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NTELOS HOLDINGS CORP. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations.(Edgar Glimpses Via Acquire Media NewsEdge) Cautionary Note Regarding Forward-Looking Statements Certain statements in this report are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. We use words such as "anticipate," "believe," "could," "should," "estimate," "expect," "intend," "may," "predict," "project," "target," and similar terms and phrases, including references to assumptions, to identify forward-looking statements. These forward-looking statements are based on information available to us as of the date any such statements are made, and we assume no obligation to update these forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those described in the statements. These risks and uncertainties include, but are not limited to, those described in Part II, "Item 1A, Risk Factors" and elsewhere in this quarterly report and in our Annual Report on Form 10-K for the year ended December 31, 2013 and those described from time to time in our future reports filed with the Securities and Exchange Commission ("SEC"). OVERVIEW Our summary operating results presented below are before the impact of income taxes and amounts attributable to noncontrolling interests. Our Business We are a leading regional provider of digital wireless communications services to consumers and businesses primarily in Virginia and West Virginia, as well as parts of Maryland, North Carolina, Pennsylvania, Ohio and Kentucky. We offer wireless voice and digital data PCS/LTE products and services to retail and business customers under the "NTELOS Wireless" and "FRAWG Wireless" brand names. We conduct our business through NTELOS-branded retail operations, which sell our products and services via direct and indirect distribution channels, and provide network access to other telecommunications carriers, most notably through an arrangement with Sprint Spectrum L.P. ("Sprint Spectrum"), and Sprint Spectrum on behalf of and as an agent for certain of its affiliates (collectively "Sprint"), which arrangement is referred to herein as the "Strategic Network Alliance" or the "SNA." At September 30, 2014, our wireless retail business had approximately 457,200 subscribers, representing a penetration of approximately 7.6% of our total covered population. Of the 457,200 total retail subscribers, total postpay subscribers were 310,200 at September 30, 2014 compared to 298,000 at September 30, 2013 and total prepay subscribers were 147,000 at September 30, 2014 compared to 159,100 at September 30, 2013. Our postpay subscriber base has increased by 4% from September 30, 2013 to September 30, 2014 and our prepay subscriber base has decreased by 8% during the same time period. The retail market for wireless broadband mobile services continues to be highly competitive. Our competitors are generally nationwide in scope and have significantly greater resources than us and can be extremely aggressive in product and service pricing as well as promotional initiatives to existing and potential customers. 17-------------------------------------------------------------------------------- Table of Contents Strategic Network Alliance We are the exclusive PCS service provider and have contracted to exclusively provide LTE Services in our western Virginia and West Virginia service area ("SNA service area") for all Sprint Code Division Multiple Access ("CDMA") and LTE wireless customers. In May 2014 we entered into an amended agreement to extend the SNA through at least December 2022. Pursuant to the terms of the SNA, we are the exclusive provider of roaming/travel services in the SNA service area and are required to upgrade our network in the SNA service area to provide LTE Services. As part of the amendment we lease spectrum, on a non-cash basis, from Sprint in order to enhance the PCS/LTE services. The non-cash consideration attributable to the leased spectrum is approximately $4.9 million per year. The lease expense is recognized over the term of the lease and recorded within cost of sales and services, with the offsetting consideration recorded within wholesale and other revenue. Additionally, the amended SNA provides us access to Sprint's nationwide 3G and 4G LTE network at rates that are reciprocal to rates paid by Sprint under the amended SNA. The amended SNA provides that a portion of the amount paid by Sprint thereunder is fixed. The fixed fee element of the amended SNA is subject to contractual reductions on August 1, 2015 and annually thereafter starting on January 1, 2016 that will result in a decrease in the fixed fee element. We account for this fixed fee portion of SNA revenue on a straight line basis over the term of the agreement. In addition, these reductions are subject to further upward or downward resets in the fixed fee element. These resets, if any, will be recognized in the period in which it occurs. For the three months ended September 30, 2014 and 2013, we realized wholesale revenues of $37.3 million and $50.1 million, respectively, of which $36.3 million and $48.6 million, respectively, related to the SNA. For the nine months ended September 30, 2014 and 2013, we realized wholesale revenues of $115.3 million and $132.1 million, respectively of which $112.4 million and $128.4 million, respectively related to the SNA. SNA revenue for the three and nine months ended September 30, 2013 included $9.0 million in settlements reached with Sprint over billing disputes related to the SNA. Our Operations We are continuing to make network improvements, particularly within our existing service coverage areas, which includes upgrading our network to fourth generation mobile communications standards / Long Term Evolution wireless technology ("4G LTE"). We launched 4G LTE in several markets in the fourth quarter of 2013 and have continued the deployment during 2014. At September 30, 2014, we had approximately 3.2 million LTE Covered POPs. By the end of 2014, we expect LTE Covered POPs will grow to approximately 3.3 million, or 55% of our total covered POPs. We currently offer 33 devices across 11 brands, including Apple iPhone, Motorola, LG, Samsung and HTC products, and offer our customers smartphone operating systems such as Android and iOS. All devices are available for both postpay and prepay/no contract services. We also continue to be committed to improving our distribution strategy with respect to both postpay and prepay service offerings. On August 15, 2014 we launched EIP which offers customers the option to pay for their devices over 24 months and features service plan discounts and no service contracts. RESULTS OF OPERATIONS - OVERVIEW Three-Month Results Operating revenues decreased $11.3 million, or 8.6%, to $119.6 million for the three months ended September 30, 2014 compared to $130.9 million for the three months ended September 30, 2013 consisting of a $1.6 million increase in retail revenues and a $12.8 million decrease in wholesale and other revenues. For the three months ended September 30, 2013, wholesale revenue included $9.0 million in settlements reached with Sprint over billing disputes related to the SNA. Operating income decreased $17.1 million, or 62.4%, to $10.3 million for the three months ended September 30, 2014 compared to $27.4 million for the three months ended September 30, 2013 primarily reflecting the decrease in operating revenue and an increase in operating expenses related primarily to increased equipment costs and an increase in network costs in 2014. Income before income taxes decreased $17.6 million, or 90.1%, to $1.9 million for the three months ended September 30, 2014 compared to $19.5 million for the three months ended September 30, 2013 for the reasons discussed above and an increase in interest expense. Nine-Month Results Operating revenues decreased $10.6 million, or 2.9%, to $359.5 million for the nine months ended September 30, 2014 compared to $370.1 million for the nine months ended September 30, 2013 consisting of a $6.4 million increase in retail revenue offset by a $17.0 million decrease in wholesale and other revenues. For the nine months ended September 30, 2013, wholesale revenue included $9.0 million in settlements reached with Sprint over billing disputes related to the SNA. Operating income decreased $36.4 million, or 53.1%, to $32.1 million for the nine months ended September 30, 2014 compared to $68.5 million for the nine months ended September 30, 2013 reflecting the decrease in operating revenue, the increase in operating expenses related to the increase in equipment costs and network expenses in 2014 and the gain on sale of intangible assets in 18-------------------------------------------------------------------------------- Table of Contents 2013. Income before income taxes decreased $39.3 million, or 86.3%, to $6.3 million for the nine months ended September 30, 2014 compared to $45.6 million for the nine months ended September 30, 2013 for the reasons discussed above including an increase in interest expense. For further detail regarding our operating results, see the Other Overview Discussion and discussions of Results of Operations - Comparison of Three and Nine months ended September 30, 2014 and 2013 below. Other Overview Discussion To supplement our financial statements presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"), we reference the non-GAAP measure Average Revenue per Account ("ARPA") to measure our postpay wireless performance. We use this measure, along with other performance metrics such as subscribers and churn, to gauge operating performance for which our operating managers are responsible and upon which we evaluate their performance. Our postpay service plan, nControl, introduced in late 2013, is customizable for families and individuals with multiple devices and facilitates the sharing of data, minutes and SMS allowances among these devices. As our customers continue to adopt these plans and add smartphone devices, we focus on ARPA as a leading metric for postpay service revenue. We closely monitor the effects of new rate plans and service offerings on ARPA in order to determine their effectiveness. We believe ARPA provides management useful information concerning the appeal of our rate plans and service offerings and our performance in attracting and retaining high-value customers. ARPA as calculated below may not be similar to ARPA measures of other wireless companies, is not a measurement under GAAP and should be considered in addition to, but not as a substitute for, the information contained in our unaudited condensed consolidated statements of operations. The table below provides a reconciliation of operating revenues to postpay subscriber revenues used to calculate ARPA for the three and nine months ended September 30, 2014 and 2013. Three Months Ended September 30, Nine Months Ended September 30, (Dollars in thousands, except ARPA) 2014 2013 2014 2013 Operating revenues $ 119,638 $ 130,912 $ 359,515 $ 370,116 Less: prepay service revenues (15,521 ) (16,478 ) (48,687 ) (48,344 ) Less: equipment revenues (9,802 ) (6,540 ) (23,853 ) (18,673 ) Less: wholesale and other adjustments (37,231 ) (50,142 ) (115,149 ) (132,229 ) Postpay service revenues $ 57,084 $ 57,752 $ 171,826 $ 170,870 Account Statistics: Postpay ARPA $ 134.18 $ 136.91 $ 136.27 $ 133.64 Postpay accounts (1) 142,100 140,200 142,100 140,200Postpay subscribers per account (1) 2.2 2.1 2.2 2.1 (1) End of period ARPA decreased for the three months ended September 30, 2014 as compared to the same period in 2013 as a result of pricing declines driven by the competitive environment and service plan discounts offered with EIP. ARPA increased for the nine months ended September 30, 2014 as compared to the same period in 2013, as a result of the increase in subscribers per account and the increase in smartphone adoption and usage, both driven by our nControl plans and our device line up, offset by competitive pricing pressure and EIP service discounts. We expect ARPA to continue to be under pressure as our competition stays focused on price incentives and due to increased acceptance of EIP with its associated service plan discounts. Operating Revenues Our revenues are generated from the following sources: • Retail - subscriber revenues from network access, data services, feature services and equipment sales; and • Wholesale and other - primarily wholesale revenue from the SNA and roaming revenue from other telecommunications carriers. Other revenues relate to rent from leasing excess tower and building space. 19-------------------------------------------------------------------------------- Table of Contents Operating Expenses Our operating expenses are categorized as follows: • Cost of sales and services - includes handset equipment costs to new and existing customers, usage-based access charges, including long distance, roaming charges, and other direct costs incurred in accessing other telecommunications providers' networks in order to provide telecommunication services to our end-user customers; leased facility expenses for connection to other carriers, leased spectrum, cell sites and switch locations; and engineering and repairs and maintenance expenses related to property, plant and equipment; • Customer operations - includes marketing, product management, product advertising, selling, billing, customer care, customer retention and bad debt expenses; • Corporate operations - includes taxes other than income; executive, accounting, legal, purchasing, information technology, human resources and other general and administrative expenses, including bonuses and equity-based compensation expense related to stock and option instruments held by certain members of corporate management; accretion of asset retirement obligations; and • Depreciation and amortization - includes depreciable long-lived property, plant and equipment and amortization of intangible assets where applicable. • Gain on sale of intangible assets - includes the gain from the sale of certain intangible assets. Other Expense Other expense includes interest expense on debt instruments, corporate financing costs and debt discounts associated with the repricing and refinancing of our debt instruments and, as appropriate, related charges or amortization of such costs and discounts, changes in the fair value of our interest rate cap and other items such as interest income and fees. Income Taxes Income tax expense and effective tax rate increase or decrease based upon changes in a number of factors, including our pre-tax income or loss, non-controlling interest, state minimum tax assessments, and non-deductible expenses. Noncontrolling Interests in Earnings of Subsidiaries We own 97% of Virginia PCS Alliance, L.C. (the "VA Alliance"), which provides PCS services to an estimated two million populated area in central and western Virginia. In accordance with the noncontrolling interest requirements in FASB ASC 810-10-45-21, we attribute approximately 3% of VA Alliance net income to these noncontrolling interests. No capital contributions from the minority owners were made during the three and nine months ended September 30, 2014 and 2013. The VA Alliance made $0.2 million and $0.5 million of capital distributions to the minority owners during the three months ended September 30, 2014 and 2013, respectively, and, $0.7 million and $1.2 million of capital distributions to the minority owners during the nine months ended September 30, 2014. RESULTS OF OPERATIONS - COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013 OPERATING REVENUES The following table identifies our operating revenues for the three months ended September 30, 2014 and 2013: Three Months Ended September 30, (In thousands) 2014 2013 $ Variance % Variance Retail revenue $ 81,835 $ 80,274 $ 1,561 1.9 % Wholesale and other revenue 37,803 50,638 (12,835 ) (25.3 )% Total operating revenues $ 119,638 $ 130,912 $ (11,274 ) (8.6 )% Retail Revenue Retail revenue improved due to an increase in equipment revenues of $3.3 million, or 49.9%, offset by a decrease in service revenue of $1.7 million, or 2.3%. Postpay service revenue decreased as a result of higher adoption rates on favorable promotional pricing on single line plans as a result of competitive pricing pressures. Prepay service revenues decreased for the three months ended September 30, 2014, as compared to the same period in 2013, as a result of a decline in subscribers and revenue per unit driven by the increased competitive landscape. Equipment revenues increased for the three months ended September 30, 2014 reflecting an increase in retail pricing driven by continued smartphone adoption and the launch of EIP. 20-------------------------------------------------------------------------------- Table of Contents Wholesale and Other Revenue Wholesale and roaming revenues decreased $12.8 million, or 25.3%, for the three months ended September 30, 2014 compared to the three months ended September 30, 2013, primarily reflecting a $12.3 million decrease in revenue from the SNA. Excluding the $9.0 million dispute settlement in the three months ended September 30, 2013, revenue under the SNA decreased $3.3 million, or 8.4%, for the three months ended September 30, 2014 compared to the three months ended September 30, 2013. This decrease is primarily the result of the amended terms of the SNA that took affect in May 2014. We expect this year over year trend to continue. Roaming revenues from carriers other than Sprint declined $0.5 million for the three months ended September 30, 2014 compared to the three months ended September 30, 2013. OPERATING EXPENSES The following table identifies our operating expenses for the three months ended September 30, 2014 and 2013: Three Months Ended September 30, (In thousands) 2014 2013 $ Variance % Variance Cost of sales and services $ 56,881 $ 49,580 $ 7,301 14.7 % Customer operations 25,381 26,502 (1,121 ) (4.2 )% Corporate operations 8,580 10,850 (2,270 ) (20.9 )% Depreciation and amortization 18,473 16,559 1,914 11.6 % Total operating expenses $ 109,315 $ 103,491 $ 5,824 5.6 % Cost of Sales and Services - Cost of sales and services increased $7.3 million, or 14.7%, for the three months ended September 30, 2014 compared to the three months ended September 30, 2013 due to increases in cell site expenses, data roaming and equipment cost of sales, totaling $5.3 million, or 12.3%, as a result of on-going costs to support subscriber and usage growth, and $1.2 million in spectrum lease expenses related to the SNA agreement. Customer Operations - Customer operations expense decreased $1.1 million, or 4.2%, for the three months ended September 30, 2014 compared to the three months ended September 30, 2013 driven by a reduction in bad debt expense of $0.5 million, or 11.8%, as a result of improved accounts receivable aging and lower write offs of terminated accounts, and a reduction in other general selling expenses of $0.6 million, or 2.9%. Corporate Operations - Corporate operations expense decreased $2.3 million, or 20.9%, for the three months ended September 30, 2014 compared to the three months ended September 30, 2013 primarily driven by lower salary and equity compensation charges related to recent executive separations. Depreciation and Amortization - Depreciation and amortization expenses increased $1.9 million, or 11.6%, for the three months ended September 30, 2014 compared to the three months ended September 30, 2013 due to an increase in depreciable assets placed in service. OTHER EXPENSE Interest expense increased $0.9 million, or 11.9%, for the three months ended September 30, 2014 compared to the three months ended September 30, 2013 due to the increased loan amount and a higher blended average effective interest rate associated with the January 2014 debt refinancing. Other expenses decreased $0.4 million primarily as a result of no gain or loss recorded on the interest rate cap for the three months ended September 30, 2014 as compared to a $0.4 million loss for the three months ended September 30, 2013. INCOME TAXES Income tax expense for the three months ended September 30, 2014 and 2013 was $0.8 million and $8.3 million, respectively, representing the statutory tax rate applied to pre-tax income and the effects of certain non-deductible compensation, non-controlling interest, and state minimum taxes. We have provided for income taxes using a year to date calculation as we are unable to reliably estimate the annual effective income tax rate. 21-------------------------------------------------------------------------------- Table of Contents RESULTS OF OPERATIONS - COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013 OPERATING REVENUES The following table identifies our operating revenues for the nine months ended September 30, 2014 and 2013: Nine Months Ended September 30, (In thousands) 2014 2013 $ Variance % Variance Retail revenue $ 242,697 $ 236,294 $ 6,403 2.7 % Wholesale and other revenue 116,818 133,822 (17,004 ) (12.7 )% Total operating revenues $ 359,515 $ 370,116 $ (10,601 ) (2.9 )% Retail Revenue Retail revenue improved primarily due to an increase in equipment revenues of $5.2 million, or 27.7% and subscriber service revenues of $1.2 million, or 0.6%. The increase in subscriber service revenues reflects an increase in the average subscriber base and an increase in ARPA. ARPA increased for the nine months ended September 30, 2014, as compared to the same period in 2013, as a result of the increase in subscribers per account and the increase in smartphone adoption and usage, both driven by our nControl plans and our device line up, offset by competitive pricing pressure and EIP service discounts. Prepay service revenues increased for the nine months ended September 30, 2014, as compared to the same period in 2013, as a result of an increase in our prepay subscriber base. Equipment revenues increased for the nine months ended September 30, 2014 and reflected an increase in retail pricing driven by continued smartphone adoption and the launch of EIP. Wholesale and Other Revenue Wholesale and roaming revenues decreased $17.0 million, or 12.7%, for the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013, primarily reflecting a $16.0 million decrease in revenue from the SNA. Excluding the $9.0 million dispute settlement in the nine months ended September 30, 2013, revenue under the SNA decreased $7.0 million, or 5.9%, for the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013. This decrease is primarily the result of the amended terms of the SNA that took place in May 2014. We expect this year over year trend to continue. Roaming revenues from carriers other than Sprint declined $0.8 million for the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013. OPERATING EXPENSES The following table identifies our operating expenses for the nine months ended September 30, 2014 and 2013: Nine Months Ended September 30, (In thousands) 2014 2013 $ Variance % Variance Cost of sales and services $ 159,963 $ 141,020 $ 18,943 13.4 % Customer operations 78,383 78,321 62 0.1 % Corporate operations 31,610 31,294 316 1.0 % Depreciation and amortization 57,469 55,458 2,011 3.6 % Gain on sale of intangible assets - (4,442 ) 4,442 - % Total operating expenses $ 327,425 $ 301,651 $ 25,774 8.5 % Cost of Sales and Services - Cost of sales and services increased $18.9 million, or 13.4%, for the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013, due to increases in cell site expenses, data roaming expense and equipment cost of sales, totaling $15.8 million, or 13.0%, as a result of on-going costs to support subscriber and usage growth, and $2.1 million in spectrum lease expenses related to the new SNA agreement. Customer Operations - Customer operations expense increased $0.1 million, or 0.1%, for the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013 due to an increase in other general selling expenses. Corporate Operations - Corporate operations expense decreased $0.3 million, or 1.0%, for the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013 driven by lower salary and equity compensation charges related to recent executive separations, offset by additional legal and advisory fees related to the debt refinancing and SNA contract amendment. 22-------------------------------------------------------------------------------- Table of Contents Depreciation and Amortization - Depreciation and amortization expenses increased $2.0 million, or 3.6%, for the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013 due to an increase in depreciable assets placed in service. Gain on Sale of Intangible Assets - Gain on sale of intangible assets consists of a $4.4 million gain for the nine months ended September 30, 2013 due to the sale of certain intangible assets. OTHER EXPENSE Interest expense increased $2.4 million, or 10.8%, for the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013 is due to the increased loan amount and a higher blended average effective interest rate associated with the January 2014 debt refinancing. Other expenses increased $0.5 million for the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013 primarily as a result of a $0.9 million charge related to the write off of a proportionate amount of the unamortized deferred debt issuance costs associated with the refinancing in January 2014. INCOME TAXES Income tax expense for the nine months ended September 30, 2014 and 2013 was $2.5 million and $18.5 million, respectively, representing the statutory tax rate applied to pre-tax income and the effects of certain non-deductible compensation, non-controlling interest, and state minimum taxes. We have provided for income taxes using a year to date calculation as we are unable to reliably estimate the annual effective income tax rate. LIQUIDITY AND CAPITAL RESOURCES Overview We historically have funded our working capital requirements, capital expenditures and other payments from cash on hand and net cash provided from operating activities. As of September 30, 2014, we had $105.8 million of cash, compared to $88.4 million as of December 31, 2013, of which $52.5 million was held in market rate savings accounts (including $9.6 million held by the Company which is not restricted for certain payments by the Amended and Restated Credit Agreement). The remaining balance of $53.3 million was held in non-interest bearing accounts. The commercial bank that held substantially all of our cash at September 30, 2014 has a rating A1 on long term deposits by Moody's. Our working capital (current assets minus current liabilities) was $111.4 million as of September 30, 2014 compared to $104.2 million as of December 31, 2013. As of September 30, 2014, we had $631.0 million in aggregate long-term liabilities, compared to $592.9 million as of December 31, 2013, consisting of $520.8 million in long-term debt, including capital lease obligations, and approximately $110.2 million in other long-term liabilities consisting primarily of retirement benefits, deferred income taxes and asset retirement obligations. Further information regarding long-term debt obligations at September 30, 2014 is provided in Note 6 of the Notes to Unaudited Condensed Consolidated Financial Statements. We have a Restricted Payments basket under the terms of the Amended and Restated Credit Agreement, which can be used to make Restricted Payments, including dividends and stock repurchases. The Restricted Payments basket increases by $6.5 million per quarter plus an additional quarterly amount for Excess Cash Flow, if any (as defined in the Amended and Restated Credit Agreement) and decreases by any actual Restricted Payments and by certain investments and debt prepayments made after the date of the Amended and Restated Credit Agreement. For the quarter ended September 30, 2014 there was no excess cash flow. The balance of the Restricted Payments basket as of September 30, 2014 was $53.6 million. The Amended and Restated Credit Agreement also permits incremental commitments of up to $125.0 million (the "Incremental Commitments") of which up to $35.0 million can be in the form of a revolving credit facility. The ability to incur the Incremental Commitments is subject to various restrictions and conditions, including having a Leverage Ratio (as defined in the Amended and Restated Credit Agreement) not in excess of 4.50:1.00 at the time of incurrence (calculated on a pro forma basis). As of September 30, 2014, there were no commitments associated with the Incremental Commitments. We are a holding company that does not operate any business of our own. As a result, we are dependent on cash dividends and distributions and other transfers from our subsidiaries in order to make dividend payments or to make other distributions to our stockholders, including by means of a stock repurchase. Amounts that can be made available to us to pay cash dividends or repurchase stock are restricted by the Amended and Restated Credit Agreement. 23-------------------------------------------------------------------------------- Table of Contents Cash Flows from Operations The following table summarizes our cash flows from operations for the nine months ended September 30, 2014 and 2013, respectively: Nine Months Ended September 30, (In thousands) 2014 2013 Net cash provided by operating activities $ 79,135 $ 120,149 Net cash used in investing activities (65,374 ) (62,896 ) Net cash provided by/(used in) financing activities 3,586 (22,553 ) Operating Activities Our cash flows from operating activities for the nine months ended September 30, 2014 of $79.1 million decreased $41.0 million, or 34.1%, compared to the cash flows from operating activities of $120.1 million for the nine months ended September 30, 2013. The decrease is due to a decrease in operating income and cash provided by changes in working capital. Cash provided by changes in working capital decreased of $4.3 million, or 24.2%, for the nine months ended September 30, 2014, due to the effect of the reversal of the accrual as a result of the settlement with Sprint and timing of payments received under the SNA during the nine months ended September 30, 2013, offset by an increase in accounts payable due to timing of payments on invoices related to our 4G LTE expansion and a decrease in inventory due to lower purchases of devices. Investing Activities As we continue to upgrade our network, we invested $67.7 million in capital expenditures for the nine months ended September 30, 2014. This was in line with the $65.2 million of capital expenditures for the same period last year. Included in the capital spending for the nine months ended September 30, 2014 was $56.5 million of expenditures for additional capacity to support our projected growth, and $10.9 million to maintain our existing networks and other business needs. We currently expect capital expenditures for full year 2014 to be approximately $105.0 million. Financing Activities Net cash provided by financing activities for the nine months ended September 30, 2014 was $3.6 million compared to net cash used in financing activities of $22.6 million for the nine months ended September 30, 2013. Included in the financing activity for the nine months ended September 30, 2014 was $39.5 million net proceeds from the January 2014 debt refinancing, offset by $27.2 million in cash dividends, $3.5 million in debt issuance costs and $4.0 million of principal payments on the long term debt. On May 22, 2014, the board of directors, in order to support our LTE network expansion and wholesale and retail growth initiatives, eliminated the quarterly dividend. Any decision to declare future dividends will be made at the discretion of the board of directors and will depend on, among other things, our results of operations, cash requirements, investment opportunities, financial condition, contractual restrictions and other factors that the board of directors may deem relevant. We believe that our current cash balances of $105.8 million, our cash flows from operations and other capital resources will be sufficient to satisfy our working capital requirements, capital expenditures, interest costs, required debt principal payments prior to maturity, and stock repurchases, if any, through our stock repurchase plan, for the foreseeable future. OFF BALANCE SHEET ARRANGEMENTS We do not have any off balance sheet arrangements or financing activities with special purpose entities. |