ATNI

Business Context and Reporting Period

Company: Atlantic Tele-Network, Inc. (ATN)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2003
Primary Operations: ATN is a holding company deriving substantially all consolidated revenues and operating income from its 80% owned subsidiary, Guyana Telephone & Telegraph Company, Ltd. (GT&T), the national telephone provider in Guyana. Other subsidiaries include Choice Communications (U.S. Virgin Islands internet/cable), Atlantic Tele-Center (Guyana call center), and a 44% interest in Bermuda Digital Communications (BDC).

Key Financial Metrics (Year Ended Dec 31, 2003)

Material Changes vs. Prior Period

• Revenue Growth: Total revenue increased 11% to $78.9 million. Local exchange service revenues rose 20% to $33.5 million, driven by a 48% increase in GT&T cellular subscribers (118,658 vs. 79,915) and a 7.5% increase in fixed access lines.
• International Traffic: International long-distance revenue increased 6% to $42.0 million despite lower revenue per minute, due to a 26% increase in traffic volume.
• Profitability: Net income increased 29% to $12.2 million. Income from telephone operations rose to $34.5 million.
• Other Operations: Losses from non-telephone operations (Choice, ATC, CHT) increased to $5.5 million, primarily due to higher expenses at Choice Communications and ATC, partially offset by strong cable TV revenue growth.
• Foreign Exchange: A decline in the Guyana dollar in late 2003 resulted in a $1.55 million foreign exchange gain, though this was largely offset by losses incurred during the year from currency trading.

Guidance, Outlook, Risks, and Contingencies

• Regulatory Risks (Guyana): Ongoing negotiations with the Government of Guyana regarding the termination of GT&T's monopoly license and a shift from rate-of-return to rate-cap regulation. Negotiations have been stalled since mid-2002. The Public Utilities Commission (PUC) has not yet approved permanent rate increases requested by GT&T to offset reduced international settlement rates.
• Competition: GT&T faces potential competition from a new cellular entrant (CelStar) expected to launch in 2004 and illegal VoIP "Internet cafes" undercutting international call prices.
• Liquidity & Currency: While the company maintains $32.3 million in cash and a $15.3 million credit facility, there is a risk regarding the convertibility of Guyana dollars to hard currency needed for equipment purchases and debt service. Approximately $8.7 million of cash is held in Guyana dollars.
• Legal Proceedings: Significant tax disputes exist with Guyanese authorities regarding assessments totaling approximately $15.7 million for years 1991–2000. Litigation regarding the 1997 spin-off with Emerging Communications, Inc. is pending.
• Capital Expenditures: Management anticipates capital expenditures of $14 million to $20 million in 2004 for network expansion and GSM overlay installation.

Investor Verification Checklist

• Regulatory Resolution: Verify the status of negotiations with the Guyanese government regarding license renewal and rate-setting mechanisms.
• Currency Convertibility: Assess the ability to convert Guyana dollar earnings into U.S. dollars to meet debt obligations and capital needs.
• Competitive Landscape: Monitor the market entry of CelStar and the impact of VoIP services on GT&T's international revenue margins.
• Tax Liabilities: Review the outcome of pending tax assessments and litigation with Guyanese revenue authorities.
• Non-Core Operations: Evaluate the turnaround strategy for Atlantic Tele-Center (ATC), which reported significant operating losses and workforce reductions.