TMCnet News

ATLANTIC TELE NETWORK INC /DE - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
[May 12, 2014]

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 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, 2013, in particular, the information set forth therein under Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations".

Overview We are a telecommunications holdings company that, through our operating subsidiaries, provides wireless and wireless telecommunications services in North America, Bermuda and the Caribbean. We are actively evaluating strategic acquisitions and investment opportunities, both domestic and international, that meet our return-on-investment and other acquisition criteria. For a discussion of our investment strategy and risks involved, see "Risk Factors-We are actively evaluating strategic investment and acquisition opportunities, which may affect our long-term growth prospects" in our Form 10-K for the year ended December 31, 2013 We offer the following principal services: † Wireless. In the United States, 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. We also offer wireless voice and data services to retail customers in Bermuda, Guyana, the Caribbean and smaller markets in the United States.


† Wireline. Our local telephone and data services include our operations in Guyana and the mainland United States. We are the exclusive licensed 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 Vermont and New York State. In addition, we offer wholesale long-distance voice services to telecommunications carriers.

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 March 31, 2014: Services Segment Markets Tradenames Wireless U.S. Wireless United States (rural Commnet, Choice markets) Island Wireless Aruba, Bermuda, Turks and Mio, Caicos, U.S. Virgin CellOne,Islandcom, Islands Choice International Guyana Cellink Integrated Telephony Wireline International Guyana GT&T, eMagine Integrated Telephony U.S. Wireline United States (New England Sovernet, ION, and New York State) Essextel We provide management, technical, financial, regulatory, and marketing services to our subsidiaries and typically receive a management fee equal to a percentage of their respective revenue. Management fees from our subsidiaries are eliminated in consolidation.

Discontinued Operations-Sale of U.S. Retail Wireless Business On September 20, 2013, the Federal Communications Commission announced its approval of, and we completed, our previously announced proposed sale of our U.S. retail wireless business operated under the Alltel name to AT&T Mobility LLC for approximately $796.8 million in cash that included a sale price adjustment for the working capital of the business of $16.8 million (the "Alltel Sale").

The operations of the Alltel business, which were previously included in our U.S. Wireless segment, have been classified as discontinued operations in all periods presented. Unless indicated otherwise, the information in this Management's Discussion and Analysis relates only to our continuing operations.

17 -------------------------------------------------------------------------------- Table of Contents Stimulus Grants We were awarded several federal stimulus grants in 2009 and 2010 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. As of March 31, 2014, we have spent (i) $35.7 million in capital expenditures (of which $27.5 million has been funded by the federal stimulus grant) in connection with our build of ten new segments of fiber-optic, middle-mile broadband infrastructure in upstate New York and parts of Pennsylvania and Vermont; (ii) $7.6 million in capital expenditures (of which $5.3 million has been funded by the federal stimulus grant) in connection with our last-mile broadband infrastructure buildout in the Navajo Nation across Arizona, New Mexico and Utah; and (iii) $44.8 million in capital expenditures (of which $31.4 million has been or will be funded by the federal stimulus grant) in connection with our fiber-optic middle mile network buildout to provide broadband and transport services to over 340 community anchor institutions in Vermont. The results of our New York and Vermont stimulus projects are included in our "U.S. Wireline" segment and the results of our Navajo stimulus project are included in our "U.S. Wireless" segment. The New York and Navajo Stimulus projects were completed during 2013. The Vermont stimulus project will be completed during the latter half of 2014 and we anticipate that it will incur an additional $3.0 million of capital expenditures of which $2.1 million is expected to be funded by the federal stimulus grants.

Mobility Fund Grants As part of the Federal Communications Commission's ("FCC") reform of its Universal Service Fund ("USF") program, which previously provided support to carriers seeking to offer telecommunications services in high-cost areas and to low-income households, the FCC created two new funds, including the Mobility Fund, a one-time award meant to support wireless coverage in underserved geographic areas in the United States. In August 2013, we received FCC final approval for approximately $21.7 million of Mobility Fund support to our wholesale wireless business (the "Mobility Funds"), to expand voice and broadband networks in certain geographic areas in order to offer either 3G or 4G coverage. As part of the receipt of the Mobility Funds, we committed to comply with certain additional FCC construction and other requirements. In connection with our application for the Mobility Funds, we posted approximately $9.9 million in letters of credit to the Universal Service Administrative Company ("USAC") to secure these obligations. If we fail to comply with any of the terms and conditions upon which the Mobility Funds were granted, or if we lose eligibility for the Mobility Funds, USAC will be entitled to draw the entire amount of the letter of credit applicable to the affected project plus penalties and may disqualify us from the receipt of additional Mobility Fund support. As of March 31, 2014, all of the letters of credit remain outstanding and no amounts have been drawn thereon.

We began the construction of our Mobility Funds projects during the fourth quarter of 2013 and its results are included in our "U.S. Wireless" segment. As of March 31, 2014, we have received approximately $7.3 million in Mobility Funds. Of these funds, $1.0 million has been recorded as an offset to the cost of the property, plant and equipment associated with these projects and, consequentially, a reduction of the future depreciation expense and $6.3 million was recorded as a liability to reduce future operating expenses.. The presentation of current versus long-term is based on the timing of the expected usage of the funds and accordingly, $2.5 million is recorded within other current liabilities while the remaining $3.8 million is recorded within other long-term liabilities.

18 -------------------------------------------------------------------------------- Table of Contents Results of Operations Three Months Ended March 31, 2013 and 2014 Three Months Ended Amount of Percent March 31, Increase Increase 2013 2014 (Decrease) (Decrease) (In thousands) REVENUE: U.S. Wireless $ 21,213 $ 28,392 $ 7,179 33.8 % International Wireless 21,430 23,148 1,718 8.0 Wireline 20,564 21,530 966 4.7 Equipment and Other 1,625 2,104 479 29.5 Total revenue 64,832 75,174 10,342 16.0 OPERATING EXPENSES(excluding depreciation and amortization unless otherwise indicated): Termination and access fees 13,055 15,862 2,807 21.5 Engineering and operations 9,658 9,630 (28 ) (0.3 ) Sales, marketing and customer services 4,489 5,020 531 11.8 Equipment expense 2,667 2,715 48 1.8 General and administrative 11,909 13,698 1,789 15.0 Transaction-related charges 63 21 (42 ) (66.7 ) Depreciation and amortization 11,988 11,980 (8 ) (0.1 ) Gain on disposition of long lived assets (1,076 ) - 1,076 100.0 Total operating expenses 52,753 58,926 6,173 11.7 Income from operations 12,079 16,248 4,169 34.5 OTHER INCOME (EXPENSE): Interest income (expense), net (2,264 ) (186 ) 2,078 (91.8 ) Other income (expense), net 14 (109 ) (123 ) (878.6 ) Other income (expense), net (2,250 ) (295 ) 1,955 (86.9 ) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 9,829 15,953 6,124 62.3 Income tax expense 3,945 5,552 1,607 40.7 INCOME FROM CONTINUING OPERATIONS 5,884 10,401 4,517 76.8 INCOME FROM DISCONTINUED OPERATIONS Income from discontinued operations, net of tax 4,034 - (4,034 ) (100.0 ) Income from discontinued operations 4,034 - (4,034 ) (100.0 ) NET INCOME 9,918 10,401 483 4.9 Net income attributable to non-controlling interests, net of tax: Continuing operations (1,055 ) (2,560 ) (1,505 ) 142.7 Discontinued operations (87 ) - 87 (100.0 ) (1,142 ) (2,560 ) (1,418 ) 124.2 NET INCOME ATTRIBUTABLE TO ATLANTIC TELE-NETWORK, INC.

STOCKHOLDERS $ 8,776 $ 7,841 $ (935 ) (10.7 )% U.S. wireless revenue. The substantial majority of U.S. wireless revenue consists of wholesale revenue. For the three months ended March 31, 2013 and 2014 wholesale revenue represented 97% of total U.S. wireless revenue. In addition, U.S. wireless revenue also includes a small amount of retail revenues generated by our operations in certain smaller rural markets already covered by our wholesale network in the western United States. Wholesale revenue is generated from providing mobile voice or data services to the customers of other wireless carriers, the provision of network switching services and certain transport services using our wireless networks. Wholesale wireless 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 rates we are paid from our carrier customers for carrying that traffic.

The most significant competitive factor we face in our wholesale wireless business is the extent to which our carrier customers choose to roam on our networks or elect to build or acquire their own infrastructure in our markets, reducing or eliminating their need for our services in those markets.

Our U.S. wireless revenue increased to $28.4 million for the three months ended March 31, 2014 from $21.2 million for the three months ended March 31, 2013, an increase of $7.2 million or 34%. The revenue growth was a result of capacity and technology upgrades to our network, an increase in the demand for data services and an increase in the base stations used in our wholesale operations from 567 as of March 31, 2013 to 605 as of March 31, 2014.

We expect to see continued growth in domestic data traffic in 2014, offset by an expected decline in contracted wholesale data prices. As a result, we expect revenue to increase in future periods although at a slower growth rate than what we experienced during the quarter ended March 31, 2014.

International wireless revenue. International wireless revenue includes retail and wholesale voice and data wireless revenue from our operations in Bermuda and the Caribbean, including the U.S. Virgin Islands.

International wireless revenue increased by $1.7 million, or 8%, to $23.1 million for the three months ended March 31, 2014, from $21.4 million for the three months ended March 31, 2013. This increase was mainly due to subscriber growth in our Island Wireless segment as well as increased roaming revenues in Bermuda and the Caribbean. International wireless, which includes 19 -------------------------------------------------------------------------------- Table of Contents subscribers in our Island Wireless segment as well as Guyana, subscribers decreased from 335,000 subscribers as of March 31, 2014 to 323,000 subscribers as of March 31, 2013 of which 88% were prepaid subscribers.

While we have experienced subscriber growth in a number of our international markets, competition remains strong, and the high proportion of prepaid subscribers means that subscribers and revenue could shift relatively quickly in future periods. Additionally, wholesale revenues in these markets are subject to seasonality and can fluctuate between quarters.

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, our wholesale transport operations in New York State and our wholesale long-distance voice services to telecommunications carriers. 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, and maintenance and equipment sales.

Wireline revenue increased by $0.9 million, or 4%, to $21.5 million for the three months ended March 31, 2014, from $20.6 million during the three months ended March 31, 2013. Revenues from our domestic wireline businesses increased by $1.9 million. This increase, however, was partially offset by a $1.0 million decline in local landline revenue and international calls into Guyana.

We anticipate that wireline revenue from our international long-distance business in Guyana will be negatively impacted, principally through the loss of market share, should we cease to be the exclusive provider of domestic fixed and international long-distance service in Guyana, whether by reason of the Government of Guyana enacting legislation to such effect or a modification, revocation or lack of enforcement of our exclusive rights. While the loss of our exclusive rights will likely cause an immediate reduction in our wireline revenue, over the longer term such declines may be offset by increased revenue from data services to consumers and enterprises in Guyana, an increase in regulated local calling rates in Guyana, and increased wholesale transport services and large enterprise and agency sales in the United States.

We currently cannot predict when or if the Government of Guyana will enact such legislation or take, or fail to take, any action that would otherwise affect our exclusive rights in Guyana. See "Business-Guyana Regulation".

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 $0.5 million, or 29% to $2.1 million for the three months ended March 31, 2014, from $1.6 million for the three months ended March 31, 2013. Equipment revenue primarily increased as the result of an increase in subscribers in our Island Wireless segment.

We believe that equipment and other revenue could continue to increase as a result of gross subscriber additions, more aggressive subsidies driving demand for devices and the continued growth in smartphone penetration.

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 $2.8 million, or 21%, from $13.1 million for the three months ended March 31, 2013 to $15.9 million for the three months ended March 31, 2014. This increase in our termination and access fees was incurred across all of our segments. Our U.S. Wireless segment reported an increase of $1.5 million in these costs as the result of us expanding and upgrading our networks and increased data traffic volumes. Increased traffic volumes and roaming costs in our Island Wireless segment resulted in a $0.3 million increase in termination and access fee. The remaining increase was experienced in our U.S. Wireline segment as a result of increased volumes.

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 and supporting our expanding networks, including the salaries and benefits paid to employees directly involved in the development and operation of our networks.

Engineering and operations expenses decreased by $0.1 million from $9.7 million to $9.6 million for the three months ended March 31, 2013 and 2014, respectively. The decrease in engineering and operations was predominantly caused by a decrease of $0.4 20 -------------------------------------------------------------------------------- Table of Contents million in our Island Wireless segment due to the continuing realization of operational synergies, particularly in Bermuda. This decrease was partially offset by an increase in our other segments as a result of the expansion and upgrades to our networks.

We expect that engineering and operations expenses will increase over time due to an expected increase in our network capacity and geographic expansion of our networks, both of which will require additional support.

Sales and marketing 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 $0.5 million, or 11%, from $4.5 million for the three months ended March 31, 2013 to $5.0 million for the three months ended March 31, 2014. Sales and marketing expenses increased $0.3 million in our U.S.Wireless segment's retail operations and an increase of $0.2 million in our U.S. Wireline segment wholesale transport services in New York State.

We expect that sales, marketing and customer service expenses will remain fairly consistent as a percentage of revenues in future periods.

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

Equipment expenses remained consistent at $2.7 million for the three months ended March 31, 2013 and 2014, respectively.

We believe that equipment expenses could continue to rise, from time to time, as we may choose to raise device subsidies to attract and retain customers.

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 $1.8 million, or 15% from $11.9 million for the three months ended March 31, 2013 to $13.7 million for the three months ended March 31, 2014 as a result of an increase in overhead costs within all of our operating segments as well as the parent company in order to support out increased revenues.

We expect that these general and administrative expenses will remain fairly consistent as a percentage of revenues in future periods.

Transaction related charges. Transaction related charges include the external costs, such as legal, tax and accounting, and consulting fees directly associated with acquisition and disposition-related activities, which are expensed as incurred. Transaction related charges do not include internal costs, such as employee salary and travel-related expenses, incurred in connection with acquisitions or dispositions or any integration-related costs.

We incurred nominal transaction related charges for the three months ended March 31, 2013 and 2014 respectively.

We expect that acquisition and disposition related expenses will continue to be incurred from time to time as we continue to explore additional acquisition or disposition 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 remained consistent at $12.0 million for the three months ended March 31, 2013 and 2014 respectively. Increases in depreciation expense in a majority of our operating segments and corporate overhead were offset by a decrease in our U.S. Wireless segment of $0.3 million a result of the sale of certain network assets.

We expect depreciation expense to increase as a result of ongoing network investments in our businesses.

21 -------------------------------------------------------------------------------- Table of Contents Gain on disposition of long-lived assets. During the three months ended March 31, 2013, we sold certain network assets and telecommunications licenses in our U.S. Wireless segment for proceeds of $1.5 million and recognized a gain on such disposition of $1.1 million.

Interest income (expense), net. Interest income (expense), net represents commitment fees and interest incurred on our outstanding credit facilities, including our interest rate derivatives, net of interest income.

Interest income (expense), net decreased $2.1 million from $2.3 million of expense to $0.2 million of expense for the three months ended March 31, 2013 and 2014, respectively. The decrease was primarily the result of the repayment of our long-term debt on September 20, 2013 and the termination of our interest rate derivative contracts.

Other income (expense), net. Other income (expense), net represents miscellaneous non-operational income we earned or expenses we incurred. Other income (expense), net was nominal for the three months ended March 31, 2013 and 2014 respectively, Income taxes. Our effective tax rates for the three months ended March 31, 2013 and 2014 were 40.1% and 34.8%, respectively. Our effective tax rate declined in 2014 as the result of increased income in lower taxed jurisdictions, such as Bermuda, as compared to 2013. Our effective tax rate in 2013 was higher than the statutory federal income tax rate of 35% (plus applicable statutory state income tax rates) due primarily to (i) the portion of our earnings that are taxed in Guyana at 45%, and (ii) a portion of our earnings that include losses generated in foreign jurisdictions for which we receive no tax benefit since these are non-tax jurisdictions. Our consolidated tax rate will continue to be impacted by the mix of income generated among the jurisdictions in which we operate.

Income from discontinued operations, net of tax. Income from discontinued operations, net of tax was $4.0 million and zero for the three months ended March 31, 2013 and March 31, 2014 respectively.

Net income attributable to non-controlling interests. Net income attributable to non-controlling interests reflected an allocation of $1.1 million and $2.6 million of income generated by our less than wholly-owned subsidiaries for the three months ended March 31, 2013 and 2014, respectively. Included within these amounts was $0.1 million related to our discontinued operations for the three months ended March 31, 2013.

Net income attributable to Atlantic Tele-Network, Inc. stockholders. Net income attributable to Atlantic Tele-Network, Inc. stockholders decreased to $7.8 million for the three months ended March 31, 2014 from $8.8 million for the three months ended March 31, 2013.

On a per share basis, net income decreased to $0.49 per diluted share from $0.56 per diluted share for the three months ended March 31, 2014 and 2013, respectively. Included within net income per diluted share was $0.25 of net income per diluted share of discontinued operations for the three months ended March 31, 2013.

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 discussion of ongoing proceedings, see Note 12 to the Consolidated Financial Statements 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 the next twelve months 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.

For the three months ended March 31, 2013 and 2014, we spent approximately $15.4 million and $8.7 million, respectively, on capital expenditures. The following notes our capital expenditures, by operating segment, for these periods: 22 -------------------------------------------------------------------------------- Table of Contents Capital Expenditures (in thousands) International Integrated Island U.S. Reconciling U.S. Wireless Telephony Wireless Wireline Items Consolidated Three Months Ended March 31, 2013 $ 4,480 $ 4,120 $ 1,111 $ 5,095 $ 549 $ 15,355 2014 5,337 2,176 366 430 427 8,736 We are continuing to invest in upgrading and expanding our networks in many of our markets, along with upgrading our operating and business support systems. We currently anticipate that capital expenditures for our continuing operations for the year ended December 31, 2014 will be between $65 million and $70 million.

We expect to fund our current capital expenditures primarily from our current cash balances and cash generated from operations.

Acquisitions and Investments. Historically, we have funded our acquisitions with a combination of cash on hand and borrowings under our credit facilities.

We continue to explore opportunities to acquire or expand our existing communications properties and 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.

As of March 31, 2014, we had approximately $411.6 million in cash, cash equivalents and restricted cash primarily as a result of the proceeds from our Alltel Sale, and no long-term debt. How and when we deploy our balance sheet capacity will figure prominently in our longer-term growth prospects and stockholder returns.

Income taxes. We use cash-on-hand to make payments for income taxes. As of March 31, 2014, we have made tax payments for substantially all of the expected tax liability owed on the gain we recognized on the sale of the Alltel business.

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, 2014, our Board declared dividends to our stockholders, which includes a $0.27 per share dividend declared on March 24, 2014, and paid on April 4, 2014, of $4.3 million. We have declared quarterly dividends for the last 62 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 through March 31, 2014. Our last repurchase of our Common Stock under this plan was in 2007. We may repurchase shares at any time depending on market conditions, our available cash and our cash needs.

Sources of Cash Total liquidity. As of March 31, 2014, we had approximately $411.6 million in cash, cash equivalents and restricted cash, a decrease of $23.0 million from the December 31, 2013 balance of $434.6 million. The decrease is attributable to cash used by our operating activities of $9.0 million (which includes income tax payments of $32.9 million during the three months ended March 31, 2014, primarily related to taxes owed from the 2013 gain on the sale of the Alltel business), cash used in our investing activities of $7.4 million and cash used in our financing activities of $6.6 million.

Cash generated (used in) by operations. Cash used by operating activities was $9.0 million for the three months ended March 31, 2014. Cash provided by operating activities was $25.0 million for the three months ended March 31, 2013. The decrease of $34.0 million was predominately driven by a decrease in cash provided by our discontinued operations of $18.4 million, an increase in cash used for accounts payable and other current liabilities of $14.5 million and a change in accrued taxes of $4.6 million.

Cash used in investing activities. Cash used in investing activities was $19.4 million for the three months ended March 31, 2013. Cash provided by investing activities was $11.8 million for the three months ended March 31, 2014. The $31.2 million increase was predominately the result of a decrease in the restricted cash of $19.2 million, a decrease in capital expenditures of $6.6 million and no effect from our discontinued operations during 2014 as compared to a usage of cash of $5.5 million during 2013. The three months ended March 31, 2014 also included $1.4 million in proceeds from the sale of certain network equipment used in our U.S. Wireless segment. The $1.1 million gain on this sale is being deferred over ten years, the life of the lease which was entered into by us for the purpose of leasing the sold assets.

Cash used in financing activities. Cash used in financing activities increased by $5.1 million, from $1.5 million for the three months ended March 31, 2013 to $6.6 million of cash for the three months ended March 31, 2014. The increase was primarily 23 -------------------------------------------------------------------------------- Table of Contents the result of the timing impact of paying a dividend declared by our Board of Directors on December 6, 2012 in the fourth quarter of 2012 as opposed to in the first quarter of 2013.

Credit facilities. We have a credit facility (the "Credit Facility") which previously included two term loans and currently provides for a revolver loan of up to $100.0 million. The revolver loan also has a $10.0 million swingline sub-facility and a $55.0 million letter of credit sub-facility for issuance in connection with our Mobility Fund Grant obligations (see Note 8).

On September 20, 2013 we repaid our outstanding term loans in full. Amounts borrowed under the term loans bore interest at a rate equal to, at our option, either (i) at the London Interbank Offered Rate (LIBOR) plus an applicable margin ranging between 2.00% to 4.00% or (ii) a base rate plus an applicable margin ranging from 1.00% to 3.00%. The base rate was equal to the higher of (i) 1.50% plus the higher of (x) the one-week LIBOR and (y) the one-month LIBOR; or (ii) the prime rate (as defined in the Credit Facility). The applicable margin was determined based on the ratio of our indebtedness (as defined in the Credit Facility) to our EBITDA (as defined in the Credit Facility).

Amounts borrowed under the revolver loan bear interest at a rate equal to, at our option, either (i) LIBOR plus an applicable margin ranging between 2.00% to 3.50% or (ii) a base rate plus an applicable margin ranging from 1.00% to 2.50% (or, in the case of amounts borrowed under the swing-line sub- facility, an applicable margin ranging from 0.50% to 2.00%.) We must also pay a fee ranging from 0.25% to 0.50% of the average daily unused portion of the revolver loan over each calendar quarter, which fee is payable in arrears on the last day of each calendar quarter.

The 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 Credit Facility contains financial covenants by us that (i) impose a maximum leverage ratio of indebtedness to EBITDA, (ii) require a minimum debt service ratio of EBITDA to principal, interest and taxes payments and (iii) require a minimum ratio of equity to consolidated assets. As of March 31, 2014, we were in compliance with all of the financial covenants of the Credit Facility.

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.

Restrictions under Credit Facility. Our 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 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 principal and interest payments and cash taxes and, (iii) require a minimum ratio of equity to consolidated assets. As of March 31, 2014, we were in compliance with all of the financial covenants of the Credit Facility.

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, 2013, our shelf registration statement that registered potential future offerings of our securities expired. We intend to renew this shelf registration statement in 2014.

Recent Accounting Pronouncements In July 2013, the FASB issued Accounting Standards Update No. 2013-11, "Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (a consensus of the Emerging Issues Task Force)," which states that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. If a company does not have: (i) a net operating loss carryforward; (ii) a similar tax loss; or (iii) a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the entity does not intend to use the deferred tax 24 -------------------------------------------------------------------------------- Table of Contents asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The authoritative guidance is effective for fiscal years and the interim periods within those fiscal years beginning on or after December 15, 2013 and was applied on a prospective basis. The adoption of this authoritative guidance did not have a material impact on the Company's consolidated financial statements.

[ Back To TMCnet.com's Homepage ]