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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 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 16 -------------------------------------------------------------------------------- Table of Contents 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 wireline telecommunications services in North America, Bermuda and the Caribbean. We are actively evaluating potential domestic and international acquisition, investment or other strategic opportunities, both within and outside of the telecommunications industry, that meet our return-on-investment and other criteria. For a discussion of our investment strategy and risks involved, see "-Potential Acquisitions, Investments and Other Strategic Opportunities" below and Part II, Item 1A, "Risk Factors-We are actively evaluating investment, acquisition or other strategic opportunities, which may affect our long-term growth prospects.". 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 September 30, 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 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"). As a result of that approval, we completed the sale of certain U.S. retail wireless assets on that date. 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. Potential Acquisitions, Investments and Other Strategic Opportunities Our considerable cash position resulting, in large part, from the successful sale of our Alltel retail wireless business in September 2013 provides us with substantial financial resources to pursue domestic and international acquisition, investment and other strategic opportunities, both within and outside of the telecommunications industry. We have invested significantly in upgrades to our wholesale wireless network to further our organic growth and continue to evaluate making additional such investments. We also actively evaluate acquisition and investment opportunities within the telecommunications and related industries, as well as outside of these industries on a highly selective basis. Also as part of our active management of our operating companies and investments, we may from time to time consider opportunities to divest portions of our business where we believe it to be to our strategic advantage to do so. How and when we deploy our balance sheet capacity and any divestiture activity may engage in will figure prominently in our longer-term growth prospects and stockholder returns. 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 September 30, 2014, we have spent (i) $35.8 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) $47.8 million in capital expenditures (of which $33.0 million 17 -------------------------------------------------------------------------------- Table of Contents 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 the Company anticipates that it will incur an additional nominal amount of capital expenditures of which none 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 the Mobility Fund and the Tribal Mobility Fund, each 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 and in June 2014, we received approximately $2.4 million of Tribal Mobility Fund support to our wholesale wireless business (collectively 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. A portion of these funds will be used to offset network capital costs and a portion is used to offset the costs of supporting the networks for a period of five years. In connection with our application for the Mobility Funds, we have posted approximately $10.5 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 loses 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 September 30, 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 third quarter of 2013 and their results are included in the Company's "U.S. Wireless" segment. As of September 30, 2014, we have received approximately $7.4 million in Mobility Funds. Of these funds, $1.3 million was recorded as an offset to the cost of the property, plant, and equipment associated with these projects and, consequentially, a reduction of future depreciation expense and $6.1million was recorded as a liability to reduce future operating expenses. The balance sheet presentation is based on the timing of the expected recognition of the funds and accordingly, $2.3 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 September 30, 2013 and 2014 Three Months Ended Amount of Percent September 30, Increase Increase 2013 2014 (Decrease) (Decrease) (In thousands) REVENUE: U.S. Wireless $ 32,796 $ 44,306 $ 11,510 35.1 % International Wireless 22,895 21,557 (1,338 ) (5.8 ) Wireline 21,504 21,531 27 0.1 Equipment and Other 2,155 1,999 (156 ) (7.2 ) Total revenue 79,350 89,393 10,043 12.7 OPERATING EXPENSES(excluding depreciation and amortization unless otherwise indicated): Termination and access fees 14,112 16,018 1,906 13.5 Engineering and operations 9,509 9,788 279 2.9 Sales, marketing and customer services 4,370 5,489 1,119 25.6 Equipment expense 2,549 2,912 363 14.2 General and administrative 13,827 14,213 386 2.8 Transaction-related charges 2,610 (27 ) (2,637 ) (101.0 ) Depreciation and amortization 12,335 12,842 507 4.1 Total operating expenses 59,312 61,235 1,923 3.2 Income from operations 20,038 28,158 8,120 40.5 OTHER INCOME (EXPENSE): Interest income (expense), net (7,141 ) (13 ) 7,128 (99.8 ) Unrealized loss on interest rate derivative contracts (5,675 ) - 5,675 (100.0 ) Other income (expense), net (226 ) 338 564 (249.6 ) Other income (expense), net (13,042 ) 325 13,367 (102.5 ) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 6,996 28,483 21,487 307.1 Income tax expense 2,481 9,569 7,088 285.7 INCOME FROM CONTINUING OPERATIONS 4,515 18,914 14,399 318.9 INCOME FROM DISCONTINUED OPERATIONS Income (loss) from discontinued operations, net of tax (1,960 ) - 1,960 100.0 Gain on sale of discontinued operations, net of tax 305,197 - (305,197 ) (100.0 ) Income from discontinued operations 303,237 - (303,237 ) (100.0 ) NET INCOME 307,752 18,914 (288,838 ) (93.9 ) Net income attributable to non-controlling interests, net of tax: Continuing operations (2,945 ) (2,747 ) 198 (6.7 ) Discontinued operations 116 - (116 ) (100.0 ) Disposal of discontinued operations (28,699 ) - 28,699 (100.0 ) (31,528 ) (2,747 ) 28,781 (91.3 ) NET INCOME ATTRIBUTABLE TO ATLANTIC TELE-NETWORK, INC. STOCKHOLDERS $ 276,224 $ 16,167 $ (260,057 ) (94.1 )% U.S. Wireless revenue. A substantial majority of U.S. wireless revenue consists of wholesale revenue. For the three months ended September 30, 2013 and 2014 wholesale revenue represented 97% and 95%, respectively, of total U.S. wireless revenue. The remaining U.S. wireless revenue is composed of retail revenue generated by our operations in certain smaller rural markets covered by, or adjacent to, our wholesale network in the western United States. Wholesale revenue is generated by 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 Company ended the third quarter with 716 wholesale-only base stations in service compared to 579 at the end of last year's third quarter. Data revenues accounted for 68% of U.S. wireless revenue for the three months ended September 30, 2014, compared to 56% in the three months ended September 30, 2013. The capital investment needed to upgrade networks and expand our coverage areas to meet increasing market demands for mobile data services has typically been a substantial portion of our total capital investments. In order to balance our customers' need for our networks to be a cost effective solution for them, from time to time we may amend our roaming contracts to re-align traffic volumes, pricing and the contract length. 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. Occasionally we have entered into buildout projects with existing carrier customers to help the customer accelerate the buildout of a given area. Pursuant to these arrangements, we agree to incur the cost of building and operating a network in a newly designated area meeting specified conditions. In exchange, the carrier agrees to license us spectrum in that area and enter into a contract with specific pricing and term. These arrangements typically include a right, or "call option", in favor of the carrier to purchase that portion of the network and receive back the spectrum for a predetermined price, depending on when such call option is exercised. For example, as previously disclosed, in December 2012, we sold a portion of our network to a carrier customer pursuant to a call option contained in our roaming and buildout agreement with that carrier. This portion of network accounted for approximately $15.1 million in wholesale revenue during the year ended December 31, 2011 and $12.1 million during the nine months ended September 30, 2012. We currently have one buildout arrangement of approximately 100 newly built cell sites, which arrangement provides the carrier with a call option to purchase such sites exercisable beginning no earlier than 2017. At this time, we cannot predict the level of roaming traffic that will develop on this newly built network or whether the call option will be exercised. 19 -------------------------------------------------------------------------------- Table of Contents Our U.S. wireless revenue increased to $44.3 million for the three months ended September 30, 2014 from $32.8 million for the three months ended September 30, 2013, an increase of $11.5 million or 35.1%. The revenue growth was a result of increased data traffic volumes resulting from capacity and technology upgrades to our network, an increase in the demand for data services and an increase in the coverage areas and number of base stations used in our wholesale network operations from 579 as of September 30, 2013 to 716 as of September 30, 2014. We expect to see continued growth in domestic data traffic for the remainder of 2014 and into 2015, offset by an expected significant decline in contracted wholesale data prices. As a result, we expect to see more modest year-on-year growth in U.S. Wireless revenue for the remainder of 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 and Guyana. For the nine months ended September 30, 2014, International wireless revenues accounted for approximately $24% of our consolidated revenues. International wireless revenue decreased by $1.3 million, or 5.7%, to $21.6 million for the three months ended September 30, 2014 from $22.9 million for the three months ended September 30, 2013. This decrease was due to a decrease in retail revenue of $0.9 million and by a decrease in wholesale roaming revenue of $0.4 million. The decrease in retail revenue was primarily the result of a decrease in subscribers in Guyana. As a result of strong competition, our total International Wireless subscribers, which include subscribers in our Island Wireless segment as well as Guyana, decreased from 327,000 subscribers as of September 30, 2013 to 320,000 subscribers as of September 30, 2014 of which 88% were prepaid subscribers. The decrease in wholesale roaming revenues was the result of rate reductions in certain of our Island Wireless properties which we expect will continue to decline. While we have historically 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 roaming revenues in these markets are subject to seasonality and can fluctuate between quarters. Recent regulatory developments may affect the cost and timing of deploying network upgrades in Bermuda. In October 2014, the Bermuda Regulatory Authority issued a draft decision that, if implemented, would potentially recapture and re-assign a portion of our existing Bermuda spectrum reserved for the launch of next generation services in accordance with our plans and demands of our customers. The loss of such spectrum could damage our competitive position and limit our ability to grow. Although we believe that we would be entitled to compensation for any involuntary recapture and re-assignment of our spectrum rights in Bermuda, we cannot be sure that we would prevail in a proceeding to enforce our rights or that such actions would effectively halt any unilateral action by the Regulatory Authority. Although we believe that the Regulatory Authority will make a decision on the matter in the near future, we cannot predict when or if the Regulatory Authority's proposed action will be adopted, or, if adopted, the impact that its implementation will have on our International wireless revenues. 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 and long- distance or toll charges. Wireline revenue remained relatively consistent at $21.5 million during the three months ended September 30, 2013 and 2014. Revenues from our domestic wireline businesses increased by $0.4 million as a result of higher wholesale long distance voice service revenue and increased wholesale transport operations as a result of our fiber network expansion in New York State. This increase, however, was partially offset by a $0.4 million decline in wireline revenues in Guyana where increases in high speed data services were more than offset by decreases in local landline telephone 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" in the Company's 2013 Annual Report on Form 10-K. 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 $0.2 million, or 9.0% to $2.0 million for the three months ended September 30, 2014, from $2.2 million for the three months ended September 30, 2013. Equipment revenue decreased primarily as the result of a $0.4 million decrease in revenue in our International Integrated Telephony and Island Wireless segments as a result of a decrease in equipment sales offset by a $0.2 million increase in our U.S Wireless segment's retail operations as a result of an increase in subscriber additions. We believe that equipment and other revenue could increase as a result of gross subscriber additions, more aggressive subsidies driving demand for devices and the continued growth in smartphone penetration. 20 -------------------------------------------------------------------------------- Table of Contents 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 $1.9 million, or 13.5%, from $14.1 million for the three months ended September 30, 2013 to $16.0 million for the three months ended September 30, 2014. This increase in our termination and access fees was incurred across all of our segments as a result of increased data traffic volumes but primarily within our U.S. Wireless segment which reported an increase of $1.2 million in these costs due to the expansion and upgrades to our networks. 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 increased by $0.3 million, or 3.2%, from $9.5 million to $9.8 million for the three months ended September 30, 2013 and 2014, respectively. The increase in engineering and operations expenses was primarily the result of increased maintenance costs on our network and billing systems in our International Integrated Telephony segment. We expect that engineering and operations expenses will increase over time due to an expected increase in our network capacity and in the geographic expansion of our networks, both of which will require additional support. Sales, marketing and customer service expenses. Sales and marketing expenses include salaries and benefits we pay to sales personnel, customer service expenses, sales commissions and the costs associated with the development and implementation of our promotion and marketing campaigns. Sales and marketing expenses increased by $1.1 million, or 25.0%, from $4.4 million for the three months ended September 30, 2013 to $5.5 million for the three months ended September 30, 2014 primarily as the result of an increase of $0.9 million in our U.S.Wireless segment's retail operations to support new coverage areas and its increasing revenues. 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 increased by $0.4 million, or 16.0%, from $2.5 million for the three months ended September 30, 2013 to $2.9 million for the three months ended September 30, 2014 primarily as a result of increased equipment sales in our U.S. Wireless segment's retail operations. 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. If applicable, general and administrative expenses also include internal costs associated with our performance of due-diligence on possible acquisitions. General and administrative expenses increased by $0.4 million, or 2.9% from $13.8 million for the three months ended September 30, 2013 to $14.2 million for the three months ended September 30, 2014 primarily as the result of a $0.2 million increase of corporate and shared services costs to support our increased revenues, and $0.4 million in our International Integrated Telephony segment to support the implementation of a new billing system. These increases were partially offset by a $0.2 million decrease in our other operating segments, predominately our Island Wireless segment, as a result of overhead cost reduction measures. 21 -------------------------------------------------------------------------------- Table of Contents 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 did not incur any transaction-related charges during the three months ended September 30, 2014 and there were $2.7 million of transaction-related charges, incurred in connection with our sale of our Alltel business, for the three months ended September 30, 2013. We expect that transaction-related charges will continue to be incurred from time to time as we continue to explore additional acquisition or disposition opportunities and the extent of such charges will vary from period to period. 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 $0.5 million from $12.3 million for the three months ended September 30, 2013 to $12.8 million for the three months ended September 30, 2014. The increase was primarily the result of a $0.4 million increase in depreciation expense in our U.S. Wireline network assets relating to our fiber network expansion in New York being placed into service during 2014. In addition, our corporate overhead depreciation expense increased by $0.6 million due to retention of certain assets previously held by the Company's Alltel business which were not sold to AT&T Mobility LLC in September 2013. These increases were offset by a $0.5 million reduction in depreciation expense in the Company's other operating segments as certain assets became fully depreciated in 2014. We expect depreciation expense to increase as a result of ongoing network investments in our businesses. Interest expense, net. Interest expense, net represents interest expense and fees incurred on our outstanding credit facilities and interest rate derivatives, net of interest income earned on our cash balances. Interest expense, net decreased $7.1 million from $7.1 million of expense for the three months ended September 30, 2013 to a nominal amount for the three months ended September 30, 2014. The decrease was primarily the result of the repayment of our outstanding long-term debt in September 2013 and the termination of our interest rate derivative contracts in October 2013. During the three months ended September 30, 2014, we had no borrowings outstanding under our credit facilities. Unrealized loss on interest rate derivative contracts. As a result of the repayment of our variable-rate debt on September 20, 2013, our interest rate derivatives were determined to be ineffective. As a result, we recognized an unrealized loss on our interest rate derivative contracts of $5.7 million during the nine months ended September 30, 2013. On October 2, 2013, we terminated our interest rate derivatives and paid $5.4 million, the net fair value of those derivatives, to our counterparties. 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 September 30, 2013 and 2014. Income taxes. Our effective tax rates for the three months ended September 30, 2013 and 2014 were 35.5% and 33.6%, 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 $303.2 million for the three months ended September 30, 2013. Income from discontinued operations, net of tax for the three months ended September 30, 2013 included a $2.0 million loss on the operations of our Alltel business and a $305.2 million gain on the sale of our Alltel business. We did not recognize any income from discontinued operations during the three months ended September 30, 2014. Net income attributable to non-controlling interests. Net income attributable to non-controlling interests reflected an allocation of $31.5 million and $2.7 million of income generated by our less than wholly-owned subsidiaries for the three months ended September 30, 2013 and 2014, respectively. Included within these amounts was $28.6 million related to our discontinued operations for the three months ended September 30, 2013. Net income attributable to Atlantic Tele-Network, Inc. stockholders. Net income attributable to Atlantic Tele-Network, Inc. stockholders decreased to $16.2 million for the three months ended September 30, 2014 from $276.2 million for the three months ended September 30, 2013. On a per share basis, net income decreased to $1.00 per diluted share from $17.43 per diluted share for the three months ended September 30, 2014 and 2013, respectively. Included within net income per diluted share for the three months ended September 30, 2013 was $0.12 of net loss per diluted share from discontinued operations and $17.45 of net income per diluted share relating to the gain on the sale of our Alltel business. 22 -------------------------------------------------------------------------------- Table of Contents Nine Months Ended September 30, 2013 and 2014 Nine Months Ended Amount of Percent September 30, Increase Increase 2013 2014 (Decrease) (Decrease) (In thousands) REVENUE: U.S. Wireless $ 80,597 $ 110,153 $ 29,556 36.7 % International Wireless 66,162 67,127 965 1.5 Wireline 62,945 64,344 1,399 2.2 Equipment and Other 6,103 6,212 109 1.8 Total revenue 215,807 247,836 32,029 14.8 OPERATING EXPENSES(excluding depreciation and amortization unless otherwise indicated): Termination and access fees 40,768 48,110 7,342 18.0 Engineering and operations 28,349 28,939 590 2.1 Sales, marketing and customer services 13,646 15,440 1,794 13.1 Equipment expense 8,050 8,897 847 10.5 General and administrative 38,856 42,343 3,487 9.0 Transaction-related charges 2,674 341 (2,333 ) (87.2 ) Depreciation and amortization 36,517 37,752 1,235 3.4 Gain on disposition of long lived assets (1,076 ) - 1,076 (100.0 ) Total operating expenses 167,784 181,822 14,038 8.4 Income from operations 48,023 66,014 17,991 37.5 OTHER INCOME (EXPENSE): Interest income (expense), net (12,126 ) (220 ) 11,906 (98.2 ) Unrealized loss on interest rate derivative contracts (5,675 ) - 5,675 (100.0 ) Other income (expense), net (198 ) 302 500 (252.5 ) Other income (expense), net (17,999 ) 82 18,081 (100.5 ) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 30,024 66,096 36,072 120.1 Income tax expense 11,294 22,460 11,166 98.9 INCOME FROM CONTINUING OPERATIONS 18,730 43,636 24,906 133.0 INCOME FROM DISCONTINUED OPERATIONS Income (loss) from discontinued operations, net of tax 5,166 - (5,166 ) (100.0 ) Gain on sale of discontinued operations, net of tax 305,197 - (305,197 ) (100.0 ) Income from discontinued operations 310,363 - (310,363 ) (100.0 ) NET INCOME 329,093 43,636 (285,457 ) (86.7 ) Net income attributable to non-controlling interests, net of tax: Continuing operations (5,934 ) (8,116 ) (2,182 ) 36.8 Discontinued operations (601 ) - 601 (100.0 ) Disposal of discontinued operations (28,699 ) - 28,699 (100.0 ) (35,234 ) (8,116 ) 27,118 (77.0 ) NET INCOME ATTRIBUTABLE TO ATLANTIC TELE-NETWORK, INC. STOCKHOLDERS $ 293,859 $ 35,520 $ (258,339 ) (87.9 )% 23 -------------------------------------------------------------------------------- Table of Contents U.S. wireless revenue. US wireless revenue increased by $29.6 million, or 36.7 %, to $110.2 million for the nine months ended September 30, 2014, from $80.6 million for the nine months ended September 30, 2013. The revenue growth was a result of increased data traffic volumes resulting from capacity and technology upgrades to our network, an increase in the demand for data services and an increase in the coverage area and number of base stations used in our wholesale network operations from 579 as of September 30, 2013 to 716 as of September 30, 2014. International wireless revenue. International wireless revenue increased by $0.9 million, or 1.4 %, to $67.1 million for the nine months ended September 30, 2014, from $66.2 million for the nine months ended September 30, 2013. This increase was due to an increase in retail revenue of $1.1 million offset by a decrease in wholesale roaming revenue of $0.2 million. The increase in retail revenues was a result of subscriber growth in our Island Wireless segment (which does not include Guyana) resulting in a $1.2 million increase in revenue offset by a decrease in revenue in Guyana of $0.3 million. As a result of strong competition in Guyana, our total International Wireless subscribers, which include subscribers in our Island Wireless segment as well as Guyana, decreased from 327,000 subscribers as of September 30, 2013 to 320,000 subscribers as of September 30, 2014 of which 88% were prepaid subscribers. The decrease in wholesale roaming revenues was the result of rate reductions in our Island Wireless segment which we expect will continue to decline, partially offset by increased volume. Wireline revenue. Wireline revenue increased by $1.4 million, or 2.2 %, to $64.3 million for the nine months ended September 30, 2014, from $63.0 million during the nine months ended September 30, 2013. Revenues from our domestic wireline businesses increased by $3.5 million as a result of higher wholesale long distance voice service revenue and increased wholesale transport operations. This increase, however, was partially offset by a $2.1 million decline in wireline revenues in our International Integrated Telephony segment, where an increase in high-speed data service revenue was more than offset by decreases in local landline revenue and inbound international calls. Equipment and other revenue. Equipment and other revenue increased by $0.1 million, or 1.6 % to $6.2 million for the nine months ended September 30, 2014, from $6.1 million for the nine months ended September 30, 2013. Equipment revenue primarily increased as the result of an increase in subscribers in our Island Wireless segment and in our U.S. Wireless segment's retail operations where equipment revenues increased by $0.3 million and $0.4 million, respectively. These increases were partially offset by a $0.6 million decrease in our International Integrated Telephony segment due to lower wireless subscriber additions. Termination and access fee expenses. Termination and access fees increased by $7.3 million, or 17.9 %, from $40.8 million for the nine months ended September 30, 2013 to $48.1 million for the nine months ended September 30, 2014. This increase in our termination and access fees was incurred across substantially all of our segments. Our U.S. Wireless segment reported an increase of $3.9 million in these costs as the result of increased data traffic volumes and the expansion and upgrade of our networks. Increased traffic volumes in our U.S. Wireline segment resulted in a $2.9 million increase in termination and access fees. In addition, increased traffic volumes and roaming costs in our Island Wireless segment resulted in a $0.5 million increase in these costs. Engineering and operations expenses. Engineering and operations expenses increased by $0.6 million from $28.3 million to $28.9 million for the nine months ended September 30, 2013 and 2014, respectively. The increase in engineering and operations was predominantly caused by an increase across most of our segments as a result of the expansion and upgrades to our networks partially offset by a decrease of $0.4 million in our Island Wireless segment due to its continuing realization of operational synergies, particularly in Bermuda. Sales, marketing and customer service expenses. Sales and marketing expenses increased by $1.8 million, or 13.2 %, from $13.6 million for the nine months ended September 30, 2013 to $15.4 million for the nine months ended September 30, 2014. Sales and marketing expenses increased $1.6 million in our U.S.Wireless segment's retail operations to support its increased revenues and subscriber base and increased $0.5 million in our U.S. Wireline segment's wholesale transport services in New York State. These increases were partially offset by a $0.3 million reduction in sales and marketing expense in our International Integrated Telephony segment. Equipment expenses. Equipment expenses increased by $0.8 million from $8.1 million for the nine months ended September 30, 2013 to $8.9 million for the nine months ended September 30, 2014, primarily as a result of increased equipment sales in our U.S. Wireless segment's retail operations. General and administrative expenses. General and administrative expenses increased by $3.5 million, or 9.0 % from $38.9 million for the nine months ended September 30, 2013 to $42.3 million for the nine months ended September 30, 2014 primarily as the result of an increase in overhead costs in our i ) corporate and shared services functions of $1.1 million in order to support our increased revenues; ii) U.S. 24 -------------------------------------------------------------------------------- Table of Contents Wireline segment of $0.4 million in connection with bringing our expanded fiber network into service; iii) International Integrated Telephony segment of $1.5 million predominately to support the implementation of a new billing system and increased security costs iv) Island Wireless and U.S. Wireless segments in order to support their expanding network and customer bases. Transaction-related charges. We incurred $2.7 million of transaction-related charges relating to our sale of the Alltel business for the nine months ended September 30, 2013 and $0.3 million for the nine months ended September 30, 2014. Depreciation and amortization expenses. Depreciation and amortization expenses increased by $1.3 million from $36.5 million for the nine months ended September 30, 2013 to $37.8 million for the nine months ended September 30, 2014 respectively. The increase was primarily the result of a $1.1 million increase in depreciation expense in our U.S. Wireline network assets relating to our fiber network expansion in New York being placed into service during 2014. In addition, our corporate overhead depreciation expense increased by $1.7 million due to retention of certain assets previously held by the Company's Alltel business which were not sold to AT&T Mobility LLC in September 2013. These increases were offset by a $1.5 million reduction in depreciation expense in the Company's other operating segments as certain assets became fully depreciated in 2014. Gain on disposal of long lived assets. During the nine months ended September 30, 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 expense, net. Interest expense, net decreased $11.9 million from $12.1 million to $0.2 million for the nine months ended September 30, 2013 and 2014, respectively. The decrease was primarily the result of the repayment of our long-term debt in September 2013 and the termination of our interest rate derivative contracts in October 2013. Unrealized loss on interest rate derivative contracts. As a result of the repayment of our variable-rate debt on September 20, 2013, our interest rate derivatives were determined to be ineffective. As a result, we recognized an unrealized loss on our interest rate derivative contracts of $5.7 million during the nine months ended September 30, 2013. On October 2, 2013, we terminated our interest rate derivatives and paid $5.4 million, the net fair value of those derivatives, to our counterparties. 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 nine months ended September 30, 2013 and 2014. Income taxes. Our effective tax rates for the nine months ended September 30, 2013 and 2014 were 37.6% and 33.9%, 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. Income from discontinued operations, net of tax. Income from discontinued operations, net of tax was $310.4 million for the nine months ended September 30, 2013. Included within the income from discontinued operations, net of tax for the nine months ended September 30, 2013 was $305.2 million relating to the gain on the sale of our Alltel business. Net income attributable to non-controlling interests. Net income attributable to non-controlling interests reflected an allocation of $35.2 million and $8.1 million of income generated by our less than wholly-owned subsidiaries for the nine months ended September 30, 2013 and 2014, respectively. Included within these amounts was $29.3 million related to our discontinued operations for the nine months ended September 30, 2013. Net income attributable to Atlantic Tele-Network, Inc. stockholders. Net income attributable to Atlantic Tele-Network, Inc. stockholders decreased to $35.5 million for the nine months ended September 30, 2014 from $293.9 million for the nine months ended September 30, 2013. Included within net income attributed to Atlantic Tele-Network, Inc. stockholders for the nine months ended September 30, 2013 is income from discontinued operations, net of non-controlling interests of $4.6 million and a gain on the sale of our Alltel business, net of non-controlling interests of $276.5 million. On a per share basis, net income decreased to $2.22 per diluted share from $18.61 per diluted share for the nine months ended September 30, 2014 and 2013, respectively. Included within net income per diluted share for the nine months ended September 30, 2013 was $0.29 of net income per diluted share from discontinued operations and $17.51 of net income per diluted share relating to the gain on the sale of our Alltel business. 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 Unaudited Condensed 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 25 -------------------------------------------------------------------------------- Table of Contents 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 nine months ended September 30, 2013 and 2014, we spent approximately $55.2 million and $41.7 million, respectively, on capital expenditures. The following notes our capital expenditures, by operating segment, for these periods: Capital Expenditures International Integrated Island U.S. Reconciling U.S. Wireless Telephony Wireless Wireline Items ConsolidatedNine Months Ended September 30, 2013 $ 27,736 $ 9,039 $ 4,014 $ 11,231 $ 3,151 $ 55,171 2014 $ 26,496 $ 6,816 $ 3,966 $ 2,325 $ 2,096 $ 41,699 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 the year ended December 31, 2014 will be between $60.0 million and $65.0 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 expand our existing communications properties and licenses or acquire new businesses 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 September 30, 2014, we had approximately $384.4 million in cash and cash equivalents and $39.3 million of restricted cash from the sale of our Alltel business, 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 September 30, 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 nine months ended September 30, 2014, our Board declared dividends to our stockholders, which includes a $0.29 per share dividend declared on September 19, 2014 and paid on October 10, 2014, of $13.2 million. We have declared quarterly dividends for the last 64 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 September 30, 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 September 30, 2014, we had approximately $384.4 million in cash and cash equivalents, an increase of $27.8 million from the December 31, 2013 balance of $356.6 million. The increase is primarily attributable to cash provided by our operating activities of $51.0 million (which is net of income tax payments of $41.2 million during the nine months ended September 30, 2014, primarily related to taxes owed from the 2013 gain on the sale of the Alltel business), cash used for capital expenditures of $41.7 million partially offset by a decrease in restricted cash of $38.7 million and cash used in our financing activities of $21.6 million. We also have restricted cash totaling $39.3 million as of September 30, 2014, primarily related to an indemnity escrow from our Alltel sale. In addition, approximately $90.4 m of our cash balance is held in our businesses outside the United States, predominately Guyana and Bermuda. 26 -------------------------------------------------------------------------------- Table of Contents Cash provided by operations. Cash provided by operating activities was $51.0 million for the nine months ended September 30, 2014 and $84.5 million for the nine months ended September 30, 2013, a decrease of $33.5 million. During the nine months ended September 30, 2014, cash provided by operations was negatively impacted by a decrease in cash provided by our discontinued operations of $30.4 million. Cash from our continuing operations decreased by $3.1 million, from $58.8 million to $55.7 million for the nine months ended September 30, 2013 and 2014, respectively. This decrease was primarily the result of an increase in net income (net of the effects of the 2013 income and gain on the sale from our discontinued operations) of $25.0 million offset by increased usages of $15.4 million for the payment of our accounts payable and accrued liabilities as well as an aggregate $12.2 million reduction in the amortization of debt discounts issuance costs and the loss on our interest rate derivative contracts as a result of our repayment of our long-term debt in 2013. 27 -------------------------------------------------------------------------------- Table of Contents Cash used in investing activities. Cash provided by investing activities was $657.9 million for the nine months ended September 30, 2013 and $1.6 million for the nine months ended September 30, 2014. The $659.5 million decrease was predominately the result of cash of $711.5 million being provided by our discontinued operations during the nine months ended September 30, 2013, a decrease in restricted cash of $38.7 million and a decrease in capital expenditures of $13.5 million. The nine months ended September 30, 2014 also included $1.4 million in proceeds from the sale and leaseback 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 decreased by $263.1 million, from $284.7 million for the nine months ended September 30, 2013 to $21.6 million of cash for the nine months ended September 30, 2014. The decrease in usage in 2014 was primarily the result of the 2013 repayments of our $272.1 million term loans subsequent to the sale of our Alltel business 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) to the Condensed Consolidated Financial Statements. 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 September 30, 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 September 30, 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 June 6, 2014, the SEC declared effective our "universal" shelf registration statement. This filing registered potential future offerings of our securities. 28 -------------------------------------------------------------------------------- Table of Contents Recent Accounting Pronouncements In August 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern. ASU 2014-15 will explicitly require management to assess an entity's ability to continue as a going concern, and to provide related footnote disclosure in certain circumstances. The new standard will be effective for all entities in the first annual period ending after December 15, 2016. Earlier adoption is permitted. We do not expect ASU No. 2014-15 to have a material impact on our consolidated financial position, results of operations, or cash flows. In June 2014, the FASB issued a standards update on accounting for share-based payments when the terms of the award provide that a performance target could be achieved after a requisite service period. The standard is effective beginning January 1, 2016, with early adoption permitted. We do not expect this standard update to have a material impact on our consolidated financial position, results of operations or cash flows. In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606), a standard on revenue recognition providing a single, comprehensive revenue recognition model for all contracts with customers. The revenue standard is based on the principle that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard is effective beginning January 1, 2017, with no early adoption permitted. The amendments may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. We are currently evaluating the adoption method options and the impact of the new guidance on our consolidated financial statements. In April 2014, the FASB issued ASU 2014-08, "Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity." ASU 2014-08 provides guidance on determining when disposals can be presented as discontinued operations. ASU 2014-08 requires that only disposals representing a strategic shift in operations should be presented as discontinued operations. A strategic shift may include a disposal of a major line of business, major equity method investment or a major part of an entity. Additionally, ASU 2014-08 requires expanded disclosures regarding discontinued operations. This standard is effective prospectively for reporting periods beginning after December 15, 2014. Early adoption is permitted. The adoption of this amendment is not expected to have a material impact on the Company's condensed consolidated financial statements. In March 2013, the FASB issued ASU 2013-05, "Foreign Currency Matters (Topic 830): Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity." ASU 2013-05 provides clarification regarding whether ASC 810-10, "Consolidation - Overall" or ASC 830-30, "Foreign Currency Matters-Translation of Financial Statements," applies to the release of cumulative translation adjustments into net income when a reporting entity either sells a part or all of its investment in a foreign entity or ceases to have a controlling financial interest in a subsidiary or group of assets that constitute a business within a foreign entity. The revised standard is effective for reporting periods beginning after December 15, 2013. The adoption of this amendment did not have a material impact on the Company's condensed consolidated financial statements. In July 2013, the FASB issued ASU 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 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 condensed consolidated financial statements. |