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ATLANTIC TELE NETWORK INC /DE - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(Edgar Glimpses Via Acquire Media NewsEdge) 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 17 -------------------------------------------------------------------------------- Table of Contents 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 "CellOne" 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. 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. In the second quarter of 2011, we continued our expansion by completing the merger of our Bermuda operations with M3 Wireless, Ltd., a leading retail wireless provider in Bermuda and entering into a joint venture with the Navajo Tribal Utility Authority to provide retail wireless services on the Navajo Nation. We actively evaluate additional investment and acquisition opportunities in the United States and the Caribbean that meet our return-on-investment and other acquisition criteria. The following chart summarizes the operating activities of our principal subsidiaries, the segments in which we report our revenue and the markets we served as of June 30, 2011: Services Segment Markets Tradenames Wireless U.S. Wireless United States Alltel, Choice (rural markets) Island Wireless Aruba, Bermuda, Mio, CellOne, Turks and Caicos, Islandcom, Choice U.S. Virgin Islands International Guyana Cellink Integrated Telephony Wireline International Guyana Integrated Telephony U.S. Wireline United States (New Sovernet, ION England and New York State) We provide management, technical, financial, regulatory, customer support and marketing advisory services to our subsidiaries and typically receive 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 June 30, 2011, approximately 79% of our consolidated revenue was generated by our U.S. Wireless segment, while only 12% was generated by our International Integrated Telephony segment. As of June 30, 2011, our U.S. retail wireless services were offered to approximately 639,000 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 June 30, 2011. Through the Alltel Acquisition, we acquired a regional, non-contiguous wireless network that we anticipate will require continued 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 18 -------------------------------------------------------------------------------- Table of Contents 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 subscribers to our services, their adoption of our enhanced service offerings and their related voice and data usage. The number of 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. In late July 2011, we completed the transition we began in April 2010 of our Alltel customers from the legacy Alltel information technology systems and platforms to our own (the "Alltel Transition"). During this transition period, we experienced a significant net attrition of our wireless subscriber base (from 807,000 subscribers as of June 30, 2010 to 639,000 subscribers as of June 30, 2011) due to a number of anticipated factors, including (1) our elimination of an unprofitable indirect post-paid sales channel, (2) our loss of a major indirect prepaid distribution channel, (3) the realignment of our customer base to address customers whose primary usage occurred outside our territory, (4) the elimination of certain sales and credit practices of the divestiture trust regarding one year contacts and inordinate handset subsidies and (5) our adjustment of certain legacy collection and credit practices. As a result of these actions and other initiatives, subscriber churn has improved significantly over the past two quarters and we currently expect the net attrition of our U.S. retail wireless subscriber base to end late in the third quarter. We also expect subscriber levels to grow modestly and for churn to continue to improve through the end of 2011 as we are able to utilize the features of our own systems and platforms to refine and enhance our service offerings. The mix of our 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 wholesale revenue is an important part of our overall U.S. Wireless segment revenue because this revenue has a higher margin of profitability than our 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. including in areas in which we also have retail wireless operations such as the recently acquired Alltel markets. 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 continue to 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. 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 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. In late July 2011, we completed the Alltel Transition and terminated the transition services arrangement. 19 -------------------------------------------------------------------------------- Table of Contents Merger with M3 Wireless, Ltd. On May 2, 2011, the Company completed the merger of its Bermuda wireless operations, Bermuda Digital Communications, Ltd. ("BDC"), with that of M3 Wireless, Ltd. ("M3"), a wireless provider in Bermuda (the "CellOne Merger"). As part of the CellOne Merger, M3 merged with and into BDC, and the combined entity will continue to operate under BDC's CellOne brand under the leadership of BDC's existing management team. As a result of the CellOne Merger, the Company's 58% ownership interest in BDC was reduced to a controlling 42% interest in the combined entity. Since the Company owns the majority of seats on the combined entity's board of directors and therefore controls its management and policies, the Company has consolidated the results of the combined entity in its consolidated financial statements effective on the date of the CellOne Merger. 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 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 or six months ended June 30, 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 began during the second quarter of 2011. The results of our U.S. wireline business are included in our "U.S. Wireline" segment. 20 -------------------------------------------------------------------------------- Table of Contents Results of Operations Three Months Ended June 30, 2010 and 2011 Three Months Ended Amount of Percent June 30, Increase Increase 2010 2011 (Decrease) (Decrease) (In thousands) REVENUE: US Wireless: Retail $ 81,503 95,410 13,907 17.1 % Wholesale 39,550 51,870 12,320 31.2 International Wireless 12,575 18,714 6,139 48.8 Wireline 23,230 20,886 (2,344 ) (10.1 ) Equipment and Other 7,831 6,873 (958 ) (12.2 ) Total revenue 164,689 193,753 29,064 17.6 OPERATING EXPENSES: Termination and access fees 44,590 54,757 10,167 22.8 Engineering and operations 17,893 21,897 4,004 22.4 Sales and marketing 23,804 36,400 12,596 52.9 Equipment expense 17,585 17,964 379 2.2 General and administrative 23,460 30,773 7,313 31.2 Acquisition-related charges 11,041 316 (10,725 ) (97.1 ) Depreciation and amortization 18,542 25,369 6,827 36.8 Total operating expenses 156,915 187,476 30,561 19.5 Income from operations 7,774 6,277 (1,497 ) (19.3 ) OTHER INCOME (EXPENSE): Interest expense (2,387 ) (4,260 ) (1,873 ) 78.5 Interest income 84 110 26 31.0 Gain on bargain purchase, net of taxes of $18,016 for the three months ended June 30, 2010 27,024 - (27,024 ) (100.0 ) Equity in earnings of unconsolidated affiliate 290 239 (51 ) (17.6 ) Other income (expense), net 226 4 (222 ) (98.2 ) Other income, net 25,237 (3,907 ) (29,144 ) (115.5 ) INCOME BEFORE INCOME TAXES 33,011 2,370 (30,641 ) (92.8 ) Income taxes 7,969 1,052 (6,917 ) (86.8 ) NET INCOME 25,042 1,318 (23,724 ) (94.7 ) Net loss attributable to non-controlling interests (238 ) 497 735 (308.8 ) NET INCOME ATTRIBUTABLE TO ATLANTIC TELE-NETWORK, INC. STOCKHOLDERS $ 24,804 $ 1,815 $ (22,989 ) (92.7 )% 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, voicemail and other features. Retail revenue also includes credits from the Universal Service Fund. Wholesale revenue is generated from providing mobile voice or data services to the customers 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. Retail revenue In late July 2011, we completed the Alltel Transition. As a result, we expect to be able to better drive subscriber additions, further control churn and optimize our service offerings beginning in the third quarter of 2011. These subscriber-related functions had been somewhat constrained during the transition period and, together with the realignment of our customer base, contributed to a continued decline in our U.S. retail wireless revenue during the transition period. The retail portion of our U.S. Wireless revenue was $95.4 million for the three months ended June 30, 2011, substantially all of which is attributable to revenue generated by the Alltel Acquisition. U.S. retail wireless revenue was $81.5 million for the three months ended June 30, 2010, all of which followed the closing of our Alltel Acquisition in late April 2010. The increase of $13.9 million is the result of the three months ended June 30, 2011 representing a full quarter of operations partially offset by a decrease in subscribers over the past year. As of June 30, 2011, we had approximately 639,000 U.S. retail wireless subscribers (including 493,000 postpaid subscribers and 146,000 prepaid subscribers), a decrease of 35,000 from the approximate 674,000 subscribers we had as of March 31, 2011 and a decrease of 168,000 from the 807,000 subscribers we had as of June 30, 2010. Gross additions to the U.S. retail wireless subscriber base were approximately 39,000 for the three months ended June 30, 2011, as compared to approximately 47,000 for the three months ended March 31, 2011. We expect to experience moderately improved gross additions to our subscriber base in future periods as a result of the completion of the Alltel Transition of our customers to our own operating platform and billing system as well as new handset and service plan offerings. Our overall U.S. retail wireless churn decreased from 4.29% for the three months ended March 31, 2011 to 3.73% for the three months ended June 30, 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 21 -------------------------------------------------------------------------------- Table of Contents with better handset and service offerings. Our churn also benefited from a decline in the number of subscribers coming off of one-year contracts signed prior to our acquisition of Alltel assets as we have transitioned our subscribers to more traditional two year contracts. We expect that the level of churn will decrease moderately in future periods as we continue to improve our credit policies and provide quality handset and service offerings. Wholesale 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 has negatively impacted wireless wholesale revenue in 2011. We expect this loss in wireless wholesale revenue to continue 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 $51.9 million for the three months ended June 30, 2011 from $39.6 million for the three months ended June 30, 2010, an increase of $12.3 million. The increase in wireless wholesale revenue was due to a $13.6 million increase of roaming revenue generated by the networks we acquired in the Alltel Acquisition. The quarter ended June 30, 2011 represents a full quarter of operations including Alltel assets as compared to a partial period for the quarter ended June 30, 2010. The increase was partially offset by a $1.3 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. These declines were partially offset by an increase in data roaming usage on our network. Our base stations increased from 1,515 as of June 30, 2010 to 1,598 as of June 30, 2011. While we expect 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 $6.1 million to $18.7 million for the three months ended June 30, 2011, from $12.6 million for the three months ended June 30, 2010. This increase primarily resulted from the completion of the CellOne Merger on May 2, 2011, the acquisition of wireless operations in Aruba at the end of the second quarter 2010 and the growth in subscribers in both Guyana and the U.S. Virgin Islands. International Wireless subscribers increased by 10% from 314,000 as of June 30, 2010 to 345,000 as of June 30, 2011, which includes Island Wireless subscribers doubling in number from 24,000 as of June 30, 2010 to 48,000 as of June 30, 2011 and subscribers in Guyana increasing by 2% from 290,000 as of June 30, 2010 to 297,000 as of June 30, 2011. While we have experienced subscriber growth in a number of our international markets, competition remains strong, and the high proportion of prepaid subscribers, particularly in Guyana, means that subscribers and revenue could shift relatively quickly 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 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 decreased by $2.3 million to $20.9 million for the three months ended June 30, 2011 from $23.2 million for the three months ended June 30, 2010. A $1.4 million decrease in international long distance revenue in Guyana and a $1.6 million decrease in local access revenue were partially offset by data revenue growth in Guyana and growing U.S. wholesale transport revenue. Although the number of access lines in Guyana increased by 1%, from approximately 149,000 lines as of June 30, 2010 to approximately 150,000 lines as of June 30, 2011, we experienced lowered average usage per line during the second quarter of 2011. We believe the decrease in international long distance revenue was a result of continued and considerable illegal bypass activities in Guyana resulting in lost revenue opportunities, as well as an overall reduction in call volume attributable to the current difficult global economic environment. In the U.S., we saw moderately increased revenue from our upstate New York wholesale 22 -------------------------------------------------------------------------------- Table of Contents 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 offset by a 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, particularly if the Government of Guyana adopts and enacts current draft legislation to issue new international long distance licenses to other providers in Guyana. Over time, such pressure on our wireline revenue may be offset by increased revenue from data services to consumers and enterprises in Guyana, and wholesale transport services and large enterprise and agency sales in the United States. We are in the process of expanding our fiber network in New York and began receiving a portion of a $39.7 million stimulus grant in the second half of 2010. During the quarter ended June 30, 2011, we also began receiving a portion of the $33.4 stimulus grant in connection with the expansion of our fiber 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 decreased by $0.9 million to $6.9 million for the three months ended June 30, 2011, from $7.8 million for the three months ended June 30, 2010. Equipment revenue decreased as a result of the substantial completion of our transition of subscribers from one-year contracts to the 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 $10.2 million from $44.6 million for the three months ended June 30, 2010 to $54.8 million for the three months ended June 30, 2011. Such increase is the result of an increase in usage partially offset by a decrease in customer bad debt expense and also reflects a full quarter of results including the Alltel assets for the second quarter of 2011 as opposed to the partial quarter results in 2010 due to the acquisition of Alltel assets in late April 2010. Termination and access fees are expected to increase in future periods with expected growth in volume, 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 $4.0 million from $17.9 million for the three months ended June 30, 2010 to $21.9 million for the three months ended June 30, 2011 as a result of the Alltel Acquisition which was completed on April 26, 2010. As such, 2011 reflects a full quarter of results including the Alltel assets as opposed to the partial quarter results in 2010. We expect that engineering and operations expenses will continue to increase as our networks expand and require additional support. This increase, however, will be at a slower pace than in previous quarters due to the completion of the Alltel Transition. 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 $12.6 million from $23.8 million for the three months ended June 30, 2010 to $36.4 million for the three months ended June 30, 2011. Of this increase, $10.7 million was attributable to the operations of the Alltel assets which incurred some overlap of expenses from the transition services being performed during the quarter. We expect that sales and marketing expenses will decrease as a percentage of revenue as a result of the completion of the Alltel Transition 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 by $0.4 million from $17.6 million for the three months ended June 30, 2010 to $18.0 million for the three months ended June 30, 2011. We expect that these expenses will decrease as a percentage of revenue in the near-term due to the accelerated pace of customer contract renewals and extensions we experienced in 2010 offset, however, by an increase in handset upgrades due to an increase in smartphone penetration. 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 23 -------------------------------------------------------------------------------- Table of Contents 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 $7.3 million from $23.5 million for the three months ended June 30, 2010 to $30.8 million for the three months ended June 30, 2011 as a result of a full quarter of results including the Alltel assets in the second quarter of 2011 as compared to the partial second quarter of 2010 due to the acquisition of Alltel assets in late April 2010. We incurred some overlap of expenses from the transition services being performed during the quarter. As a percentage of revenues, we expect that general and administrative expenses will decrease as a result of our completion of the Alltel Transition. 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 or any integration related costs. For the three months ended June 30, 2011, acquisition-related charges were $0.3 million, as compared to $11.0 million incurred in connection with the Alltel Acquisition during the three months ended June 30, 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 $6.9 million from $18.5 million for the three months ended June 30, 2010 to $25.4 million for the three months ended June 30, 2011. The increase is primarily due to the addition of the tangible and intangible assets acquired with the Alltel Acquisition and CellOne Merger as well as additional fixed assets from our network expansion in our U.S. Wireless and Island Wireless segments. We expect depreciation expense on our tangible assets to continue to increase as a result of ongoing network expansion in our businesses. 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 $2.4 million for the three months ended June 30, 2010 to $4.3 million for the three months ended June 30, 2011, due to increased borrowings, additional cash flow hedges of interest rate risk entered into during July and December 2010, and applicable margins on our credit facility. As of June 30, 2011, we had $311.9 million in outstanding debt as compared to $260.2 million as of June 30, 2010. Interest income. Interest income represents interest earned on our cash and cash equivalents. Interest income remained consistent at $0.1 million as a result of relatively consistent average cash balances during the three months ended June 30, 2011 and 2010. Equity in earnings of an unconsolidated affiliate. Equity in earnings of an unconsolidated affiliate in our U.S. Wireless segment was $0.2 million for the three months ended June 30, 2011 as compared to $0.3 million for the three months ended June 30, 2010. Other income (expense). Other income (expense) represents miscellaneous non-operational income we earned or expenses we incurred. Other income was $0.2 million for the three months ended June 30, 2010. We did not recognize any other income (expense) during the three months ended June 30, 2011. 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 June 30, 2010 and 2011 were 24% and 44%, respectively. For 2010, the effective tax rate was reduced by the bargain purchase gain which is shown net of tax on our statements of operations. Partially offsetting this reduction was a $5.2 million expense related to an increase in valuation allowance against the Company's foreign tax credit carryforward. Net (Income) Loss Attributable to Non-Controlling Interests. Net (income) loss attributable to non-controlling interests includes minority shareholders' share of net income or losses in our less than wholly-owned subsidiaries. Net (income) loss attributable to non-controlling interests reflected an allocation of $0.2 million of income and $0.5 million of losses for the three months ended June 30, 2010 and 2011, respectively. 24 -------------------------------------------------------------------------------- Table of Contents Net income attributable to Atlantic Tele-Network, Inc. Stockholders. Net income attributable to Atlantic Tele-Network, Inc. stockholders decreased to $1.8 million for the three months ended June 30, 2011 from $24.8 million for the three months ended June 30, 2010. Operating income decreased from $7.8 million to $6.3 million for the three months ended June 30, 2010 and 2011, respectively. We expect that operating income will increase in future periods due to the completion of the Altell Transition. Net income for the three months ended June 30, 2010 was also positively impacted by a one-time bargain purchase gain related to the Alltel Acquisition. On a per share basis, net income decreased from $1.60 per diluted share to $0.12 per diluted share for the three months ended June 30, 2010 and 2011, respectively. Six Months Ended June 30, 2010 and 2011 Six Months Ended Amount of Percent June 30, Increase Increase 2010 2011 (Decrease) (Decrease) (In thousands) REVENUE: US Wireless: Retail $ 81,503 195,079 113,576 139.4 % Wholesale 62,486 96,567 34,081 54.5 International Wireless 23,492 33,657 10,165 43.3 Wireline 43,751 41,557 (2,194 ) (5.0 ) Equipment and Other 8,288 15,048 6,760 81.6 Total revenue 219,520 381,908 162,388 74.0 OPERATING EXPENSES: Termination and access fees 55,812 106,662 50,850 91.1 Engineering and operations 24,337 43,802 19,465 80.0 Sales and marketing 27,198 68,508 41,310 151.9 Equipment expense 18,298 39,156 20,858 114.0 General and administrative 34,234 56,386 22,152 64.7 Acquisition-related charges 15,834 567 (15,267 ) (96.4 ) Depreciation and amortization 28,611 50,160 21,549 75.3 Total operating expenses 204,324 365,241 160,917 78.8 Income from operations 15,196 16,667 1,471 9.7 OTHER INCOME (EXPENSE): Interest expense (3,654 ) (8,072 ) (4,418 ) 120.9 Interest income 238 230 (8 ) 3.4 Gain on bargain purchase, net of taxes of $18,016 for the six months ended June 30, 2010 27,024 - (27,024 ) (100.0 ) Equity in earnings of unconsolidated affiliate 290 755 465 160.3 Other income (expense), net 230 599 369 160.4 Other income, net 24,128 (6,488 ) (30,616 ) (126.9 ) INCOME BEFORE INCOME TAXES 39,324 10,179 (29,145 ) (74.1 ) Income taxes 10,425 4,882 (5,543 ) (53.2 ) NET INCOME 28,899 5,297 (23,602 ) (81.7 ) Net loss attributable to non-controlling interests (90 ) 1,015 1,105 1,227.8 NET INCOME ATTRIBUTABLE TO ATLANTIC TELE-NETWORK, INC. STOCKHOLDERS $ 28,809 $ 6,312 $ (22,497 ) (78.1 )% 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 The retail portion of our U.S. Wireless revenue was $195.1 million for the six months ended June 30, 2011, substantially all of which is attributable to revenue generated by the Alltel Acquisition. U.S. retail wireless revenue was $81.5 million for the six months ended June 30, 2010 all of which followed the closing of our Alltel Acquisition in late April 2010. The increase of $113.6 million is the result of 2011 representing a full six months of operations partially offset by a decrease in subscribers. 25 -------------------------------------------------------------------------------- Table of Contents As of June 30, 2011, we had approximately 639,000 U.S. retail wireless subscribers (including 493,000 postpaid subscribers and 146,000 prepaid subscribers), a decrease of 35,000 from the approximate 674,000 subscribers we had as of March 31, 2011 and a decrease of 168,000 from the 807,000 subscribers we had as of June 30, 2010. Wholesale Revenue The wholesale portion of our U.S. Wireless revenue increased to $96.6 million for the six months ended June 30, 2011 from $62.5 million for the six months ended June 30, 2010, an increase of $34.1 million. The increase in wireless wholesale revenue was due to a $35.9 million increase of roaming revenue generated by the networks we acquired in the Alltel Acquisition in April 2010 offset by a $2.0 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 partially offset by an increase in data volumes. International Wireless revenue. International Wireless revenue increased by $10.2 million to $33.7 million for the six months ended June 30, 2011, from $23.5 million for the six months ended June 30, 2010. This increase primarily resulted from the Company's completion of the CellOne Merger, Ltd. in Bermuda on May 2, 2011, the acquisition of wireless operations in Aruba at the end of the second quarter 2010 and the growth in subscribers in both Guyana and the U.S. Virgin Islands. International Wireless subscribers increased by 10% from 314,000 as of June 30, 2010 to 345,000 as of June 30, 2011, which includes Island Wireless subscribers doubling in number from 24,000 as of June 30, 2010 to 48,000 as of June 30, 2011 and subscribers in Guyana increasing by 2% from 290,000 as of June 30, 2010 to 297,000 as of June 30, 2011. Wireline revenue. Wireline revenue decreased by $2.2 million to $41.6 million for the six months ended June 30, 2011 from $43.8 million for the six months ended June 30, 2010. A $3.2 million decrease in international long distance revenue in Guyana was offset by data revenue growth in Guyana and growing U.S. wholesale transport revenue. Although the number of access lines in Guyana increased by 1%, approximately 149,000 lines as of June 30, 2010 to approximately 150,000 lines as of June 30, 2011, we experienced lowered average usage per line in the six months ended June 30, 2011. Equipment and Other revenue. Equipment and Other revenue increased by $6.7 million to $15.0 million for the six months ended June 30, 2011, from $8.3 million for the six months ended June 30, 2010. The increase is due to equipment sales from our Alltel Acquisition. Termination and access fee expenses. Termination and access fees increased by $50.8 million from $55.9 million for the six months ended June 30, 2010 to $106.7 million for the six months ended June 30, 2011. Such increase is the result of an increase in usage partially offset by a decrease in customer bad debt expense and also reflects a full six months of results including the Alltel assets as opposed to the partial period results in 2010 due to the acquisition of Alltel assets in late April 2010. Engineering and operations expenses. Engineering and operations expenses increased by $19.4 million from $24.3 million for the six months ended June 30, 2010 to $43.7 million for the six months ended June 30, 2011 as a result of the Alltel Acquisition which was completed on April 26, 2010. As such, 2011 reflects a full six month period of results including the Alltel assets as opposed to the partial period results in 2010. Sales, marketing and customer service expenses. Sales and marketing expenses increased by $41.3 million from $27.2 million for the six months ended June 30, 2010 to $68.5 million for the six months ended June 30, 2011. Of this increase, $3.4 million was attributable to increased advertising and promotional campaigns while the remaining $37.9 million was attributable to the ongoing operations of the Alltel assets (including some overlap of expenses from transition services performed during the six month period). Equipment expenses. Equipment expenses increased by $20.9 million from $18.3 million for the six months ended June 30, 2010 to $39.2 million for the six months ended June 30, 2011 as a result of the Alltel Acquisition. General and administrative expenses. General and administrative expenses increased by $22.2 million from $34.2 million for the six months ended June 30, 2010 to $56.4 million for the six months ended June 30, 2011 as a result of a full six months of results for the assets acquired in the Alltel acquisition which was completed on April 26, 2010 as well as the overlap of some expenses from the transition services. Acquisition-related charges. For the six months ended June 30, 2011, acquisition-related charges were $0.6 million, as compared to $15.8 million incurred in connection with the Alltel Acquisition during the six months ended June 30, 2010. Depreciation and amortization expenses. Depreciation and amortization expenses increased by $21.6 million from $28.6 million for the six months ended June 30, 2010 to $50.2 million for the six months ended June 30, 2011. The increase is 26 -------------------------------------------------------------------------------- Table of Contents primarily due to the addition of the tangible and intangible assets acquired with the Alltel Acquisition and CellOne Merger as well as additional fixed assets from our network expansion in our U.S. Wireless and Island Wireless businesses. Interest expense. Interest expense increased from $3.7 million for the six months ended June 30, 2010 to $8.1 million for the six months ended June 30, 2011, due to increased borrowings, additional cash flow hedges of interest rate risk entered into during July and December 2010 and applicable margins on our credit facility. As of June 30, 2011, we had $311.9 million in outstanding debt as compared to $260.2 million as of June 30, 2010. Interest income. Interest income remained consistent at $0.2 million for the six months ended June 30, 2011 and 2010 as our average cash balances remained relatively consistent. Equity in earnings of an unconsolidated affiliate. Equity in earnings of an unconsolidated affiliate was $0.8 million for the six months ended June 30, 2011 as compared to $0.3 million for the six months ended June 30, 2010. We acquired this equity-method investment on April 26, 2010 in connection with the Alltel Acquisition. Other income (expense). Other income was $0.2 million and $0.6 million for the six months ended June 30, 2010 and 2011, respectively. Income taxes. Our effective tax rates for the six months ended June 30, 2010 and 2011 were 27% and 48%, respectively. For 2010, the effective tax rate was reduced by the bargain purchase gain which is shown net of tax on our statements of operations. Partially offsetting this reduction was a $5.2 million expense related to an increase in valuation allowance against the Company's foreign tax credit carryforward. Net Income Attributable to Non-Controlling Interests. Net (income) loss attributable to non-controlling interests includes minority shareholders' share of net income or losses in our less than wholly-owned subsidiaries. Net (income) loss attributable to non-controlling interests reflected an allocation of $0.1 million of income and $1.0 million of losses for the six months ended June 30, 2010 and 2011, respectively. Net income attributable to Atlantic Tele-Network, Inc. Stockholders. Net income attributable to Atlantic Tele-Network, Inc. stockholders decreased to $6.3 million for the six months ended June 30, 2011 from $28.8 million for the six months ended June 30, 2010. The six months ended June 30, 2010 was positively impacted by a one-time bargain purchase gain related to the Alltel Acquisition of $27.0 million partially offset by acquisition related-charges associated with the Alltel Acquisition of $15.8 million. On a per share basis, net income decreased from $1.86 per diluted share to $0.41 per diluted share for the six months ended June 30, 2010 and 2011, respectively. 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. For a discussion of ongoing proceedings, see Note 11 to the Consolidated Financial Statements included in this Report. 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 cash needs for working capital and capital expenditures for at least the next twelve months. 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 six months ended June 30, 2010 and 2011, we spent approximately $52.0 million and $45.4 million, respectively, on capital expenditures. The following details our capital expenditures, by operating segment, for these periods: Capital Expenditures International Integrated Island U.S. Reconciling U.S. Wireless Telephony Wireless Wireline Items Consolidated Three Months Ended June 30, 2010 $ 25,456 $ 13,538 $ 9,413 $ 904 $ 2,684 $ 51,995 2011 30,762 8,198 3,486 1,220 1,762 45,428 27 -------------------------------------------------------------------------------- Table of Contents 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 six months ended June 30, 2011, dividends to our stockholders were approximately $6.8 million, which includes dividends declared in June 2011 and paid in July 2011. We have paid quarterly dividends for the last 51 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 June 30, 2011 repurchasing our common stock. We may repurchase shares at any time depending on market conditions, our available cash and our cash needs. We have not repurchased any shares under this plan since 2005. Sources of Cash Total Liquidity at June 30, 2011. As of June 30, 2011, we had approximately $46.8 million in cash and cash equivalents, an increase of $9.5 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 $43.0 million for the six months ended June 30, 2011 compared to $60.1 million for the six months ended June 30, 2010. The decrease of $17.1 million was mainly due to a decrease in working capital. Cash Generated by Financing Activities. Cash provided by financing activities was $7.3 million for the six months ended June 30, 2011 as compared to cash provided by financing activities of $177.2 million for the six months ended June 30, 2010. The $169.9 million decrease was primarily the result of borrowings under our credit facility in 2010 which were used to finance the Alltel Acquisition. On January 20, 2010, we amended and restated our then existing credit facility with CoBank (the "2010 Credit Facility"). The 2010 Credit Facility provided for $223.9 million in term loans and a $75.0 million revolver loan. On September 30, 2010, we further amended the 2010 Credit Facility by adding a $50.0 million term loan and expanding the revolver loan to $100.0 million (which includes a $10 million swingline sub-facility). This amended facility (the "Amended 2010 Credit Facility") also provides for additional term loans up to an aggregate $50.0 million, subject to lender approval. As of June 30, 2011, $258.2 million was outstanding under the term loans and $47.1 million was outstanding under the revolver loan. The term loans mature on September 30, 2014 and require certain quarterly repayment obligations. The revolver loan matures on September 10, 2014. Amounts borrowed under the Amended 2010 Credit Facility bear interest at a rate equal to, at our 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, an applicable margin ranging from 2.00% to 3.25%). The applicable margin is determined based on the ratio of our indebtedness to its EBITDA (each as defined in the Amended 2010 Credit Facility agreement). Borrowings as of June 30, 2011, after considering the effect of the interest rate swap agreements as described in Note 7, bore a weighted-average interest rate of 5.86%. 28 -------------------------------------------------------------------------------- Table of Contents 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 commitment fee ranging from 0.50% to 0.75% of the average daily unused portion of the revolver loan over each calendar quarter. The Amended 2010 Credit Facility 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. On June 30, 2011 we amended some of these financial covenants to allow an increased ratio of indebtedness to EBITDA and amended the definition of fixed charges. As of June 30, 2011, we were in compliance with all of the financial covenants of the Amended 2010 Credit Facility, as amended. In connection with the CellOne Merger with M3 Wireless, Ltd., we assumed a $7.0 million term loan owed to Keytech Ltd., the former parent company of M3 and current 42% minority shareholder in our Bermuda operations. The term loan requires quarterly repayments of principal and interest, matures on March 15, 2015 and bears interest at a rate of 7% per annum. As of June 30, 2011 and December 31, 2010, the total notional amount of cash flow hedges under our interest rate swap agreements was $143 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 Credit Facility 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 Credit Facility). On June 30, 2011 we amended some of these financial covenants to allow an increased ratio of indebtedness to EBITDA and amended the definition of fixed charges. On June 30, 2011 the Company amended some of these financial covenants to allow an increased ratio of indebtedness to EBITDA and amended the definition of fixed charges. As of June 30, 2011, we were in compliance with all of the financial covenants of the Amended 2010 Credit Facility, as amended. 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. 29 -------------------------------------------------------------------------------- Table of Contents 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. Other new pronouncements issued but not effective until after June 30, 2011, are not expected to have a material impact on our financial position, results of operations or liquidity. |