the Alltel Acquisition. We expect that these expenses will decrease as a percentage of revenue in the near-term due to a high volume of handset upgrades related to the accelerated pace of customer contract renewals and extensions in 2010.

 

General and administrative expenses.   General and administrative expenses include salaries, benefits and related costs for general corporate functions, including executive management, finance and administration, legal and regulatory, facilities, information technology and human resources. General and administrative expenses also include internal costs associated with our performance of due-diligence on our pending or completed acquisitions.

 

General and administrative expenses increased by $14.8 million from $10.8 million for the three months ended March 31, 2010 to $25.6 million for the three months ended March 31, 2011 mainly due to the Alltel Acquisition. We are currently in a transition period as we integrate the new Alltel business and are incurring incremental general and administrative expenses relating to that transition. During this transition period, which we expect to be substantially completed by the middle of 2011, we anticipate that we will incur higher than usual general and administrative expenses as certain significant costs continue to overlap with our already existing infrastructure. Once this transition period concludes, we expect that general and administrative expenses, as a percentage of revenue, will decrease.

 

Acquisition-related charges.   Acquisition-related charges include the external costs, such as legal, accounting, and consulting fees directly associated with acquisition related activities, which are expensed as incurred. Acquisition-related charges do not include internal costs, such as employee salary and travel-related expenses, incurred in connection with acquisitions and integrations.

 

For the three months ended March 31, 2011, acquisition-related charges were $0.3 million, as compared to $4.8 million incurred in connection with the Alltel Acquisition during the three months ended March 31, 2010. We expect that acquisition-related expenses will continue to be incurred from time to time as we continue to explore additional acquisition opportunities.

 

Depreciation and amortization expenses.   Depreciation and amortization expenses represent the depreciation and amortization charges we record on our property and equipment and on certain intangible assets.

 

Depreciation and amortization expenses increased by $14.7 million from $10.1 million for the three months ended March 31, 2010 to $24.8 million for the three months ended March 31, 2011. The increase is primarily due to the addition of the Alltel tangible and intangible assets as well as additional fixed assets from our network expansion in our U.S. Wireless business and in the Caribbean.

 

We expect depreciation expense on our tangible assets to continue to increase as a result of a future network expansion in the U.S. and elsewhere. Such increase, however, will be partially offset by a future decrease in the amortization of our intangible assets, which are being amortized using an accelerated amortization method.

 

Interest expense.   Interest expense represents interest incurred on our outstanding credit facilities including our interest rate swaps.

 

Interest expense increased from $1.3 million for the three months ended March 31, 2010 to $3.8 million for the three months ended March 31, 2011, due to the amendment of our prior credit agreement, which increased both our outstanding debt and applicable interest rates on such debt. As of March 31, 2011, we had $261.3 million outstanding in term loans and $35.0 million in outstanding borrowings under our revolver loan. In addition, as of March 31, 2011, we had interest rate swap agreements in place covering $148.0 million of our outstanding borrowings.

 

Interest income.   Interest income represents interest earned on our cash and cash equivalents.

 

Interest income decreased to $0.1 million from $0.2 million for three months ended March 31, 2011 and 2010, respectively. This decrease is a result of a decrease in our cash balances.

 

23



Table of Contents

 

Equity in earnings of an unconsolidated affiliate.   Equity in earnings of an unconsolidated affiliate includes our share of the earnings of an unconsolidated affiliate of our U.S. Wireless segment. Equity in earnings of an unconsolidated affiliate was $0.5 million for the three months ended March 31, 2011. We acquired this equity-method investment on April 26, 2010 in connection with the Alltel Acquisition and as such did not recognize any equity in earnings of an unconsolidated affiliate during the three months ended March 31, 2010.

 

Other income (expense).   Other income (expense) represents miscellaneous non-operational income we earned or expenses we incurred. Other income was $0.6 million for the three months ended March 31, 2011.  We did not recognize any other income (expense) during the three months ended March 31, 2010.

 

Income taxes.   Income tax expense includes federal and state income taxes at their respective statutory rates as well as foreign income taxes in excess of the statutory U.S. income tax rates. Since we operate in jurisdictions that have a wide range of statutory tax rates, our consolidated effective tax rate is impacted by the mix of income generated in those jurisdictions. Our effective tax rates for the three months ended March 31, 2010 and 2011 were 39% and 49%, respectively.  The increase in the effective tax rate was due to the mix of income generated in different jurisdictions.

 

Net Income Attributable to Non-Controlling Interests.   Net income attributable to non-controlling interests includes minority shareholders’ share of net losses in our less than wholly-owned subsidiaries. Net income attributable to non-controlling interests reflected an allocation of $0.1 million and $0.5 million for the three months ended March 31, 2010 and 2011, respectively.

 

Net income attributable to Atlantic Tele-Network, Inc. Stockholders.   As a result of the above factors, net income increased to $4.5 million for the three months ended March 31, 2011 from $4.0 million for the three months ended March 31, 2010. Also included in net income for the quarter ended March 31, 2011, was approximately $9.3 million (net of one-time items) of duplicate operating expenses relating to the transition of the legacy Alltel network, information technology and other systems, platforms and processes to our own.  We expect to substantially complete this transition during the middle of 2011. On a per share basis, net income increased from $0.26 per basic and per diluted share to $0.29 per basic and diluted share for the three months ended March 31, 2010 and 2011, respectively.

 

Segment results.   Upon the completion of the Alltel Acquisition, we restructured how we manage our business, and accordingly, modified our reportable segments. The previously reported Rural Wireless segment has been combined with the operating results of Alltel and is now being reported as the U.S. Wireless segment, which generates all of its revenue and has all of its assets located in the United States. In addition, the previously reported Wireless Data segment has been merged into the Island Wireless segment which generates its revenue, and has its assets, in Bermuda, Turks and Caicos, the U.S. Virgin Islands and Aruba. Integrated Telephony—International has been renamed International Integrated Telephony and has its assets located in Guyana. Integrated Telephony—Domestic has been renamed U.S. Wireline, and has its assets located in the United States. The operating segments are managed separately because each offers different services and serves different markets. Reconciling items refer to corporate overhead matters including general and administrative expenses and acquisition-related charges.

 

Regulatory and Tax Issues

 

We are involved in a number of regulatory and tax proceedings. A material and adverse outcome in one or more of these proceedings could have a material adverse impact on our financial condition and future operations.

 

Liquidity and Capital Resources

 

Historically, we have met our operational liquidity needs through a combination of cash on hand and internally generated funds and have funded capital expenditures and acquisitions with a combination of internally generated funds, cash on hand and borrowings under our credit facilities. We believe our current cash, cash equivalents and availability under our current credit facility will be sufficient to meet our short-term cash needs for working capital and capital expenditures.

 

Uses of Cash

 

Capital Expenditures.   A significant use of our cash has been for capital expenditures to expand and upgrade our networks. In addition, capital expenditures within the last several quarters have also included significant costs associated with network migration and development of operational and business support systems related to the Alltel Acquisition.

 

For the three months ended March 31, 2010 and 2011, we spent approximately $16.9 million and $16.3 million, respectively, on capital expenditures. The following notes our capital expenditures, by operating segment, for these periods:

 

24



Table of Contents

 

 

 

Capital Expenditures

 

 

 

U.S. Wireless

 

International
Integrated
Telephony

 

Island
Wireless

 

U.S.
Wireline

 

Reconciling
Items

 

Consolidated

 

Three Months Ended March 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

2010

 

$

5,970

 

$

4,435

 

$

5,487

 

$

335

 

$

662

 

$

16,889

 

2011

 

10,940

 

2,167

 

1,692

 

586

 

885

 

16,270

 

 

We are continuing to invest in expanding our networks in many of our markets and developing updated operating and business support systems. We expect to incur capital expenditures between $105 million and $120 million during 2011. Of this amount, we anticipate capital expenditures of between $70 million to $80 million in our U.S. Wireless business.

 

We expect to fund our current capital expenditures primarily from cash generated from our operations and borrowings under our credit facilities.

 

Acquisitions and Investments.   Historically, we have funded our acquisitions with a combination of cash on hand and borrowings under our credit facilities. In April 2010, we funded the purchase price of the Alltel Acquisition with cash-on-hand and borrowings under our then existing credit facility. We drew down a $150 million term loan under the credit facility and borrowed $40 million under our previously undrawn $75 million revolving credit facility. On September 30, 2010, we amended our 2010 Credit Facility and drew down a $50 million term loan, repaid the outstanding balances on our 2010 Revolver Loan and also expanded the revolving credit facility to $100 million.

 

We continue to explore opportunities to acquire or expand our existing communications properties or licenses in the United States, the Caribbean and elsewhere. Such acquisitions may require external financing. While there can be no assurance as to whether, when or on what terms we will be able to acquire any such businesses or licenses or make such investments, such acquisitions may be accomplished through the issuance of shares of our capital stock, payment of cash or incurrence of additional debt. From time to time, we may raise capital ahead of any definitive use of proceeds to allow us to move more quickly and opportunistically if an attractive investment materializes.

 

Dividends.   We use cash-on-hand to make dividend payments to our common stockholders when declared by our Board of Directors. For the three months ended March 31, 2011, dividends to our stockholders were approximately $3.4 million, which reflects dividends declared on March 18, 2011 and paid on April 11, 2011. We have paid quarterly dividends for the last 50 fiscal quarters.

 

Stock Repurchase Plan.   Our Board of Directors approved a $5.0 million stock buyback plan in September 2004 pursuant to which we have spent approximately $2.1 million as of March 31, 2011 repurchasing our common stock. We may repurchase shares at any time depending on market conditions, our available cash and our cash needs. We did not repurchase any shares under this plan during the three months ended March 31, 2011.

 

Sources of Cash

 

Total Liquidity at March 31, 2011.   As of March 31, 2011, we had approximately $47.0 million in cash and cash equivalents, an increase of $9.7 million from the December 31, 2010 balance of $37.3 million. The increase in our cash and cash equivalents is attributable to the cash provided by our operating activities partially offset by investments in capital expenditures.

 

Cash Generated by Operations.   Cash provided by operating activities was $21.0 million for the three months ended March 31, 2011 compared to $10.1 million for the three months ended March 31, 2010. The increase of $10.9 million was mainly due to increased net income and depreciation and amortization, as well as an increase in our provision for doubtful accounts.  Such increases were partially offset by a decrease in our working capital.

 

Cash Generated by Financing Activities.   Cash provided by financing activities was $4.5 million for the three months ended March 31, 2011 as compared to cash used by financing activities of $7.2 million for the three months ended March 31, 2010.  The $11.7 million increase was primarily the result of additional borrowings under our revolver loan.

 

On January 20, 2010 the Company amended and restated its existing credit facility with CoBank as Administrative Agent (the “2010 CoBank Credit Agreement”). The 2010 CoBank Credit Agreement provided for a $298.9 million credit facility, consisting of (i) a $73.9 million term loan (the “2010 Term Loan A”) which was the amount then outstanding under the 2008 Term Loan, (ii) a new $150.0 million term loan (the “2010 Term Loan B”), (iii) a $75.0 million revolver loan (the “2010 Revolver Loan”) and (iv) one or more additional term loans up to an aggregate $50.0 million, subject to lender and administrative agent approval (together with the

 

25



Table of Contents

 

2010 Term Loan A, the 2010 Term Loan B and the 2010 Revolver Loan, the “2010 Credit Facility”). As discussed in Note 4, the Company partially funded the purchase price of the Alltel Acquisition with the $150 million 2010 Term Loan B and borrowed $40 million under the 2010 Revolver Loan.

 

On September 30, 2010, we entered into a second amended and restated credit facility with CoBank as Administrative Agent (the “Amended 2010 CoBank Credit Agreement”). The Amended 2010 CoBank Credit Agreement provides for a $370.2 million credit facility, consisting of (i) a $72.0 million term loan (the “Amended 2010 Term Loan A”), (ii) a $148.1 million term loan (the “Amended 2010 Term Loan B”), (iii) a new $50.0 million term loan (the “2010 Term Loan C”) and (iv) an expanded $100.0 million revolver loan of which we may use up to $10.0 million for standby or trade letters of credit and may use up to $10 million under a swingline sub-facility (the “Amended 2010 Revolver Loan,” and together with the Amended 2010 Term Loan A, Amended 2010 Term Loan B and 2010 Term Loan C, the “Amended 2010 Credit Facility”). The Amended 2010 Credit Facility also provides for one or more additional term loans up to an aggregate $50.0 million, subject to lender and administrative agent approval.

 

Upon the closing of the Amended 2010 Credit Facility, $72.0 million under the Amended 2010 Term Loan A and $148.1 million under the Amended 2010 Term Loan B remained outstanding from our prior credit facility. Also upon the closing of the Amended 2010 Credit Facility, we drew down $50.0 million under the 2010 Term Loan C, a portion of which was used to repay outstanding borrowings under our prior revolving loan. As of March 31, 2011, $35.0 million was outstanding under our Amended 2010 Revolver Loan.

 

The Amended 2010 Term Loan A, the Amended 2010 Term Loan B and the 2010 Term Loan C each mature on September 30, 2014, with certain quarterly repayment obligations described below, unless accelerated pursuant to an event of default, as described below. The Amended 2010 Revolver Loan matures on September 10, 2014, unless accelerated pursuant to an event of default, as described below. Amounts borrowed under the Amended 2010 Term Loan A, Amended 2010 Term Loan B, 2010 Term Loan C and the Amended 2010 Revolver Loan bear interest at a rate equal to, at the Company’s option, either (i) the London Interbank Offered Rate (LIBOR) plus an applicable margin ranging between 3.50% to 4.75% or (ii) a base rate plus an applicable margin ranging from 2.50% to 3.75% (or, in the case of amounts borrowed under the swingline sub-facility to the Amended 2010 Revolver Loan, an applicable margin ranging from 2.00% to 3.25%). We are not required to apply a minimum LIBOR percentage for any loans bearing interest at the LIBOR rate. The base rate is equal to the higher of either (i) 1.50% plus the higher of (x) the one-week LIBOR and (y) the one-month LIBOR and (ii) the prime rate (as defined in the Amended 2010 Credit Agreement). The applicable margin is determined based on the ratio of our indebtedness to its EBITDA (each as defined in the Amended 2010 Credit Agreement). Borrowings as of March 31, 2011, after considering the effect of the interest rate swap agreements as described in Note 7, bore a weighted-average interest rate of 5.68%.

 

All amounts outstanding under the Amended 2010 Revolver Loan will be due and payable on September 10, 2014 or the earlier acceleration of the loan upon an event of default. Amounts outstanding under the Amended 2010 Term Loan A and the Amended 2010 Term Loan B became due and payable commencing on September 30, 2010, in quarterly payments equal to 1.25% of the initial principal amount outstanding under each loan, increasing to 2.50% of the initial principal amount outstanding commencing on March 31, 2012. The 2010 Term Loan C became due and payable commencing on December 31, 2010, in quarterly payments equal to $250,000. Remaining balances will be due and payable upon the final maturity date of September 30, 2014, unless the loans are earlier accelerated upon an event of default. We may prepay the Amended 2010 Credit Facility at any time without premium or penalty, other than customary fees for the breakage of LIBOR loans. Under the terms of the Amended 2010 Credit Facility, we must also pay a fee ranging from 0.50% to 0.75% of the average daily unused portion of the Amended 2010 Revolver Loan over each calendar quarter, which fee is payable in arrears on the last day of each calendar quarter.

 

Certain of our subsidiaries, including our principal wholly-owned domestic operating subsidiaries, are guarantors of our obligations under the Amended 2010 CoBank Credit Agreement. Further, our obligations are secured by (i) a first priority, perfected lien on substantially all of our property and assets and that of the guarantor subsidiaries, and (ii) a pledge of 100% of the Company’s equity interests in certain domestic subsidiaries and up to 65% of the equity interests outstanding of certain foreign subsidiaries, in each case, including the Company’s principal operating subsidiaries.

 

The Amended 2010 CoBank Credit Agreement contains customary representations, warranties and covenants, including covenants by the us limiting additional indebtedness, liens, guaranties, mergers and consolidations, substantial asset sales, investments and loans, sale and leasebacks, transactions with affiliates and fundamental changes. In addition, the Amended 2010 CoBank Credit Agreement contains financial covenants by us that (i) impose a maximum ratio of indebtedness to EBITDA, (ii) require a minimum ratio of EBITDA to cash interest expense, (iii) require a minimum ratio of equity to consolidated assets and (iv) require a minimum ratio of EBITDA to fixed charges. As of March 31, 2011, we were in compliance with all of the financial covenants of the Amended 2010 CoBank Credit Agreement.

 

26



Table of Contents

 

The Amended 2010 CoBank Agreement provides for events of default customary for credit facilities of this type, including but not limited to non-payment, defaults on other debt, misrepresentation, breach of covenants, representations and warranties, insolvency and bankruptcy. After the occurrence of an event of default and for so long as it continues, the administrative agent or the requisite lenders (as defined in the Amended 2010 Credit Agreement) may increase the interest rate then in effect on all outstanding obligations by 2.0%. Upon an event of default relating to insolvency, bankruptcy or receivership, the amounts outstanding under the Amended 2010 Credit Facility will become immediately due and payable and the lender commitments will be automatically terminated. Upon the occurrence and continuation of any other event of default, the administrative agent and/or the requisite lenders may accelerate payment of all obligations and terminate the lenders’ commitments under the Amended 2010 CoBank Agreement.

 

As of March 31, 2011 and December 31, 2010, the total notional amount of cash flow hedges under our interest rate swap agreements was $148 million.

 

Factors Affecting Sources of Liquidity

 

Internally Generated Funds.   The key factors affecting our internally generated funds are demand for our services, competition, regulatory developments, economic conditions in the markets where we operate our businesses and industry trends within the telecommunications industry. For a discussion of tax and regulatory risks in Guyana that could have a material adverse impact on our liquidity, see “Risk Factors—Risks Relating to Our Wireless and Wireline Services in Guyana”, and “Business—Guyana Regulation”in our Annual Report on Form 10-K for the year ended December 31, 2010.

 

Restrictions Under Credit Facility.   The Amended 2010 CoBank Credit Agreement contains customary representations, warranties and covenants, including covenants by us limiting additional indebtedness, liens, guaranties, mergers and consolidations, substantial asset sales, investments and loans, sale and leasebacks, transactions with affiliates and fundamental changes. In addition, the Amended 2010 Credit Facility contains financial covenants by us that (i) impose a maximum ratio of indebtedness to EBITDA (ii) require a minimum ratio of EBITDA to cash interest expense, (iii) require a minimum ratio of equity to consolidated assets and (iv) require a minimum ratio of EBITDA to fixed charges (each as defined in the Amended 2010 CoBank Credit Agreement). As of March 31, 2011, we were in compliance with all of the financial covenants of the Amended 2010 CoBank Credit Agreement.

 

Capital Markets.   Our ability to raise funds in the capital markets depends on, among other things, general economic conditions, the conditions of the telecommunications industry, our financial performance, the state of the capital markets and our compliance with Securities and Exchange Commission (“SEC”) requirements for the offering of securities. On May 13, 2010, the SEC declared effective our “universal” shelf registration statement. This filing registered potential future offerings of our securities.

 

Recent Accounting Pronouncements

 

In January 2010, the Financial Accounting Standards Board (“FASB”) issued updated guidance to amend the disclosure requirements related to recurring and nonrecurring fair value measurements. This update requires new disclosures on significant transfers of assets and liabilities in and out of Level 1 and Level 2 of the fair value hierarchy (including the reasons for these transfers) and also requires a reconciliation of recurring Level 3 measurements about purchases, sales, issuances and settlements on a gross basis. In addition to these new disclosure requirements, this update clarifies certain existing disclosure requirements. For example, this update clarifies that reporting entities are required to provide fair value measurement disclosures for each class of assets and liabilities rather than each major category of assets and liabilities. This update also clarifies the requirement for entities to disclose information about both the valuation techniques and inputs used in estimating Level 2 and Level 3 fair value measurements. This update was effective for companies with interim and annual reporting periods beginning after December 15, 2009, except for the requirement to provide the Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which became effective for interim and annual reporting periods beginning after December 15, 2010. The Company has adopted the updated guidance in the first quarter of 2010 and the adoption did not have an impact on our financial position, results of operations, or cash flows.

 

In June 2009, the FASB issued new authoritative guidance that amends certain guidance for determining whether an entity is a variable interest entity (VIE). The guidance requires an enterprise to perform an analysis to determine whether the Company’s variable interests give it a controlling financial interest in a VIE. A company would be required to assess whether it has an implicit financial responsibility to ensure that a VIE operates as designed when determining whether it has the power to direct the activities of the VIE that most significantly impact the entity’s economic performance. In addition, this guidance amends earlier guidance requiring ongoing reassessments of whether an enterprise is the primary beneficiary of a VIE. The adoption of the provisions of this guidance, which was effective January 1, 2010, did not have a material impact on the consolidated financial statements.

 

In December 2007, the FASB issued new authoritative guidance that requires the Company to revise its application of the acquisition method for business combinations in a number of significant aspects such as requiring the Company to expense transaction costs and to recognize 100% of the acquiree’s assets and liabilities rather than a proportional share for acquisitions of less than 100%

 

27



Table of Contents

 

of a business. In addition, the guidance eliminates the step acquisition model and provides that all business combinations, whether full, partial, or step acquisitions, results in all assets and liabilities of an acquired business being recorded at their 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 financial statements will be dependent upon the number of and magnitude of the acquisitions that are consummated. Under this new authoritative guidance, the Company expensed acquisition-related costs of $13.8 million and $7.2 million during the years ended December 31, 2010 and 2009, respectively, and recognized a bargain purchase gain of $27.0 million, net of tax, during the year ended December 31, 2010.

 

Other new pronouncements issued but not effective until after December 31, 2010, are not expected to have a material impact on our financial position, results of operations or liquidity.

 

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Foreign Currency Exchange Sensitivity.   The functional currency we use in Guyana is the U.S. dollar because a significant portion of our Guyana revenues and expenditures are transacted in U.S. dollars. The results of future operations nevertheless may be affected by changes in the value of the Guyana dollar, however the Guyanese exchange rate has remained at approximately $205 Guyana dollars to $1 U.S. dollar since 2004 so we have not recorded any foreign exchange gains or losses since that date. All of our other foreign subsidiaries operate in jurisdictions where the U.S. dollar is the recognized currency.

 

Interest Rate Sensitivity.   Our exposure to changes in interest rates is limited and relates primarily to our variable interest rate long-term debt. As of March 31, 2011, $148.0 million of our long term debt had a fixed rate by way of interest-rate swaps that effectively hedge our interest rate risk. The remaining $148.3 million of long term debt as of March 31, 2011 is subject to interest rate risk. As a result of our hedging policy we believe our exposure to fluctuations in interest rates is not material.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Management’s Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2011.  The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, 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 well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.  Based on the evaluation of our disclosure controls and procedures as of March 31, 2011, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Changes in internal control over financial reporting. There was no change in the internal control over financial reporting that occurred during the three months ended March 31, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

PART II—OTHER INFORMATION

 

Item 1. Legal Proceedings

 

See Note 11 to the Condensed Consolidated Financial Statements included in this Report.

 

Item 1A. Risk Factors

 

In addition to the other information set forth in this Report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our 2010 Annual Report on Form 10-K as filed with the SEC on March 16, 2011. The risks described in

 

28



Table of Contents

 

our 2010 Form 10-K are not the only risks facing our Company.  Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

 

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

 

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

 

The following table reflects the repurchases by the Company of its common stock during the quarter ended March 31, 2011:

 

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

 

January 1, 2011 — January 31, 2011

 

 

$

 

 

$

2,919,965

 

February 1, 2011 — February 28, 2011

 

2,751

(1)

$

40.52

 

 

$

2,919,965

 

March 1, 2011 — March 31, 2011

 

 

$

 

 

$

2,919,965

 

 


(1)           Represents shares purchased on February 11, 2011 from our executive officers and other employees who tendered these shares to ATN to satisfy their tax withholding obligations incurred in connection with the vesting of restricted stock awards on that date. These shares were not purchased under the plan discussed above. The price paid per share was the closing price per share of our Common Stock on the Nasdaq Global Select Market on February 11, 2011.

 

Item 5.  Other Information.

 

On May 6, 2011, the Company entered into standard indemnification agreements with each member of its Board of Directors and each of its executive officers.  Under these indemnification agreements, the Company agrees to indemnify these individuals to the fullest extent permitted by law and public policy for claims arising in their capacity as a director, officer or employee of the Company or any of its subsidiaries. Each of these individuals is only entitled to indemnification to the extent he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Company, and, with respect to any criminal proceeding, he had no reasonable basis to believe that his conduct was unlawful. Subject to the applicable provisions of the Delaware General Corporation Law, the Company will reimburse each individual for expenses covered by the indemnification agreement within thirty days of the individual’s request for such payment.

 

Item 6. Exhibits

 

10.1

 

Form of Atlantic Tele-Network, Inc. Indemnification Agreement

 

 

 

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.

 

29



Table of Contents

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

Atlantic Tele-Network, Inc.

 

 

Date: May 10, 2011

/s/ Michael T. Prior

 

Michael T. Prior

 

President and Chief Executive Officer

 

 

Date: May 10, 2011

/s/ Justin D. Benincasa

 

Justin D. Benincasa

 

Chief Financial Officer and Treasurer

 

30


Exhibit 10.1

 

ATLANTIC TELE-NETWORK, INC.

INDEMNIFICATION AGREEMENT

 

This Agreement (“ Agreement ”) is made as of the            day of                2011, by and between Atlantic Tele-Network, Inc., a Delaware corporation (the “Corporation), and                                (the “ Indemnitee ”), a director of the Corporation.

 

RECITALS

 

It is essential to the Corporation to attract and retain highly qualified individuals such as the Indemnitee to serve as directors.  To that end, the Corporation and the Indemnitee entered into an Indemnification Agreement dated as of [  ] (the “ Original Agreement ”) pursuant to which the Corporation agreed to indemnify the Indemnitee with respect to liabilities the Indemnitee may incur in connection with the Indemnitee’s service as a director.  The parties are entering into this Agreement to renew and clarify the Indemnitee’s rights to indemnification as contemplated by the Original Agreement and the Corporation’s By-Laws.

 

NOW THEREFORE, as a material inducement to the Indemnitee to continue to serve as a director of the Corporation, the Corporation and the Indemnitee hereby agree, and the Original Agreement is hereby amended and restated in its entirety to provide, as follows:

 

1.              Definitions .  As used in this Agreement the following terms are used with the meaning ascribed thereto below:

 

(a)            The term “ Proceeding ” includes any threatened, pending or completed action, suit, trial, arbitration, alternative dispute resolution proceeding, administrative hearing, investigation or other proceeding, whether brought by or in the right of the Corporation or otherwise and whether of a civil, criminal, administrative or investigative nature, and any appeal therefrom; excluding, however, with respect to criminal matters, any post-conviction proceedings relating to penalties imposed on the Indemnitee in connection therewith.

 

(b)            The term “ Corporate Status ” means the status of a person who is or was a director of the Corporation, or is or was serving, or has agreed to serve, at the request of the Corporation, as a director, officer, partner, trustee, member, employee or agent of another corporation, partnership, joint venture, trust, limited liability company or other enterprise.

 

(c)            The term “ Expenses ” includes, without limitation, attorneys’ fees, retainers, court costs, transcript costs, fees and expenses of experts, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees and other disbursements or expenses of the types customarily incurred in connection with Proceedings; but does not include the amount of judgments, fines or penalties assessed against or incurred by the Indemnitee or amounts paid in settlement in connection with such matters.

 

(d)            The “ Final Disposition ” of a Proceeding shall have occurred once such Proceeding is adjudicated or disposed of on the merits or otherwise (including a disposition without prejudice), and no appeal or request for stay of such adjudication or disposition is pending or in effect and the deadline for filing any such appeal or request for stay is passed.

 



 

(e)            References to “ other enterprises ” includes employee benefit plans; references to “ fines ” includes any excise tax assessed with respect to any employee benefit plan; references to “ serving at the request of the Corporation ” includes any service as a director, officer, employee or agent of the Corporation that imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interests of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “ not opposed to the best interests of the Corporation ” as referred to in this Agreement.

 

2.              Indemnification in Third-Party Proceedings .  The Corporation shall indemnify the Indemnitee in accordance with the provisions of this Paragraph 2 if the Indemnitee was or is a party to or threatened to be made a party to or otherwise involved in any Proceeding (other than a Proceeding by or in the right of the Corporation to procure a judgment in the Corporation’s favor, as to which the provisions of Paragraph 3 hereof are applicable) by reason of the Indemnitee’s Corporate Status or by reason of any action alleged to have been taken or omitted in connection therewith, against all Expenses, judgments, fines, penalties and amounts paid in settlement actually and reasonably incurred by or on behalf of the Indemnitee in connection with such Proceeding, if the Indemnitee acted in good faith and in a manner the Indemnitee reasonably believed to be in, or not opposed to, the best interests of the Corporation and, with respect to any criminal Proceeding, had no reasonable cause to believe that the Indemnitee’s conduct was unlawful.  The termination of any Proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the Indemnitee did not act in good faith and in a manner that the Indemnitee reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal Proceeding, had reasonable cause to believe that the Indemnitee’s conduct was unlawful.

 

3.              Indemnification in Proceedings by or in the Right of the Corporation .  The Corporation shall indemnify the Indemnitee in accordance with the provisions of this Paragraph 3 if the Indemnitee was or is a party to or threatened to be made a party to or otherwise involved in any Proceeding by or in the right of the Corporation to procure a judgment in the Corporation’s favor by reason of the Indemnitee’s Corporate Status or by reason of any action alleged to have been taken or omitted in connection therewith, against all Expenses and, to the extent permitted by law, amounts paid in settlement actually and reasonably incurred by or on behalf of the Indemnitee in connection with such Proceeding, if the Indemnitee acted in good faith and in a manner the Indemnitee reasonably believed to be in, or not opposed to, the best interests of the Corporation; provided that no indemnification shall be made under this Paragraph 3 in respect of any claim, issue or matter as to which the Indemnitee shall have been adjudged to be liable to the Corporation unless, and only to the extent that, the Court of Chancery of Delaware or the court in which such action or suit is brought shall determine upon application that, despite the adjudication of such liability but in view of all the circumstances of the case, the Indemnitee is fairly and reasonably entitled to indemnity for such Expenses as the Court of Chancery or such other court shall deem proper.

 

2



 

4.              Exceptions to Right of Indemnification .  Notwithstanding anything to the contrary in this Agreement, the Corporation shall have no obligation to indemnify the Indemnitee with respect to any of the following:

 

(a)            Any Proceeding (or part thereof) initiated by the Indemnitee unless the initiation thereof was approved by the Board of Directors of the Corporation.

 

(b)            Expenses, judgments, fines, penalties, reimbursement obligations and amounts paid in settlement arising from the purchase and sale by the Indemnitee of securities in violation of applicable law including without limitation Section 16(b) of the Securities Exchange Act of 1934, as amended, the Regulation Blackout Trading Restriction promulgated under such Act and any similar laws, rules and regulations;

 

(c)            Expenses, judgments, fines, penalties, reimbursement obligations and amounts paid in settlement arising in connection with the Indemnitee’s obligations under Section 304 of the Sarbanes-Oxley Act of 2002.

 

5.              Indemnification of Expenses if Successful Party .  The Corporation shall indemnify the Indemnitee against all Expenses incurred by or on behalf of the Indemnitee in connection with the defense of any Proceeding if the Indemnitee is successful in such defense.  For purposes of the foregoing, the Indemnitee shall be considered to have been successful in connection with the defense of a Proceeding if such Proceeding is disposed of, on the merits or otherwise (including a disposition without prejudice), without (i) the disposition being adverse to the Indemnitee, (ii) an adjudication that the Indemnitee was liable to the Corporation, (iii) a plea of guilty or nolo contendere by the Indemnitee, (iv) an adjudication that the Indemnitee did not act in good faith and in a manner the Indemnitee reasonably believed to be in or not opposed to the best interests of the Corporation, and (v) with respect to any criminal proceeding, an adjudication that the Indemnitee had reasonable cause to believe his or her conduct was unlawful.

 

6.              Notification and Defense of Claim .  As a condition precedent to the Indemnitee’s right to be indemnified, the Indemnitee must notify the Corporation in writing as soon as practicable of any Proceeding for which indemnity will or could be sought.  With respect to any Proceeding of which the Corporation is so notified, the Corporation will be entitled to participate therein at its own expense and/or to assume the defense thereof at its own expense, with legal counsel reasonably acceptable to the Indemnitee.  After notice from the Corporation to the Indemnitee of its election so to assume such defense, the Corporation shall not be liable to the Indemnitee for any legal or other expenses subsequently incurred by the Indemnitee in connection with such Proceeding, other than as provided below in this Paragraph 6.  The Indemnitee shall have the right to employ his or her own counsel in connection with such Proceeding, but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of the Indemnitee unless (i) the employment of counsel by the Indemnitee has been authorized by the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded that there may be a conflict of interest or position on any significant issue between the Corporation and the Indemnitee in the conduct of the defense of such Proceeding or (iii) the Corporation shall not in fact have employed counsel to assume the defense of such Proceeding, in each of which cases the fees and expenses of counsel

 

3



 

for the Indemnitee shall (unless otherwise expressly provided by this Agreement) be at the expense of the Corporation.  The Corporation will not be entitled without the consent of the Indemnitee to assume the defense of any claim brought by or in the right of the Corporation or as to which counsel for the Indemnitee shall have reasonably made the conclusion provided for in clause (ii) above.  The Corporation shall not be required to indemnify the Indemnitee under this Agreement, the Corporation’s By-Laws, or otherwise for any amounts paid in settlement of any Proceeding affected without its written consent.  The Corporation shall not without the Indemnitee’s written consent settle any Proceeding in any manner that would impose any obligation on the Indemnitee other than to pay money or to comply with the Indemnitee’s lawful obligations.  Neither the Corporation nor the Indemnitee shall unreasonably withhold, condition or delay their consent to any proposed settlement.

 

7.              Advancement of Expenses .  In the event that the Corporation does not pursuant to Paragraph 6 of this Agreement assume the defense of any Proceeding of which the Corporation receives notice under this Agreement, any Expenses incurred by or on behalf of the Indemnitee in defending such Proceeding shall be paid by the Corporation in advance of the Final Disposition of such Proceeding; provided , however , that the payment of such Expenses incurred by or on behalf of the Indemnitee in advance of the Final Disposition of such Proceeding shall be made only upon the Corporation’s receipt of an undertaking by the Indemnitee to repay all amounts so advanced in the event that it shall ultimately be determined that the Indemnitee is not entitled to be indemnified by the Corporation as authorized in this Agreement.  Such undertaking shall be accepted without reference to the financial ability of the Indemnitee to make repayment.

 

8.              Procedure for Indemnification .  In order to obtain indemnification payment or advancement of Expenses pursuant to Paragraphs 2, 3, 5 or 7, the Indemnitee shall submit to the Corporation a written request therefor.  The Corporation shall make such indemnification payment or advancement of Expenses promptly, and in any event within 30 days after receipt by the Corporation of such written request from the Indemnitee, unless with respect to requests under Paragraphs 2 or 3 (but not under Paragraphs 5 or 7) the Corporation determines within such 30-day period that the Indemnitee did not meet the applicable standard of conduct for such indemnification as set forth herein (and with respect to the advancement of Expenses, the standard of conduct set forth herein for indemnification for the Proceeding in connection with which such Expenses were incurred).  Such determination, and any determination that advanced Expenses must be repaid to the Corporation, shall be made in each instance, as determined by the Board of Directors of the Corporation, (a) by a majority vote of the directors of the Corporation consisting of persons who are not at that time parties to the Proceeding (“disinterested directors”), whether or not a quorum, (b) by a committee of disinterested directors designated by a majority vote of disinterested directors, whether or not a quorum, (c) if there are no disinterested directors, or if the disinterested directors so direct, by independent legal counsel (who may, to the extent permitted by applicable law, be regular legal counsel to the Corporation) in a written opinion, or (d) by the stockholders of the Corporation.

 

9.              Remedies .

 

(a)            The right to indemnification or advancement of Expenses under this Agreement shall be enforceable by the Indemnitee in any court of competent jurisdiction.  Unless otherwise required by law, the Corporation shall have the burden of proving that the Indemnitee

 

4



 

is not entitled to indemnification hereunder instead of the Indemnitee having the burden of proving that the Indemnitee is entitled to such indemnification.  Neither the failure of the Corporation to have made a determination prior to the commencement of an action to enforce the Indemnitee’s rights hereunder that indemnification is proper in the circumstances because the Indemnitee has met the applicable standard of conduct, nor a determination by the Corporation that the Indemnitee has not met such applicable standard of conduct, shall be a defense to such action or create a presumption that the Indemnitee has not met the applicable standard of conduct.

 

(b)            In the event that any action is instituted by Indemnitee under this Agreement or under any liability insurance policies maintained by the Corporation to enforce or interpret any of the terms herof or thereof, the Corporation shall be obligated to reimburse to the Indemnitee all Expenses the Indemnitee incurs with respect to such action, regardless of whether Indemnitee is ultimately successful in such action, unless in connection with such action a court of competent jurisdiction determines that each of the material assertions made by the Indemnitee as a basis for such action were not made in good faith or were frivolous.  In the event of an action instituted by or in the name of the Corporation under this Agreement to enforce or interpret any of the terms of this Agreement, the Corporation shall be obligated to reimburse to the Indemnitee all Expenses incurred by the Indemnitee in defense of such action (including costs and expenses incurred with respect to the Indemnitee’s counterclaims and cross-claims made in such action) unless in connection with such action a court of competent jurisdiction determines that each of the material defenses to such action were made in bad faith or were frivolous.

 

10.            Partial Indemnification .  If the Indemnitee is entitled under any provision of this Agreement to indemnification by the Corporation for some or a portion of the Expenses, judgments, fines, penalties or amounts paid in settlement actually and reasonably incurred by or on behalf of the Indemnitee in connection with any Proceeding, but not, however, for the total amount thereof, the Corporation shall nevertheless indemnify the Indemnitee for the portion of such Expenses, judgments, fines, penalties or amounts paid in settlement to which the Indemnitee is entitled.

 

11.            Public Policy Limitations .  Both the Corporation and the Indemnitee acknowledge that in certain instances, federal law or applicable public policy may prohibit the Corporation from indemnifying its directors, under this Agreement, the Corporation’s By-Laws, or otherwise.  The Indemnitee understands and acknowledges that the Corporation has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Corporation’s right under public policy to indemnify the Indemnitee.

 

12.            Liability Insurance .  Nothing contained in this Agreement shall be deemed to prohibit the Corporation from maintaining insurance, at its expense, to protect itself or the Indemnitee against any expense, liability or loss incurred by it or the Indemnitee in any capacity or arising out of the Indemnitee’s Corporate Status, whether or not the Indemnitee would be indemnified against such expense, liability or loss under this Agreement; provided that the Corporation shall not be liable under this Agreement, the Corporation’s By-Laws or otherwise to make any payment of amounts otherwise indemnifiable hereunder if and to the extent that the

 

5



 

Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.  To the extent the Corporation in fact maintains liability insurance applicable to directors, the Corporation shall cause the Indemnitee to be covered by such policies in such a manner as to provide the Indemnitee the same rights and benefits as are provided to the most favorably insured of the Company’s directors.

 

13.            Subrogation .  The Corporation shall be subrogated to the extent of the amount of any payment made by the Corporation hereunder to all of the rights of recovery of the Indemnitee arising in connection with the matter giving rise to such payment by the Corporation.  The Indemnitee agrees to execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Corporation to bring suit to enforce such rights.

 

14.            Term of Agreement .  This Agreement shall continue until and terminate on the sixth anniversary of the date that the Indemnitee shall have ceased to serve as a director of the Corporation or, at the request of the Corporation, as a director, officer, partner, trustee, member, employee or agent of another corporation, partnership, joint venture, trust, limited liability company or other enterprise; provided , howeve r, that notwithstanding the passage of such sixth anniversary,  until the Final Disposition thereof,  this Agreement shall continue with respect to Proceedings pending on such sixth anniversary (i) in respect of which the Indemnitee is granted rights of indemnification or advancement of Expenses hereunder or (ii)  that were commenced by the Indemnitee against the Corporation with regard to the Indemnitee’s rights hereunder.

 

15.            Indemnification Hereunder Not Exclusive .  The indemnification and advancement of Expenses provided by this Agreement shall not be deemed exclusive of any other rights to which the Indemnitee may be entitled under the Corporation’s certificate of incorporation, By-Laws, any other agreement, any vote of stockholders or disinterested directors, the General Corporation Law of Delaware, any other law (common or statutory) or otherwise, by reason of the Indemnitee’s Corporate Status.  In the event of any change after the date of this Agreement in any applicable law, statue or rule that expands the right of a Delaware corporation to indemnify a member of its board of directors, it is the intent of the parties hereto that the Indemnitee shall enjoy by this Agreement the greater benefits afforded by such change.  In the event of any change in applicable law, statute or rule that narrows the right of a Delaware corporation to indemnify a member of its board of directors, such change, to the extend not otherwise required by such law, statue or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties’ right and obligations hereunder.

 

16.            No Rights to Continued Service .  Nothing herein shall confer upon the Indemnitee any right to continue to serve as a director of the Corporation or in any other capacity for any period of time or at any particular rate of compensation.

 

17.            Savings Clause .  If this Agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify the Indemnitee as to Expenses, judgments, fines, penalties and amounts paid in settlement with respect to any Proceeding to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated.

 

6



 

18.            Counterparts .  This Agreement may be executed by the parties hereto in any number of counterparts, each of which shall constitute an original and all of which together shall constitute one and the same agreement.

 

19.            Successors and Assigns .  This Agreement shall be binding upon the Corporation and its successors and assigns and shall inure to the benefit of the estate, heirs, executors, administrators and personal representatives of the Indemnitee.

 

20.            Headings .  The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.

 

21.            Modification and Waiver .  No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto.  No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof nor shall any such waiver constitute a continuing waiver.

 

22.            Notices .  All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been delivered (i) when delivered by hand or (ii) if sent by commercial over-night delivery service, on the first business day after the date on which it is sent, or (iii) if mailed by certified or registered mail with postage prepaid, on the third day after the date on which it is so mailed:

 

(a)

if to the Indemnitee, to:

 

[                                 ]

 

 

(b)

if to the Corporation, to:

 

 

 

Atlantic Tele-Network, Inc.

 

600 Cummings Center

 

Beverly, MA 01915

 

Attention: General Counsel

 

or to such other address as may have been furnished to the Indemnitee by the Corporation or to the Corporation by the Indemnitee, as the case may be.

 

23.            Applicable Law .  This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware without giving effect to the conflicts or choice of law provisions thereof that would give rise to the application of the domestic substantive or procedural law of any other jurisdiction.

 

24.            Enforcement .  The Corporation expressly confirms and agrees that it has entered into this Agreement in order to induce the Indemnitee to continue to serve as a director of the Corporation, and acknowledges that the Indemnitee is relying upon this Agreement in continuing in such capacity.

 

7



 

25.            Entire Agreement .  This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements (including without limitation the Original Agreement), whether oral or written, by any officer, employee or representative of any party hereto in respect of the subject matter contained herein; and any prior agreement of the parties hereto in respect of the subject matter contained herein is hereby terminated and cancelled.  The parties confirm that, except as otherwise provided herein, the foregoing does not apply to or limit the Indemnitee’s rights under Delaware law or the Corporation certificate of incorporation or By-Laws.

 

26.            Submission to Delaware Jurisdiction .  In the case of any dispute under or in connection with this Agreement, the Indemnitee may only bring suit against the Corporation in the Court of Chancery of the State of Delaware.  The Indemnitee hereby consents to the exclusive jurisdiction and venue of the courts of the State of Delaware, and the Indemnitee hereby waives any claim the Indemnitee may have at any time as to forum non conveniens with respect to such venue.  The Corporation shall have the right to institute any legal action arising out of or relating to this Agreement in any court of competent jurisdiction.  Any judgment entered against either of the parties in any proceeding hereunder may be entered and enforced by any court of competent jurisdiction.

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written.

 

ATLANTIC TELE-NETWORK, INC.

 

INDEMNITEE

 

 

 

 

 

 

By:

 

 

 

Leonard Q. Slap, General Counsel

 

   [                                  ]

 

8


Exhibit 31.1

 

CERTIFICATIONS PURSUANT TO

RULE 13a-14(a) OR RULE 15d-14(a),

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Michael T. Prior, certify that:

 

1.                        I have reviewed this quarterly report on Form 10-Q of Atlantic Tele-Network, Inc.;

 

2.                        Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.                        Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.                        The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a)                        Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)                       Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)                        Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d)                       Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.                        The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a)                        All significant deficiencies and material weakness in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b)                       Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

Atlantic Tele-Network, Inc.

 

 

Date: May 10, 2011

/s/ Michael T. Prior

 

Michael T. Prior

 

President and Chief Executive Officer

 


Exhibit 31.2

 

CERTIFICATIONS PURSUANT TO

RULE 13a-14(a) OR RULE 15d-14(a),

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Justin D. Benincasa, certify that:

 

1.                        I have reviewed this quarterly report on Form 10-Q of Atlantic Tele-Network, Inc.;

 

2.                        Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.                        Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.                        The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a)                        Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)                       Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)                        Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d)                       Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual Report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.                        The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a)                        All significant deficiencies and material weakness in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b)                       Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

Atlantic Tele-Network, Inc.

 

 

Date: May 10, 2011

By:

/s/ Justin D. Benincasa

 

 

Justin D. Benincasa

 

 

Chief Financial Officer and Treasurer

 


Exhibit 32.1

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the quarterly report on Form 10-Q of Atlantic Tele-Network, Inc. (the “Company”) for the period ended March 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael T. Prior, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

 

1.                        The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2.                        The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

Atlantic Tele-Network, Inc.

 

 

Date: May 10, 2011

By:

/s/ Michael T. Prior

 

 

Michael T. Prior

 

 

President and Chief Executive Officer

 


Exhibit 32.2

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the quarterly report on Form 10-Q of Atlantic Tele-Network, Inc. (the “Company”) for the period ended March 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Justin D. Benincasa, Chief Financial Officer and Treasurer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

 

1.                        The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2.                        The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

Atlantic Tele-Network, Inc.

 

 

 

Date: May 10, 2011

By:

/s/ Justin D. Benincasa

 

 

Justin D. Benincasa

 

 

Chief Financial Officer and Treasurer