Failure of network or information technology systems, including as a result of security breaches, could have an adverse effect on our business.
We are highly dependent on our information technology (“IT”) systems for the operation of our roamingnetwork, our facilities, delivery of services to our customers satisfied withand the compilation of our financial results. Failure of these IT systems, through cyberattacks, breaches of security, or otherwise, may cause disruptions to our operations. There can be no assurance that we will be able to successfully prevent a material security breach stemming from future cyberattacks. Our inability to operate our network, facilities and back office systems as a result of such events, even for a limited period of time, may result in significant expenses and impact the timely and accurate delivery of our services or other information. Other risks that may also cause interruptions in service offerings or economic terms,reduced capacity for our customers include power loss, increasing reliance on cloud-storage providers (which may themselves be subject to cyberattack or breach), capacity limitations, software defects and breaches of security by computer viruses, break-ins or otherwise. Specifically, we have seen a rise in ransomware attacks in recent years. Telecommunications providers are increasingly being targeted by cyber criminals not necessarily for data about their own business, but access to the data of market participants in potentially more lucrative industries. Disruptions in our networks and the unavailability of our services or our inability to efficiently and effectively complete necessary technology or systems upgrades, or conversions could lose their business, experience less roaming traffic or be unablelead to renew or enter into new agreements with these customers on beneficial terms (including pricing), resulting in a substantial loss of revenue,customers, damage to our reputation and violation of the terms of our licenses and contracts with customers. Additionally, breaches of security may lead to unauthorized access to our customer or employee information processed and stored in, and transmitted through, our IT systems. We may be required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures arising from operational and security risks, including notification under data privacy laws and regulations, and we may be subject to litigation, regulatory penalties and financial losses. These failures could also lead to significant negative publicity.
Inclement weather and changes in meteorological conditions may materially disrupt our operations.
Many of the areas in which wouldwe operate have experienced severe weather conditions over the years including hurricanes, tornadoes, blizzards, fires, damaging storms and floods. Such events may materially disrupt and adversely affect our business operations, such as the impacts of the hurricanes in the US Virgin Islands in 2017, which we assessed caused damage and losses to our wireline and wireless networks of approximately $100 million in operating losses and network rebuilding costs prior to insurance and any other recovery assistance. Major hurricanes also passed directly over Bermuda in the past decade, causing damage to our network and to the island’s infrastructure. Guyana and Cayman have suffered from severe rains and flooding in the past as well. These types of events can also cause major disruption and harm to the communities and markets we serve, which can have a material adverse effect on our resultsbusiness. We cannot be sure that these types of operationsevents will not have an impact in the future or that we can procure insurance coverage against these types of severe weather events under reasonable business terms and financial condition.conditions, or that any insurance coverage we are able to maintain will adequately compensate us for all damage and economic losses resulting from natural catastrophes. In addition, if these customers buildit may take significant time to return to pre-storm levels following any such storm or acquire wireless networks inmeteorological event. If we are unable to restore service on a timely and cost-effective basis, it could harm our service areas, we would lose revenue. Should any of these customers take such actions over a significant portion of the areas we serve, it mayreputation and have a material adverse effect on our business, financial condition or results of operations through continued loss of revenue and financial condition.customer attrition to our competitors.
In addition, the impacts of climate change may exacerbate the risk of significant damage in the areas in which we operate. For example, rising ocean temperatures in the Atlantic Ocean may result in the intensification of hurricanes over time. Heat waves and severe drought may lead to stronger and more frequent wildfires that could threaten our towers and installed equipment or result in loss of power. Rising sea levels and associated flooding may impact our retail and enterprise customers that operate businesses on the coasts of the United States and in our island markets. As the frequency or duration of more intense weather events increase, the likelihood of significant damage also increases. After major events such as hurricanes, earthquakes or wild fires, which can cause significant destruction to the power grid, our ability to access sites and facilities, obtain fuel and receive sufficient fuel supplies in order to provide power for stand-by generators is often severely limited, and in many cases, is not possible for extended periods of time. Our ability to access ports in order to obtain relief and supplies for affected areas will also likely be significantly hampered for extended periods of time.
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We may not be able to timely and effectively meet our obligations to AT&T related to its partnership with the First Responder Network Authority.
On July 31, 2019, the Company, through its wholly owned subsidiary, Commnet Wireless, entered into a Network Build and Maintenance Agreement with AT&T Mobility LLC (“AT&T”), pursuant to which Commnet will engineer, construct, commission, and maintain a radio access network (“RAN”) for AT&T for its commercial use and also in support of AT&T’s public/private partnership with the First Responder Network Authority (“FirstNet Authority”). In connection with the Network Build & Maintenance Agreement, we are required to build a network in portions of several states in accordance with AT&T’s detailed specifications by specified milestone dates and thereafter, to maintain the network in accordance with certain quality metrics. Such services are structured as a set cost agreed upon with AT&T, to be paid over the initial eight year term of the Network Build and Maintenance Agreement. AT&T has the right to terminate this agreement, including its obligation to pay for ongoing maintenance of the sites, in the event that Commnet fails to meet certain milestones or completion dates with respect to the construction of the sites, or fails to meet certain quality metrics and service level agreements (“SLAs”) with respect to maintenance services for the built sites.
Our ability to meet required milestones and completion dates and perform the SLAs is dependent on a variety of factors, including:
● | our ability to procure equipment and negotiate favorable payment and other terms with suppliers; |
● | our ability to effectively manage the construction of each of the cell sites, including securing reliable and efficient field construction resources; and |
● | our ability to cost effectively and reliably deliver and manage the network in accordance with SLAs for both the AT&T commercial and FirstNet Authority networks. |
In addition, construction of the cell sites may be also adversely affected by circumstances outside of our control, including inclement weather, adverse geological and environmental conditions, a failure to receive regulatory approvals or necessary permits on schedule or third-party delays in providing supplies and other materials. Further, our ability to undertake construction activities and the availability of our workforce may be impacted by shutdowns due to COVID-19, or our personnel actually contracting the virus. Any construction setbacks or delays could be costly and have a material adverse effect on our ability to perform under the time conditions and strict budget required under the Network Build and Maintenance Agreement.
If AT&T were to terminate the Network Build & Maintenance Agreement, this could have a material adverse impact on our prospects and results of operations in our US Telecom segment as we would have incurred costs to construct the sites, but might not be fully compensated for the construction of the sites through the initial term of the Agreement.
The continued impact of COVID-19 may have a material adverse impact on our business, financial condition and results of operations.
In March 2020, the World Health Organization declared a novel strain of coronavirus, now referred to as COVID-19, as a pandemic, as the virus spread globally to multiple countries, including the United States and other countries in which we have substantial operations. The pandemic has resulted in and will likely continue to result in significant disruptions to global business activities and capital markets around the world.
We are continuing to monitor and assess the effects of the COVID-19 pandemic on our commercial operations, including any potential impact on our revenue in 2021. However, the ultimate extent to which this pandemic impacts our business will depend upon the duration of the outbreak, travel restrictions and actions to contain the outbreak or mitigate its impact, as well as the timing and rollout of approved vaccines to combat the spread of COVID-19 and the impact on the economies in which we operate. For example, the local economies of many of our Caribbean markets are tourism-dependent and the ongoing decline in global travel activity resulting from COVID-19 may continue to impact our revenue and cash flows for certain services in these markets as our retail and enterprise customers are impacted, and we may continue to experience a decline in roaming revenue due to lack of travel to and from these markets.
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Additionally, governmental actions in our jurisdictions intended to contain the COVID-19 outbreak have placed restrictions on travel and movement, resulting in significant business interruptions to both our business and that of our customers, delays in receipt of governmental approvals and permits, the acceleration of “population flight” from island markets, and supply chain delays in the procurement process causing delays in our scheduled build plans, including with respect to planned fiber optic installations and maintenance in our Caribbean markets and our ongoing construction pursuant to our FirstNet Agreement with AT&T. Any prolonged interruption could negatively impact our customers’ ability to pay for our services on a timely basis or at all and our ability to expand, as well as the ability of our field technicians to service our (or with respect to FirstNet, our customer’s) telecommunications network. For more information about the risks to our business with respect to failure to perform under our FirstNet Agreement, see “Operational Risks -- We may not be able to timely and effectively meet our obligations to AT&T related to its partnership with the First Responder Network Authority.”
We may have difficulty meeting the growing demand for data services.
Demand for smartphones and data services continues to grow across all of our wireless markets and ourwe have seen an acute increase for such demand as a result of the COVID-19 pandemic. Our value to our customers in some markets depends in part on our network’s ability to provide high‑qualityhigh-quality and high capacity network service to smartphone devices. Indeed, much of the revenue growth in our wireless businesses in the past few years has been attributable to increased demand for data services. However, if data usage increases faster than we anticipate and exceeds the then‑availablethen-available capacity of any of our networks, our costs to deliver roaming services may be higher than we anticipate. In the United States, the dearth of available spectrum and and/or non-transparent spectralspectrum allocation practices in our industryother markets means that we cannot guarantee that we will be able to acquire additional spectrum in a timely fashion, at a reasonable cost, or at all to ensure our ability to maintain or grow our business and traffic volumes. As demand for advanced mobile data services continues to grow, we may have difficulty satisfying our retail and wholesale customers’ demand for these services without substantial upgrades and additional capital expenditures and operating expenses, which could have an adverse effect on our results of operations and financial condition.
Risks Relating
Our inability to Our International Telecom Segmentrecruit and retain experienced management and technical personnel could adversely affect our results of operations and ability to maintain internal controls.
Changes in USF funding could have an adverse impact
The success of our business depends on the ability of our executive officers and the officers of our operating units to develop and execute on our financial condition or results of operations.
Viya, our subsidiary operating video services, Internet, wirelessbusiness plan, and landline services in the U.S. Virgin Islands, currently receives high-cost USF support in the U.S. Virgin Islands of approximately $16.4 million per year. The FCC has proposed in response to the damage caused by the Hurricanes to allocate $18.65 million per year for 10 years in the U.S. Virgin Islands to wireline voiceidentify and broadband providerspursue new opportunities and this amount is inclusive of the USF funding currently received by Viya. The FCC has not yet determined which entities will be eligible for this funding or what standards will be used to allocate the funding. Any reduction in the amount of USF funding allocated to Viya in this proceeding could negatively affect our efforts to build and maintain networks in the U.S. Virgin Islands andproduct innovations, as well as on our ability to provide services supported by USF funds, whichattract and retain these officers and other highly qualified technical and management personnel. If our executive officers and the officers of our operating units are not able to execute on our business plan, this could adversely affect our business, financial condition and results of operations. Furthermore, we believe that there is, and will continue to be, strong competition for qualified personnel in the revenuescommunications and energy industries and in our markets, and we cannot be certain that we will be able to attract and retain the personnel necessary for the development of our International Telecom segment.business. We rely heavily on local management to run our operating units. Many of the markets in which we operate are small and remote, and in some cases are subject to government restrictions on granting work visas, which could make it difficult for us to attract and retain talented and qualified managers and staff in those markets. The loss of key personnel or the failure to attract or retain personnel with the sophistication to run complicated communications equipment, networks and systems could have a material adverse effect on our business, financial condition and results of operations. We do not currently maintain “key person” life insurance on any of our key employees and none of the executives at our parent company have executed employment agreements.
The shift across the world from in-person to remote working may have both negative and positive impacts on our businesses. On one hand, if we are able to hire more remote workers who do not necessarily have to reside in-market, it will expand our talent pool and broaden our hiring capabilities. On the other hand, the more our workforce shifts to remote workers, new challenges present themselves such as providing adequate training and on-boarding, and keeping staff engaged and connected to their colleagues and the increased risk of recruitment by firms that also offer remote work options. In addition, cultural differences abroad and local practices of conducting business in our foreign operations may not be in line with business practices, recordkeeping and ethics standards in the United States. In order to continue to ensure compliance with foreign and US laws, accounting standards and our own corporate policies, we have
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implemented financial and operational controls, created an internal audit team responsible for monitoring and ensuring compliance with our internal accounting controls, and routinely train our employees, vendors and consultants. However, having substantial foreign operations also increases the complexity and difficulty of developing, implementing and monitoring these internal controls and procedures. If we are unable to manage these risks effectively, it could have a material adverse effect on our business, financial condition and results of operations.
We may have difficulty securing video services content from third parties desirable to our customers on terms and conditions favorable to us.
We have secured licensing agreements with numerous content providers to allow our various video services businesses to offer a wide array of popular programming to our subscribers. Typically, we make long-term commitments relating to these rights in advance even though we cannot predict the popularity of the services or ratings the programming will generate. License fees may be negotiated for a number of years and may include provisions requiring us to pay part of the fees even if we choose not to distribute such programming.
The success of our video services operations depends on our ability to access an attractive selection of video programming from content providers on terms and pricing favorable to us. Our ability to provide movies, sports and other popular programming is a major factor that attracts subscribers to our services. Our inability to provide the content desired by our subscribers on satisfactory terms or at all could result in reduced demand for, and lower revenue from, our cable operations that may not offset the typically large subscription fees that we pay for these services. In certain cases, we may not have satisfactory contracts in place with the owners of our distributed content, leading to such parties’ desire for increased renewed contractual pricing or leading to disputes with such parties including claims for copyright or other intellectual property infringement.
The cost of obtaining programming associated with providing our video services is significant. The terms of manyMany of our programming contracts are for multiple yearsyear terms and provide for future increases in the fees we must pay. In addition, local over-the-air television stations are increasingly seeking substantial fees for retransmission of their stations over our cable networks. Historically, we have absorbed increased programming costs in large part through increased prices to our customers. We cannot assure that competitive and other marketplace factors will permit us to continue to pass through these costs or that we arewill be able to renew programming agreements on comparable or favorable terms. Also, programming in the Caribbean typically includes Latin American or Spanish programming, while our subscribers
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typically prefer content in English. An additional risk with respect to video services is increased competition from so-called “over the top” (“OTT”) media service providers. Additionally, more and more content providers have launched their own OTT offerings, for example Netflix, Amazon, HBO, Disney+, and others. As these and other OTT offerings gain market share, it may result in a loss of subscribers across our businesses that offer video services because customers are more attracted to these alternative offerings, or to the extent we are no longer able to offer programming that customers want either due to exclusive licensing arrangements or prohibitive rising costs. To the extent that we are unable to reach acceptable agreements with programmers or obtain desired content, we may be forced to remove programming from our line-up, which could result in a loss of customers and materially adversely affect our results of operations and financial condition.
We rely on a limited number of key suppliers and vendors for the timely supply of handsets, accessories, equipment and services relating to our network or facility infrastructure. If these suppliers or vendors experience problems or favor our competitors, we could fail to obtain sufficient quantities of the products and services we require to operate our businesses successfully.
We depend on a limited number of suppliers and vendors for equipment and services relating to our handset lineup, network infrastructure, and our back-office IT systems infrastructure. If these suppliers experience interruptions or other problems delivering these network components and other equipment on a timely basis, our subscriber or revenue growth and operating results could suffer significantly. In addition, the size of our business relative to our competitors puts us at a disadvantage in terms of whether we will get access to the newest technologies at the same time as our competitors, as well as a financial disadvantage in terms of the ability to achieve economies of scale and receive commensurate discounts that may be available to our competitors.
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We source wireless devices for our retail wireless businesses from a small number of handset resellers and to a lesser extent, equipment manufacturers and depend on access to compelling devices at reasonable prices on primary and secondary markets for these devices, as well as timely delivery of devices to meet market demands. The inability to provide a competitive device lineup could materially impact our ability to attract new customers and retain existing customers. Moreover, as we increasingly roll out new products such as voLTE, we will increasingly rely on cooperation from our handset suppliers to ensure interoperability between devices and our network. Without close relationships with suppliers who understand the needs of our business, we may be delayed in deploying the handsets, accessories and equipment that our customers demand. We are also reliant upon a limited number of network equipment manufacturers, including Ericsson and Nokia.
Strategic Risks
Rapid and significant technological changes in the telecommunications industry may adversely affect us.
Our exclusiveindustry faces rapid and significant changes in technology that directly impact our business, including the following:
| ● | migration to new-generation services such as “5G” network technology; |
| ● | introduction of new telecom delivery platforms such as next generation satellite services; |
● | evolving industry standards; | |
● | requirements resulting from changing regulatory regimes; | |
● | the allocation of radio frequency spectrum in which to license and operate wireless services; | |
● | ongoing improvements in the capacity and quality of digital technology; | |
● | changes in end-user requirements and preferences; | |
● | convergence between video and data services; | |
● | development of data and broadband capabilities and rapidly expanding demand for those capabilities; | |
| ● | increased reliance on third-party cloud storage providers for data storage; and |
● | consolidation among service providers within the industry. |
For us to keep pace with these technological changes and remain competitive, at a minimum we must continue to make significant capital expenditures to add to our networks’ capacity, coverage and technical capability. For example, we have spent considerable amounts adding higher speed and capacity mobile data services to many of our networks in recent years and we think it likely that more such expenditures, including mobile and wireless data capabilities and high capacity, low latency backhaul, will be needed over the next few years.
We cannot predict the effect of technological changes on our business. Alternative or new technologies may be developed that provide communications services superior to those available from us, which may adversely affect our business. For example, to accommodate the demand from our wireless customers for next-generation advanced wireless products such as high-speed data and streaming video, we may be required to purchase additional spectrum, however, we have had difficulty finding spectrum for sale or on terms that are acceptable to us. In addition, usage of wireless voice or broadband services in excess of our expectations could strain our capacity, cause service disruptions and result in higher operating costs and capital expenditures. In each of our markets, providing more and higher speed data services through our wireless or wireline networks may require us to make substantial investments in additional telecommunications transport capacity connecting our networks to the Internet, and in some cases such capacity may not be available to us on attractive terms or at all. Failure to provide these services or to upgrade to new technologies on a timely basis and at an acceptable cost, or to secure any necessary regulatory approvals to roll out such new technologies on a timely basis all could have a material adverse effect on our ability to compete with carriers in our markets.
Increased competition may adversely affect growth, require increased capital expenditures, result in the loss of existing customers and decrease our revenues.
We face competition in the markets in which we operate. For example:
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● | In the United States, our greatest competitive risk to our wholesale wireless business is the possibility that our current roaming customers may elect to build or enhance their own networks within the rural markets in which we currently provide service, which is commonly known as “over-building.” If our roaming customers, who generally have greater financial resources and access to capital than we do, determine to over-build our network, their need for our roaming services will be significantly reduced or eliminated. | |
● | In Bermuda and the Caribbean, we compete primarily against Digicel, a large mobile telecommunications company in the Caribbean region, and other larger providers such as Liberty Latin America, a multinational telecommunications company. |
Over the last decade, an increase in competition in many areas of the telecommunications industry has contributed to a decline in prices for communication services, including mobile wireless services, local and long-distance telephone service and data services. Increased competition in the industry may further decrease prices. In addition, increased competition in the telecommunications and renewable energy industries could reduce our customer base, require us to invest in new facilities and capabilities and result in reduced revenues, margins and returns.
Our International Telecom segment operates in island and other small market locations, where a limited number of providers maintain strong competition. In several of our markets, we hold a dominant position as the local incumbent carrier and in others we may have a competitive advantage in our ability to bundle some combination of voice, data, video and wireless services. Increased competition, whether from new entrants or increased capital investment by our competitors in their existing networks, will make it more difficult for us to attract and retain customers in our small markets, which could result in lower revenue and cash flow from operating activities.
We may not be able to timely and effectively execute on several key initiatives across multiple jurisdictions.
Major business initiatives are underway with respect to improvement in mobile and other retail sales in all markets, digitization of internal processes to allow for quicker response time to customer requirements, modernization of existing internal processes in select markets and revising the strategy of some of our US Telecom businesses to develop additional revenue streams, including the substantial construction and support undertaking of the FirstNet project. Each of these requires significant oversight from senior management to aid in-market teams, and many of these projects are underway simultaneously in different locations. Execution on multiple simultaneous and transformational initiatives will require in depth management attention in multiple jurisdictions in order to capitalize on growth in the US Virgin Islands, economic growth in Guyana and the ongoing shift in business focus in US Telecom.
We may not be able to effectively transform the business model of our legacy US Telecom business.
Historically, a large portion of our revenue has been derived from Carrier Services revenue in our US Telecom segment. A substantial portion of this revenue was generated from three national wireless service providers in 2020, however, these amounts have declined from $74.6 million in 2019 to $72.6 in 2020. During this time period, revenues from Carrier Services have declined due to our mutual agreement with our carrier customers to lower rates in exchange for pricing certainty in longer term contracts, our customers’ decisions to overbuild our network, and the consolidation of national wireless service providers (thereby eliminating one or more former carrier customers).
As wholesale roaming revenue in our US Telecom segment has declined, we are increasingly providing network infrastructure services as part of our expanded Carrier Services, such as tower leasing and transport facilities to our carrier partners to supplement our historic revenue base, as with the FirstNet Transaction. During the construction period of the FirstNet Transaction, we will continue to receive payment from AT&T for roaming services at a fixed rate per site until such time as the cell site is transferred to AT&T. Thereafter, AT&T will cease roaming on the majority of our US network and revenue from the maintenance, leasing and transport services provided to AT&T is expected to offset such lost revenue, albeit at lower operating income margins due to the increased operating expenses associated with leasing and transport services, as compared to our wholesale mobile roaming services.
We also intend to offset declining wholesale roaming revenue with a more diversified mix of revenue from carrier services, including more tower rental, backhaul and maintenance services and growing enterprise broadband and
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private network services. There can be no assurance, however, that we will be able to successfully transform our legacy US Telecom business to support additional Carrier Services product offerings or expand our retail and commercial subscriber base in our US Telecom segment. If we are unable to offset the continued decline in our Carrier Services revenue by expanding diversifying our sources of revenue it may have a material adverse effect on our results of operations and financial condition.
We may have difficulty funding multiple growth opportunities across our businesses.
Historically, we have funded our capital expenditures and transactional matters from a combination of cash on hand, cash from operations, and limited incurrence of debt. As discussed above, our US Telecom segment is in the midst of a business transformation, and may need significant funding as we seek to grow our private LTE and retail businesses. Similarly, we may have other opportunities to inorganically grow our businesses, such as the Alaska Transaction, and our team actively evaluates potential acquisitions, investment opportunities and other strategic transactions, both domestic and international, voicethat have the potential for generating steady excess cash flows over extended periods of time. Any such transactions may be accomplished through the payment of cash, issuance of shares of our capital stock or incurrence of additional debt, or a combination thereof. As of December 31, 2020, we had approximately $105.0 million in cash, cash equivalents, restricted cash, and datashort term investments and approximately $86.9 million of long-term debt. How and when we deploy our balance sheet capacity will figure prominently in our longer-term growth prospects and stockholder returns. To support multiple simultaneous growth opportunities, we may need to raise additional capital or incur additional debt to fund our future operations or investment opportunities. We cannot provide any assurances that we will be able to secure additional funding from public or private offerings on terms acceptable to us, if at all. If we are unable to obtain the requisite amount of financing, we may have to forgo opportunities to strategically grow our business.
We are actively evaluating investment, acquisition and other strategic opportunities, which may affect our long-term growth prospects.
To date we have grown the Company through a mix of organic growth through our operating companies and inorganic growth through targeting acquisition or other business development opportunities. We actively evaluate acquisition, investment, business divestitures and combinations, and other strategic opportunities, both domestic and international, in telecommunications, energy-related and other industries, including in areas that may not be seen by the broader market as timely today, such as our planned acquisition of Alaska Communications. We may focus on opportunities that we believe have potential for long-term organic and strategic growth or that may otherwise satisfy our return and other investment criteria. Similarly, there are risks inherent in the sale of a business or assets, including the potential of a transaction’s failing to close due to last minute negotiations, regulatory issues, or other unpredictable matters that can be costly and disruptive to our operations. There can be no assurance as to whether, when or on what terms we will be able to invest in, acquire or divest any businesses or assets to continue our historic pattern of inorganic growth or that we will be able to successfully integrate the business or realize the perceived benefits of any acquisition or strategic investment.
Risks Relating to our Alaska Transaction
We may not be able to consummate our merger with Alaska Communications on a timely basis or at all.
On December 31, 2020, we announced that we entered into the Alaska Merger Agreement to consummate the Alaska Transaction. The Alaska Transaction remains subject to customary closing terms and conditions including (i) the approval of Alaska Communications’ stockholders, (ii) the absence of certain legal impediments, and (iii) obtaining the necessary consents from the Federal Communications Commissions and the Regulatory Commission of Alaska. Although we have received no indication that Alaska Communications stockholders or these regulatory authorities do not plan to grant the required approvals, there can be no guarantee that we will receive such approvals.
Moreover, the board of directors of Alaska Communications may change its recommendation that stockholders approve the Alaska Transaction, and the Alaska Merger Agreement may be terminated in certain circumstances if a competing offer for an alternative transaction is made, in which case the transaction would not close and termination fees
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may be payable. Upon termination of the Alaska Merger Agreement under certain circumstances, we may be obligated to pay Alaska Communications a termination fee, including (i) a fee of $7,100,000 if we cannot consummate the Alaska Transaction due to lack of financing, or (ii) a fee of $8,800,000 if we fail to consummate the Alaska Transaction after all other conditions to closing are met.
In addition, the FCC may impose conditions on any approval, such as requiring the divestiture of certain markets and spectrum licenses. These conditions, if imposed and if sufficiently significant, may permit Alaska Communications not to consummate the transaction or may have other negative impacts on our business.
Lawsuits have been filed against us and Alaska Communications, challenging the disclosure made to Alaska Communications stockholders in connection with the solicitation of their vote in favor of the Alaska Transaction. An adverse judgment may result in financial penalties or if any plaintiff successfully seeks to enjoin the Alaska Transaction, then the combination of our business with Alaska Communications may not be consummated at all or within the expected timeframe. If the Alaska Transaction is not consummated or is materially delayed for these or any other reason, our business and operations, and our stock price, may be adversely affected.
Our ability to finance the Alaska Transaction depends on our ability to draw upon a new credit facility.
We have secured committed financing, consisting of a combination of (i) equity financing to be provided by us and Freedom3 and (ii) debt financing to be provided by Fifth Third Bank, National Association, to acquire the shares of Alaska Communications. The equity financing and the debt financing, in the aggregate, will be sufficient for us to pay the amounts required to be paid in connection with the Alaska Transaction and the other transactions contemplated by the Alaska Merger Agreement; however, the Alaska Transaction is not subject to a financing condition. We have also entered into a limited guarantee with Alaska Communications pursuant to which we and Freedom3 will guarantee 52% and 48%, respectively, of the termination fees discussed above in connection with Alaska Communications’ termination of the Alaska Merger Agreement and certain indemnity and recovery costs, if such amounts become due and payable. Our ability to consummate the Alaska Transaction relies on the continued availability of the committed debt financing, according to the terms of our term sheet with Fifth Third Bank.
If we are able to successfully consummate the Alaska Transaction, we may have difficulties integrating its operations and its business, our business, financial condition and results of operations could be adversely affected.
The Alaska Transaction is the largest and most significant acquisition we have undertaken for a number of years. The complexities of the integration and expansion of Alaska Communications’ operations are not yet known. We have devoted and will continue to devote a significant amount of time and attention to integrating these operations with our existing operations teams. Among the challenges we face in doing so are the need to integrate a large number of new employees and integrating and aligning numerous business and work processes, including customer billing, by building and designing our own processes and the information systems necessary to track and handle those processes. If we have other difficulties with the transition process, it could harm our reputation and have a material adverse effect on our business, financial condition or results of operations.
Regulatory Risks
Changes in USF funding could have an adverse impact on our financial condition or results of operations.
Viya, our subsidiary operating video, internet, wireless and landline services in the US Virgin Islands, has historically received, through December 31, 2020, high-cost Universal Service Fund (“USF”) support in the US Virgin Islands of approximately $16.4 million per year. In addition, after the devastation caused by the Hurricanes in September 2017, the FCC provided approximately $15.4 million in accelerated USF support and in fixed and mobile recovery support through August 2018. The FCC, in response to the damage caused by the Hurricanes and as part of its general USF reform, established a Connect USVI Fund that replaced the legacy high-cost USF support for the US Virgin Islands that Viya historically has been awarded. In November 2020, the FCC announced that it was provisionally awarding the Connect USVI Fund awards for all of the US Virgin Islands to Viya’s competitor in the amount of approximately $8.6
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million per year for a term of 10 years. Pursuant to the terms of the program, Viya’s USF spending will be reduced, upon finalization of the award, to approximately two-thirds of the legacy total amount, or $10.9 million for one year to approximately one-third of the legacy total amount, or $5.47 million, for the year after. Thereafter, Viya will not be eligible for high-cost USF support.
This reduction in the overall amount of USF support we receive as a result of the Connect USVI Fund proceeding relative to historical levels of high-cost USF support we have received could negatively affect our efforts to build, maintain and operate networks in the US Virgin Islands and our ability to provide services previously supported by USF funds. Viya is currently undertaking a review and reassessment of its business plan to consider the extent to which we will provide further investment or operational resources to Viya or the territory. This could have an adverse effect on our business, financial condition or results of operations in our International Telecom segment and there can be no assurance that any revised business plan will offset or reduce the loss of revenue, customer attrition and increased competition as a result of the cessation of high cost USF funding.
Our operations in Guyana isare subject to significant political and regulatory risk.
Since 1991, our subsidiarypursuant to an agreement with the Government of Guyana, Telephone and Telegraph, Ltd. (“GTT”)GTT has operated in Guyana pursuant to a license from the Government of Guyana to be the exclusive provider of domestic fixedFixed and international voice and data services pursuant to aservices. That license withfrom the Government of Guyana included an initial term ending in December 2010, which was renewable at our sole option for an additional 20-year term. In November 2009, we notified the Government of Guyana of our election to renew our exclusive license for an additional 20-year term expiring in 2030. On December 15, 2010, we received correspondence from the Government of Guyana indicating that our license had been renewed until such time that new legislation is in place with regard to the Government’s intentionwas enacted to expand competition within the sector; however,sector.
On October 5, 2020, the Prime Minister of Guyana formally implemented telecommunications legislation previously passed by the Guyana Parliament in 2016 that introduces material changes to many features of Guyana’s existing telecommunications regulatory regime with the intention of creating a more competitive market. At that time, we were issued a new license to provide domestic and international voice as well as data services and mobile services in Guyana. Two of our competitors, who had previously provided fixed voice and internet services on an unlicensed basis, were issued service licenses as well. While we have requested details of our competitors’ licenses, such information has not been made public by the Guyana Telecommunications Agency, and we are not yet able to ascertain whether the licenses issued to our competitors permit any competitors to provide services that have been subject to GTT’s exclusive rights contained in its 1990 license.
On October 23, 2020, the Government of Guyana also brought into effect new telecommunications regulations called for by the telecommunications legislation. The regulations include new requirements for the market as a whole, which impact our operations, administrative reporting and services. There can be no assurance that these regulations will be effectively implemented, or that they will be administered in a fair and transparent manner. We believe our existing, exclusive license continues to be valid unless and until such time as we enter into an alternative agreementarrangement with the Government.
In 2016, the Government of Guyana passed new telecommunications legislation introducing material changes to many features of Guyana’s existing telecommunications regulatory regime with the intention of introducing additional competition into Guyana’s telecommunications sector. The legislation that passed, Under these circumstances, however, has not yet been implemented and does not have the effect of terminating our exclusive license. Instead the legislation as passed requires the Minister of Telecommunications to conduct further proceedings and issue implementing orders to put into effect the various provisions of the legislation. We have met with the Government of Guyana to discuss modifications of the Company’s exclusivity rights and other rights under its existing agreement and license. However, there can be no assurance that thoseour discussions with the Government of Guyana will resume or be concluded, before the Government issues new licenses as contemplated by the legislation or at all, or that theysuch discussions will satisfactorily address the Company’sour contractual exclusivity rights. AlthoughWhile we believe that we would be entitled tomight seek damages or other compensation for any involuntary termination of our contractual exclusivity rights, we cannot guarantee that we would prevail in a proceedingany proceedings to enforce our rights or that our actions would effectively halt any unilateral action by the Government.rights.
We are dependent on GTT for approximately 23% of our total consolidated revenues. A loss of exclusivity on international voice and data service would result in a reduction in the international call traffic and as a result, a loss in that portion of our wireline revenue. Any modification, early termination or other revocation of the exclusive domestic fixed and international voice and data license could materially adversely affect our revenues and profits and diminish the value of our investment in Guyana.
Risks Related to Our Renewable Energy Segment
Our Facilities have a limited operating history.
All of our Facilities have limited operating histories. Our expectations about the performance of these Facilities are based on assumptions and estimates made without the benefit of a lengthy operating history. There can be no assurance that our Facilities will perform as anticipated or projected and the failure of these Facilities to perform as we expect could have a material adverse effect on the financial condition, results of operations and cash flows of our Renewable Energy segment.
Our revenues are dependent on the performance and effectiveness of our PPAs.
The cash flow from our PPAs is significantly affected by our ability to collect payments from offtakers under our PPAs. If for any reason our PPA customers are unable or unwilling to fulfill their related contractual obligations or if they refuse to accept delivery of power or otherwise terminate or breach such agreements, such non‑payment could have a material adverse effect on our revenues from the Renewable Energy segment. In addition, our inability to perform our obligations under the PPAs could also have a material adverse effect on these revenues. For instance, our inability to
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meet certain operating thresholds or performance measures under certain of our PPAs within specified time periods exposes us to the risk of covering the cost of any shortfall or early termination by such customer.
Certain of our PPAs provide for early termination for a variety of reasons, including in the event that (a) an offtaker is unable to appropriate government funds, (b) there is a change of law that substantially reduces the value of utility credits, (c) termination for convenience, (d) change of control in the managing structure of the offtaker, (e) insolvency of the offtaker, or (f) any change in the credit worthiness of the offtaker. While we would be entitled to a termination fee (typically set at the terminal value of the PPA) in most cases, the termination fee might not be a sufficient substitute for the payments otherwise due under the PPAs. There can be no assurances that such appropriations will be made or timely made in any given year or that tax or other incentives will continue to be available for the purchase of solar energy. However, we have the option to sell the power to the grid and claim Average Pooled Purchase Price (“APPC”) in the event of early termination while we are looking for alternate buyers or offtakers to sign a new PPA contract. In the event a PPA for one or more of our projects is terminated or payments are not made (or not made in a timely manner) pursuant to such provisions, it could materially and adversely affect our results of operations from the Renewable Energy segment and our financial condition. We cannot provide any assurance that PPAs containing such provisions will not be terminated or, in the event of termination, we will be able to enter into a replacement PPA. Moreover, any replacement PPA may be on terms less favorable to us than the PPA that was terminated.
India is undergoing rapid governmental and regulatory change, which may have both short and long term material adverse impacts on our operations and ability to execute our strategic growth plans.
The government of Prime Minister Narendra Modi in India has expressed its intention to cut down on corruption and tax avoidance wherever possible and in parallel with its anti-corruption measures, the Indian government is also looking to encourage foreign investment in India. Some of these changes have had a significant impact on our operations in India in the short-term. For instance, India is currently a predominately cash economy, with millions of people having no bank accounts and transacting solely in cash. On November 8, 2016, the Indian government removed the 500 (approximately equal to $7.60 at the time) and 1,000 rupee notes from circulation and replaced them with new 2,000 rupee notes. This step was taken to remove money from the black market economy with a view to reducing corruption, increasing tax receipts, and moving India to a modern, non-cash economy. While we have very limited cash transactions in India (mostly in relation to the payment of employee travel and subsistence expenses), much of the construction team employed by our sub-contractors is paid in cash, often on a daily basis. With the removal of 500 and 1,000 rupee notes from circulation, our sub-contractors have struggled to source the cash required to pay their labor, resulting in many of the workers responsible for our ongoing solar Facility construction failing to continue to show up to the worksite. To remedy the situation, our sub-contractors have been opening bank accounts on behalf of their workers to enable them to receive their compensation electronically; however, the construction of our solar farms in India has met with substantial delays as a result.
Further, our business model in India is predicated on the availability of “open access” rules, which allow our customers to buy their electricity from us, rather than from traditional utility providers. Any major policy changes issued by the Indian government to current open access rules, or other major policy changes, particularly when implemented in such a short time frame, could impair the development or operations of our solar projects and may adversely impact our ability to construct our power project portfolio or maintain operations, once constructed.
Land title in India can be uncertain and difficult to procure.
There is no central title registry for real property in India and the documentation of land records in India has not been fully computerized. Property records in India are generally maintained at the state and district level and in local languages, and are updated manually through physical records. Therefore, property records may not be available online for inspection or may not be updated in a timely manner, may be illegible, untraceable, incomplete or inaccurate in certain respects, or may have been kept in poor condition, which may impede title investigations or our ability to rely on such property records. Furthermore, title to land in India is often fragmented, and in many cases, land may have multiple owners. Title may also suffer from irregularities, such as non-execution or non-registration of conveyance deeds and inadequate stamping, and may be subject to encumbrances that we are unaware of. As a result, potential disputes or claims over title to the land on which our power projects are or will be constructed may arise. Any real estate issues
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could impair the development or operations of our solar projects and any defects in, or irregularities of, title may result in a loss of development or operating rights over the land that may adversely impact our ability to construct our power project portfolio or maintain operations, once constructed. Further, the government may exercise its rights of eminent domain, or compulsory acquisition in respect of land on which our projects are or will be located. Any of this may adversely affect our business, results of operations and cash flows in the future. For instance, in one such state a PIL (Public Interest Litigation) has been filed in the courts against the acquisition of large parcels of land by the solar power generation companies. Any such litigation may result in new regulations, adversely affecting our project construction and operation.
We may not be able to timely and effectively construct our developed solar project portfolio.
The development and construction of solar projects involve numerous risks and uncertainties and require extensive research, planning and due diligence. We have already incurred, and may continue to incur, significant costs for land and interconnection rights, regulatory approvals, preliminary engineering, permits, and legal and other expenses before we can determine whether a solar project is economically, technologically or otherwise feasible.
Our ability to realize profits in our investment may depend greatly on our ability to achieve the following:
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Construction of our solar projects may be also be adversely affected by circumstances outside of our control, including inclement weather, adverse geological and environmental conditions, a failure to receive regulatory approvals on schedule or third-party delays in providing supplies and other materials. Any construction setbacks or delays could have a material adverse effect on our ability to obtain, maintain and perform under the PPAs we seek to procure and could result in financial penalties under these agreements and/or the termination of such agreements, which could have a material adverse impact on our prospects and results of operations in our Renewable Energy segment.
We are reliant on India’s infrastructure to deliver power and any failure or technical challenges may lead to delays or other impediments that may have an adverse effect on our operations or financial condition.
India has a target of installing 175 GW of renewable energy capacity by March 2022, of which it is intended that 100 GWp will be solar power capacity. New capacity additions have historically been lower than the targeted capacity. If the government fails to reach its targeted solar capacity, it will likely result in a slowdown in our growth opportunities and adversely affect our ability to achieve our long term business objectives, targets and goals. Moreover, due to the intermittent nature of most forms of renewable energy generation, significant renewable energy generation capacity on a limited area of grid infrastructure can cause technical challenges to keep the grid in balance. Such technical issues could result in a grid company looking to turn down the export capacity of one of our solar projects for a limited or extended period, or the grid company incurring additional costs in order to manage its grid infrastructure, and looking to recharge such costs to renewable energy generators. Such actions by a grid operator could have a material adverse impact on our prospects and results of operations in our Renewable Energy segment.
For distributing power to an offtaker, we generally rely on transmission lines and other transmission and distribution facilities that are owned and operated by the respective state governments or public entities. In absence of such transmission and distribution networks, we may engage contractors to build transmission lines and other related infrastructure. In such a case, we will be exposed to additional costs and risks associated with developing transmission
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lines and other related infrastructure, such as the ability to obtain right of way from land owners for the construction of our transmission lines, which may delay and increase the costs of our projects. We may not be able to secure access to the available transmission and distribution networks at reasonable prices, in a timely manner or at all.
In some instances, we are required to distribute power to customers across long distances from our project sites. Any constraints or limited access to transmission and distribution networks, could curtail the transmission and dispatch of the full output of our projects and we may have to suspend producing electricity during the period when electricity cannot be transmitted, thereby reducing the net power generation of our projects. Any such curtailment of our power projects’ output levels will reduce our electricity output and limit operational efficiencies, which in turn could have an adverse effect on our business, results of operations and cash flows.
Our ability to realize the benefits of our investment in India may be delayed and our growth prospects depend to a significant extent on the availability of additional funding options with acceptable terms.
We require a significant amount of cash to fund the installation and construction of our projects in India and other aspects of our operations, and have planned to incur debt or acquire additional equity funding in the future to complement our investment. We may also require additional cash due to changing business conditions or other future developments, including any investments or acquisitions we may decide to pursue in order to remain competitive. We intend to evaluate third-party financing options, including any bank loans, equity investors, financial leases and securitization. However, we cannot guarantee that we will be successful in obtaining additional suitable sources of financing on a timely basis or at all, or on terms or at costs that are acceptable to us, which may materially adversely affect our ability to continue construction and expand our operations in India. In addition, rising interest rates could adversely impact our ability to secure financing on favorable terms.
We face significant competition from traditional and renewable energy companies.
We face significant competition in the markets in which we operate. Our competitors may have greater operational, financial, technical and management expertise or other resources than we do and may be able to achieve better economies of scale and lower cost of capital, allowing them to sell electricity at more competitive rates. Our local competitors are likely to be funded from Indian sources of capital, and so will not have to factor foreign currency movements into their target returns, which may also enable them to sell electricity at more competitive rates. Our competitors may also have a more effective or established localized business presence or a greater appetite for risk (for example in relation to equipment warranties) and greater willingness or ability to operate with little or no operating margins for sustained periods of time. Our market position depends on our financing, development and operational capabilities, reputation and track record. Any increase in competition or reduction in our competitive capabilities could have a significant adverse impact on the margins we generate from our solar projects. We cannot assure that we will be able to compete effectively, and our failure to do so could result in an adverse effect on our business, results of operations and cash flows in our Renewable Energy segment.
Other Risks Related to Our Businesses
Failure of network or information technology systems, including as a result of security breaches, could have an adverse effect on our business.
We are highly dependent on our information technology (“IT”) systems for the operation of our network, our facilities delivery of services to our customers and compilation of our financial results. Failure of these IT systems, through cyberattacks, breaches of security, or otherwise, may cause disruptions to our operations. There can be no assurance that we will be able to successfully prevent a material security breach stemming from future cyberattacks. Our inability to operate our network, facilities and back office systems as a result of such events, even for a limited period of time, may result in significant expenses and impact the timely and accurate delivery of our services or other information. Other risks that may also cause interruptions in service or reduced capacity for our customers include power loss, capacity limitations, software defects and breaches of security by computer viruses, break‑ins or otherwise. Disruptions in our networks and the unavailability of our services or our inability to efficiently and effectively complete necessary technology or systems upgrades or conversions could lead to a loss of customers, damage to our reputation and violation
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of the terms of our licenses and contracts with customers. Additionally, breaches of security may lead to unauthorized access to our customer or employee information processed and stored in, and transmitted through, our IT systems. We may be required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures arising from operational and security risks, including notification under data privacy laws and regulations, and we may be subject to litigation, regulatory penalties and financial losses. These failures could also lead to significant negative publicity, regulatory problems and litigation.
Storms and changes in meteorological conditions may materially disrupt our operations.
Many of the areas in which we operate have experienced severe weather conditions over the years including hurricanes, tornadoes, blizzards, fires, damaging storms and floods. Some areas in which we operate may also be at risk of earthquakes. Such events may materially disrupt and adversely affect our business operations, such as the ongoing impacts of the Hurricanes in the U.S. Virgin Islands in 2017, which we assessed caused damage and losses to our wireline and wireless networks in excess of $35.4 million. Major hurricanes also passed directly over Bermuda in 2003, 2014 and 2016, causing major damage to our network and to the island’s infrastructure. Guyana has suffered from severe rains and flooding in the past as well. These types of events can also cause major disruption and harm to the communities and markets we serve, which can have a material adverse effect on our business. We cannot be sure that these types of events will not have an impact in the future or that we can procure insurance coverage against these types of severe weather events under reasonable business terms and conditions, or that any insurance coverage we are able to maintain will adequately compensate us for all damage and economic losses resulting from natural catastrophes. In addition, it may take significant time to return to pre-storm levels following any such storm or meteorological event. If we are unable to restore service on a timely and cost-effective basis, it could harm our reputation and have a material adverse effect on our business, financial condition or results of operations through continued loss of revenue and customer attrition to our competitors.
The electricity produced and revenues generated by a solar electric generation facility is highly dependent on suitable solar and associated weather conditions and our solar panels and inverters could be damaged by severe weather, such as hailstorms or tornadoes. In addition, replacement and spare parts for key components may be difficult or costly to acquire or may be unavailable. Unfavorable weather and atmospheric conditions could reduce the output of our facilities and lead to a loss of revenue from our offtakers.
In addition, rising ocean temperatures in the Atlantic Ocean may result in the intensification of hurricanes over time. If the frequency of more intense hurricanes increases in the Atlantic Ocean and Caribbean Sea, the likelihood of significant damage also increases, including in locations where we operate. After major events such as hurricanes, which can cause significant destruction to the power grid, our ability to access sites and facilities, obtain fuel and receive sufficient fuel supplies in order to provide power for stand-by generators is severely limited, and in many cases, is not possible for extended periods of time. Our ability to access ports in order to obtain relief and supplies for affected areas will also likely be significantly hampered for extended periods of time.
Regulatory changes may impose restrictions that adversely affect us or cause us to incur significant unplanned costs in modifying our business plans or operations.
We are subject to U.S.US federal, state and local regulations and foreign government regulations, all of which are subject to change. As new laws and regulations are issued or discontinued, we may be required to materially modify our business plans or operations. We cannot be certain that we can do so in a cost effective manner. Our operations in the United States are subject to the Communications Act.Act and the FCC’s implementing regulations, as well as regulation by state public utility commissions in certain states in which we operate. The interpretation and implementation of the various provisions of the Communications Act and the FCC rules implementing the Communications Act continue to be heavily debated and may have a material adverse effect on our business. Also, although comprehensive legislation has not yet been introduced, there have been indications that Congress
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may substantially revise the Telecommunications Act of 1996 and other regulations in the next few years. Further, the leadership of the FCC changed in January 2021, and the FCC may pursue new and differed regulatory priorities.
Our international operations are subject to similar regulations, the interpretation and implementation of which are also often debated, and which may have a material adverse effect on our business. Our interpretationinterpretations of our obligations may differ from those of regulatory authorities. Both federal and state regulators, as well as international regulators, require us to pay various fees and assessments, file periodic reports and comply with various
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rules regarding our consumer marketing practices and the contents of our bills, on an on-going basis. If we fail to comply with these requirements, we may be subject to fines or potentially be asked to show cause as to why our licenses to provide service should not be revoked.
The loss of certain licenses could adversely affect our ability to provide wireless and broadband services.
In the United States, wireless licenses generally are valid for ten10 years from the effective date of the license, although recently-issued 600 MHz licenses were issued for a slightly longer initial term to account for the need for broadcast television incumbents to vacate the spectrum before the new wireless licensees could construct. Licensees may renew their licenses (including renewal of 600 MHz licenses) for additional ten10 year periods by filing renewal applications with the FCC. Our 600 MHz wireless licenses all expire in 2029. Our other wireless licenses in the U.S.US expire between 20192021 and sometime after 2030. We intend to renew our licenses expiring this year, and the renewal applications are subject to FCC review and are put out for public comment to ensure that the licensees meet their licensing requirements and comply with other applicable FCC mandates. Failure to file for renewal of these licenses or failure to meet any licensing requirements could lead to a denial of the renewal application and thus adversely affect our ability to continue to provide service in that license area. Furthermore, our compliance with regulatory requirements, such as E-911 and CALEA requirements, may depend on the availability of necessary equipment or software.
In our international markets, telecommunications licenses are typically issued and regulated by the applicable telecommunications ministry. The application and renewal process for these licenses may be lengthy, require us to expend substantial renewal fees, and/or be subject to regulatory or legislative uncertainty, such as we are experiencing in Guyana, as described above. Failure to comply with these regulatory requirements may have an adverse effect on our licenses or operations and could result in sanctions, fines or other penalties.
Rapid and significant technological changes in the telecommunications industry may adversely affect us.
Our industry faces rapid and significant changes in technology that directly impact our business, including the following:
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Economic Risks
For us to keep pace with these technological changes and remain competitive, at a minimum we must continue to make significant capital expenditures to add to our networks’ capacity, coverage and technical capability. For example, we have spent considerable amounts adding higher speed and capacity mobile data services to many of our networks in recent years and we think it likely that more such expenditures, including adding LTE mobile data and 5G fixed wireless access services technologies, will be needed over the next few years.
We cannot predict the effect of technological changes on our business. Alternative or new technologies may be developed that provide communications services superior to those available from us, which may adversely affect our business. For example, to accommodate the demand from our wireless customers for next‑generation advanced wireless products such as high‑speed data and streaming video, we may be required to purchase additional spectrum, however, we have had difficulty finding spectrum for sale or on terms that are acceptable to us. In addition, usage of wireless voice or broadband services in excess of our expectations could strain our capacity, causing service disruptions and
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result in higher operating costs and capital expenditures. In each of our markets, providing more and higher speed data services through our wireless or wireline networks may require us to make substantial investments in additional telecommunications transport capacity connecting our networks to the Internet, and in some cases such capacity may not be available to us on attractive terms or at all. Failure to provide these services or to upgrade to new technologies on a timely basis and at an acceptable cost could have a material adverse effect on our ability to compete with carriers in our markets.
We rely on a limited number of key suppliers and vendors for timely supply of handsets, accessories, equipment and services relating to our network or Facility infrastructure. If these suppliers or vendors experience problems or favor our competitors, we could fail to obtain sufficient quantities of the products and services we require to operate our businesses successfully.
We depend on a limited number of suppliers and vendors for equipment and services relating to our handset lineup, network infrastructure, solar equipment and our back‑office IT systems infrastructure. If these suppliers experience interruptions or other problems delivering these network components and other equipment on a timely basis, our subscriber or revenue growth and operating results could suffer significantly.
We source wireless devices for our retail wireless businesses from a small number of handset resellers and to a lesser extent, equipment manufacturers and depend on access to compelling devices at reasonable prices on primary and secondary markets for these devices, as well as timely delivery of devices to meet market demands. The inability to provide a competitive device lineup could materially impact our ability to attract new customers and retain existing customers. We are also reliant upon a limited number of network equipment manufacturers, including Ericsson and Nokia and a limited number of solar equipment manufacturers, including GCL for photovoltaic modules and Satcon for inverters.
We are also dependent on the ability of our solar equipment manufacturers to fulfill the warranties on our solar equipment, which typically range from 5 to 25 years in length, in the event of equipment malfunction. If these suppliers cease operations or for some reason default on their warranties, we would have to bear the expense of repairing or replacing any faulty equipment. Our business, financial condition, results of operations and cash flows could be materially adversely affected if we cannot make claims under warranties covering our Facilities. If it becomes necessary to seek alternative suppliers and vendors, we may be unable to obtain satisfactory replacement suppliers or vendors on economically attractive terms on a timely basis.
Changes in our relationships with our vendors, changes in tax policy or trade relations, interruptions in our supply chain or increased commodity or supply chain costs could adversely affect our results of operations.
A number of our equipment suppliers and vendors are based outside the United States, with China serving as one of our primary non-U.S. sources for our international telecommunications and solar equipment. Because a large portion of our equipment is sourced, directly or indirectly, from outside the United States, major changes in tax policy or trade relations, such as the disallowance of tax deductions for imported products or the imposition of additional tariffs or duties on imported products, could adversely affect our business, results of operations, effective income tax rate, liquidity and net income.
We are actively evaluating investment, acquisition and other strategic opportunities, which may affect our long‑term growth prospects.
We actively evaluate acquisition, investment, business divestitures and combinations, and other strategic opportunities, both domestic and international, in telecommunications, energy‑related and other industries, including in areas that may not be seen by the broader market as timely today. We may focus on opportunities that we believe have potential for long‑term organic and strategic growth or that may otherwise satisfy our return and other investment criteria. Any acquisition or investment that we might make outside of the telecommunications or solar industries would pose the risk inherent in our entering into a new, unrelated business, including the ability of our holding company management team to effectively oversee the management team of such operations. Similarly, there are risks inherent in
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the sale of a business or assets, including the potential of a transaction’s failing to close due to last minute negotiations, regulatory issues, or other unpredictable matters that can be costly and disruptive to our operations. There can be no assurance as to whether, when or on what terms we will be able to invest in, acquire or divest any businesses or assets or that we will be able to successfully integrate the business or realize the perceived benefits of any acquisition or strategic investment. Any such transactions may be accomplished through the payment of cash, issuance of shares of our capital stock or incurrence of additional debt, or a combination thereof. As of December 31, 2018, we had approximately $193.3 million in cash, cash equivalents, restricted cash, and short term investments and approximately $91.0 million of long‑term debt. How and when we deploy our balance sheet capacity will figure prominently in our longer‑term growth prospects and stockholder returns.
Increased competition may adversely affect growth, require increased capital expenditures, result in the loss of existing customers and decrease our revenues.
We face competition in the markets in which we operate. For example:
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Over the last decade, an increase in competition in many areas of the telecommunications industry has contributed to a decline in prices for communication services, including mobile wireless services, local and long‑distance telephone service and data services. Increased competition in the industry may further decrease prices. In addition, increased competition in the telecommunications and renewable energy industries could reduce our customer base, require us to invest in new facilities and capabilities and result in reduced revenues, margins and returns.
Our International Telecom segment operates mainly in island locations, where a limited number of providers maintain strong competition in these small markets. In several of our markets, we hold a dominant position as the local incumbent carrier and in others we may have a competitive advantage in our ability to bundle some combination of voice, data, video and wireless services. Increased competition, whether from new entrants or increased capital investment by our competitors in their existing networks, will make it more difficult for us to attract and retain customers in our small markets, which could result in lower revenue and cash flow from operating activities.
General economic factors, domestically and internationally, may adversely affect our business, financial condition and results of operations.
General economic factors could adversely affect demand for our products and services, require a change in the services we sell or have a significant impact inon our operating costs. Energy costs are historically volatile and are subject to fluctuations arising from changes in domestic and international supply and demand, labor costs, competition, market speculation, government regulations, or weather conditions. Rapid and significant changes in these and other commodity prices may affect our sales and profit margins. General economic conditions can also be affected by the outbreak of war, acts of terrorism, or other significant national or international events.events, such as the COVID-19 pandemic.
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In addition, an economic downturn in the markets in which we currently operate or in the global market generally may lead to slower economic activity, increased unemployment, concerns about inflation, decreased consumer confidence and other adverse business conditions that could have an impact on our businesses. For example, among other thingsthings:
| ● | a decrease in tourism could negatively affect revenues and growth opportunities from operations in the islands and in a number of areas covered by |
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| an increase in “bad |
28 In 2020 we saw a decrease in tourism in all of our tourism-dependent markets. Government imposed shutdowns and travel restrictions limited the amount of customers roaming onto our network, in addition to depressing demand for our services generally in the hospitality industry (e.g. hotels, bars, and restaurants) that is traditionally supported by the tourism industry. Further, we also started to see population flight from some of our island markets as lockdowns continued. It is unknown what the long-term economic effects of these negative impacts on the tourism industry will be, but our business operations and revenue may certainly be adversely impacted as a result. |
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The long-term impact, if any, that these events might have on us and our business, is uncertain.
Our operations are subject to economic, political, currency and other risks that could adversely affect our revenues or financial position.
Our operations may face adverse financial consequences and operational problems due to political or economic changes, such as changes in national or regional political or economic conditions, laws and regulations that restrict repatriation of earnings or other funds, or changes in foreign currency exchange rates. As new laws and regulations are issued or discontinued to implement an agenda set by the current U.S.US administration, we may be required to materially modify our business plans or operations. For example, some of our markets in our International Telecom segment are cash-based economies where customers come into our stores to pay their bills in cash. Where local governments have imposed lockdowns requiring people to stay home and/or the closure of retail locations, we run the risk of not being able to collect monthly invoices as expected. Any of these changes could adversely affect our revenues or financial position.
In India in particular, our exposure to the fluctuation in the value of the rupee will have a direct impact on our ability to meet expected returns projected in U.S. dollars or make payment on any debt denominated in U.S. dollars. Any further currency fluctuation could have a material adverse impact on our ability to realize the returns we projected in making such investments.
Our ability to recruit and retain experienced management and technical personnel could adversely affect our results of operations and ability to maintain internal controls.
The success of our business depends on the ability of our executive officers and the officers of our operating units to develop and execute on our business plan, and to identify and pursue new opportunities and product innovations, as well as on our ability to attract and retain these officers and other highly qualified technical and management personnel. If our executive officers and the officers of our operating units are not able to execute on our business plan, this could adversely affect our business, financial condition and results of operations. Furthermore, we believe that there is, and will continue to be, strong competition for qualified personnel in the communications and energy industries and in our markets, and we cannot be certain that we will be able to attract and retain the personnel necessary for the development of our business. We rely heavily on local management to run our operating units. Many of the markets in which we operate are small and remote, making it difficult to attract and retain talented and qualified managers and staff in those markets. The loss of key personnel or the failure to attract or retain personnel with the sophistication to run complicated telecommunications or solar equipment, networks and systems could have a material adverse effect on our business, financial condition and results of operations. We do not currently maintain “key person” life insurance on any of our key employees and none of the executives at our parent company have executed employment agreements.
In addition, cultural differences abroad and local practices of conducting business in our foreign operations may not be in line with the business practices, recordkeeping and ethics standards in the United States. In order to continue to ensure compliance with foreign and U.S. laws, accounting standards and our own corporate policies, we have implemented financial and operational controls, created an internal audit team responsible for monitoring and ensuring compliance with our internal accounting controls, and routinely train our employees, vendors and consultants. However, having substantial foreign operations also increases the complexity and difficulty of developing, implementing and
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monitoring these internal controls and procedures. If we are unable to manage these risks effectively, it could have a material adverse effect on our business, financial condition and results of operations.
Risks Related to Our Capital Structure
Our debt instruments include restrictive and financial covenants that limit our operating flexibility.
The credit facilities that we and our subsidiaries maintain include certain financial and other covenants that, among other things, restrict our ability to take specific actions, even if we believe such actions are in our best interest. These include restrictions on our ability to do the following:
| ● | incur additional debt; | ||||||
| ● | create liens or negative pledges with respect to our assets; | ||||||
| ● | pay dividends or distributions on, or redeem or repurchase, our capital stock; | ||||||
| ● | make investments, loans or advances or other forms of payments; | ||||||
| ● | issue, sell or allow distributions on capital stock of specified subsidiaries; | ||||||
| ● | enter into transactions with affiliates; or | ||||||
| ● | merge, consolidate or sell our assets. | ||||||
Any failure to comply with the restrictions of the credit facilities or any subsequent financing agreements may result in an event of default. Such default may allow our creditors to accelerate the repayment of the related debt and may result in the acceleration of the repayment of any other debt to which a cross‑accelerationcross-acceleration or cross‑defaultcross-default provision applies. In addition, these creditors may be able to terminate any commitments they had made to provide us with further funds.
Other Risks
Our founder is our largest stockholder and will continue tocould exert significant influence over us.
Cornelius B. Prior, Jr., our founder and the father of our Chairman and Chief Executive Officer, together with related entities, affiliates and family members (including our Chairman and Chief Executive Officer), beneficially owns approximately 27%26% of our outstanding Common Stock. As a result, he is ablehas the ability to exert significant influence over all matters presented to our stockholders for approval, including election and removal of our directors and change of control transactions. His interests may not always coincide with the interests of other holders of our Common Stock.
29
Low trading volume of our stock may limit our stockholdersstockholders’ ability to sell shares and/or result in lower sale prices.
For the three months prior to February 1, 2019,2021, the average daily trading volume of our Common Stock was approximately 68,00049,000 shares. As a result, our stockholders may have difficulty selling a large number of shares of our Common Stock in the manner or at a price that might be attainable if our Common Stock were more actively traded. In addition, the market price of our Common Stock may not be reflective of its underlying value.
We may not pay dividends in the future.
Our stockholders may receive dividends out of legally available funds if, and when, they are declared by our Board of Directors. We have consistently paid quarterly dividends in the past, but may cease to do so or decrease the dividend amount at any time. Our credit facility sets certain limitations on our ability to pay dividends on, or repurchase, our capital stock. We may incur additional indebtedness in the future that may further restrict our ability to declare and pay dividends. We may also be restricted from paying dividends in the future due to restrictions imposed by applicable state laws, our financial condition and results of operations, capital requirements, management’s assessment of future capital needs and other factors considered by our Board of Directors.
34
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
We lease approximately 21,000 square feet of office space at 500 Cummings Center, Beverly, MA 01915 for our corporate headquarters. Worldwide, we utilize the following approximate square footage of space for our operations:
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| International |
| Renewable |
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| | International | | | | Renewable | | |||||||
Type of space |
| U.S. Telecom |
| Telecom |
| Energy |
| | Telecom | | US Telecom | | Energy | |
Office |
| 65,038 |
| 287,503 |
| 5,720 |
|
| 287,467 | | 94,385 | | 2,810 | |
Retail stores |
| 16,177 |
| 27,290 |
| — |
|
| 24,182 | | 17,011 | | — | |
Technical operations |
| 115,631 |
| 1,933,296 |
| — |
|
| 1,941,049 | | 130,616 | | — | |
All of the above locations are leased except for the office and technical space within our International Telecom segment, which we own. As of December 31, 2018,2020, we operated twelvefourteen retail stores in our U.S.US Telecom segment and nineteentwenty two retail stores in our International Telecom segment.
Our offices and technical operations are in the following locations:
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International Telecom | | US Telecom | | Renewable Energy | | ||
Georgetown, Guyana |
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Little Rock, AR |
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| Hyderabad, India |
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| Singapore |
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US Virgin Islands | Atlanta, GA |
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Cayman Islands | | | | | |
Within our telecommunicationscommunications operations, we globally own 277286 towers, lease an additional 376373 towers and have five switch locations within rented locations. In addition, our renewable energy operations own 52MW65 MWp commercial solar projects at 5six sites. We consider our owned and leased properties to be suitable and adequate for our business operations.
30
ITEM 3. LEGAL PROCEEDINGS
Our Guyana subsidiary, Guyana Telephone & Telegraph, Ltd. (“GTT”)GTT holds an exclusive license to provide domestic fixedFixed services and international voice and data services in Guyana. The license, whose initial term of twenty years expired at the end of 2010, allowed for GTT at its sole option, to extend the term for an additional twenty years, until December 2030. GTT exercised its extension right, in accordance with the terms of its License and its agreement with the Government of Guyana, in November 2009.
In 2016,On October 5, 2020, the GovernmentPrime Minister of Guyana passed newformally implemented telecommunications legislation introducingpreviously passed by the Guyana Parliament in 2016 that introduces material changes to many features of Guyana’s existing telecommunications regulatory regime with the intention of introducing additional competition into Guyana’s telecommunications sector. The legislationcreating a more competitive market. At that passed, however,time, we were issued a new license to provide domestic and international voice as well as data services and mobile services in Guyana. Two of our competitors were issued service licenses as well. While we have requested details of our competitors’ licenses, such information has not been made public by the Guyana Telecommunications Agency, and we are not yet able to ascertain whether the licenses issued to our competitors permit any competitors to provide services that have been implemented and does not include a provision that permits other telecommunications carrierssubject to receive licenses automatically upon signing of the legislation, nor does it have the effect of terminating the Company’sGTT’s exclusive rights contained in its 1990 license. Instead the legislation as passed requires the Minister of Telecommunications to conduct further proceedings and issue implementing orders to enact the various provisions of the legislation. We have met with
On October 23, 2020, the Government of Guyana includingalso brought into effect new telecommunications regulations called for by the telecommunications legislation. The regulations include new requirements for the market as recently as December 2018 to discuss modifications of the Company’s exclusivity rightsa whole, which impact our operations, administrative reporting and other rights under its existing agreement and license. However, thereservices. There can be no assurance that those discussionsthese regulations will be concluded before the Government issues new licenses as contemplated by the legislation or at all,effectively implemented, or that they will satisfactorily address our contractual exclusivity rights. Although the Company believes that it would be entitled to
35
damages or other compensation for any involuntary termination of its contractual exclusivity rights, it cannot guarantee that the Company would prevailadministered in a proceeding to enforce its rights or that its actions would effectively halt any unilateral action by the Government.fair and transparent manner.
In November 2007, Caribbean Telecommunications Limited (“CTL”) filed a complaint in the U.S. District Court for the District of New Jersey against GTT and ATN claiming breach of an interconnection agreement for domestic cellular services in Guyana and related claims. CTL asserted over $200 million in damages. GTT and ATN moved to dismiss the complaint on procedural and jurisdictional grounds. On January 26, 2009, the court granted the motions to dismiss the complaint on the grounds asserted. In November 2009 and again in April 2013, CTL filed and then abandoned a similar claim against GTT and the PUC in the High Court of Guyana. CTL once more filed a similar claim against the Company in December 2017, seeking damages of $25 million; however, this matter was dismissed in May 2018. CTL made an untimely filing for an appeal thereafter, which the court subsequently denied. The Company continues to believe this claim is without merit and intends to vigorously defend against it.
On May 8, 2009, Digicel filed a lawsuit in Guyana challenging the legality of GTT’s exclusive license rights under Guyana’s constitution. Digicel initially filed this lawsuit against the Attorney General of Guyana in the High Court. On May 13, 2009, GTT petitioned to intervene in the suit in order to opposedefend against Digicel’s claims and that petition was granted on May 18, 2009. GTT filed an answer to the charge on June 22, 2009, and the case is pending. We believe that any legal challenge to GTT’s exclusive license rights granted in 1990 is without merit, and we intend to vigorously defend against such a legal challenge.
GTT has filed several lawsuits in the High Court of Guyana asserting that Digicel is engaged in international bypass in violation of GTT’sGTT’s exclusive license rights, the interconnection agreement between the parties, and the laws of Guyana. GTT is seeking injunctive relief to stop the illegal bypass activity and punitive damages caused thereby. Digicel filed counterclaims alleging that GTT has violated the terms of the interconnection agreement and Guyana laws. These suits, filed in 2010 and 2012, have been consolidated with Digicel’s constitutional challenge described aboveabove. Prior to the imposition of COVID-19 related travel and isbusiness restrictions in Guyana, the consolidated cases were scheduled to proceed to trial in 2020. GTT expects to resume the second quarterlitigation following the lifting of 2019. GTT COVID-19 related restrictions and intends to vigorously prosecute these matters.matters vigorously; however, we cannot accurately predict at this time when the consolidated suit will go to trial.
GTT is also involved in several legal claims regarding its tax filings with the Guyana Revenue Authority dating back to 1991 regarding the deductibility of intercompany advisory fees as well as other tax assessments. ShouldWe maintain that any liability GTT might be held liable for any offound to have with respect to the disputed tax assessments, totaling $44.1 million, the Company believes that the Government of Guyana would then be obligated to reimburse GTT for anyoffset in part by the amounts necessary to ensure that GTT’s return on investment was no less than 15% per annum for the relevant periods.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
3631
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our Common Stock, $.01 par value, is listed on the Nasdaq Global Select Market under the symbol “ATNI.” The number of holders of record of Common Stock as of February 28, 2019 was 87.
Issuer Purchases of Equity Securities in the Fourth Quarter of 2018
On September 19, 2016, our Board of Directors authorized the repurchase of up to $50.0 million of our common stock from time to time on the open market or in privately negotiated transactions (the “2016 Repurchase Plan”). As of December 31, 2018, we have $37.7 million remaining authorized to be repurchased under the 2016 Repurchase Plan.
The following table reflects the repurchases by the Company of its Common Stock during the quarter ended December 31, 2018:
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| Number (or |
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| (c) |
| Approximate |
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| (b) |
| Total Number of |
| Dollar Value) of |
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| (a) |
| Average |
| Shares Purchased |
| Shares that May |
| ||
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| Total Number |
| Price |
| as Part of Publicly |
| be Purchased |
| ||
|
| of Shares |
| Paid per |
| Announced Plans |
| Under the Plans or |
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Period |
| Purchased (1) |
| Share |
| or Programs |
| Programs |
| ||
October 1, 2018 — October 31, 2018 |
| 11,479 | (1) | $ | 79.44 | (1) | — |
| $ | 37,690,086 |
|
November 1, 2018 — November 30, 2018 |
| 87,245 | (2) |
| 84.25 | (2) |
|
| $ | 37,690,086 |
|
December 1, 2018 — December 31, 2018 |
| — |
|
| — |
| — |
| $ | 37,690,086 |
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37
Stock Performance Graph
The graph below matches ATN International's cumulative 5-Year total shareholder return on common stock with the cumulative total returns of the Russell 2000 index, the S&P Smallcap 600 index, and the NASDAQ Telecommunications index. The graph tracks the performance of a $100 investment in our common stock and in each index (with the reinvestment of all dividends) from 12/31/2013 to 12/31/2018.
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| 12/13 | 12/14 | 12/15 | 12/16 | 12/17 | 12/18 |
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ATN International |
| 100.00 | 121.70 | 143.24 | 149.34 | 104.64 | 136.92 |
Russell 2000 |
| 100.00 | 104.89 | 100.26 | 121.63 | 139.44 | 124.09 |
S&P Smallcap 600 |
| 100.00 | 105.76 | 103.67 | 131.20 | 148.56 | 135.96 |
NASDAQ Telecommunications |
| 100.00 | 102.75 | 100.20 | 106.61 | 130.48 | 130.76 |
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The stock price performance included in this graph is not necessarily indicative of future stock price performance
38
ITEM 6. SELECTED FINANCIAL DATA
You should read the selected financial data in conjunction with our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Consolidated Financial Statements for the years ended December 31, 2018, 2017 and 2016 and the related Notes to those Consolidated Financial Statements included in this Report. The historical results set forth below are not necessarily indicative of the results of future operations. Period to period comparisons are also significantly affected by our significant acquisitions. See Notes 5 to the Consolidated Financial Statements included in this Report for a more detailed discussion of our recent acquisitions and discontinued operations.
The selected Consolidated Income Statement data for the years ended December 31, 2018, 2017 and 2016 and the selected Consolidated Balance Sheet data as of December 31, 2018 and 2017 are derived from our Consolidated Financial Statements beginning on page F-1 of this Annual Report on Form 10-K. The selected Consolidated Income Statement data for the years ended December 31, 2015 and 2014 and the selected Consolidated Balance Sheet data as of December 31, 2016, 2015 and 2014 are derived from our Consolidated Financial Statements not included in this Annual Report on Form 10-K.
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| Year ended December 31, |
| |||||||||||||
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| 2018 |
| 2017 |
| 2016 |
| 2015 |
| 2014 |
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| (In thousands, except per share data) |
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Income Statement Data |
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Revenue |
| $ | 451,207 |
| $ | 481,193 |
| $ | 457,003 |
| $ | 355,369 |
| $ | 336,347 |
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Operating expenses |
|
| 390,184 |
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| 425,885 |
|
| 405,733 |
|
| 276,774 |
|
| 250,771 |
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Income from operations |
|
| 61,023 |
|
| 55,308 |
|
| 51,270 |
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| 78,595 |
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| 85,576 |
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Other income (expense): |
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Interest income |
|
| 1,811 |
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| 1,613 |
|
| 1,239 |
|
| 588 |
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| 788 |
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Interest expense |
|
| (7,973) |
|
| (8,838) |
|
| (5,362) |
|
| (3,180) |
|
| (1,208) |
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Other, net(1) |
|
| (1,119) |
|
| (530) |
|
| (1,773) |
|
| (19,802) |
|
| 1,012 |
|
Other income (expense), net |
|
| (7,281) |
|
| (7,755) |
|
| (5,896) |
|
| (22,394) |
|
| 592 |
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Income from continuing operations before income taxes |
|
| 53,742 |
|
| 47,553 |
|
| 45,374 |
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| 56,201 |
|
| 86,168 |
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Income (benefit) provisions |
|
| 18,870 |
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| (1,341) |
|
| 21,160 |
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| 24,137 |
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| 28,148 |
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Income from continuing operations |
|
| 34,872 |
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| 48,894 |
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| 24,214 |
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| 32,064 |
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| 58,020 |
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Income from discontinued operations, net of tax |
|
| — |
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| — |
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| — |
|
| 1,092 |
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| 1,102 |
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Net income |
|
| 34,872 |
|
| 48,894 |
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| 24,214 |
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| 33,156 |
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| 59,122 |
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Net income attributable to non‑controlling interests, net of tax |
|
| (15,057) |
|
| (17,406) |
|
| (12,113) |
|
| (16,216) |
|
| (10,970) |
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Net income attributable to ATN International, Inc. Stockholders |
| $ | 19,815 |
| $ | 31,488 |
| $ | 12,101 |
| $ | 16,940 |
| $ | 48,152 |
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Net income per weighted average basic share attributable to ATN International, Inc. Stockholders: |
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Continuing operations |
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| 1.24 |
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| 1.95 |
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| 0.75 |
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| 0.99 |
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| 2.96 |
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Discontinued operations |
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| — |
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| — |
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| — |
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| 0.07 |
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| 0.07 |
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Total |
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| 1.24 |
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| 1.95 |
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| 0.75 |
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| 1.06 |
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| 3.03 |
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Net income per weighted average diluted share attributable to ATN International, Inc. Stockholders: |
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Continuing operations |
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| 1.24 |
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| 1.94 |
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| 0.75 |
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| 0.98 |
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| 2.94 |
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Discontinued operations |
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| — |
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| — |
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| — |
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| 0.07 |
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| 0.07 |
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Total |
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| 1.24 |
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| 1.94 |
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| 0.75 |
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| 1.05 |
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| 3.01 |
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Dividends per share applicable to common stock |
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| 0.68 |
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| 1.02 |
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| 1.32 |
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| 1.22 |
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| 1.12 |
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39
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| 2018 |
| 2017 |
| 2016 |
| 2015 |
| 2014 |
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| (In thousands) |
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Balance Sheet Data (as of December 31,): |
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Cash, restricted cash, and short term investments |
| $ | 193,300 |
| $ | 226,966 |
| $ | 297,595 |
| $ | 398,346 |
| $ | 371,394 |
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Assets of discontinued operations |
|
| — |
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| — |
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| — |
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| — |
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| 175 |
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Working capital |
|
| 135,116 |
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| 181,223 |
|
| 217,264 |
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| 384,137 |
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| 347,305 |
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Fixed assets, net |
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| 626,852 |
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| 643,146 |
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| 647,712 |
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| 373,503 |
|
| 369,582 |
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Total assets |
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| 1,107,304 |
|
| 1,205,605 |
|
| 1,198,218 |
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| 945,004 |
|
| 925,030 |
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Short‑term debt (including current portion of long‑term debt) |
|
| 4,688 |
|
| 10,919 |
|
| 12,440 |
|
| 6,284 |
|
| 6,083 |
|
Liabilities of discontinued operations |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 1,247 |
|
Long‑term debt, net |
|
| 86,294 |
|
| 144,873 |
|
| 144,383 |
|
| 26,575 |
|
| 32,794 |
|
ATN International, Inc. stockholders’ equity |
|
| 695,387 |
|
| 688,727 |
|
| 677,055 |
|
| 680,299 |
|
| 677,222 |
|
Statement of Cash Flow Data |
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(for the years ended December 31,): |
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Net cash provided by (used in): |
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Operating activities: |
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|
|
|
|
|
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|
Continuing operations |
| $ | 115,865 |
| $ | 145,725 |
| $ | 111,656 |
| $ | 139,079 |
| $ | 82,699 |
|
Discontinued operations |
|
| — |
|
| — |
|
| — |
|
| 158 |
|
| (4,719) |
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
| (87,319) |
|
| (172,318) |
|
| (296,580) |
|
| (31,971) |
|
| (74,467) |
|
Discontinued operations |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
| (55,230) |
|
| (42,101) |
|
| 75,334 |
|
| (41,438) |
|
| (33,904) |
|
Discontinued operations |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
Capital expenditures |
|
| (185,921) |
|
| (142,371) |
|
| (124,282) |
|
| (64,753) |
|
| (58,300) |
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|
40
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We are a holding company that, directly and through our subsidiaries, owns and operates telecommunications and renewable energy businesses in North America, India, Bermuda and the Caribbean. We were incorporated in Delaware in 1987, began trading publicly in 1991 and spun off more than a half of our operations to stockholders in 1998. Since that time, we have engaged in many strategic acquisitions and investments to help grow our operations, using the cash generated from our established operating units to re-invest in our existing businesses and to make strategic investments in earlier stage businesses. We look for businesses that offer growth opportunities or potential strategic benefits, but that require additional capital investment in order to execute on their business plans. We hold controlling positions with respect to some of our investments and minority positions in others. These strategic investments frequently offer a product and service development component in addition to the prospect of generating returns on our invested capital. For a discussion of the risks involved in our investment strategy, see “Risk Factors—We are actively evaluating investment, acquisition and other strategic opportunities, which may affect our long‑term growth prospects.” We have identified three operating segments to manage and review our operations, and to facilitate investor presentations of our results, as follows:
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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 December 31, 2018:
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We actively evaluate potential acquisitions, investment opportunities and other strategic transactions, both domestic and international, that meet our return on investment and other criteria. In addition, we consider non-
41
controlling investments in earlier stage businesses that we consider strategically relevant, and which may offer long-term growth potential for us, either individually, or as research and development businesses that can support our operating subsidiaries in new product and service development and offerings. We provide management, technical, financial, regulatory, and marketing services to our subsidiaries and typically receive a management fee equal to a percentage of their revenues, which is eliminated in consolidation. For information about our financial segments and geographical information about our operating revenues and assets see Notes 1 and 16 to the Consolidated Financial Statements included in this Report.
Acquisitions
U.S. Telecom
In July 2016, we acquired certain telecommunications fixed assets and the associated operations in the western United States. Results of operations for the business are included in the U.S. Telecom segment and are not material to our historical results of operations.
International Telecom
During 2016, we completed the acquisitions of One Communications and Viya (the “2016 International Telecom Acquisitions”).
One Communications (formerly KeyTech Limited)
On May 3, 2016, we completed our acquisition of a controlling interest in One Communications Ltd. (formerly known as KeyTech Limited, “One Communications”), a publicly held Bermuda company listed on the Bermuda Stock Exchange (“BSX”) that provides broadband and video services and other telecommunications services to residential and enterprise customers in Bermuda and the Cayman Islands (the “One Communications Acquisition”).
Viya (formerly Innovative)
On July 1, 2016, we completed an acquisition of all of the membership interests of Caribbean Asset Holdings LLC (“CAH”), the holding company for the group of companies operating video services, Internet, wireless and landline services in the U.S. Virgin Islands, British Virgin Islands and St. Maarten (collectively, “Viya”) (the “Viya Transaction”). In April 2017, the U.S. Virgin Islands operations and our existing wireless operations rebranded their tradenames from “Innovative” and “Choice”, respectively, to “Viya.” Subsequent to the Viya Transaction, we sold the acquired businesses in St. Maarten and the British Virgin Islands, as further described in “Dispositions” below.
Renewable Energy
Vibrant Energy
On April 7, 2016, we completed our acquisition of a solar power development portfolio in India (the “Vibrant Energy Acquisition”). The business operates under the name Vibrant Energy. We also retained several employees in India who are employed by us to oversee the development, construction and operation of Indian solar projects. These projects are initially located in the states of Andhra Pradesh and Telangana and are based on a commercial and industrial business model, similar to the operating model we followed for our renewable energy operations in the United States, which we sold in November 2018.
Platform and Minority Investments
U.S. Telecom
During the second quarter of 2018, we invested in a new platform, based inthe United States, to develop in-building wireless network technology that enables building owners to capitalize on the growing demand for better indoor
42
wireless solutions. Also during the second quarter of 2018, we provided funding for another new platform, based in the United States, seeking to “build to suit” large scale fiber networks to serve the telecommunications and content provider industries in need of lower latency long haul fiber transit services.
International Telecom
In 2017, we completed our investment in a technology solutions business based in Bermuda that provides a variety of cloud-based managed services and information technology solutions for enterprise hosted software applications.
In 2017 we also made a minority investment in an Australian-based tower operator.
Dispositions
U.S. Telecom
On March 8, 2017, we completed the sale of our integrated voice and data communications and wholesale transport businesses in New England and New York for consideration of $25.9 million (the “Sovernet Transaction”). The consideration included $20.9 million of cash, $3.0 million of receivables and $2.0 million of contingent consideration. The contingent consideration represented the fair value of payments related to certain operational milestones of the disposed assets. The value of the contingent consideration was up to $4.0 million based on whether or not certain operational milestones were achieved by December 31, 2017. In September 2017, based on progress toward achieving the operational milestones, and the December 31, 2017 deadline under which to do so, management determined that earning the contingent consideration was unlikely. As a result, the fair value of the contingent consideration was reduced to zero. The amount was recorded as a loss on disposition of assets within operating income during the year ended December 31, 2017. This disposition does not qualify as discontinued operations because the disposition did not represent a strategic shift that has a major effect on our operations and financial results.
International Telecom
On August 18, 2017, we completed the sale of the Viya cable operations located in the British Virgin Islands.
On January 3, 2017, we completed the sale of the Viya cable operations located in St. Maarten.
On December 15, 2016, we transferred control of our subsidiary in Aruba to another stockholder in a nonreciprocal transfer.
These dispositions do not qualify as discontinued operations because the dispositions did not represent a strategic shift that had a major effect on our operations and financial results.
Renewable Energy (U.S. Operations)
On November 6, 2018, we completed the sale of our U.S. solar business that owned and managed distributed generation solar power projects operated under the Ahana name in Massachusetts, California and New Jersey (the “U.S. Solar Operations”). The transaction had a total value of approximately $122.6 million, which included a cash purchase price of $65.3 million and the assumption of approximately $57.3 million in debt, and is subject to certain other post-closing adjustments (the “U.S. Solar Transaction”). Approximately $6.5 million of the purchase price will be held in escrow for a period of twelve months after the closing to secure our indemnification obligations. We recorded a gain of $12.4 million upon the completion of the sale.
The U.S. Solar Transaction does not qualify as a discontinued operation because the disposition does not represent a strategic shift that has a major effect on our operations and financial results.
43
Universal Service Fund
The Federal Universal Service Fund (‘USF’) is a subsidy program managed by the FCC. USF funds are disbursed to telecommunication providers through four programs: the High Cost Program; Low Income Program; Schools and Libraries Program (“E-Rate”); and Rural Health Care Program. We participate in High Cost Program, Low Income Program, Schools and Libraries Programs, and Rural Health Care Support programs as further described below. All of the funding programs are subject to certain operational and reporting compliance requirements. We believe we are in compliance will all applicable requirements.
The FCC’s Mobility Funds and Connect America Funds are administered through the High Cost Program. The High-Cost Support program subsidizes telecommunications services in rural and remote areas. The FCC created the Phase I Mobility Fund (“Phase I Mobility Fund”), a one-time award meant to support wireless coverage in underserved geographic areas in the United States.
We received $21.1 million of Phase I Mobility Fund support to our wholesale wireless business (the “Mobility Funds”) to be used to expand voice and broadband networks in certain geographic areas in order to offer either 3G or 4G service. Of these funds, $7.2 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. The remaining $13.9 million received offset operating expenses from inception of the program through part of the third quarter of 2018. The Mobility Funds projects and their operating results are included within our U.S. Telecom segment. As part of the receipt of the Mobility Funds, we committed to comply with certain additional FCC construction and other requirements. If the requirements are not met the funds may be subject to claw back provisions. We currently expect to comply with all applicable requirements related to these funds.
During the years ended December 31, 2018, 2017 and 2016, we recorded $16.5 million, $16.5 million, and $8.2 million, respectively, of revenue from High Cost Support in our International Telecom segment for our U.S. Virgin Islands operations. Also, during each year ended December 31, 2018, 2017 and 2016, we recorded $1.2 million of High Cost Support revenue in our US Telecom segment. We are subject to certain operational, reporting and construction requirements as a result of this funding and we believe that we are in compliance with all of these requirements. In addition, we recorded revenue of $15.5 million during the year ended December 31, 2018, from additional funding authorized by the FCC following the Hurricanes.
In August 2018, we were awarded $79.9 million over 10 years under the Connect America Fund Phase II Auction. The funding requires we to provide fixed broadband and voice services to certain eligible areas in the United States. We are subject to operational and reporting requirements under the program. We determined the award is a revenue grant and as a result will record the funding as revenue upon receipt. We expect to begin receiving funds under the Connect America Fund Phase II program during mid-2019.
The E-Rate program provides discounted telecommunication access to eligible schools and libraries. The E-Rate program awards (i) special construction funding to build network connectivity for eligible participants, and (ii) pays for discounted recurring charges for eligible broadband services. The special construction funding is used to reimburse construction costs and is distributed upon completion of a project. As of December 31, 2018, we were awarded approximately $15.4 million of E-Rate grants with construction completion obligations between June 2019 and June 2020. Once these projects are constructed we are obligated to provide service to the E-Rate program participants. We are in various stages of constructing the networks and have not received any of the funds. We expect to meet all requirements associated with these grants.
We also receive funding to provide discounted telecommunication services to eligible customers under the E-Rate, Lifeline, and Rural Health Care Support Programs. During the years ended December 31, 2018, 2017, and 2016 we recorded revenue of $8.2 million, $10.2 million, and $11.0 million, respectively, in the aggregate from these programs. We are subject to certain operational and reporting requirements under the above mentioned programs and we believe that we are in compliance with all of these requirements.
44
Tribal Bidding Credit
As part of the broadcast television spectrum incentive auction, the FCC implemented a tribal lands bidding credit to encourage deployment of wireless services utilizing 600 MHz spectrum on the lands of federally recognized tribes. We received a bidding credit of $7.4 million under this program in 2018. A portion of these funds will be used to offset network capital costs and a portion will be used to offset the costs of supporting the networks. Our current estimate is that we will use $5.4 million to offset capital costs and, consequently, reduce future depreciation expense and $2.0 million to offset the cost of supporting the network which will reduce future operating expense. The credits are subject to certain requirements, including deploying service by January 2021 and meeting minimum coverage metrics. If the requirements are not met the funds may be subject to claw back provisions. We currently expect to comply with all applicable requirements related to these funds.
Impact of Hurricanes
During September 2017, the economy, our customer base and our operations in the U.S. Virgin Islands were severely impacted by Hurricanes Irma and Maria (collectively, the “Hurricanes”). Both our wireless and wireline networks and commercial operations were severely damaged by these storms. As a result of the significant damage to our wireline network and the lack of consistent commercial power in the territory, we were unable to provide most of our wireline services, which comprise the majority of our revenue in this business, after the Hurricanes and through a majority of 2018.
During the year ended December 31, 2017, we recorded a net pre-tax loss within our consolidated statement of operations of $4.0 million. This loss consisted of $35.4 million for the write off of damaged assets, net of insurance recoveries of $34.6 million, for which we received the proceeds in February 2018. This loss also included $3.2 million of additional operating expenses that we specifically incurred to address the impact of the Hurricanes.
During the year ended December 31, 2018, we received $15.5 million in additional funding from the Federal Communications Commission’s (“FCC”) Universal Service Fund (“USF”) to further subsidize our operations in the U.S. Virgin Islands that was recorded as revenue. This level of additional funding is not expected to continue in future periods.
During the years ended December 31, 2017 and 2018, we spent $8.6 million and $80.2 million, respectively, for network restoration and resiliency enhancements that allowed the reconnection of a significant majority of affected households and businesses as of the period end. We expect that our wireline network restoration work is substantially complete, however, returning our revenue to pre-Hurricane levels may take significant time as a result of population movements, the economic impact the Hurricanes had on the market, and our subscriber base’s appetite for continued wireline services.
45
Selected Segment Financial Information
The following represents selected segment information for the years ended December 31, 2018 and 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2018 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| U.S. |
| International |
| Renewable |
| Corporate and |
|
|
| ||||
|
| Telecom |
| Telecom |
| Energy |
| Other (1) |
| Consolidated | |||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wireless |
| $ | 108,878 |
| $ | 89,946 |
| $ | — |
| $ | — |
| $ | 198,824 |
Wireline |
|
| 6,602 |
|
| 223,623 |
|
| — |
|
| — |
|
| 230,225 |
Renewable Energy |
|
| — |
|
| — |
|
| 22,158 |
|
| — |
|
| 22,158 |
Total Revenue |
|
| 115,480 |
|
| 313,569 |
|
| 22,158 |
|
| — |
|
| 451,207 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
| 36,813 |
|
| 45,022 |
|
| 13,440 |
|
| (34,252) |
|
| 61,023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2017 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| U.S. |
| International |
| Renewable |
| Corporate and |
|
|
| ||||
|
| Telecom |
| Telecom |
| Energy |
| Other (1) |
| Consolidated | |||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wireless |
| $ | 143,028 |
| $ | 89,473 |
| $ | — |
| $ | — |
| $ | 232,501 |
Wireline |
|
| 12,695 |
|
| 215,132 |
|
| — |
|
| — |
|
| 227,827 |
Renewable Energy |
|
| — |
|
| — |
|
| 20,865 |
|
| — |
|
| 20,865 |
Total Revenue |
|
| 155,723 |
|
| 304,605 |
|
| 20,865 |
|
| — |
|
| 481,193 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
| 55,317 |
|
| 28,308 |
|
| 5,179 |
|
| (33,496) |
|
| 55,308 |
A year-to-date comparison of our segment results is as follows:
U.S. Telecom. Revenue within our U.S. Telecom segment decreased by $40.2 million, or 25.8%, to $115.5 million from $155.7 million for the years ended December 31, 2018 and 2017, respectively.
Revenue within our wireless operations decreased by $34.1 million, or 23.8%, to $108.9 million from $143.0 million for the years ended December 31, 2018 and 2017, respectively. All of this decrease was attributable to our wholesale wireless operations which had its revenue negatively impacted by $9.6 million relating to the July 2018 sale of 100 cell sites with the remaining $24.5 million decrease resulting from a reduction in wholesale roaming rates, reduced roaming traffic, and the impact of contractual revenue caps with certain carriers. Revenue from our retail wireless operations remained unchanged at $18.1 million for the years ended December 31, 2018 and 2017.
Revenue within our wireline operations decreased by $6.1 million, or 48.0%, to $6.6 from $12.7 for the years ended December 31, 2018 and 2017, respectively. The impact of the Sovernet Transaction resulted in a decrease in revenue of $4.2 million. In addition, a decline in traffic volumes within our wholesale long-distance services resulted in a decrease of $1.9 million in that business.
Operating expenses within our U.S. Telecom segment decreased $19.4 million, or 19.3%, to $81.0 million from $100.4 million for the years ended December 31, 2018 and 2017, respectively. This decrease in operating expenses was primarily related to the July 2018 sale of 100 cell sites and the related $15.2 gain recognized on such transaction as well as a $4.0 million decrease related to the Sovernet Transaction.
As a result of the above, our U.S. Telecom segment’s operating income decreased $18.5 million, or 33.5%, to $36.8 million from $55.3 million for the years ended December 31, 2018 and 2017, respectively.
46
International Telecom. Revenues within our International Telecom segment increased $9.0 million, or 3.0%, to $313.6 million from $304.6 million for the years ended December 31, 2018 and 2017, respectively.
During the year ended December 31, 2018, we received $15.5 million in additional funding from the Federal Communications Commission’s (“FCC”) Universal Service Fund (“USF”) to further subsidize our operations in the U.S. Virgin Islands that was recorded as revenue. This level of additional funding is not expected to continue in future periods. The impact of this additional funding on our revenues was offset by the impact of the Hurricanes and the sale of our operations in the British Virgin Islands in August 2017 which reported $3.1 million of revenue during the year ended December 31, 2017.
An increase in broadband revenues and the addition of our new managed services and technology platform, which began operations in September 2017, increased our revenues within the International Telecom market.
Operating expenses within our International Telecom segment decreased by $7.7 million, or 2.8%, to $268.6 million from $276.3 million for the years ended December 31, 2018 and 2017, respectively. The decrease was primarily the result of a $3.2 million reduction in hurricane-related expenses (including a loss on damaged assets and other hurricane-related charges, net of insurance recovery) and a $3.8 million reduction in television programming and other variable costs that were not incurred as a result of the impact of the Hurricanes.
As a result, our International Telecom segment’s operating income increased $16.7 million, or 59.0%, to $45.0 million from $28.3 million for the years ended December 31, 2018 and 2017, respectively.
Renewable Energy. Revenue within our Renewable Energy segment increased $1.3 million, or 6.2%, to $22.2 million from $20.9 million for the year ended December 31, 2018 and 2017, respectively, primarily as a result of a $3.2 million increase in revenue from our newly completed solar power plants in India partially offset by a $1.9 million decrease in revenue in our U.S. operations primarily as a result of the U.S. Solar Transaction.
Operating expenses within our Renewable Energy segment decreased by $6.9 million, or 43.9%, to $8.8 million from $15.7 million for the years ended December 31, 2018 and 2017, respectively, primarily related to the $11.9 million gain on the U.S. Solar Transaction.
As a result of the above, our Renewable Energy segment’s operating income increased by $8.2 million, or 157.7%, to $13.4 million from $5.2 million for the years ended December 31, 2018 and 2017, respectively.
47
The following represents a year over year discussion and analysis of our results of operations for the years ended December 31, 2018 and 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended |
| Amount of |
| Percent |
| |||||
|
| December 31, |
| Increase |
| Increase |
| |||||
|
| 2018 |
| 2017 |
| (Decrease) |
| (Decrease) |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUE: |
|
|
|
|
|
|
|
|
|
|
|
|
Wireless |
| $ | 198,824 |
| $ | 232,501 |
| $ | (33,677) |
| (14.5) | % |
Wireline |
|
| 230,225 |
|
| 227,827 |
|
| 2,398 |
| 1.1 |
|
Renewable Energy |
|
| 22,158 |
|
| 20,865 |
|
| 1,293 |
| 6.2 |
|
Total revenue |
|
| 451,207 |
|
| 481,193 |
|
| (29,986) |
| (6.2) |
|
OPERATING EXPENSES (excluding depreciation and amortization unless otherwise indicated): |
|
|
|
|
|
|
|
|
|
|
|
|
Termination and access fees |
|
| 114,478 |
|
| 120,624 |
|
| (6,146) |
| (5.1) |
|
Engineering and operations |
|
| 73,031 |
|
| 74,614 |
|
| (1,583) |
| (2.1) |
|
Sales, marketing and customer services |
|
| 35,207 |
|
| 35,184 |
|
| 23 |
| 0.1 |
|
General and administrative |
|
| 104,267 |
|
| 102,294 |
|
| 1,973 |
| 1.9 |
|
Transaction-related charges |
|
| 2,642 |
|
| 1,009 |
|
| 1,633 |
| 161.8 |
|
Restructuring charges |
|
| 515 |
|
| 1,169 |
|
| (654) |
| (55.9) |
|
Depreciation and amortization |
|
| 85,719 |
|
| 86,934 |
|
| (1,215) |
| (1.4) |
|
(Gain) loss on disposition of long-lived assets |
|
| (26,425) |
|
| 101 |
|
| (26,526) |
| (26,263.4) |
|
Loss on damaged assets and other hurricane related charges, net of insurance recovery |
|
| 750 |
|
| 3,956 |
|
| (3,206) |
| (81.0) |
|
Total operating expenses |
|
| 390,184 |
|
| 425,885 |
|
| (35,701) |
| (8.4) |
|
Income from operations |
|
| 61,023 |
|
| 55,308 |
|
| 5,715 |
| 10.3 |
|
OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
| 1,811 |
|
| 1,613 |
|
| 198 |
| 12.3 |
|
Interest expense |
|
| (7,973) |
|
| (8,838) |
|
| 865 |
| (9.8) |
|
Loss on deconsolidation of subsidiary |
|
| — |
|
| (529) |
|
| 529 |
| (100.0) |
|
Other expense, net |
|
| (1,119) |
|
| (1) |
|
| (1,118) |
| (100.0) |
|
Other expense, net |
|
| (7,281) |
|
| (7,755) |
|
| 474 |
| (6.1) |
|
INCOME BEFORE INCOME TAXES |
|
| 53,742 |
|
| 47,553 |
|
| 6,189 |
| 13.0 |
|
Income tax expense (benefit) |
|
| 18,870 |
|
| (1,341) |
|
| 20,211 |
| (1,507.2) |
|
NET INCOME |
|
| 34,872 |
|
| 48,894 |
|
| (14,022) |
| (28.7) |
|
Net income attributable to non-controlling interests, net of tax: |
|
| (15,057) |
|
| (17,406) |
|
| 2,349 |
| (13.5) |
|
NET INCOME ATTRIBUTABLE TO ATN INTERNATIONAL, INC. STOCKHOLDERS |
| $ | 19,815 |
| $ | 31,488 |
| $ | (11,673) |
| (37.1) | % |
Wireless revenue. Our wireless revenue consists of wholesale revenue generated within our U.S. Telecom segment and retail revenue generated within both our U.S. Telecom and International Telecom segments. Within our International Telecom segment, wireless revenue is generated in Bermuda and the Caribbean (including the U.S. Virgin Islands).
Wholesale wireless revenue. Our U.S. Telecom segment generates wholesale wireless revenue from providing mobile voice and 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 as well as tower rental income.
The most significant competitive factor we face in our U.S. Telecom’s 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 a
48
market, 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 lease us spectrum in that area and enter into a contract with specific pricing and terms. Historically, these arrangements typically have included a purchase right in favor of the carrier to purchase that portion of the network for a predetermined price, depending on when the right to purchase is exercised. In July 2018, we completed the previously disclosed sale of approximately 100 cell sites which, under one of these arrangements, generated approximately $4.3 million and $13.9 million of wholesale wireless revenue during the years ended December 31, 2018 and 2017, respectively. We received no additional cash proceeds at closing as the cash proceeds were previously received and deferred under our revenue arrangement.
Retail wireless revenue. Both our U.S. Telecom and International Telecom segments generate retail wireless revenues by providing mobile voice and data services to our subscribers. Retail wireless revenues also include roaming revenues generated by other carriers’ customers roaming into our retail markets and wireless equipment sales, primarily handsets and data modems, as well as real estate rental income.
Wireless revenue decreased by $33.7 million, or 14.5%, to $198.8 million for the year ended December 31, 2018 from $232.5 million for the year ended December 31, 2017. The decreases in wireless revenue, within our segments, consisted of the following:
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|
|
|
We expect wholesale wireless revenue within our U.S. Telecom segment to continue to decline and margins to contract as a result of a reduction in wholesale roaming traffic, previously disclosed contracts that significantly reduce rates and impose revenue caps. Wholesale wireless revenue was also negatively impacted by the July 2018 sale of 100 cell sites. As such, we expect that capital expenditures in this segment will be significantly lower going forward. While we are facing lower revenue as a result of the renegotiated roaming arrangements, we believe that maintaining roaming arrangements favorable to our carrier customers allows us to preserve wholesale revenue for a longer period of time while creating potential for a long‑lived shared infrastructure solution for carriers in areas they may consider to be non-strategic.
We expect wireless revenues within our International Telecom segment to increase as we invest in upgrading our networks and service offerings. Growth in revenue from anticipated subscriber growth in certain markets may be somewhat offset by a decline in roaming revenues due to lower negotiated roaming rates received from our carrier customers. Roaming revenues in these markets are also subject to seasonality and can fluctuate between quarters.
Wireline revenue. Wireline revenue is generated by our U.S. Telecom and International Telecom segments. Within our U.S. Telecom segment, wireline revenue is generated by our wholesale long-distance voice services to telecommunications carriers. Within our International Telecom segment, wireline revenue is generated in Bermuda and the Caribbean (including the U.S. Virgin Islands) and includes internet, voice, and video service revenues as well as revenues from our new managed services and technology business.
49
Wireline revenue increased by $2.4 million, or 1.1%, to $230.2 million from $227.8 million for the years ended December 31, 2018 and 2017, respectively. The changes in wireline revenue, within our segments, consisted of the following:
|
|
|
|
Within our International Telecom segment, we anticipate that wireline revenue may increase (excluding the impact of the additional $15.5 million of USF funding received during 2018) in the next few quarters as we continue to recover from the impact of the Hurricanes in the U.S. Virgin Islands. However, returning revenues to levels reported prior to the Hurricanes will take longer, or may never occur, as a result of the damage caused by the Hurricanes to the economy of the U.S. Virgin Islands and our customer base in that market. In all of our international markets we may incur a decline in video revenues as a result of subscribers using alternative methods to receive video content. We anticipate that wireline revenue from our international long‑distance business in Guyana will continue to decrease as consumers seek to use alternative technology services to place calls as well as a result of 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 implementing recently-passed legislation or new regulations or the lack of enforcement of our exclusive rights. While the loss of our exclusive rights will likely cause an immediate reduction inour wireline revenue, over the longer term such declines may be offset by increased revenue from broadband services to consumers and enterprises in Guyana or an increase in regulated local calling rates in Guyana. We currently cannot predict when or if the Government of Guyana will take any action to implement such legislation or any other action that would otherwise affect our exclusive rights in Guyana. See Note 14 to the Consolidated Financial Statements included in this Report.
Renewable energy revenue. Our Power Purchase Agreements (“PPAs”), which are typically priced at or below local retail electricity rates and allow our customers to secure electricity at predictable and stable prices over the duration of their long-term contract, provide us with high-quality contracted cash flows. Internationally, renewable energy revenue includes the generation of power through PPAs from our solar plants in India. In the United States, until the sale of those operations on November 6, 2018, renewable energy revenue represented revenue from the sale of electricity through PPAs and the sale of Solar Renewable Energy Credits (“SRECs”). During the years ended December 31, 2018 and 2017, our renewable energy operations within the United States generated $16.8 million and $18.7 million of revenue, respectively.
Renewable energy revenue increased by $1.3 million, or 6.2%, to $22.2 million from $20.9 million for the years ended December 31, 2018 and 2017, respectively, primarily as a result of the increase in revenue from our newly completed solar power plants in India, partially offset by a $1.9 million decrease in our U.S. operations primarily as a result of the U.S. Solar Transaction, the expiration of certain incentive energy credits from the state of California and adverse weather conditions in the northeast United States.
We expect that renewable energy will decrease in future periods as compared to 2018 as a result of the U.S. Solar Transaction. However, our renewable energy revenue in India may have moderate growth as additional solar plants in India become operational.
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,
50
video programming costs, other access fees we pay to terminate our calls, telecommunication spectrum fees and direct costs associated with our managed services and technology business and Renewable Energy segment. Termination and access fees also include the cost of handsets and customer resale equipment incurred by our retail businesses.
Termination and access fees decreased by $6.1 million, or 5.1%, to $114.5 million from $120.6 million for the years ended December 31, 2018 and 2017, respectively. Net decreases in termination and access fees, within our segments, consisted of the following:
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|
|
|
|
|
We expect that termination and access fee expenses will remain fairly consistent as a percentage of revenues in future periods.
Engineering and operations expenses. Engineering and operations expenses include the expenses associated with developing, operating and supporting our expanding telecommunications networks and renewable energy operations, including the salaries and benefits paid to employees directly involved in the development and operation of our networks and renewable energy operations.
Engineering and operations expenses decreased by $1.6 million, or 2.1%, to $73.0 million from $74.6 million for the years ended December 31, 2018 and 2017, respectively. The net decrease in engineering and operations, within our segments, consisted of the following:
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|
|
|
|
|
51
|
|
We expect that engineering and operations expenses may increase over the next twelve months as a result of continued post-Hurricane recovery efforts in the U.S. Virgin Islands and then to remain fairly consistent thereafter as a percentage of revenues.
Sales and marketing expenses. Sales and marketing expenses include salaries and benefits we pay to sales personnel, customer service expenses, sales commissions and the costs associated with the development and implementation of our promotion and marketing campaigns.
Sales and marketing expenses remained unchanged at $35.2 million for the year ended December 31, 2018 and 2017. The changes in sales and marketing expenses, within our segments, consisted of the following:
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|
We expect sales and marketing expenses to remain fairly consistent as a percentage of revenues in the longer term but these expenses may increase in the next several quarters to help support the operations that were impacted by the Hurricanes.
General and administrative expenses. General and administrative expenses include salaries, benefits and related costs for general corporate functions including executive management, finance and administration, legal and regulatory, facilities, information technology and human resources. General and administrative expenses also include internal costs associated with our performance of due-diligence in connection with acquisition activities.
General and administrative expenses increased by $2.0 million, or 2.0%, to $104.3 million from $102.3 million for the years ended December 31, 2018 and 2017, respectively. Net increases in general and administrative expenses, within our segments, consisted of the following:
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|
52
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|
We expect general and administrative expenses to increase over the next several quarters as a result of continued post-Hurricane recovery effects in our networks in our International Telecom segment. We also expect to incur additional general and administrative expenses to support our new managed services and technology platform, our new in-building telecom operations, our new large scale fiber network platform and the continued build of our solar operations in India.
Transaction-related charges. Transaction-related charges include the external costs, such as legal, tax, accounting and consulting fees directly associated with acquisition and disposition-related activities, which are expensed as incurred. Transaction-related charges do not include internal costs, such as employee salary and travel-related expenses, incurred in connection with acquisitions or dispositions or any integration-related costs.
We incurred $2.6 million and $1.0 million of transaction‑related charges during the years ended December 31, 2018 and 2017, respectively. The transaction-related charges during the year ended December 31, 2018 were primarily related to the U.S. Solar Transaction within our Renewable Energy segment as well as our new in-building and large scale fiber network platforms within our U.S. Telecom segment. Substantially all of the 2017 expenses were related to the Sovernet Transaction.
Restructuring charges. During the year ended December 31, 2018, we incurred $0.5 million of restructuring charges which were primarily related to the U.S. Solar Transaction. During the year ended December 31, 2017, we incurred $1.2 million of restructuring charges within our Viya operations in connection with the integration of those operations with our legacy operations in the U.S. Virgin Islands.
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 decreased by $1.2 million, or 1.4%, to $85.7 million from $86.9 million for the years ended December 31, 2018 and 2017, respectively. Net decreases in depreciation and amortization expenses, within our segments, consisted primarily of the following:
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53
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We expect depreciation expense to increase as we rebuild our networks in the International Telecom segment that were impacted by the Hurricanes and as we acquire more tangible assets to expand or upgrade our other telecommunications networks, build or acquire solar power generating facilities and amortize intangible assets recorded in connection with acquisitions.
(Gain) loss on disposition of long-lived assets. During the year ended December 31, 2018, we recorded a gain on the disposition of long-lived assets of $26.4 million. Within our U.S. Telecom segment, we recorded a gain of $17.2 million primarily as the result of a $15.2 million gain on the previously disclosed sale of approximately 100 cell sites and a $2.9 million gain on the sale of certain telecommunication licenses. Within our Renewable Energy segment, we recorded a gain on the U.S. Solar Transaction of $12.4 million. These gains were partially offset by a $3.2 million loss recorded in connection with certain asset disposals and settlement agreements within our Renewable Energy segment and a $1.1 million loss on the disposal of miscellaneous assets within our U.S. wireless operations.
Loss on damaged assets and other Hurricane-related charges. During September 2017, the economy, our customer base and our operations in the U.S. Virgin Islands were severely impacted by the Hurricanes.
During the year ended December 31, 2018, we incurred $0.8 million in expenses associated with the procurement of continued building maintenance, security services, the supply of alternative power and related professional fees.
During the year ended December 31, 2017, we recorded a net pre-tax loss within our consolidated statement of operations of $4.0 million. This loss consisted of $35.4 million for the write off of damaged assets, net of insurance recoveries of $34.6 million received in February 2018. This loss also included $3.2 million of additional operating expenses that we specifically incurred to address the impact of the Hurricanes.
Interest income. Interest income represents interest earned on our cash, cash equivalents, restricted cash and short term investment balances.
Interest income increased to $1.8 million from $1.6 million for the years ended December 31, 2018 and 2017, respectively. The increase was primarily related to an increase in the return on our cash, cash equivalents and marketable securities as compared to the previous year.
Interest expense. We incur interest expense on the Viya, One Communications and Ahana debt, commitment fees, letter of credit fees, amortization of debt issuance costs and interest incurred on our outstanding credit facilities.
Interest expense decreased by $0.8 million, or 9.1%, to $8.0 million from $8.8 million primarily as a result of the U.S. Solar Transaction which resulted in the acquirer’s assumption of $57.3 million of our long-term debt.
Loss on deconsolidation of subsidiary. During the year ended December 31, 2017, we recorded a $0.5 million loss on the deconsolidation of a portion our U.S. wireline operations upon the completion of the Sovernet Transaction.
Other income (expense), net. Other income (expense), net represents miscellaneous non-operational income earned and expenses incurred. For the year ended December 31, 2018, other income (expense) was an expense of $1.1 million which was primarily related to $2.4 million in losses on foreign currency transactions partially offset by $1.3 million in income related to some of our employee benefit plans. For the year ended December 31, 2017, other income (expense) was an expense of $1.8 million which was primarily related to a loss on our equity method investment in our Aruba operations of $1.9 million and the net loss on foreign currency transactions of $0.7 million, partially offset by a gain on the sale of marketable securities of $0.8 million.
54
Income taxes. Our effective tax rate for the years ended December 31, 2018 and 2017 was 35.1% and (2.8)%, respectively. The effective tax rate for the year ended December 31, 2018 was primarily impacted by the following items: (i) a $10.6 million net increase of unrecognized tax positions, (ii) a $4.7 million net benefit to record a return to accrual adjustment, (iii) a $1.2 million benefit to recognize a capital loss carryover due to capital gains on sale of wireless licenses, (iv) a $1.4 million net benefit to record a valuation allowance release on an indefinite lived intangible asset, (v) a $1.7 million provision associated with the intercompany sale of assets from the U.S. to the U.S. Virgin Islands, and (vi) the mix of income generated among the jurisdictions in which we operate along with the exclusion of losses in jurisdictions where we cannot benefit from those losses as required by ASC 740-270-30-36(a), primarily in the U.S. Virgin Islands and India.
The effective tax rate for the year ended December 31, 2017 was primarily impacted by the following items: (i) a $10.6 million benefit for the net impact of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) which includes lowering the U.S. corporate income tax rate to 21% effective in 2018 resulting in an $18.0 million benefit from the remeasurement of the deferred tax assets and liabilities, which was partially offset by a provision of $7.4 million on the deemed repatriation of undistributed foreign earnings (ii) a $3.9 million benefit for the net capital transactions related to our businesses in New England, New York, BVI and St. Maarten, (iii) a $3.4 million benefit for an amended return refund claim filed for tax year 2013, (iv) a $4.4 million increase (net) in unrecognized tax benefits related to current year and prior year positions, (v) a $6.1 million provision (net) to record the change in valuation allowance and, (vi) the mix of income generated among the jurisdictions in which we operate.
Our effective tax rate is based upon estimated income before provision for income taxes for the year, composition of the income in different countries, and adjustments, if any, in the applicable quarterly periods for potential tax consequences, benefits and/or resolutions of tax contingencies. Our consolidated tax rate will continue to be impacted by any transactional or one-time items in the future and the mix of income in any given year generated among the jurisdictions in which we operate. Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act, we made reasonable estimates of the effects and recorded provisional amounts in our consolidated financial statements as of December 31, 2017. During 2018 we made adjustments to the provisional amounts, including continued refinements to our deferred taxes of a $0.4 million provision from the $18 million benefit recorded at year-end and a $3.2 million provision on the deemed repatriation of undistributed foreign earnings in addition to the $7.4 million provision recorded at year-end. The accounting for the tax effects of the Tax Act has been completed as of December 22, 2018 as required by Staff Accounting Bulletin No. 118 (“SAB 118”). While we believe we have adequately provided for all tax positions, amounts asserted by taxing authorities could materially differ from our accrued positions as a result of uncertain and complex application of tax law and regulations. Additionally, the recognition and measurement of certain tax benefits include estimates and judgment by management. Accordingly, we could record additional provisions or benefits for U.S. federal, state, and foreign tax matters in future periods as new information becomes available.
Net income attributable to non-controlling interests, net of tax. Net income attributable to non-controlling interests reflected an allocation of $15.1 million and $17.4 million of income generated by our less than wholly-owned subsidiaries for the years ended December 31, 2018 and 2017, respectively, a decrease of $2.3 million or 13.2%. Changes in net income attributable to non-controlling interests, net of tax, within our segments, consisted of the following:
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55
|
Net income (loss) attributable to ATN International, Inc. stockholders. Net income (loss) attributable to ATN International, Inc. stockholders was income of $19.8 million and $31.5 million for the years ended December 31, 2018 and 2017, respectively.
On a per share basis, net income (loss) was income of $1.24 and $1.94 per diluted share for the years ended December 31, 2018 and 2017, respectively.
Selected Segment Financial Information
The following represents selected segment information for the years ended December 31, 2017 and 2016 (in thousands):
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|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2017 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| U.S. |
| International |
| Renewable |
| Corporate and |
|
|
| ||||
|
| Telecom |
| Telecom |
| Energy |
| Other (1) |
| Consolidated | |||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wireless |
| $ | 143,028 |
| $ | 89,473 |
| $ | — |
| $ | — |
| $ | 232,501 |
Wireline |
|
| 12,695 |
|
| 215,132 |
|
| — |
|
| — |
|
| 227,827 |
Renewable Energy |
|
| — |
|
| — |
|
| 20,865 |
|
| — |
|
| 20,865 |
Total Revenue |
|
| 155,723 |
|
| 304,605 |
|
| 20,865 |
|
| — |
|
| 481,193 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
| 55,317 |
|
| 28,308 |
|
| 5,179 |
|
| (33,496) |
|
| 55,308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2016 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| U.S. |
| International |
| Renewable |
| Corporate and |
|
|
| ||||
|
| Telecom |
| Telecom |
| Energy |
| Other (1) |
| Consolidated | |||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wireless |
| $ | 150,044 |
| $ | 94,360 |
| $ | — |
| $ | — |
| $ | 244,404 |
Wireline |
|
| 26,683 |
|
| 163,915 |
|
| — |
|
| — |
|
| 190,598 |
Renewable Energy |
|
| — |
|
| — |
|
| 22,001 |
|
| — |
|
| 22,001 |
Total Revenue |
|
| 176,727 |
|
| 258,275 |
|
| 22,001 |
|
| — |
|
| 457,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
| 49,078 |
|
| 36,910 |
|
| (246) |
|
| (34,472) |
|
| 51,270 |
|
|
A year over year summary of our segment results is as follows:
U.S. Telecom. Revenues within our U.S. Telecom segment decreased by $21.0 million, or 11.9%, to $155.7 million from $176.7 million for the years ended December 31, 2017 and 2016, respectively. Of this decrease, $6.0 million was attributable to our wholesale wireless operations which were subject to reduced wholesale roaming rates and revenue caps with certain carrier customers. This decrease was partially offset by the increase in the number of our base stations and the increase data traffic volumes. In addition, revenue from our retail wireless business decreased $1.5 million as a result of decreased subscribers and traffic volumes. In our wireline businesses, the Sovernet Transaction resulted in a decrease in revenue of $17.0 million which was partially offset by an increase in our wholesale long distance voice services of $3.8 million.
Operating expenses within our U.S. Telecom segment decreased $27.2 million, or 21.3%, to $100.4 million from $127.6 million for the years ended December 31, 2017 and 2016, respectively. This decrease was primarily related to a $16.8 million reduction in operating expenses as a result of the impact of the Sovernet Transaction, expense reductions of approximately $6.0 million implemented over the last several quarters and $3.9 million in expense offsets
56
from funds received under the Phase I Mobility Funds partially offset by the effects of the expansions and upgrades of our networks.
As a result of the above, our U.S. Telecom segment’s operating income increased $6.2 million, or 12.6%, to $55.3 million from $49.1 million for the year ended December 31, 2017 and 2016, respectively.
International Telecom. Revenues within our International Telecom segment increased $46.3 million, or 17.9%, to $304.6 million from $258.3 million for the years ended December 31, 2017 and 2016, respectively. This increase was related to the timing of the 2016 International Telecom Acquisitions. This increase was partially offset by the $19.8 million net impact of the Hurricanes, our sale of our operations in St. Maarten and the British Virgin Islands, and the deconsolidation of our Aruba operations.
Operating expenses within our International Telecom segment increased by $54.7 million, or 24.7%, to $276.1 million from $221.4 million for the years ended December 31, 2017 and 2016, respectively. This increase was related to the timing of the 2016 International Telecom Acquisitions. The increase also includes $4.0 million related to the net impact of the Hurricanes which consisted of a $35.4 million write off of damaged assets, net of insurance recoveries of $34.6 million, and $3.2 million of additional operating expenses. These increases were partially offset by operating efficiencies, the effects of the sale of our operations in St. Maarten and the British Virgin Islands and the deconsolidation of operations in Aruba.
As a result, our International Telecom segment’s operating income decreased $8.4 million, or 22.8%, to $28.5 million from $36.9 million for the years ended December 31, 2017 and 2016, respectively.
Renewable Energy. Revenues within our Renewable Energy segment decreased $1.1 million, or 5.0%, to $20.9 million from $22.0 million for the year ended December 31, 2017 and 2016, respectively, primarily as a result of the expiration of certain incentive energy credits from the state of California and decreased production due to weather conditions in California partially offset by the increase in revenue from our India operations of $1.7 million.
Operating expenses within our Renewable Energy segment decreased $6.5 million, or 29.3%, to $15.7 million from $22.2 million for the years ended December 31, 2017 and 2016, respectively. This decrease in expenses was primarily associated with acquisition-related expenses incurred during 2016 as a part of our Vibrant Energy Acquisition partially offset by increased operating expenses incurred for Vibrant Energy in 2017.
As a result, our Renewable Energy segment’s operating income increased by $5.4 million to income of $5.2 million from a loss of $0.2 million for the years ended December 31, 2017 and 2016, respectively.
57
The following represents a year over year discussion and analysis of our results of operations for the years ended December 31, 2017 and 2016 (in thousands):
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|
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
| Year Ended |
| Amount of |
| Percent |
| |||||
|
| December 31, |
| Increase |
| Increase |
| |||||
|
| 2017 |
| 2016 |
| (Decrease) |
| (Decrease) |
| |||
REVENUE: |
|
|
|
|
|
|
|
|
|
|
|
|
Wireless |
| $ | 232,501 |
| $ | 244,404 |
| $ | (11,903) |
| (4.9) | % |
Wireline |
|
| 227,827 |
|
| 190,598 |
|
| 37,229 |
| 19.5 |
|
Renewable Energy |
|
| 20,865 |
|
| 22,001 |
|
| (1,136) |
| (5.2) |
|
Total revenue |
|
| 481,193 |
|
| 457,003 |
|
| 24,190 |
| 5.3 |
|
OPERATING EXPENSES (excluding depreciation and amortization unless otherwise indicated): |
|
|
|
|
|
|
|
|
|
|
|
|
Termination and access fees |
|
| 120,624 |
|
| 126,443 |
|
| (5,819) |
| (4.6) |
|
Engineering and operations |
|
| 74,614 |
|
| 60,414 |
|
| 14,200 |
| 23.5 |
|
Sales and marketing |
|
| 35,184 |
|
| 30,253 |
|
| 4,931 |
| 16.3 |
|
General and administrative |
|
| 102,294 |
|
| 90,431 |
|
| 11,863 |
| 13.1 |
|
Transaction-related charges |
|
| 1,009 |
|
| 18,064 |
|
| (17,055) |
| (94.4) |
|
Restructuring charges |
|
| 1,169 |
|
| — |
|
| 1,169 |
| 100.0 |
|
Depreciation and amortization |
|
| 86,934 |
|
| 75,980 |
|
| 10,954 |
| 14.4 |
|
Impairment of long-lived assets |
|
| — |
|
| 11,425 |
|
| (11,425) |
| (100.0) |
|
Bargain purchase gain |
|
| — |
|
| (7,304) |
|
| 7,304 |
| (100.0) |
|
(Gain) loss on disposition of long-lived assets |
|
| 101 |
|
| 27 |
|
| 74 |
| 274.1 |
|
Loss on damaged assets and other hurricane related charges, net of insurance recovery |
|
| 3,956 |
|
| — |
|
| 3,956 |
| 100.0 |
|
Total operating expenses |
|
| 425,885 |
|
| 405,733 |
|
| 20,152 |
| 5.0 |
|
Income from operations |
|
| 55,308 |
|
| 51,270 |
|
| 4,038 |
| 7.9 |
|
OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
| 1,613 |
|
| 1,239 |
|
| 374 |
| 30.2 |
|
Interest expense |
|
| (8,838) |
|
| (5,362) |
|
| (3,476) |
| 64.8 |
|
Loss on deconsolidation of subsidiary |
|
| (529) |
|
| — |
|
| (529) |
| (100.0) |
|
Other expense, net |
|
| (1) |
|
| (1,773) |
|
| 1,772 |
| (99.9) |
|
Other expense, net |
|
| (7,755) |
|
| (5,896) |
|
| (1,859) |
| 31.5 |
|
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES |
|
| 47,553 |
|
| 45,374 |
|
| 2,179 |
| 4.8 |
|
Income tax provisions (benefit) |
|
| (1,341) |
|
| 21,160 |
|
| (22,501) |
| (106.3) |
|
NET INCOME |
|
| 48,894 |
|
| 24,214 |
|
| 24,680 |
| 101.9 |
|
Net income attributable to non‑controlling interests, net of tax: |
|
| (17,406) |
|
| (12,113) |
|
| (5,293) |
| 43.7 |
|
NET INCOME ATTRIBUTABLE TO ATN INTERNATIONAL, INC. STOCKHOLDERS |
| $ | 31,488 |
| $ | 12,101 |
| $ | 19,387 |
| 160.2 | % |
Wireless revenue. Wireless revenue decreased by $11.9 million, or 4.9%, to $232.5 million for the year ended December 31, 2017 from $244.4 million for the year ended December 31, 2016. The decreases in wireless revenue, within our segments, consisted of the following:
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|
58
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|
|
Wireline revenue. Wireline revenue increased by $37.2 million, or 19.5%, to $227.8 million from $190.6 million for the years ended December 31, 2017 and 2016, respectively. The increases in wireline revenue, within our segments, consisted of the following:
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|
|
|
Renewable energy revenue. Renewable energy revenue decreased $1.1 million, or 5.0%, to $20.9 million from $22.0 million for the years ended December 31, 2017 and 2016, respectively. The decrease was primarily the result of the expiration of certain incentive energy credits from the state of California and decreased production due to weather conditions in California. This decrease was partially offset by a $1.7 million increase in revenue recognized by our Vibrant Energy operations in India.
Termination and access fee expenses. Termination and access fees decreased by $5.8 million, or 4.6%, to $120.6 million from $126.4 million for the years ended December 31, 2017 and 2016, respectively. Decreases in termination and access fees, within our segments, consisted of the following:
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|
|
|
|
|
59
Engineering and operations expenses. Engineering and operations expenses increased by $14.2 million, or 23.5%, to $74.6 million from $60.4 million for the years ended December 31, 2017 and 2016, respectively. The net increase in engineering and operations, within our segments, consisted of the following:
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|
|
|
|
|
Sales and marketing expenses. Sales and marketing expenses increased by $4.9 million, or 16.2%, to $35.2 million from $30.3 million for the years ended December 31, 2017 and 2016, respectively. The net increase in sales and marketing expenses, within our segments, consisted of the following:
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|
|
|
General and administrative expenses. General and administrative expenses increased by $11.9 million, or 13.2%, to $102.3 million from $90.4 million for the years ended December 31, 2017 and 2016, respectively. Net increases in general and administrative expenses, within our segments, consisted of the following:
|
|
|
|
|
|
|
|
60
Transaction-related charges. We incurred $1.0 million and $16.3 million of transaction‑related charges during the years ended December 31, 2017 and 2016, respectively. Substantially all of the 2017 expenses were related to the Sovernet Transaction. For the year ended December 31, 2016, substantially all of the expenses were related to our 2016 International Telecom and Vibrant Energy Acquisitions.
Restructuring Charges. During the year ended December 31, 2017, we incurred $1.2 million of restructuring charges within our Viya operations. During the year ended 31, 2016, we incurred $1.8 million restructuring costs within our One Communications operations. These charges were incurred in connection with the integration of these businesses with ATN’s legacy operations in those locations.
Depreciation and amortization expenses. Depreciation and amortization expenses increased by $10.9 million, or 14.3%, to $86.9 million from $76.0 million for the year ended December 31, 2017 and 2016, respectively. Increases in depreciation and amortization expenses, within our segments, consisted primarily of the following:
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Impairment of long-lived assets. During 2016, as a result of industry consolidation activities and a review of strategic alternatives for our U.S. wireline business in the Northeast, we identified factors indicating the carrying amount of certain assets may not be recoverable. More specifically, the factors included the competitive environment, recent industry consolidation and our view of future opportunities in the market which began to evolve in the second quarter of 2016. As a result of these factors, the analysis concluded that certain wireline assets in the U.S. Telecom segment were overvalued. As a result, we recorded a non-cash impairment charge of $11.4 million during the year ended December 31, 2016. The impairment reduced the carrying values of long lived assets by $3.6 million, goodwill by $7.5 million and a tradename by $0.3 million.
Bargain purchase gain.In connection with the One Communications Acquisition, we recorded a bargain purchase gain of $7.3 million during the year ended December 31, 2016. The purchase price and resulting bargain purchase gain were the result of the market conditions and competitive environment in which One Communications operates along with the Company's strategic position and resources in those same markets. Both companies realized that their combined resources would accelerate the transformation of both companies to better serve customers in these markets. The bargain purchase gain is included in operating income within our International Telecom segment in the accompanying income statement for the year ended December 31, 2016.
61
Loss on damaged assets and other Hurricane-related charges, net of insurance recovery. During September 2017, our operations and customers in the U.S. Virgin Islands were severely impacted by the Hurricanes. Both our wireless and wireline networks and commercial operations were severely damaged by these storms.
As a result of the Hurricanes, we recorded a net pre-tax loss within our consolidated statement of operations of $4.0 million during the year ended December 31, 2017. This loss consists of $35.4 million for the write off of damaged assets, net of insurance recoveries of $34.6 million for which we received the proceeds in February 2018. This net loss also includes $3.2 million of additional operating expenses that we specifically incurred to address the impact of the Hurricanes.
Interest income. Interest income increased to $1.6 million from $1.2 million for the year ended December 31, 2017 and 2016, respectively. The effects of an increase in the return on our cash, cash equivalents and marketable securities were partially offset by a decrease in those assets as compared to the previous year.
Interest expense. Interest expense increased by $3.5 million to $8.8 million from $5.4 million for the year ended December 31, 2017 and 2016, respectively. The increase predominantly reflects the interest incurred on debt used to finance a portion of the Viya Acquisition, the term loans assumed with the One Communications Acquisition, refinanced on May 22, 2017 and the increased loan balance on the Ahana Debt which was refinanced on December 19, 2016.
Loss on deconsolidation of subsidiary. During the year ended December 31, 2017, we recorded a $0.5 million loss on the deconsolidation of our U.S. wireline operations upon the completion of the Sovernet Transaction.
Other income (expense), net. For the year ended December 31, 2017, other income (expense) was a nominal amount which was primarily related to gains on foreign currency transactions of $0.9 million and from the sales of marketable securities of $0.9 million. These gains were partially offset by the losses of an unconsolidated affiliate of $1.9 million. For the year ended December 31, 2016, other income (expense) was an expense of $1.8 million which was primarily related to $1.5 million of expenses associated with certain employee benefit plans and the losses of an unconsolidated affiliate of $0.8 million partially offset by a $0.5 million gain on a foreign currency transaction.
Income taxes. Our effective tax rate for the years ended December 31, 2017 and 2016 was (2.8)% and 46.6%, respectively. The effective tax rate for the year ended December 31, 2017 was primarily impacted by the following items: (i) a $10.6 million benefit for the net impact of Tax Act which included lowering the U.S. corporate income tax rate to 21% effective in 2018 resulting in an $18.0 million benefit from the remeasurement of the deferred tax assets and liabilities, which was partially offset by a provision of $7.4 million on the deemed repatriation of undistributed foreign earnings, (ii) a $3.9 million benefit for the net capital transactions related to our businesses in New England, New York, British Virgin Islands and St. Maarten, (iii) a $3.4 million benefit for an amended return refund claim filed for tax year 2013, (iv) a $4.4 million increase (net) in unrecognized tax benefits related to current year and prior year positions, (v) a $6.1 million provision (net) to record the change in valuation allowance and, (vi) the mix of income generated among the jurisdictions in which we operate. The effective tax rate for the year ended December 31, 2016 was impacted by the following items: (i) a $3.1 million provision related to certain transactional charges incurred in connection with our acquisitions that had no tax benefit, (ii) a $2.6 million provision related to an impairment charge to write down the value of assets related to our wireline business, (iii) a $2.5 million provision related to the write-off of an unrecoverable tax receivable and (iv) the mix of income generated among the jurisdictions in which we operate. Our effective tax rate is based upon estimated income before provision for income taxes for the year, composition of the income in different countries, and adjustments, if any, in the applicable quarterly periods for potential tax consequences, benefits and/or resolutions of tax contingencies. Our consolidated tax rate will continue to be impacted by any transactional or one-time items in the future and the mix of income in any given year generated among the jurisdictions in which we operate.
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Net income attributable to non-controlling interests. Net income attributable to non-controlling interests reflected an allocation of $17.4 million and $12.1 million of income generated by our less than wholly-owned subsidiaries for the years ended December 31, 2017 and 2016, respectively, an increase of $5.3 million or 43.7%. Changes in net income attributable to non-controlling interests, within our segments, consisted of the following:
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Net income (loss) attributable to ATN International, Inc. stockholders. Net income attributable to ATN International, Inc. stockholders was $31.5 and $12.1 million for the years ended December 31, 2017 and 2016, respectively.
On a per share basis, net income was $1.94 and $0.75 per diluted share for the years ended December 31, 2017 and 2016, respectively.
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 14 to the Consolidated Financial Statements in this Report.
Tax Reform
The Tax Cuts and Jobs Act of 2017 (“2017 Tax Act” also commonly referred to as U.S. tax reform), which was signed into law on December 22, 2017, has resulted in significant changes to the U.S. corporate income tax system and the U.S. Virgin Islands mirror code which replaces “United States” with “U.S. Virgin Islands” throughout the Internal Revenue Code. These changes include a U.S. federal statutory rate reduction from 35% to 21%, which results in a U.S. Virgin Islands rate change of 38.5% to 23.1% under the mirror tax code which allows for a 10% surcharge on the U.S. federal tax rate, 100% expensing of certain qualified capital investments, the elimination or reduction of the alternative minimum tax regime, certain domestic deductions and credits and limitations on the deductibility of interest expense and executive compensation.
The Tax Act also transitions international taxation from a worldwide system to a modified territorial system and includes two base erosion prevention measures on non-U.S. earnings, which has the effect of subjecting certain earnings of our foreign subsidiaries to U.S. taxation as global intangible low taxed income (“GILTI”) and eliminates the deduction of certain payments made to related foreign corporations, and imposes a minimum tax if greater than regular tax under the base-erosion and anti-abuse tax (“BEAT”). These changes became effective beginning in 2018. The Tax Act also includes a one-time mandatory deemed repatriation tax on accumulated foreign subsidiaries' previously untaxed foreign earnings (“the Transition Toll Tax”).
Transition Toll Tax
The Tax Act eliminates the deferral of U.S. income tax on the historical unrepatriated earnings by imposing the Transition Toll Tax, which is a one-time mandatory deemed repatriation tax on undistributed foreign earnings. The
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Transition Toll Tax is assessed on the U.S. shareholder's share of the foreign corporation's accumulated foreign earnings that have not previously been taxed. Earnings in the form of cash and cash equivalents will be taxed at a rate of 15.5% and all other earnings will be taxed at a rate of 8.0%.
Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act, we made reasonable estimates of the effects and recorded provisional amounts in our consolidated financial statements as of December 31, 2017. During 2018, we made adjustments to the provisional amounts, including a $3.2 million provision on the deemed repatriation of undistributed foreign earnings in addition to the $7.4 million provision recorded at year-end. We have completed our determination of the accounting implications for charges related to the Transition Toll Tax.
At December 31, 2018, we continue to assert our earnings are permanently reinvested outside the U.S.. Cash dividends from Guyana were made in 2018, however these distributions are not subject to Guyanese withholding tax and the U.S. state tax impact is minimal.
Effect on Deferred Tax Assets and Liabilities and other Adjustments
Our deferred tax assets and liabilities are measured at the enacted tax rate expected to apply when these temporary differences are expected to be realized or settled. As the Company’s deferred tax liabilities exceed the balance of its deferred tax assets at the date of enactment, the Company has recorded a tax benefit of $18.0 million, reflecting the decrease in the U.S. and U.S. Virgin Islands corporate income tax rates, including the state impact, net of federal benefit. An additional adjustment of $0.4 million was recorded in the three-month period ending September 30, 2018 for temporary differences finalized with the filing of the 2017 tax return. We have completed our accounting for the measurement of deferred taxes.
The BEAT provisions in the Tax Act eliminate the deduction of certain base-erosion payments made to related foreign corporations, and impose a minimum tax if greater than regular tax. We do not expect we will be subject to this tax and therefore have not included any tax impacts of BEAT in our consolidated financial statements for the year ended December 31, 2018. Based on our calculation under the GILTI rules, we do not have an inclusion as of December 31, 2018.
Status of our Assessment
In accordance with SAB 118, we have completed our determination of the accounting implications of the Tax Act as of December 22, 2018.
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, proceeds from dispositions, borrowings under our credit facilities and seller financing. We believe our current cash, cash equivalents, short term investments and availability under our current credit facility will be sufficient to meet our cash needs for at least the next twelve months for working capital needs and capital expenditures.
Uses of Cash
Acquisitions and investments. Historically, we have funded our acquisitions with a combination of cash on hand, borrowings under our credit facilities and seller financing.
We continue to explore opportunities to expand our telecommunications and our international renewable energy businesses or acquire new businesses and licenses in the United States, the Caribbean and elsewhere. Such acquisitions, including acquisitions of renewable energy assets, 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
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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 December 31, 2018, we had approximately $192.9 million in cash, cash equivalents and restricted cash. Of this amount, $28.2 million was held by our foreign subsidiaries and is indefinitely invested outside the United States. The amount held by our foreign subsidiaries decreased $85.7 million from the December 31, 2017 balance of $113.9 million primarily as the result of $64.5 million in dividends paid by our Guyana subsidiary of which $51.6 million was paid to us (and eliminated in consolidation) while the remaining $12.9 million was paid to that subsidiary’s minority shareholder. As the Tax Act resulted in a one-time transition tax on the deemed repatriation of foreign earnings for federal tax purposes, the tax impact of subsequent cash distributions will be primarily limited to foreign withholding tax, foreign exchange gain or loss, where applicable, and state taxes. In addition, we had approximately $91.0 million of debt, net of unamortized deferred financing costs, as of December 31, 2018. How and when we deploy our balance sheet capacity will figure prominently in our longer-term growth prospects and stockholder returns.
Capital expenditures. Historically, a significant use of our cash has been for capital expenditures to expand and upgrade our telecommunications networks and to expand our renewable energy operations.
For the years ended December 31, 2018 and 2017, we spent approximately $185.9 million and $142.4 million, respectively, on capital expenditures. The following notes our capital expenditures, by operating segment, for these periods (in thousands):
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| U.S. |
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| International |
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| Renewable |
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Year ended December 31, |
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| Telecom |
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| Telecom |
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| Energy |
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| Other (1) |
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| Consolidated |
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2018 |
| $ | 13,389 |
| $ | 160,013 | (2) | $ | 4,515 |
| $ | 8,004 |
| $ | 185,921 |
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2017 |
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| 22,230 |
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| 80,912 |
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| 32,738 |
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| 6,491 |
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| 142,371 |
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We are continuing to invest in our telecommunication networks along with our operating and business support systems in many of our markets. Such investments include the upgrade and expansion of both our wireline and wireless telecommunications networks as well as our service delivery platforms. We expect 2019 capital expenditures for our International Telecom segment to be approximately $50 million to $55 million. In our U.S. Telecom segment, we expect capital expenditures to be approximately $13 million to $15 million excluding our new initiatives and early-stage business spending. To a smaller extent we also continue to invest in expanding our renewable energy assets in India, however, continued expansion in the India market is largely dependent on our ability to secure local financing and the timing, terms and conditions of such financing, which are difficult to estimate at this time.
We expect to fund our current capital expenditures primarily from our current cash balances and cash generated from operations but may secure additional financing to support renewable energy capital expenditures in India.
Income taxes. We have historically used cash‑on‑hand to make payments for income taxes. Our policy is to allocate capital where we believe we will get the best returns and to date has been to indefinitely reinvest the undistributed earnings of our foreign subsidiaries. As we continue to reinvest our remaining foreign earnings, outside of dividends from Guyana made in 2018, no additional provision for income taxes has been made on accumulated earnings of foreign subsidiaries.
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Dividends. We use cash-on-hand to make dividend payments to our stockholders when declared by our Board of Directors. For the year ended December 31, 2018, our Board declared $10.9 million of dividends to our stockholders, which includes a $0.17 per share dividend declared on December 12, 2018 and paid on January 10, 2019. We have declared quarterly dividends for the last 81 fiscal quarters.
Stock Repurchase Plan. On September 19, 2016, our Board of Directors authorized the repurchase of up to $50.0 million of our common stock from time to time on the open market or in privately negotiated transactions (the “2016 Repurchase Plan”). During the year ended December 31, 2018, we repurchased $1.6 million under the 2016 Repurchase Plan and have $37.7 million available to be repurchased under that plan as of December 31, 2018.
Debt Service and Other Contractual Commitments Table. The following table discloses aggregate information about our debt, lease and other obligations as of December 31, 2018 and the periods in which payments are due:
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Debt |
| $ | 90,982 |
| $ | 4,688 |
| $ | 7,513 |
| $ | 19,459 |
| $ | 59,322 |
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Pension obligations |
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| 46,734 |
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| 5,022 |
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| 13,823 |
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| 4,355 |
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| 23,534 |
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Operating lease obligations |
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| 71,759 |
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| 21,941 |
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| 31,219 |
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| 12,608 |
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| 5,991 |
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Total |
| $ | 209,475 |
| $ | 31,651 |
| $ | 52,555 |
| $ | 36,422 |
| $ | 88,847 |
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We have omitted uncertain income tax liabilities from this table due to the inherent uncertainty regarding the timing of potential issue resolution. Specifically, either the underlying positions have not been fully developed enough under audit to quantify at this time or the years relating to the issues for certain jurisdictions are not currently under audit. At December 31, 2018, we had $34.0 million of gross unrecognized tax benefits of which $29.0 million is included in “Other Liabilities” and $5.0 million is included in “Accrued Taxes” in the consolidated balance sheet.
Sources of Cash
Total liquidity. As of December 31, 2018, we had approximately $192.9 million in cash, cash equivalents and restricted cash which represents a decrease of $34.1 million from the December 31, 2017 balance of $227.0 million. The decrease is primarily attributable to cash used for capital expenditures of $185.9 million (including $80.2 million for the network repairs and resiliency enhancements of our network in the U.S. Virgin Islands following the Hurricanes), distributions to our minority shareholders of $18.8 million (which includes distributions to the minority shareholder of our Guyana subsidiary of $12.9 million), dividends paid on our common stock of $10.9 million, the repurchase of our common stock of $6.2 million, the principal repayment of our debt of $9.8 million, the repurchase of non-controlling interests of $9.7 million and $3.0 million used for certain strategic investments. These amounts were partially offset by cash provided by our operations of $115.9 million, the receipt of $34.6 million of insurance proceeds relating to the damages we incurred as a result of the Hurricanes, the aggregate net proceeds from the sale of assets and investments of $61.7 million (including $47.3 million received from the U.S. Solar Transaction) and receipt of government grants of $5.4 million.
Cash provided by operations. Cash provided by operating activities was $115.9 million for the year ended December 31, 2018 as compared to $145.7 million for the year ended December 31, 2017. The decrease of $29.8 million was primarily related to a decrease of $31.9 million within our U.S. Telecom segment which was primarily the result of the decrease in wireless revenues due to the reduction in wholesale roaming revenue rates and the impact of the July 2018 sale of 100 cell sites, a decrease of $1.9 million within our International Telecom segment primarily related to the impact of the Hurricanes and a decrease of $4.5 million within our renewable energy segment. These decreases were partially offset by an increase in cash flow from operations of $7.7 million as a result of the timing of payments made for accounts payable and income taxes.
Cash used in investing activities. Cash used in investing activities was $87.3 million and $172.3 million for the years ended December 31, 2018 and 2017, respectively. The year ended December 31, 2018 included $34.6 million of insurance proceeds relating to business interruptions and damages incurred as a result of the Hurricanes, $5.4 million of
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cash received for government grants, $47.3 million in proceeds from the U.S. Solar Transaction and $13.4 million received for the aggregate proceeds on the sale of marketable securities and other investments. The year ended December 31, 2017 included aggregate proceeds of $22.4 million received from the Sovernet Transaction and the sale of our operations in St. Maarten. These cash receipts were offset by capital expenditures of $185.9 million (including $80.2 million for the rebuild of our network in the U.S. Virgin Islands which was impacted by the Hurricanes) during the year ended December 31, 2018 as compared to $142.4 million used for capital expenditures during the year ended December 31, 2017.
Cash used in financing activities. Cash used in financing activities was $55.2 million and $42.1 million during the years ended December 31, 2018 and 2017, respectively. The increase in cash used for financing activities of $13.1 million was primarily related to an $11.9 million increase in the distributions made to minority shareholders (primarily the minority shareholder of our Guyana subsidiary) and a $7.6 million increase in the repurchases of non-controlling interests. These increases were partially offset by an $8.4 million decrease in the dividends paid to our stockholders, a $6.7 million reduction in the amounts we paid to repurchase our common stock and the effects of the refinancing of the One Communications debt which was completed in 2017.
Credit facility. We have a credit facility with CoBank, ACB and a syndicate of other lenders to provide for a $225 million revolving credit facility (the “Credit Facility”) that includes (i) up to $10 million under the Credit Facility for standby or trade letters of credit, (ii) up to $25 million under the Credit Facility for letters of credit that are necessary or desirable to qualify for disbursements from the FCC’s mobility fund and (iii) up to $10 million under a Swingline sub-facility. The Credit Facility has a maturity date of December 31, 2019 and currently we expect to enter into a new agreement before the maturity date. The Credit Facility also provides for the incurrence by us of incremental term loan facilities, when combined with increases to revolving loan commitments, in an aggregate amount not to exceed $200 million (the “Accordion”).
Amounts that we may borrow under the Credit Facility bear interest at a rate equal to, at our option, either (i) the London Interbank Offered Rate (LIBOR) plus an applicable margin ranging between 1.50% to 1.75% or (ii) a base rate plus an applicable margin ranging from 0.50% to 0.75%. Swingline Loans will bear interest at the base rate plus the applicable margin for base rate loans. The base rate is equal to the higher of (i) 1.00% plus the higher of (x) the one-week LIBOR and (y) the one-month LIBOR; (ii) the federal funds effective rate (as defined in the Credit Facility) plus 0.50% per annum; and (iii) the prime rate (as defined in the Credit Facility). The applicable margin is determined based on the ratio (as further defined in the Credit Facility) of our indebtedness to EBITDA. Under the terms of the Credit Facility, we must also pay a fee ranging from 0.175% to 0.250% of the average daily unused portion of the Credit Facility over each calendar quarter.
The Credit Facility contains customary representations, warranties and covenants, including a financial covenant that imposes a maximum ratio of indebtedness to EBITDA as well as covenants limiting additional indebtedness, liens, guaranties, mergers and consolidations, substantial asset sales, investments and loans, sale and leasebacks, transactions with affiliates and fundamental changes. Our investment in “unrestricted” subsidiaries is limited to $400 Million less the aggregate amount of certain dividend payments to our stockholders. Amounts borrowed under the Accordion are also subject to proforma compliance with a net leverage ratio financial covenant. As of December 31, 2018, we were in compliance with all of the financial covenants of the Credit Facility.
As of December 31, 2018, we had no borrowings under the Credit Facility.
Ahana Debt
On December 24, 2014, in connection with the Ahana Acquisition, we assumed $38.9 million in long-term debt (the “Original Ahana Debt”). The Original Ahana Debt included multiple loan agreements with banks that bore interest at rates between 4.5% and 6.0%, matured at various times between 2018 and 2023 and were secured by certain solar facilities. Repayment of the Original Ahana Debt was being made in cash on a monthly basis until maturity.
The Original Ahana Debt also included a loan from Public Service Electric & Gas (the “PSE&G Loan”). The PSE&G Loan bore interest at 11.3%, matured in 2027, and was secured by certain solar facilities. Repayment of the
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Original Ahana Debt with PSE&G could be made in either cash or SRECs, at our discretion, with the value of the SRECs being fixed at the time of the loan’s closing. Historically, we had made all repayments of the PSE&G Loan using SRECs.
On December 19, 2016, Ahana’s wholly-owned subsidiary, Ahana Operations, issued $20.6 million in aggregate principal amount of 4.427% senior notes due 2029 (the “Series A Notes”) and $45.2 million in aggregate principal amount of 5.327% senior notes due 2031 (the “Series B Notes” and collectively with the Series A Notes and the PSE&G Loan, the “Ahana Debt”). Interest and principal were payable semi-annually, until the respective maturity dates of March 31, 2029 (for the Series A Notes) and December 31, 2031 (for the Series B Notes). Cash flows generated by the solar projects that secured the Series A Notes and Series B Notes were only available for payment of such debt and were not available to pay other obligations or the claims of the creditors of Ahana or its subsidiaries. However, subject to certain restrictions, Ahana Operations held the right to the excess cash flows not needed to pay the Series A Notes and Series B Notes and other obligations arising out of the securitizations. The Series A Notes and Series B Notes were secured by certain assets of Ahana and were guaranteed by certain of its subsidiaries.
A portion of the proceeds from the issuances of the Series A Notes and Series B Notes was used to repay the Original Ahana Debt in full except for the PSE&G Loan which remained outstanding after the refinancing.
We capitalized $2.8 million of fees associated with the Series A Notes and Series B Notes which were recorded as a reduction to the debt carrying amount to be amortized over the life of the notes.
On November 6, 2018, we consummated the U.S. Solar Transaction, which included the transfer of the PSE&G Loan, the Series A Notes and Series B Notes to the purchaser. Refer to Note 9 to the Consolidated Financial Statements in this Report.
One Communications Debt
In connection with the One Communications Acquisition on May 3, 2016, we assumed $35.4 million in debt (the “One Communications Debt”) in the form of a loan from HSBC Bank Bermuda Limited. The One Communications Debt was scheduled to mature in 2021, was bearing interest at the three-month LIBOR rate plus a margin of 3.25%, and was repaid quarterly. The One Communications Debt contained customary representations, warranties and affirmative and negative covenants (including limitations on additional debt, guaranties, sale of assets and liens) and a financial covenant that limited the maximum ratio of indebtedness less cash to annual operating cash flow.
On May 22, 2017, we amended and restated the One Communications Debt to increase the original facility by $8.6 million to $37.5 million. The amended and restated debt is scheduled to mature on May 22, 2022 and bears interest at the three-month LIBOR plus a margin ranging between 2.5% to 2.75% paid quarterly. The amended and restated One Communications Debt contains customary representations, warranties and affirmative and negative covenants (including limitations on additional debt, guaranties, sale of assets and liens) and financial covenants that limit the ratio of tangible net worth to long term debt and total net debt to EBITDA and require a minimum debt service coverage ratio (net cash generated from operating activities plus interest expense less net capital expenditures to debt repayments plus interest expense). We were in compliance with its covenants as of December 31, 2018.
As a condition of the amendment of the One Communications Debt, within 90 days of the refinancing we were required to enter into a hedging arrangement with a notional amount equal to at least 30% of the outstanding loan balance and a term corresponding to the term of the One Communications Debt. In July 2017, we entered into an amortizing interest rate swap. This swap has been designated as a cash flow hedge, had an original notional amount of $11.0 million, has an interest rate of 1.874%, and expires in March 2022. As of December 31, 2018, the swap has an unamortized balance of $9.6 million.
In connection with the amendment of the One Communications Debt, we increased the limit of its overdraft facility from $5.0 million to $10.0 million. This facility has an interest rate of three-month LIBOR plus 1.75%.
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We capitalized $0.3 million of fees associated with the One Communications Debt in 2017, which is recorded as a reduction to the debt carrying amount and will be amortized over the life of the debt.
As of December 31, 2018, $31.9 million of the One Communications Debt was outstanding, there were no borrowings under the overdraft facility, and $0.2 million of the capitalized fees remain unamortized.
As of December 31, 2018, One Communications was in compliance with its financial covenants.
Viya Debt (formerly Innovative Debt)
On July 1, 2016, we and certain of our subsidiaries entered into a $60.0 million loan agreement (the “Viya Debt”) with Rural Telephone Finance Cooperative (“RTFC”). The Viya Debt agreement contains customary representations, warranties and affirmative and negative covenants (including limitations on additional debt, guaranties, sale of assets and liens) and a financial covenant that limits the maximum ratio of indebtedness to annual operating cash flow to 3.5 to 1.0 (the “Net Leverage Ratio”). This covenant is tested on an annual basis at the end of each fiscal year. Interest is paid quarterly at a fixed rate of 4.0% and principal repayment is not required until maturity on July 1, 2026. Prepayment of the Viya Debt may be subject to a fee under certain circumstances. The debt is secured by certain assets of our Viya subsidiaries and is guaranteed by us. Earlier in 2018, we began funding the restoration of Viya’s network following the Hurricanes through an intercompany loan arrangement which exceeded certain limitations on Viya incurring additional debt. RTFC consented to these intercompany advances and increased the intercompany debt limit to $50.0 million. Subsequent to the end of the second quarter end, RTFC increased the limit to $75.0 million at our request due to an increase in the on-going restoration and resiliency costs. We were not in compliance with the Net Leverage Ratio covenant for the year ending December 31, 2018 and received a waiver from the RTFC on February 25, 2019.
We paid a fee of $0.9 million in 2016 to lock the interest rate at 4% per annum over the term of the Viya debt. The fee was recorded as a reduction to the Viya debt carrying amount and will be amortized over the life of the loan.
As of December 31, 2018, $60.0 million of the Viya Debt remained outstanding and $0.7 million of the rate lock fee was unamortized.
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 and renewable energy industries.
Restrictions under Credit Facility. Our Credit Facility contains customary representations, warranties and covenants, including covenants 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 a financial covenant that imposes a maximum ratio of indebtedness to EBITDA. As of December 31, 2018, 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 and renewable energy industries, our financial performance, the state of the capital markets and our compliance with Securities and Exchange Commission (“SEC”) requirements for the offering of securities. On May 12, 2017, the SEC declared effective our “universal” shelf registration statement. This filing registered potential future offerings of our securities
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Foreign Currency
We translate the assets and liabilities of our foreign subsidiaries from their respective functional currencies, primarily the Indian Rupee and the Guyana Dollar, to U.S. dollars at the appropriate rates as of the balance sheet date. Changes in the carrying value of these assets and liabilities attributable to fluctuations in rates are recognized in foreign currency translation adjustment, a component of Accumulated Other Comprehensive Income on our balance sheet. Income statement accounts are translated using the monthly average exchange rates during the year. During the year ended December 31, 2018, we recorded a $2.4 million loss on foreign currency transactions. We will continue to assess the impact of our exposure to both the Indian Rupee and the Guyana dollar.
Inflation
We do not believe that inflation has had a significant impact on our consolidated operations in any of the periods presented in this Report.
We have based our discussion and analysis of our financial condition and results of operations on our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (or GAAP). We base our estimates on our operating experience and on various conditions existing in the market and we believe them to be reasonable under the circumstances. Our estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions.
Critical Accounting Estimates
We have identified the critical accounting estimates that we believe require significant judgment in the preparation of our Consolidated Financial Statements. We consider these accounting estimates to be critical because changes in the assumptions or estimates we have selected have the potential of materially impacting our financial statements.
Revenue Recognition. In determining the appropriate amount of revenue to recognize for a particular transaction, we apply the criteria established by the authoritative guidance for revenue recognition and defer those items that do not meet the recognition criteria. As a result of the cutoff times of our billing cycles, we are often required to estimate the amount of revenues earned but not billed from the end of each billing cycle to the end of each reporting period. These estimates are based primarily on rate plans in effect and historical evidence with each customer or carrier. Adjustments affecting revenue can and occasionally do occur in periods subsequent to the period when the services were provided, billed and recorded as revenue, however historically these adjustments have not been material.
We apply judgment when assessing the ultimate realization of receivables, including assessing the probability of collection and the current credit‑ worthiness of customers. We establish an allowance for doubtful accounts sufficient to cover probable and reasonably estimable losses. Our estimate of the allowance for doubtful accounts considers collection experience, aging of the accounts receivable, the credit quality of customer and, where necessary, other macro‑economic factors.
Goodwill and Long‑Lived Intangible Assets. In accordance with the authoritative guidance regarding the accounting for impairments or disposals of long‑lived assets and the authoritative guidance for the accounting for goodwill and other intangible assets, we evaluate the carrying value of our long‑lived assets, including property and equipment, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss exists when estimated undiscounted cash flows attributable to non‑current assets subject to depreciation and amortization and discounted cash flows for intangible assets not subject to amortization are less than their carrying amount. For long lived assets other than goodwill, if an asset is deemed to be impaired, the amount of the impairment loss recognized represents the excess of the asset’s carrying value as compared to its estimated fair value, based on management’s assumptions and projections.
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Our estimates of the future cash flows attributable to our long‑lived assets and the fair value of our businesses involve significant uncertainty. Those estimates are based on management’s assumptions of future results, growth trends and industry conditions. If those estimates are not met, we could have additional impairment charges in the future, and the amounts may be material.
We also assess the carrying value of goodwill and indefinite‑lived intangible assets on an annual basis or more frequently if events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable. The carrying value of each reporting unit, including goodwill assigned to that reporting unit, is compared to its fair value. If the carrying value of the reporting unit, including goodwill, exceeds the fair value of the reporting unit an impairment charge is recorded equal to the excess, but not more than the total amount of goodwill allocated to the reporting unit.
We assess the recoverability of the value of our telecommunications licenses using a market approach. We believe that our telecommunications licenses generally have an indefinite life based on historical ability to renew such licenses, that such renewals may be obtained indefinitely and at little cost, and that the related technology used is not expected to be replaced in the foreseeable future. If the value of these assets was impaired by some factor, such as an adverse change in the subsidiary’s operating market, we may be required to record an impairment charge. We test the impairment of our telecommunications licenses annually or more frequently if events or changes in circumstances indicate that such assets might be impaired. The impairment test consists of a comparison of the fair value of telecommunications licenses with their carrying amount on a license by license basis.
In the third quarter of 2017, we determined that the damage caused by the Hurricanes caused a triggering event requiring us to assess the related reporting unit’s goodwill and indefinite lived intangible assets for impairment. After consideration of the write-downs of fixed assets within the reporting unit, the impairment test for goodwill and indefinite lived intangible assets was performed by comparing the fair value of the reporting unit to its carrying amount. We calculated the fair value of the reporting unit by utilizing an income approach, with Level 3 valuation inputs, including a cash flow discount rate of 14.5%. Determining fair value requires the exercise of significant judgment, including judgments about appropriate discount rates, perpetual growth rates, and the amount and timing of expected future cash flows. The discount rate was based on a weighted‑average cost of capital, which represents the average rate the business would pay its providers of debt and equity. The cash flows employed in the discounted cash flow analysis were derived from internal and external forecasts. The impairment assessment concluded that no impairment was required for the goodwill and indefinite lived intangible assets because the fair value of the reporting unit exceeded its carrying amount.
We also performed our annual impairment assessment of our goodwill and telecommunications licenses as of December 31, 2018 for all of our reporting units and determined that no impairment relating to our goodwill and telecommunications licenses existed during the year ended December 31, 2018.
Contingencies. We are subject to proceedings, lawsuits, tax audits and other claims related to lawsuits and other legal and regulatory proceedings that arise in the ordinary course of business as further described in Note 14 to the Consolidated Financial Statements included in this Report. We are required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses. A determination of the amount of loss accruals required, if any, for these contingencies are made after careful analysis of each individual issue. We consult with legal counsel and other experts where necessary in connection with our assessment of any contingencies. The required accrual for any such contingency may change materially in the future due to new developments or changes in each matter. We estimate these contingencies amount to approximately $44.0 million at December 31, 2018. We believe that some adverse outcome is probable and have accordingly accrued $5.0 million as of December 31, 2018 for these matters.
Recent Accounting Pronouncements
See Note 2 to the Consolidated Financial Statements included in this Report.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Translation and Remeasurement, We translate the assets and liabilities of our foreign subsidiaries from their respective functional currencies, primarily the Indian Rupee and the Guyana Dollar, to U.S. dollars at the appropriate rates as of the balance sheet date. Changes in the carrying value of these assets and liabilities attributable to fluctuations in rates are recognized in foreign currency translation adjustment, a component of Accumulated Other Comprehensive Income on our balance sheet. Income statement accounts are translated using the monthly average exchange rates during the year.
Monetary assets and liabilities denominated in a currency that is different from a reporting entity’s functional currency must first be remeasured from the applicable currency to the legal entity’s functional currency. The effect of this remeasurement process is reported in other income on our income statement.
Employee Benefit Plan. We sponsor pension and other postretirement benefit plans for employees of certain subsidiaries. Net periodic pension expense is recognized in our income statement. We recognize a pension or other postretirement plan’s funded status as either an asset or liability in our consolidated balance sheet. Actuarial gains and losses are reported as a component of other comprehensive income and amortized through other income in subsequent periods.
Interest Rate Sensitivity. As of December 31, 2018, we had $31.9 million of variable rate debt outstanding, which is subject to fluctuations in interest rates. Our interest expense may be affected by changes in interest rates. We believe that a 10% increase in the interest rates on our variable rate debt would have an immaterial impact on our Financial Statements. We may have additional exposure to fluctuations in interest rates if we again borrow amounts under our revolver loan within our Credit Facility
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted as a separate section to this Report. See “Item 15. Exhibits, Financial Statement Schedules.”
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2018. Disclosure controls and procedures, as defined in Rules 13a‑15(e) and 15d‑15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s (“SEC”) rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost‑benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of December 31, 2018, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
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Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a‑15(f) and 15d‑15(f) promulgated under the Exchange Act, as a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer or persons performing similar functions, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
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Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2018. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control—Integrated Framework (2013). Based on its assessment, management concluded that, as of December 31, 2018, our internal control over financial reporting was effective based on those criteria.
Our internal control over financial reporting as of December 31, 2018 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears on page F‑2.
Changes in Internal Control Over Financial Reporting.
There were no changes in our internal control over financial reporting (as defined in Rules 13a‑15(f) and 15d‑15(f) under the Exchange Act) that occurred during the quarter ended December 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
On July 1, 2016, we and certain of our subsidiaries entered into a $60.0 million loan agreement (the “Viya Debt”) with Rural Telephone Finance Cooperative (“RTFC”). The Viya Debt agreement contains customary representations, warranties and affirmative and negative covenants (including limitations on additional debt, guaranties, sale of assets and liens) and a financial covenant that limits the maximum ratio of indebtedness to annual operating cash flow to 3.5 to 1.0 (the “Net Leverage Ratio”). This covenant is tested on an annual basis at the end of each fiscal year. Interest is paid quarterly at a fixed rate of 4.0% and principal repayment is not required until maturity on July 1, 2026. Prepayment of the Viya Debt may be subject to a fee under certain circumstances. The debt is secured by certain assets of our Viya subsidiaries and is guaranteed by us. Earlier in 2018, we began funding the restoration of Viya’s network following the Hurricanes through an intercompany loan arrangement which exceeded certain limitations on Viya incurring additional debt. RTFC consented to these intercompany advances and increased the intercompany debt limit to $50.0 million. Subsequent to the end of the second quarter end, RTFC increased the limit to $75.0 million at our request due to an increase in the on-going restoration and resiliency costs. We were not in compliance with the Net Leverage Ratio covenant for the year ending December 31, 2018 and received a waiver from the RTFC on February 25, 2019.
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ITEM 10. DIRECTORS,ABOUT OUR EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The following table sets forth information regarding our executive officers and directors as of February 28, 2019:March 1, 2021:
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Name | Age | Position | ||
Michael T. Prior |
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| Chairman, President, Chief Executive Officer, and Director |
Justin D. Benincasa |
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| Chief Financial Officer |
Brad Martin |
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| Executive Vice President, Business Operations |
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Mary Mabey |
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| Senior Vice President, General Counsel and Secretary |
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Executive Officers
Michael T. Prior is the chairman of the Board of Directors and has been our President and Chief Executive Officer since December 2005 and an officer of the Company since June 2003. He was elected to the Board in May 2008. Previous to joining the Company, Mr. Prior was a partner with Q Advisors LLC, a Denver based investment banking and financial advisory firm focused on the technology and telecommunications sectors. Mr. Prior began his career as a corporate attorney with Cleary Gottlieb Steen & Hamilton LLP in London and New York. He received a B.A. degree from Vassar College and a J.D. degree summa cum laude from Brooklyn Law School. Mr. Prior currently serves on the Board of Directors of the Competitive Carriers Association. In 2008, Mr. Prior was named Entrepreneur of the Year for the New England Region by Ernst & Young LLP and One of America’s Best CEOs by DeMarche Associates, Inc.
Justin D. Benincasa is our Chief Financial Officer. Prior to joining us in May 2006, Mr. Benincasa was a Principal at Windover Development, LLC since 2004. From 1998 to 2004, he was Executive Vice President of Finance and Administration at American Tower Corporation, a leading wireless and broadcast communications infrastructure company, where he managed finance and accounting, treasury, IT, tax, lease administration and property management. Prior to that, he was Vice President and Corporate Controller at American Radio Systems Corporation and held accounting and finance positions at American Cablesystems Corporation. Mr. Benincasa holds an M.B.A. degree from Bentley University and a B.A. degree from the University of Massachusetts.
Brad Martin is our Executive Vice President, Business Operations. Prior to joining us in 2018, he previously served as Chief Operating Officer for Senet Inc., a leading "low“low power wide area"area” network (LPWAN) operator and global service provider. From 2013 through 2015, Mr. Martin served as Senior Vice President and Chief Quality Officer with Extreme Networks, a global leader in software-driven networking solutions for Enterprise and Service Provider customers. Between 2008 and 2013, Mr. Martin served as Vice President of Engineering Operations and Quality with Siemens Enterprise Communications and Enterasys Networks, delivering voice and data networking hardware and software solutions to global enterprises. Mr. Martin holds a Bachelor of Science, Mechanical Engineering from the University of Maine, is a published author and featured industry speaker.
William F. Kreisher is our Senior Vice President, Corporate Development. Prior to joining us in 2007, Mr. Kreisher was Vice President—Corporate Development at Cingular Wireless (now AT&T Mobility) since 2004. He was part of the corporate development team at Cingular since its formation and spent five years at BellSouth before that as a Director of Finance, the acting Chief Financial Officer at its broadband and video division, and as a senior manager in its mergers and acquisitions group. Mr. Kreisher is a more than twenty‑five year veteran of the telecommunications
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industry, having also worked with MCI Telecommunications and SITA (Equant). Mr. Kreisher holds a Masters in Business Administration from Fordham University and a Bachelor of Arts degree from the Catholic University of America.
Mary Mabey is our Senior Vice President and General Counsel. Ms. Mabey joined us in 2009 and previously served as our Deputy General Counsel. Prior to joining us, Ms. Mabey was with the law firm of Edwards Angell Palmer & Dodge LLP (now Locke Lord LLP) in Boston, where she advised public and private companies in domestic and international transactions on corporate and securities law matters, merger, acquisition and financing transactions, corporate governance, and other general corporate matters. Ms. Mabey received a B.A. degree from the University of Notre Dame and a J.D. degree from the University of Texas School of Law.
Non-Employee
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our Common Stock, $.01 par value, is listed on the Nasdaq Global Select Market under the symbol “ATNI.” The number of holders of record of Common Stock as of March 1, 2021 was 95.
Issuer Purchases of Equity Securities in the Fourth Quarter of 2020
On September 19, 2016, our Board of Directors authorized the repurchase of up to $50.0 million of our Common Stock from time to time on the open market or in privately negotiated transactions (the “2016 Repurchase Plan”). As of December 31, 2020, we have $30.9 million remaining authorized to be repurchased under the 2016 Repurchase Plan. We did not repurchase any shares of our Common Stock during the quarter ended December 31, 2020.
Martin L. BuddStock Performance Graph
The graph below matches ATN International’s cumulative 5-Year total shareholder return on Common Stock with the cumulative total returns of the Russell 2000 index, the S&P Smallcap 600 index, and the Nasdaq Telecommunications index. The graph tracks the performance of a $100 investment in our Common Stock and in each index (with the reinvestment of all dividends) from 12/31/2015 to 12/31/2020.
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|
| 12/15 | 12/16 | 12/17 | 12/18 | 12/19 | 12/20 |
ATN International | 100.00 | 104.26 | 73.06 | 95.59 | 74.91 | 57.22 | |
Russell 2000 | 100.00 | 121.31 | 139.08 | 123.76 | 155.35 | 186.36 | |
S&P Smallcap 600 | 100.00 | 126.56 | 143.30 | 131.15 | 161.03 | 179.20 | |
Nasdaq Telecommunications | 100.00 | 112.56 | 135.96 | 125.10 | 158.73 | 192.30 | |
The stock price performance included in this graph is not necessarily indicative of future stock price performance
ITEM 6. SELECTED FINANCIAL DATA
You should read the selected financial data in conjunction with our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Consolidated Financial Statements for the years ended December 31, 2020, 2019 and 2018 and the related Notes to those Consolidated Financial Statements included in this Report. The historical results set forth below are not necessarily indicative of the results of future operations. Period to period comparisons are also significantly affected by our significant acquisitions. See Note 6 to the Consolidated Financial Statements included in this Report for a more detailed discussion of our recent acquisitions and discontinued operations.
The selected Consolidated Income Statement data for the years ended December 31, 2020, 2019 and 2018 and the selected Consolidated Balance Sheet data as of December 31, 2020 and 2019 are derived from our Consolidated Financial Statements beginning on page F-1 of this Annual Report on Form 10-K. The selected Consolidated Income Statement data for the years ended December 31, 2017 and 2016 and the selected Consolidated Balance Sheet data as of December 31, 2018, 2017 and 2016 are derived from our Consolidated Financial Statements not included in this Annual Report on Form 10-K.
| | | | | | | | | | | | | | | | |
| | Year ended December 31, |
| |||||||||||||
| | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
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| | (In thousands, except per share data) |
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Income Statement Data |
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Revenue | | $ | 455,444 | | $ | 438,722 | | $ | 451,207 | | $ | 481,193 | | $ | 457,003 | |
Operating expenses | |
| 446,264 | |
| 425,345 | |
| 390,184 | |
| 425,885 | |
| 405,733 | |
Income from operations | |
| 9,180 | |
| 13,377 | |
| 61,023 | |
| 55,308 | |
| 51,270 | |
Other income (expense): | | | | | | | | | | | | | | | | |
Interest income | |
| 421 | |
| 2,263 | |
| 1,811 | |
| 1,613 | |
| 1,239 | |
Interest expense | | | (5,347) | | | (5,010) | | | (7,973) | | | (8,838) | | | (5,362) | |
Other, net(1) | |
| (4,161) | |
| (4,558) | |
| (1,119) | |
| (530) | |
| (1,773) | |
Other income (expense), net | |
| (9,087) | |
| (7,305) | |
| (7,281) | |
| (7,755) | |
| (5,896) | |
Income from continuing operations before income taxes | |
| 93 | |
| 6,072 | |
| 53,742 | |
| 47,553 | |
| 45,374 | |
Income (benefit) provisions | |
| 801 | |
| 4,105 | |
| 18,870 | |
| (1,341) | |
| 21,160 | |
Net income | |
| (708) | |
| 1,967 | |
| 34,872 | |
| 48,894 | |
| 24,214 | |
Net income attributable to non‑controlling interests, net of tax | |
| (13,414) | |
| (12,773) | |
| (15,057) | |
| (17,406) | |
| (12,113) | |
Net income attributable to ATN International, Inc. Stockholders | | $ | (14,122) | | $ | (10,806) | | $ | 19,815 | | $ | 31,488 | | $ | 12,101 | |
Net income per weighted average basic share attributable to ATN International, Inc. Stockholders: | | | | | | | | | | | | | | | | |
Basic | | | (0.89) | | | (0.68) | | | 1.24 | | | 1.95 | | | 0.75 | |
Diluted | | | (0.89) | | | (0.68) | | | 1.24 | | | 1.94 | | | 0.75 | |
Dividends per share applicable to Common Stock | | | 0.68 | | | 0.68 | | | 0.68 | | | 1.02 | | | 1.32 | |
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| | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
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| | (In thousands) |
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Balance Sheet Data (as of December 31,): |
| |
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| |
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| |
Cash, restricted cash, and short term investments | | $ | 104,997 | | $ | 162,774 | | $ | 193,300 | | $ | 226,966 | | $ | 297,595 | |
Working capital | |
| 92,137 | |
| 109,054 | |
| 135,116 | |
| 181,223 | |
| 217,264 | |
Fixed assets, net | |
| 536,462 | |
| 605,581 | |
| 626,852 | |
| 643,146 | |
| 647,712 | |
Total assets | |
| 1,083,711 | |
| 1,130,726 | |
| 1,107,304 | |
| 1,205,605 | |
| 1,198,218 | |
Short‑term debt (including current portion of long‑term debt) | |
| 3,750 | |
| 3,750 | |
| 4,688 | |
| 10,919 | |
| 12,440 | |
Long‑term debt, net | |
| 69,073 | |
| 82,676 | |
| 86,294 | |
| 144,873 | |
| 144,383 | |
ATN International, Inc. stockholders’ equity | |
| 645,649 | |
| 676,122 | |
| 695,387 | |
| 688,727 | |
| 677,055 | |
Statement of Cash Flow Data | | | | | | | | | | | | | | | | |
(for the years ended December 31,): | | | | | | | | | | | | | | | | |
Net cash provided by (used in): | | | | | | | | | | | | | | | | |
Operating activities: | | $ | 86,284 | | $ | 87,903 | | $ | 115,865 | | $ | 145,725 | | $ | 111,656 | |
Investing activities: | |
| (70,198) | |
| (88,262) | |
| (87,319) | |
| (172,318) | |
| (296,580) | |
Financing activities: | |
| (73,367) | |
| (29,908) | |
| (55,230) | |
| (42,101) | |
| 75,334 | |
Capital expenditures | |
| (75,323) | |
| (72,725) | |
| (185,921) | |
| (142,371) | |
| (124,282) | |
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We strive to be a leading platform for the operation of, and investment in, smaller and specialty market communications services and technology companies. We have a long track record of delivering critical infrastructure-based solutions to underserved markets. Our majority-owned operating subsidiaries provide facilities-based communications services, along with related information technology solutions, in the United States, Bermuda, and the Caribbean. We also have non-controlling investments in several communications and technology companies, and we continue to consider opportunities to make controlling and minority investments in businesses that we believe have the potential for generating substantial and relatively steady cash flows over extended periods of time or have technologies or business models that might prove valuable to our main operating subsidiaries or create significant longer term growth potential for us as a whole.
At the holding company level, we oversee the allocation of capital within and among our subsidiaries, affiliates, minority investments, and stockholders. We also have developed significant operational expertise and resources that we use to augment the capabilities of our individual operating subsidiaries. Over the past 10 years, we have built a platform of resources and expertise to support our operating subsidiaries and to improve their quality of service, and customer acquisition, retention, and satisfaction while maintaining optimal operating efficiencies. We have a number of shared service functions, including billing, network and engineering and customer service, and the parent company also employs personnel with specialized skills that provide greater economies of scale and expertise than would typically be available at the operating subsidiary level.
We were incorporated in Delaware in 1987, began trading publicly in 1991 and spun off more than half of our operations to stockholders in 1998. We actively evaluate potential acquisitions, investment opportunities and other strategic transactions, both domestic and international, that we believe have the potential for generating steady excess cash flows over extended periods of time. In addition, we consider non-controlling investments in earlier stage businesses that we consider strategically relevant, and which may offer long-term growth potential for us, either individually, or as research and development businesses that can support our operating subsidiaries in new technology, product, and service development and offerings. We have used the cash generated from our established operating units, and any asset sales, to re-invest in our existing businesses, to make strategic investments in additional businesses, and to return cash to our investors. We provide management, technical, financial, regulatory, and marketing services to our subsidiaries and typically receive a management fee equal to a percentage of their revenues, which is eliminated in consolidation. For further information about our financial segments and geographical information about our operating revenues and assets, see Notes 1 and 15 to the Consolidated Financial Statements included in this Report.
Through December 31, 2020, we had identified three operating segments to manage and review our operations and to facilitate investor presentations of our results. These three operating segments are as follows:
| ● | International Telecom. Businesses contained in our international telecom segment offer a mix of fixed data, internet and voice services (“Fixed”) as well as retail mobility (“Mobility”) services to customersin Bermuda, the Cayman Islands, Guyana and the US Virgin Islands. We offer fixed video services in Bermuda, the Cayman Islands, and the US Virgin Islands and managed information technology services (“Managed Services”) to enterprise customers in all our markets. We also offer services to other telecom providers (“Carrier Services”), such as international long-distance, transport and access services, and roaming from such telecom providers’ customers traveling in our network service areas. |
| ● | US Telecom. In the United States, primarily in the Southwest, we offer Carrier Services, including wholesale roaming services, the leasing of critical network infrastructure such as towers and transport facilities, and site maintenance. We also provide Fixed, Mobility, and Managed Services to our retail and enterprise customers, and private network services to enterprise customers, municipalities and other service providers. |
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The following chart summarizes the operating activities of our principal subsidiaries, the segments in which we reported our revenue and the markets we served as of December 31, 2020:
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Segment | Services | Markets | Tradenames | |||
International Telecom | Mobility | Bermuda, Guyana, US Virgin Islands | One, GTT+, Viya | |||
| Fixed | Bermuda, Cayman Islands, Guyana, US Virgin Islands | One, Logic, GTT+, Viya | |||
| | Carrier Services | | Bermuda, Guyana, US Virgin Islands | | One, GTT+, Viya |
| | Managed Services | | Bermuda, Cayman Islands, US Virgin Islands, Guyana | | Fireminds, One, Logic, GTT+, Viya |
US Telecom | Mobility | United States (rural markets) | Choice, Choice NTUA Wireless, Geoverse | |||
| | Fixed | | United States | | Commnet, Choice, Choice NTUA Wireless, Deploycom |
| | Carrier Services | | United States | | Commnet, Essextel |
| Managed Services | United States | Choice | |||
RenewableEnergy | | Solar | | India | | Vibrant Energy |
COVID-19
In March 2020, the World Health Organization declared a novel strain of coronavirus, now referred to as COVID-19, as a pandemic, and the virus has now spread globally to over 200 countries and territories, including the United States and other countries in which we have substantial operations. We are continuing to monitor and assess the effects of the COVID-19 pandemic on our commercial operations, the safety of our employees and their families, our sales force and customers and any potential impact on our revenue in 2021.
The preparation of the condensed consolidated financial statements requires us to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, equity, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate estimates, judgments and methodologies. We assessed certain accounting matters and estimates that generally require consideration of forecasted financial information in context with the information and estimates reasonably available to us and the unknown future impacts COVID-19 as of December 31, 2020 and through the date of this report. The accounting matters assessed included, but were not limited to, our allowance for credit losses, the carrying value of our goodwill and other long-lived assets, financial assets, valuation allowances for tax assets and revenue recognition. We assessed the impacts of COVID-19 on our consolidated financial statements as of and for the year ended December 31, 2020, in particular the impacts on lines of revenues, operating expenses as well as the deferral and savings on other operating expenses and capital expenditures. During the year ended December 31, 2020, while our International Telecom segment experienced strengthened demand for both its Mobility and Fixed services, its Carrier Services revenue declined as a result of a reduction in roaming revenue due to pandemic-related travel and stay-at-home restrictions as compared to 2019. Such restrictions also resulted in decreased Mobility and Carrier Services revenues within our US Telecom segment during the year ended December 31, 2020 as compared to the same period of 2019. However, in response to certain anticipated impacts, we were able to implement operating expense savings, particularly with respect to our International Telecom segment, that when coupled with Company-wide travel expense savings and capital expenditure deferrals, acted to offset much of the revenue loss or
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additional credit loss allowances caused by anticipated customer non-payment activity in the year. As a result, our assessment did not indicate that there was a material impact to our consolidated financial statements as of and for the year ended December 31, 2020. However, our future assessments of the impacts of COVID-19 into 2021 or our ability to realize continued operational expense savings, as well as other factors, could result in material impacts to our consolidated financial statements in future reporting periods. For example, the local economies of many of our Caribbean markets are tourism-dependent and the decline in global travel activity resulting from COVID-19 may continue to impact our revenue and cash flows for certain services in these markets as our retail and enterprise customers may be unable to pay for services, and our international roaming revenue may decline as compared to last year. The extent to which the COVID-19 pandemic ultimately impacts our business, financial condition, results of operations, cash flows, and liquidity may differ from our current estimates due to inherent uncertainties regarding the duration and further spread of the outbreak, its severity, actions taken to contain the virus or treat its impact, and how quickly and to what extent economic conditions normalize and more customary operating conditions resume.
Pending Acquisition of Alaska Communications System Group, Inc.
On December 31, 2020, we announced that we entered into an Agreement and Plan of Merger (the “Alaska Merger Agreement”) with Freedom 3 Capital, LLC (“Freedom3”) to acquire all of the shares of Alaska Communications Systems Group, Inc. (“Alaska Communications”), a publicly listed company (Nasdaq:ALSK) for approximately $340 million, including the assumption of debt (the “Alaska Transaction”). Following the closing of the Alaska Transaction, we will, through our subsidiaries, own and control approximately 51% of Alaska Communications and Freedom3, through its affiliates, will own the remaining 49%. In February 2021, the required waiting period under the Hart Scott Rodino Antitrust Improvements Act of 1976 expired, however the Alaska Transaction remains subject to customary closing terms and conditions including (i) the approval of Alaska Communications’ stockholders, (ii) the absence of certain legal impediments, and (iii) obtaining the necessary consents from the Federal Communications Commissions (“FCC”) and the Regulatory Commission of Alaska.
Sale of Renewable Energy Operations
International Solar Operations
In January 2021, we completed the sale of 67% of the outstanding equity in our business that owns and operates distributed generation solar power projects operated under the Vibrant (“Vibrant”) name in India (the “Vibrant Transaction”). The post-sale results of our ownership interest in Vibrant will be recorded through the equity method of accounting within the Corporate and Other operating segment. As such, our consolidated financial statements will no longer include revenue and operating expenses from Vibrant, but instead, “other income (expense)” within the Corporate and Other operating segment will include our 33% share of Vibrant’s profits or losses. We will continue to present the historical results of our Renewable Energy segment for comparative purposes.
The operations of Vibrant did not qualify as discontinued operations because the disposition did not represent a strategic shift that had a major effect on our operations and financial results.
US Solar Operations
On November 6, 2018, we completed the sale of our US Solar Operations business that owned and managed distributed generation solar power projects operated under the Ahana name in Massachusetts, California and New Jersey (the “US Solar Transaction”). The US Solar Transaction had a total value of approximately $122.6 million, which included a cash purchase price of $65.3 million and the assumption of approximately $57.3 million in debt, and is subject to certain other post-closing adjustments. Approximately $6.5 million of the purchase price was held in escrow for a period of twelve months after the closing to secure our indemnification obligations. We received the escrow in November 2019.
The operations sold in connection with the US Solar Transaction did not qualify as discontinued operations because the disposition did not represent a strategic shift that had a major effect on our operations and financial results.
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FirstNet Agreement
In July 2019 and August 2020, we entered into a Network Build and Maintenance Agreement (the “FirstNet Agreement”) and First Amendment to that agreement with AT&T Mobility, LLC (“AT&T”), respectively, to build a portion of AT&T’s network for the First Responder Network Authority (“FirstNet”) as well as a commercial wireless network in or near our current operating area in the Southwestern United States (the “FirstNet Transaction”). Pursuant to the FirstNet Agreement and subject to certain limitations contained therein, all cell sites must be completed and accepted within a specified period of time. We expect to recognize construction revenue of approximately $80 million to $85 million through 2022 that will be mainly offset by construction costs as sites are completed. Revenues from construction are expected to have minimal impact on operating income. Also pursuant to the FirstNet Agreement AT&T has the option to repay construction costs, with interest, over and eight year period. Accordingly, we entered into a receivables credit facility with CoBank, ACB (the “Receivables Credit Facility”) in order to assist with this repayment option. The Receivables Credit Facility provides for a senior secured delayed draw term loan in an aggregate principal amount of up to $75 million with the proceeds being used to acquire the receivables related to the construction costs. The network build portion of the FirstNet Agreement has continued during the COVID-19 pandemic but the overall timing of the build schedule has been delayed. Subject to ongoing delays caused by COVID-19 related restrictions, we currently expect construction revenues to continue through 2022.
Following acceptance of a directorcell site, AT&T will own the cell site and we will assign to AT&T any third-party tower lease applicable to such cell site. If the cell site is located on a communications tower we own, AT&T will pay us pursuant to a separate lease agreement for an initial term of ours since May 2007,eight years. In addition to building the network, we will provide ongoing equipment and site maintenance and high capacity transport to and from these cell sites for an initial term ending in 2029.
AT&T will continue to use our wholesale domestic Mobility network for roaming services at a fixed rate per site during the construction period until such time as the cell site is transferred to AT&T. Thereafter, revenue from the maintenance, leasing and transport services provided to AT&T is expected to generally offset revenue from wholesale Mobility roaming services. We began receiving revenue from the FirstNet Transaction in the third quarter of 2019 and expect overall operating income contributions from the FirstNet Transaction to have a relatively steady impact going forward.
See Sources of Cash below for a discussion regarding our March 26, 2020 credit agreement providing the ability to finance the assets built under the FirstNet Agreement.
Universal Service Fund
The Federal Universal Service Fund (“USF”) is a subsidy program managed by the FCC. USF funds are disbursed to telecommunication providers through four programs: the High Cost Program; Low Income Program (“Lifeline Program”); Schools and Libraries Program (“E-Rate Program”); and Rural Health Care Support Program. We participate in the High Cost Program, Lifeline Program, E-Rate Program, and Rural Health Care Support Program as further described below. All of these funding programs are subject to certain operational and reporting compliance requirements. The Company believes it is in compliance with all applicable requirements.
During the years ended December 31, 2020, 2019 and 2018, we recorded $16.4 million, $16.4 million, and $16.5 million, respectively, of revenue from High Cost Support in our International Telecom segment for its US Virgin Islands operations under the “Viya” name. In addition, we recorded revenue of $15.5 million during the year ended December 31, 2018, from additional funding authorized by the FCC following the Hurricanes. In 2018, the FCC initiated a proceeding to reform the High Cost Program in the US Virgin Islands and Puerto Rico in which it proposed to allocate USF funding of up to $18.7 million per year (inclusive of the $16.4 million per year currently allocated to Viya) for 10 years to supplant the $16.4 million that Viya currently receives per year. While Viya applied for Connect USVI Fund support allocated for the US Virgin Islands, on November 16, 2020, the FCC announced that Viya was not the recipient of the provisional award and that the FCC had provisionally accepted a bid of approximately $8.6 million per year for a term of 10 years. Viya has challenged this decision and its challenge remains pending before the FCC. If Viya’s challenge is not granted, pursuant to the terms of the program, Viya’s USF support will be reduced, to two-thirds
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of the legacy total amount, or $10.9 million, during the first year following the finalization of the award and to one-third of the legacy total amount, or $5.5 million, during the second year. Thereafter, Viya will not receive high-cost USF support.
Also, during each year ended December 31, 2020, 2019 and 2018, we recorded $1.2 million of High Cost Support revenue in our US Telecom segment. We are subject to certain operational, reporting and construction requirements as a result of this funding and we believe that we are in compliance with all of these requirements.
In August 2018, we were awarded $79.9 million over 10 years under the Connect America Fund Phase II Auction. In connection with this award, we are required to provide Fixed broadband and voice services to certain eligible areas in the United States. We are also subject to operational and reporting requirements under the program and we expect to incur additional capital expenditures to comply with these requirements. We have determined the award is a revenue grant, and as a result we will record the funding as revenue upon receipt. The Company recorded $7.6 million and $5.3 million of revenue in the years ended December 31, 2020 and 2019, respectively, from the Connect America Fund Phase II program.
We also receive construction grants to build network connectivity for eligible communities. The funding is used to reimburse construction costs and is distributed upon completion of a project. As of December 31, 2020, we were awarded approximately $15.8 million of grants. We were awarded an additional construction grant of $1.0 million in 2020. As of December 31, 2020, we have completed our construction obligations on $10.2 million of these projects and $6.6 million of such construction obligations remain with completion deadlines beginning in September 2021. Once these projects are constructed, we are obligated to provide service to the Chairparticipants. We receive funds upon construction completion. During 2020, we received $2.9 million, which was used to offset operating activities. During 2019, we received $5.4 million, of which $3.1 million was a reimbursement of capital expenditures and $2.3 million offset operating activities. We expect to meet all requirements associated with these grants.
We also receive funding to provide discounted telecommunication services to eligible customers under the E-Rate, Lifeline, and Rural Health Care Support Programs. During the years ended December 31, 2020, 2019, and 2018, we recorded revenue of $10.0 million, $6.1 million, and $8.2 million, respectively, in the aggregate from these programs. We are subject to certain operational and reporting requirements under the above mentioned programs and we believe that we are in compliance with all of these requirements.
CARES Act
During the fourth quarter of 2020, we received $16.3 million of funding under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The funding was utilized to construct network infrastructure in our US Telecom segment. The construction was completed in the fourth quarter of 2020 and was recorded as a reduction to property, plant and equipment and subsequently will be recorded as a reduction to depreciation expense.
Tribal Bidding Credit
As part of the broadcast television spectrum incentive auction, the FCC implemented a tribal lands bidding credit to encourage deployment of wireless services utilizing 600 MHz spectrum on the lands of federally recognized tribes. We received a bidding credit of $7.4 million under this program in 2018. A portion of these funds will be used to offset network capital costs and a portion will be used to offset the costs of supporting the networks. We currently estimate that we will use $5.8 million to offset capital costs, consequently reducing future depreciation expense and $1.6 million to offset the cost of supporting the network which will reduce future operating expense. Through December 31, 2020, we have spent $5.8 million on capital expenditures and have recorded $0.2 million in offsets to the cost of supporting the network. The credits are subject to certain requirements, including deploying service by January 2021 and meeting minimum coverage metrics. If the requirements are not met the funds may be subject to claw back provisions. We currently expect to comply with all applicable requirements related to these funds.
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CBRS Auction
During the third quarter of 2020, we participated in the FCC’s Citizens Broadband Radio Service (CBRS) auction for Priority Access Licenses (PALs) in the 3.5 GHz spectrum band. These PALs are licensed on a county-by-county basis and are awarded for a 10-year renewable term. We were a winning bidder for PALs located strategically throughout the United States at a total cost of approximately $20.4 million. In connection with the awarded licenses, we will have to achieve certain CBRS spectrum build out obligations. We currently expect to comply with all applicable requirements related to these licenses.
Platform Investment
During the second quarter of 2018, we invested in a new platform, based inthe United States, to develop in-building wireless network technology that enables building owners to capitalize on the growing demand for better indoor wireless solutions.
RDOF
In the 2020 Rural Digital Opportunity Fund Phase I Auction (“RDOF”), pending the FCC’s conclusion of the award process, we expect to receive approximately $20.1 million over 10 years to provide broadband coverage to over 10,000 households. Once confirmed, we will be obligated to provide broadband and voice services to certain eligible areas in the United States.
Impact of Hurricanes
During September 2017, the US Virgin Islands economy, our customer base and our operations were severely impacted by Hurricanes Irma and Maria (collectively, the “Hurricanes”). Our wireless and wireline networks and commercial operations were all severely damaged by these storms and as a result of the significant damage to the wireline network and the lack of consistent commercial power in the territory, we were unable to provide most of our Compensation Committee. He retiredwireline services, which comprise the majority of our revenue in this business, from mid-September 2017 and through most of 2018.
During the year ended December 31, 2018, the Company received $15.5 million in one-time additional funding from the FCC’s USF to further subsidize its operations in the US Virgin Islands. This amount was recorded as revenue during the year ended December 31, 2018.
During the years ended December 31, 2019 and 2018, we spent $0.1 million and $80.2 million, respectively, for network restoration and resiliency enhancements that allowed the reconnection of a significant majority of affected US Virgin Islands households and businesses.
Presentation of Revenue
Effective January 1, 2020, we changed our presentation of revenue in the Consolidated Income Statements and in the Selected Segment Financial Information tables. This change is intended to better align our financial performance with the views of management and industry competitors, and to facilitate a more constructive dialogue with the investment community.
Specifically, the previously disclosed revenue categories of wireless and wireline revenue are being represented as Mobility, Fixed and Carrier Services revenue within our segment information and are included within communications services revenue within our Income Statements. Managed Services revenue, which was previously a component of wireline revenue, is now included in other revenue along with revenue from our Renewable Energy operations.
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Selected Segment Financial Information
The following represents selected segment information for the years ended December 31, 2020 and 2019 (in thousands):
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
For the Year Ended December 31, 2020 | |||||||||||||||
|
| | |
| |
| | |
| | |
| | | |
| | International | | US | | Renewable | | Corporate and | | | | ||||
| | Telecom | | Telecom | | Energy | | Other (1) | | Consolidated | |||||
Revenue | | | | | | | | | | | | | | | |
Communication Services | | | | | | | | | | | | | | | |
Mobility | | $ | 83,136 | | $ | 9,626 | | $ | — | | $ | — | | $ | 92,762 |
Fixed | |
| 230,375 | |
| 22,269 | |
| — | |
| — | |
| 252,644 |
Carrier Services | | | 7,120 | | | 79,448 | | | — | | | — | | | 86,568 |
Other | |
| 1,535 | |
| — | |
| — | |
| — | |
| 1,535 |
Total Communication Services Revenue | | | 322,166 | | | 111,343 | | | — | | | — | | | 433,509 |
Other | | | | | | | | | | | | | | | |
Renewable Energy | | | — | | | — | | | 4,555 | | | — | | | 4,555 |
Managed Services | | | 6,467 | | | — | | | — | | | — | | | 6,467 |
Construction | | | — | | | 10,913 | | | — | | | — | | | 10,913 |
Total Other Revenue | | | 6,467 | | | 10,913 | | | 4,555 | | | — | | | 21,935 |
Total Revenue | | | 328,633 | | | 122,256 | | | 4,555 | | | — | | | 455,444 |
| | | | | | | | | | | | | | | |
Operating income (loss) | |
| 58,064 | |
| 7,388 | |
| (23,749) | |
| (32,523) | |
| 9,180 |
| | | | | | | | | | | | | | | |
For the Year Ended December 31, 2019 | |||||||||||||||
|
| | |
| |
| | |
| | |
| | | |
| | International | | US | | Renewable | | Corporate and | | | | ||||
| | Telecom | | Telecom | | Energy | | Other (1) | | Consolidated | |||||
Revenue | | | | | | | | | | | | | | | |
Communication Services | | | | | | | | | | | | | | | |
Mobility | | $ | 84,560 | | $ | 10,532 | | $ | — | | $ | — | | $ | 95,092 |
Fixed | |
| 224,534 | |
| 14,211 | |
| — | |
| — | |
| 238,745 |
Carrier Services | | | 9,070 | | | 83,906 | | | — | | | — | | | 92,976 |
Other | |
| 1,295 | |
| — | |
| — | |
| — | |
| 1,295 |
Total Communication Services Revenue | | | 319,459 | | | 108,649 | | | — | | | — | | | 428,108 |
Other | | | | | | | | | | | | | | | |
Renewable Energy | | | — | | | — | | | 5,534 | | | — | | | 5,534 |
Managed Services | | | 5,080 | | | — | | | — | | | — | | | 5,080 |
Total Other Revenue | | | 5,080 | | | — | | | 5,534 | | | — | | | 10,614 |
Total Revenue | | | 324,539 | | | 108,649 | | | 5,534 | | | — | | | 438,722 |
| | | | | | | | | | | | | | | |
Operating income (loss) | |
| 46,921 | | | 8,064 | | | (7,243) | | | (34,365) | | | 13,377 |
| (1) | Reconciling items refer to corporate overhead costs and consolidating adjustments. |
A year-to-date comparison of our segment results is as follows:
International Telecom. Revenues within our International Telecom segment increased $4.1 million, or 1.3%, to $328.6 million from $324.5 million for the year ended December 31, 2020 and 2019, respectively, as a partnerresult of an increase in broadband services in many of our international telecom markets which more than offset the impact of the law firm
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reduction in Carrier Services and Howard LLP (now Day Pitney LLP) effectiveMobility services (including handset sale revenues) as a result of COVID-19 related travel and stay-at-home restrictions.
Operating expenses within our International Telecom segment decreased by $7.1 million, or 2.6%, to $270.5 million from $277.6 million for the year ended December 31, 2006. Mr. Budd chaired that firm’s Business Law Department2020 and its Business Section and had particular expertise in federal securities laws, merger and acquisition transactions and strategic joint ventures. Mr. Budd is Chairman2019, respectively. The decrease was primarily the result of the Connecticut Appleseed Centerimpact of COVID-19 and other cost reduction measures which reduced roaming, advertising, contract labor and facility costs throughout all of our markets within this segment.
As a result, our International Telecom segment’s operating income increased $11.2 million, or 23.9%, to $58.1 million from $46.9 million for Lawthe year ended December 31, 2020 and Justice2019, respectively.
US Telecom. Revenue within our US Telecom segment increased by $13.7 million, or 12.6%, to $122.3 million from $108.6 million for the year ended December 31, 2020 and has served2019, respectively, primarily as a result of an increase in construction revenue from the FirstNet Transaction and an increase in Fixed revenues, including broadband services and funding from the Connect America Fund Phase II program.
Operating expenses within our US Telecom segment increased $14.4 million, or 14.3%, to $114.9 million from $100.5 million for the year ended December 31, 2020 and 2019, respectively, as a result of construction costs and other expenses being incurred in connection with the FirstNet Transaction partially offset by the impact of COVID-19 related travel and stay-at-home restrictions.
As a result of the above, our US Telecom segment’s operating income decreased $0.7 million, or 8.6%, to $7.4 million from $8.1 million for the year ended December 31, 2020 and 2019, respectively.
Renewable Energy. Revenue within our Renewable Energy segment decreased $0.9 million, or 16.4%, to $4.6 million from $5.5 million for the year ended December 31, 2020 and 2019, respectively, primarily as a result of a decrease in production as a result of the impact of COVID-19.
Operating expenses within our Renewable Energy segment increased to $28.3 million from $6.2 million for the year ended December 31, 2020 and 2019 as a result of the loss recorded on the Legal AdvisoryVibrant Transaction of $21.5 million.
As a result of the above, our Renewable Energy segment’s operating loss increased to $23.7 million for the year ended December 31, 2020 as compared to a loss of $0.7 million for the year ended December 31, 2019.
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The following represents a year over year discussion and analysis of our results of operations for the years ended December 31, 2020 and 2019 (in thousands):
| | | | | | | | | | | | |
| | Year Ended | | Amount of | | Percent |
| |||||
| | December 31, | | Increase | | Increase |
| |||||
| | 2020 | | 2019 | | (Decrease) | | (Decrease) |
| |||
|
| | | | | | | | | | | |
REVENUE: | | |
|
| |
|
| |
|
|
| |
Communication services | | $ | 433,509 | | $ | 428,108 | | $ | 5,401 |
| 1.3 | % |
Other | |
| 21,935 | |
| 10,614 | |
| 11,321 |
| 106.7 | |
Total revenue | | | 455,444 | | | 438,722 | | | 16,722 |
| 3.8 | |
OPERATING EXPENSES (excluding depreciation and amortization unless otherwise indicated): | | | | | | | | | | | | |
Termination and access fees | | | 111,763 | | | 112,943 | | | (1,180) |
| (1.0) | |
Construction costs | | | 10,616 | | | — | | | 10,616 | | 100.0 | |
Engineering and operations | | | 73,350 | | | 77,649 | | | (4,299) |
| (5.5) | |
Sales, marketing and customer services | | | 37,557 | | | 38,730 | | | (1,173) |
| (3.0) | |
General and administrative | | | 101,454 | | | 100,534 | | | 920 |
| 0.9 | |
Transaction-related charges | | | 1,641 | | | 244 | | | 1,397 |
| 572.5 | |
Depreciation and amortization | | | 88,311 | | | 89,125 | | | (814) |
| (0.9) | |
Goodwill impairment | | | — | | | 3,279 | | | (3,279) | | 100.0 | |
Loss on disposition of long-lived assets | | | 21,572 | | | 2,841 | | | 18,731 |
| 659.3 | |
Total operating expenses | | | 446,264 | | | 425,345 | | | 20,919 |
| 4.9 | |
Income from operations | | | 9,180 | | | 13,377 | | | (4,197) |
| (31.4) | |
OTHER INCOME (EXPENSE): | | | | | | | | | | | | |
Interest income | | | 421 | | | 2,263 | | | (1,842) |
| (81.4) | |
Interest expense | | | (5,347) | | | (5,010) | | | (337) |
| 6.7 | |
Other expense | | | (4,161) | | | (4,558) | | | 397 |
| (8.7) | |
Other expense, net | | | (9,087) | | | (7,305) | | | (1,782) |
| 24.4 | |
INCOME BEFORE INCOME TAXES | |
| 93 | |
| 6,072 | |
| (5,979) |
| (98.5) | |
Income tax expense | |
| 801 | |
| 4,105 | |
| (3,304) |
| (80.5) | |
NET INCOME | |
| (708) | |
| 1,967 | |
| (2,675) |
| (136.0) | |
Net income attributable to non-controlling interests, net of tax: | |
| (13,414) | |
| (12,773) | |
| (641) |
| 5.0 | |
NET INCOME (LOSS) ATTRIBUTABLE TO ATN INTERNATIONAL, INC. STOCKHOLDERS | | $ | (14,122) | | $ | (10,806) | | $ | (3,316) |
| 30.7 | % |
Communications services
Mobility revenue. Our Mobility revenue consists of retail revenue generated within both our International Telecom and US Telecom segments by providing mobile voice and data services over our wireless networks and the sale of related equipment such as handsets and other accessories to our subscribers. Mobility revenue decreased by $2.8 million, or 2.2%, to $92.8 million for the year ended December 31, 2020 from $95.1 million for the year ended December 31, 2019. The decrease in Mobility revenue, within our segments, consisted of the following:
| ● | International Telecom. Within our International Telecom segment, Mobility revenue decreased by $1.5 million, or 1.8%, to $83.1 million for the year ended December 31, 2020 from $84.6 million for the year ended December 31, 2019. The impact of COVID-19 related travel and stay-at-home restrictions resulted in a decrease in our Mobility services as well as our equipment sales. |
| ● | US Telecom. Mobility revenue within our US Telecom segment decreased by $0.9 million, or 8.6%, to $9.6 million from $10.5 million for the year ended December 31, 2020 and 2019, respectively. This decrease is related to a decrease in subscribers within our retail Mobility operations which was primarily related to the impact of COVID-19. |
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We expect that Mobility revenue within both our International and US Telecom segments may continue to decline if the COVID-19 related travel restrictions continue for an extended period of time or become more severe so as to result in significant business interruptions and retail store closures.
Fixed communications revenue. Fixed communications revenue is primarily generated by internet, voice, and video service revenues provided to retail and enterprise customers over our wireline networks. Fixed revenue within our US Telecom segment also includes revenue from the Connect America Fund Phase II program award. Fixed communications revenue increased by $13.9 million, or 5.8%, to $252.6 million from $238.7 million for the year ended December 31, 2020 and 2019, respectively. The increase in Fixed communications revenue, within our segments, consisted of the following:
| ● | International Telecom. Within our International Telecom segment, Fixed communications revenue increased by $5.9 million, or 2.6%, to $230.4 million from $224.5 million, for the year ended December 31, 2020 and 2019, respectively, primarily as a result of an increase in Fixed broadband services in order to enable remote working and better connectivity during the COVID-19 pandemic. This increase was partially offset by a decrease in revenue from certain enterprise customers, such as hotels, which were impacted by the effects of COVID-19 related travel restrictions and stay-at-home restrictions. |
| ● | US Telecom. Fixed communications revenue within our US Telecom segment increased by $8.1 million, or 57.0%, to $22.3 million from $14.2 million for the year ended December 31, 2020 and 2019, respectively. This increase was related to an increase in usage to support remote working and better connectivity during the COVID-19 pandemic and an increase related to the Connect America Fund Phase II program award which began during mid-2019, as well as an increase in subscribers. |
We expect that Fixed revenue within our International Telecom segment may decline as a result of the response, such as long delays in the return of tourism activity, to the COVID-19 pandemic which could result in significant business interruptions that might impact our customers’ ability to pay for our services. Fixed revenue may also decline in many of our international markets as a result of a decline in video revenues due to subscribers using alternative methods to receive video content.
We expect that Fixed revenue within the US Telecom segment may also decline as a result of our customers’ inability to pay for our services if COVID-19 related travel restrictions continue for an extended period of time or become more severe. However, those declines may be partially offset by the stable nature of our federal support contracts, such as the Connect America Fund Phase II program award, which are expected to provide steady and predictable revenues.
Carrier Services revenue. Carrier Services revenue is generated by both our International Telecom and US Telecom segments. Within our International Telecom segment, Carrier Services revenue includes international long-distance services, roaming revenues generated by other carriers’ customers roaming into our retail markets, transport services and access services provided to other telecommunications carriers. Within our US Telecom segment, Carrier Services revenue includes services provided under the FirstNet Transaction, wholesale roaming revenues, the provision of network switching services, tower lease revenue and other services provided to carriers. Carrier Services revenue decreased by $6.4 million, or 6.9%, to $86.6 million from $93.0 million for the year ended December 31, 2020 and 2019, respectively. The decrease, within our segments, consisted of the following:
| ● | International Telecom. Within our International Telecom segment, Carrier Services revenue decreased by $2.0 million, or 22.0%, to $7.1 million from $9.1 million for the year ended December 31, 2020 and 2019, respectively, as a result of decreased roaming revenues within most of our International Telecom markets as a result of the travel and stay-at-home restrictions implemented in response to COVID-19. |
| ● | US Telecom. Carrier Services revenue within our US Telecom segment decreased by $4.5 million, or 5.4%, to $79.4 million from $83.9 million, for the year ended December 31, 2020 and 2019, respectively, primarily as a result of the 2020 restructuring of certain carrier contracts. |
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Within our International Telecom segment, we expect that Carrier Services revenue may continue to decline if COVID-19 related travel restrictions continue for an extended period of time or become more severe. Also within our International Telecom segment, we expect that Carrier Services revenue from our international long-distance business in Guyana will continue to decrease as consumers seek to use alternative technology services to place calls. In addition, such revenue may decline as the result of the implementation, by the Government of Guyana, of recently-passed legislation which terminates our right to be the exclusive provider of domestic fixed and international long-distance service in Guyana. While the loss of our exclusive rights may cause an immediate reduction inour Carrier Services revenue, the complete impact of the new legislation to our operations will not be fully known until the Government of Guyana makes the terms and conditions of licenses, issued to two of our competitors, available to us. Over the longer term, such declines may be offset by increased revenue from broadband services to consumers and enterprises in Guyana, an increase in regulated local calling rates in Guyana or possible economic growth within that country. See Note 14 to the Condensed Consolidated Financial Statements included in this report.
Within our US Telecom segment, we expect Carrier Services revenue to decrease as we progress through the construction phase of the FirstNet Transaction and from the impact of continued reduced contractual rates and imposed revenue caps. We believe that maintaining roaming and other Carrier Services favorable to our carrier customers allows us to preserve revenue for a longer period of time while creating the potential for long-lived shared infrastructure solutions for carriers in areas they may consider to be non-strategic.
The most significant competitive factor we face within our US Telecom segment is the extent to which our carrier customers in our wholesale Mobility business choose to roam on our networks and lease our tower space and transport services or elect to build or acquire their own infrastructure in a market, reducing or eliminating their need for our services in those markets. We also face competition from other providers of such shared infrastructure solutions. In the past, we have entered into buildout projects with existing carrier customers to help these customers accelerate the buildout of a given area in exchange for the carrier’s agreement to lease us spectrum in that area and enter into a contract with specific pricing and terms. Historically, these arrangements have differed from our FirstNet Transaction and have typically included a purchase right in favor of the carrier to purchase that portion of the network for a predetermined price, depending on when the right to purchase is exercised.
Other communications services revenue. Other communications services revenue includes miscellaneous services that the operations within our International Telecom segment provide to retail subscribers. Other communications services revenue increased to $1.5 million from $1.3 million for the year ended December 31, 2020 and 2019, respectively.
Other revenue
Renewable energy revenue. Renewable energy revenue includes the generation of power through Power Purchase Agreements (“PPAs”) from our solar plants in India. Our PPAs, which are typically priced at or below local retail electricity rates and allow our customers to secure electricity at predictable and stable prices over the duration of their long-term contracts, provide us with high-quality contracted cash flows.
Renewable energy revenue decreased by $0.9 million, or 16.4%, to $4.6 million from $5.5 million for the year ended December 31, 2020 and 2019, respectively, primarily as a result of a decreases in production due to the impact of COVID-19.
As a result of the Vibrant Transaction, we will no longer record renewable energy revenue after recording a nominal amount in the first quarter of 2021.
Managed Services revenue. Managed Services revenue is generated primarily in our International Telecom segment and includes network, application, infrastructure, and hosting services.
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Managed Services revenue increased by $1.4 million, or 27.5%, to $6.5 million from $5.1 million for the year ended December 31, 2020 and 2019, respectively, primarily as a result of an increase in consulting and hosting services as well as equipment sales.
We expect that Managed Services revenue may continue to increase but could be negatively impacted if COVID-19 related travel restrictions continue for an extended period of time or become more severe so as to result in significant business interruptions to our customers.
Construction revenue. Construction revenue represents revenue generated within our US Telecom segment for the construction of network cell sites related to the FirstNet Agreement. During the year ended December 31, 2020, we recognized $10.9 million of construction revenue. We expect the construction phase of the FirstNet Agreement to continue through 2022.
Operating expenses
Termination and access fee expenses. Termination and access fee expenses are charges that we incur for voice and data transport circuits (in particular, the circuits between our Mobility sites and our switches), internet capacity, video programming costs, access fees we pay to terminate our calls, telecommunication spectrum fees and direct costs associated with our Managed Services and technology business and our renewable energy operations. Termination and access fees also include bad debt reserves and the cost of handsets and customer resale equipment incurred by our retail businesses.
Termination and access fees decreased by $1.1 million, or 1.0%, to $111.8 million from $112.9 million for the year ended December 31, 2020 and 2019, respectively. The net decrease in termination and access fees, within our segments, consisted of the following:
| ● | International Telecom. Within our International Telecom segment, termination and access fees decreased by $0.3 million, or 0.4%, to $73.4 million from $73.7 million, for the year ended December 31, 2020 and 2019, respectively. This decrease was primarily related to a decrease in the cost of retail telecommunication equipment sales as many of our retail stores were closed during much of 2020 as a result of the impact of COVID-19. The decreases were partially offset by increases in our managed information technology services business as a result of an increase in the volume and cost of its equipment sales as well as increases within our US Virgin Islands operations which incurred certain variable termination and access fees in 2020 that were not incurred during 2019 as a result of the impact of the Hurricanes. |
| ● | US Telecom. Termination and access fees within our US Telecom segment increased by $0.7 million, or 1.8%, to $39.6 million from $38.9 million for the year ended December 31, 2020 and 2019, respectively. This increase was primarily a result of an increase in data transport costs in connection with the FirstNet Transaction partially offset by decreases in our wholesale long-distance voice services businesses. |
| ● | Renewable Energy. Termination and access fees within our Renewable Energy segment decreased $0.2 million, or 50.0%, to $0.2 million from $0.4 million for the year ended December 31, 2020 and 2019, respectively. |
We expect that termination and access fee expenses may increase within all of our segments due to an expected increase in roaming and other termination costs when the COVID-19 related travel restrictions are lifted. Within the US Telecom segment, we expect an increase in termination and access fees due to the anticipated expansion of our early stage private network business, expenses associated with our recent funding award under the CARES Act, and as a result of our performance under the FirstNet Transaction during the construction phase which is expected to continue through 2022.
Construction costs. Construction costs include the expenses incurred in connection with constructing and making the FirstNet sites available for delivery to ATT in accordance with our FirstNet Agreement. Construction costs, all of which are incurred within our US Telecom segment, were $10.6 million during the year ended December 31, 2020
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and were incurred in connection with the FirstNet Transaction. We expect the construction phase of the FirstNet Agreement to continue through 2022.
Engineering and operations expenses.Engineering and operations expenses include the expenses associated with developing, operating, upgrading and supporting our telecommunications networks and renewable energy operations, including the salaries and benefits paid to employees directly involved in the development and operation of those businesses.
Engineering and operations expenses decreased by $4.2 million, or 5.5%, to $73.4 million from $77.6 million for the year ended December 31, 2020 and 2019, respectively. The net decrease in engineering and operations expenses, within our segments, consisted of the following:
| ● | International Telecom. Within our International Telecom segment, engineering and operations expenses decreased by $4.9 million, or 7.9%, to $57.1 million from $62.0 million, for the year ended December 31, 2020 and 2019, respectively. This decrease was recognized within all of our international markets as a result of the impact of the COVID-19 pandemic which caused a reduction in contract labor, site repairs and maintenance and travel costs. |
| ● | US Telecom. Engineering and operations expenses increased within our US Telecom segment by $0.8 million, or 5.3%, to $15.8 million from $15.0 million, for the year ended December 31, 2020 and 2019, respectively, primarily in order to support the construction phase of the FirstNet Transaction and our expanding early stage private network business. This increase was partially offset by the impact of the COVID-19 pandemic which caused a reduction in contract labor, site repairs and maintenance and travel costs. |
| ● | Corporate Overhead. Engineering and operations expenses within our corporate overhead decreased by $0.3 million, or 42.9%, to $0.4 million from $0.7 million for the year ended December 31, 2020 and 2019, respectively. |
We expect engineering and operating expenses to continue to increase in our US Telecom segment due to the anticipated expansion of our early-stage private network business, expenses associated with our recent funding awarded under the CARES Act, and expenses incurred during the construction phase of the FirstNet Transaction which we expect to continue through 2022. We also expect that engineering and operations expenses to increase within all of our segments when COVID-19 related restrictions are lifted.
Sales and marketing expenses. Sales and marketing expenses include salaries and benefits we pay to sales personnel, customer service expenses, sales commissions and the costs associated with the development and implementation of our promotion and marketing campaigns.
Sales and marketing expenses decreased by $1.1 million, or 3.0%, to $37.6 million from $38.7 million for the year ended December 31, 2020 and 2019, respectively. The net decrease in sales and marketing expenses, within our segments, consisted of the following:
| ● | International Telecom. Within our International Telecom segment, our sales and marketing expenses decreased by $3.0 million, or 9.1%, to $30.1 million from $33.1 million for the year ended December 31, 2020 and 2019, respectively. This decrease was incurred within all of our international markets primarily as a result of a reduction in advertising and promotions and the impact of COVID-19 restrictions. |
| ● | US Telecom. Sales and marketing expenses increased within our US Telecom segment by $1.7 million, or 29.8%, to $7.4 million from $5.7 million, for the year ended December 31, 2020 and 2019, respectively, primarily as a result of increased spending in our retail business within our US Mobility operations and within our expanding early stage private network business. These increases were partially offset by the impact of COVID-19 related travel and stay-at-home restrictions. |
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Within our US Telecom segment, sales and marketing expenses may increase as a result of the expansion of our early stage private network and retail businesses. We also expect sales and marketing expenses to increase in both our International and US Telecom segments when COVID-19 related travel restrictions are lifted.
General and administrative expenses. General and administrative expenses include salaries, benefits and related costs for general corporate functions including executive management, finance and administration, legal and regulatory, facilities, information technology and human resources. General and administrative expenses also include internal costs associated with our performance of due-diligence in connection with acquisition activities.
General and administrative expenses increased by $1.0 million, or 0.9%, to $101.5 million from $100.5 million for the year ended December 31, 2020 and 2019, respectively. The net increase in general and administrative expenses, within our segments, consisted of the following:
| ● | International Telecom. General and administrative expenses increased within our International Telecom segment by $1.1 million, or 2.1%, to $53.7 million from $52.6 million, for the year ended December 31, 2020 and 2019, respectively. The increase was the result of increased expenditures in information technology to further enhance our network security partially offset by the impact of COVID-19 related restrictions which resulted in a reduction in travel and certain facility costs such as utilities. |
| ● | US Telecom. General and administrative expenses increased by $0.4 million, or 2.3%, to $18.1 million from $17.7 million for the year ended December 31, 2020 and 2019, respectively, primarily as a result of an increase within our early-stage-private network business to support its expanding operations partially offset by certain cost reduction measures within our US Mobility business and the impact of COVID-19 related restrictions on travel. |
| ● | Renewable Energy. General and administrative expenses within our Renewable Energy segment increased by $0.3 million, or 9.1%, to $3.6 million from $3.3 million for the year ended December 31, 2020 and 2019, respectively, as a result of the expansion of operations partially offset by the impact of COVID-19 related restrictions on travel. |
| ● | Corporate Overhead. General and administrative expenses within our corporate overhead decreased by $0.8 million, or 3.0%, to $26.1 million from $26.9 million, for the year ended December 31, 2020 and 2019, respectively, primarily related to certain cost reduction measures including reduced professional fees along with the impact of COVID-19, partially offset by an increase in information technology expenditures to further enhance our network security. |
Within our US Telecom segment, we expect to incur increased general and administrative expenses to support our early-stage private network operations as well as expenses associated with our recent funding awarded under the CARES Act. In addition, we expect general and administrative expenses within our International and US Telecom segments as well as our Corporate Overhead segment to increase as COVID-19 related travel restrictions are lifted and as we work to further enhance our network security.
As a result of the Vibrant Transaction, we will no longer record general and administrative expenses within our Renewable Energy segment after recording a nominal amount in the first quarter of 2021.
Transaction-related charges. Transaction-related charges include the external costs, such as legal, tax, accounting and consulting fees directly associated with acquisition and disposition-related activities, which are expensed as incurred. Transaction-related charges do not include internal costs, such as employee salary and travel-related expenses, incurred in connection with acquisitions or dispositions or any integration-related costs.
We incurred $1.6 million and $0.2 million of transaction-related charges during the year ended December 31, 2020 and 2019, respectively. The transaction-related charges incurred during 2020 were primarily related to the Vibrant Transaction and the Alaska Transaction.
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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 decreased by $0.8 million, or 0.9%, to $88.3 million from $89.1 million for the year ended December 31, 2020 and 2019, respectively. The net decrease in depreciation and amortization expenses, within our segments, consisted primarily of the following:
| ● | International Telecom. Depreciation and amortization expenses increased within our International Telecom segment by $0.3 million, or 0.5%, to $56.3 million from $56.0 million, for the year ended December 31, 2020 and 2019, respectively. This increase was a result of recent upgrades and expansions to this segment’s network assets partially offset by certain assets becoming fully depreciated in recent periods. |
| ● | US Telecom. Depreciation and amortization expenses increased within our US Telecom segment by $0.3 million, or 1.3%, to $23.4 million from $23.1 million, for the year ended December 31, 2020 and 2019, respectively, primarily as a result of capital expenditures within our US Mobility and early-stage private business. |
| ● | Renewable Energy. Depreciation and amortization expenses within our Renewable Energy segment decreased $1.1 million, or 33.3%, to $2.2 million from $3.3 million for the year ended December 31, 2020 and 2019, respectively, as a result of certain assets becoming fully depreciated in recent periods. |
| ● | Corporate Overhead. Depreciation and amortization expenses decreased within our corporate overhead by $0.3 million, or 4.5%, to $6.4 million from $6.7 million, for the year ended December 31, 2020 and 2019, respectively, primarily as a result of certain assets becoming fully depreciated in recent periods. |
We expect depreciation and amortization expense to increase in our International Telecom, US Telecom and Corporate Overhead segments as we acquire tangible assets to expand or upgrade our telecommunications networks. As a result of the Vibrant Transaction, we will no longer record depreciation and amortization within our Renewable Energy segment after recording a nominal amount in the first quarter of 2021.
Goodwill impairment. During the year ended December 31, 2019, we recorded a $3.3 million goodwill impairment charge within our Renewable Energy segment. See Note 8 to the Consolidated Financial Statements in this Report.
Loss on disposition of long-lived assets. During the year ended December 31, 2020, we recorded a loss on the disposition of long-lived assets of $21.6 million, primarily related to the Vibrant Transaction.
During the year ended December 31, 2019, we recorded a $2.8 million loss on the disposition of long-lived assets primarily in connection with certain asset disposals and partner settlement agreements within our Renewable Energy segment.
Interest income. Interest income represents interest earned on our cash, cash equivalents, restricted cash and short term investment balances.
Interest income decreased $1.9 million to $0.4 million from $2.3 million for the year ended December 31, 2020 and 2019, respectively, as a result of a reduction in the balances of our cash, cash equivalents and short-term investments as well as our return on those balances.
Interest expense.We incur interest expense on the Viya Debt and the One Communications Debt (each as defined below), as well as commitment fees, letter of credit fees and the amortization of debt issuance costs on our 2019 Credit Facility (as defined below). Beginning on March 26, 2020, we also began incurring interest expense, related to the amortization of debt issuance costs, on the Receivables Credit Facility (as defined below).
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Interest expense increased by $0.3 million, or 6.7%, to $5.3 million from $5.0 million for the year ended December 31, 2020 and December 31, 2019, respectively, primarily as a result of the amortization of debt issuance costs related to the Receivables Credit Facility partially offset by a reduction in our long-term debt.
We expect that interest expense may increase in future periods as a result of future borrowings under the Receivables Credit Facility.
Other expenses. Other expenses represents miscellaneous non-operational income earned and expenses incurred.
For the year ended December 31, 2020, other expenses was $4.1 million which was primarily related to $3.4 million of losses related to non-controlling investments and $1.4 million relating to losses on foreign currency transactions. These expenses were partially offset by $0.6 million of income recognized on certain employee benefit plans.
For the year ended December 31, 2019, other expense was $4.6 million which was primarily related to a $4.7 million write down of a non-controlling equity investment and $1.6 million relating to a net loss on foreign currency transactions. These expenses were partially offset by $1.0 million of income recognized on certain employee benefit plans.
We expect that the impact of foreign currency fluctuations may decline as a result of the Vibrant Transaction as we will no longer be exposed to fluctuations in the value of the Indian Rupee.
Income taxes.Our effective tax rate for the years ended December 31, 2020 and 2019 was 858.3% and 67.6%, respectively. On March 27, 2020, the U.S. federal government enacted the CARES Act. The CARES Act, among other things, allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. Our effective tax rate for the year ended December 31, 2020 was primarily impacted by the following items: (i) a $3.1 million net benefit attributable to the remeasurement of domestic losses at a higher tax rate due to carryback provisions as provided by the CARES Act (ii) a $2.1 million net increase of unrecognized tax positions, (iii) a $1.5 million net increase for permanently non-deductible expenses, (iv) a $21.5 million loss on the sale of Vibrant with no tax benefit, and (v) the mix of income generated among the jurisdictions in which we operate along with the exclusion of losses in jurisdictions where we cannot benefit from those losses as required by ASC 740-270-30-36(a), primarily in the US Virgin Islands.
The effective tax rate for the year ended December 31, 2019 was primarily impacted by the following items: (i) a $3.9 million net increase of unrecognized tax positions, (ii) a $3.8 million net increase for permanently non-deductible expenses, (iii) a $1.2 million deferred tax benefit related to an investment tax credit, and (iv) the mix of income generated among the jurisdictions in which we operate along with the exclusion of losses in jurisdictions where we cannot benefit from those losses as required by ASC 740-270-30-36(a), primarily in the US Virgin Islands and India.
Our effective tax rate is based upon estimated income before provision for income taxes for the year, composition of the income in different countries, and adjustments, if any, in the applicable quarterly periods for potential tax consequences, benefits and/or resolutions of tax contingencies. Our consolidated tax rate will continue to be impacted by any transactional or one-time items in the future and the mix of income in any given year generated among the jurisdictions in which we operate. While we believe we have adequately provided for all tax positions, amounts asserted by taxing authorities could materially differ from our accrued positions as a result of uncertain and complex applications of tax law and regulations. Additionally, the recognition and measurement of certain tax benefits include estimates and judgments by management. Accordingly, we could record additional provisions or benefits for US federal, state, and foreign tax matters in future periods as new information becomes available.
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Net income attributable to non-controlling interests, net of tax. Net income attributable to non-controlling interests, net of tax reflected an allocation of $13.4 million and $12.8 million of income generated by our less than wholly owned subsidiaries for the year ended December 31, 2020 and 2019, respectively, an increase of $0.6 million, or 5.5%. Changes in net income attributable to non-controlling interests, net of tax, within our segments, consisted of the following:
| ● | International Telecom. Net income attributable to non-controlling interests, net of tax decreased by $0.2 million, or 2.1%, to $9.5 million from $9.7 million for the year ended December 31, 2020 and 2019, respectively, primarily as a result of an increase in profitability at certain less than wholly owned subsidiaries offset by an increase in our ownership in those subsidiaries as well as a decrease in profitability in other less than wholly owned subsidiaries. |
| ● | US Telecom. Net income attributable to non-controlling interests, net of tax increased by $1.0 million, or 32.3%, to $4.1 million from $3.1 million for the year ended December 31, 2020 and 2019, respectively, primarily as a result of increased profitability at certain less than wholly owned subsidiaries within our US Mobility retail operations. |
Net loss attributable to ATN International, Inc. stockholders. Net loss attributable to ATN International, Inc. stockholders was $14.1 million and $10.8 million for the year ended December 31, 2020 and 2019, respectively.
On a per diluted share basis, net loss was $0.89 and $0.68 per diluted share for the year ended December 31, 2020 and 2019, respectively.
Selected Segment Financial Information
The following represents selected segment information for the years ended December 31, 2019 and 2018 (in thousands):
| | | | | | | | | | | | | | | |
For the Year Ended December 31, 2019 | |||||||||||||||
|
| | |
| |
| | |
| | |
| | | |
| | International | | US | | Renewable | | Corporate and | | | | ||||
| | Telecom | | Telecom | | Energy | | Other (1) | | Consolidated | |||||
Revenue | | | | | | | | | | | | | | | |
Communication Services | | | | | | | | | | | | | | | |
Mobility | | $ | 84,560 | | $ | 10,532 | | $ | — | | $ | — | | $ | 95,092 |
Fixed | |
| 224,534 | |
| 14,211 | |
| — | |
| — | |
| 238,745 |
Carrier Services | | | 9,070 | | | 83,906 | | | — | | | — | | | 92,976 |
Other | |
| 1,295 | |
| — | |
| — | |
| — | |
| 1,295 |
Total Communication Services Revenue | | | 319,459 | | | 108,649 | | | — | | | — | | | 428,108 |
Other | | | | | | | | | | | | | | | |
Renewable Energy | | | — | | | — | | | 5,534 | | | — | | | 5,534 |
Managed Services | | | 5,080 | | | — | | | — | | | — | | | 5,080 |
Total Other Revenue | | | 5,080 | | | — | | | 5,534 | | | — | | | 10,614 |
Total Revenue | | | 324,539 | | | 108,649 | | | 5,534 | | | — | | | 438,722 |
| | | | | | | | | | | | | | | |
Operating income (loss) | |
| 46,921 | | | 8,064 | | | (7,243) | | | (34,365) | | | 13,377 |
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| | | | | | | | | | | | | | | |
For the Year Ended December 31, 2018 | |||||||||||||||
|
| | |
| |
| | |
| | |
| | | |
| | International | | US | | Renewable | | Corporate and | | | | ||||
| | Telecom | | Telecom | | Energy | | Other (1) | | Consolidated | |||||
Revenue | | | | | | | | | | | | | | | |
Communication Services | | | | | | | | | | | | | | | |
Mobility | | $ | 85,152 | | $ | 11,759 | | $ | — | | $ | — | | $ | 96,911 |
Fixed | |
| 213,765 | |
| 7,860 | |
| — | |
| — | |
| 221,625 |
Carrier Services | | | 8,846 | | | 95,861 | | | — | | | — | | | 104,707 |
Other | |
| 2,080 | |
| — | |
| — | |
| — | |
| 2,080 |
Total Communication Services Revenue | | | 309,843 | | | 115,480 | | | — | | | — | | | 425,323 |
Other | | | | | | | | | | | | | | | |
Renewable Energy | | | — | | | — | | | 22,158 | | | — | | | 22,158 |
Managed Services | | | 3,726 | | | — | | | — | | | — | | | 3,726 |
Total Other Revenue | | | 3,726 | | | — | | | 22,158 | | | — | | | 25,884 |
Total Revenue | | | 313,569 | | | 115,480 | | | 22,158 | | | — | | | 451,207 |
| | | | | | | | | | | | | | | |
Operating income (loss) | | | 45,022 | | | 36,813 | | | 13,440 | | | (34,252) | | | 61,023 |
| (1) | Reconciling items refer to corporate overhead costs and consolidating adjustments. |
A year-to-date comparison of our segment results is as follows:
International Telecom. Revenues within our International Telecom segment increased $10.9 million, or 3.5%, to $324.5 million from $313.6 million for the year ended December 31, 2019 and 2018, respectively, as a result of an increase in broadband revenues in many of our international telecom markets. In addition, the year ended December 31, 2018 includes $15.5 million of non-recurring funding from the USF to help our US Virgin Islands operations recover from the impact of the Hurricanes.
Operating expenses within our International Telecom segment increased by $9.0 million, or 3.4%, to $277.6 million from $268.6 million for the year ended December 31, 2019 and 2018, respectively. The increase was primarily the result of increased expenses in the US Virgin Islands as their operations became more normalized following the impact of the Hurricanes.
As a result, our International Telecom segment’s operating income increased $1.9 million, or 4.2%, to $46.9 million from $45.0 million for the year ended December 31, 2019 and 2018, respectively.
US Telecom. Revenue within our US Telecom segment decreased by $6.9 million, or 6.0%, to $108.6 million from $115.5 million for the year ended December 31, 2019 and 2018, respectively.
Carrier Services revenue decreased by $12.0 million, or 12.5%, to $83.9 million from $95.9 million for the year ended December 31, 2019 and 2018, respectively. This decrease was primarily the result of the July 2018 sale of approximately 100 cell sites, which generated $4.3 million in revenue during the year ended December 31, 2018, and a reduction in wholesale traffic.
Fixed communications revenue increased $6.3 million, or 79.7%, to $14.2 million from $7.9 million for the year ended December 31, 2019 and 2018, respectively, as a result of increased revenue from the Connect America Fund Phase II program and an increase in subscribers.
Operating expenses within our US Telecom segment increased $21.9 million, or 27.8%, to $100.6 million from $78.7 million for the year ended December 31, 2019 and 2018, respectively. This increase in operating expenses was primarily related to the $15.2 million gain on the July 2018 sale of approximately 100 cell sites, the completion of the
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Phase I Mobility Fund support in 2018 which was recorded as a $3.5 million offset to expenses during the year ended December 31, 2018 and an increase within our early-stage private network business which began operations in mid-2018.
As a result of the above, our US Telecom segment’s operating income decreased $28.7 million, or 78.0%, to $8.1 million from $36.8 million for the year ended December 31, 2019 and 2018, respectively.
Renewable Energy. Revenue within our Renewable Energy segment decreased $16.7 million, or 75.2%, to $5.5 million from $22.2 million for the year ended December 31, 2019 and 2018, respectively, primarily as a result the US Solar Transaction.
Operating expenses within our Renewable Energy segment increased by $4.0 million, or 45.2%, to $12.8 million from $8.8 million for the year ended December 31, 2019 and 2018. For the year ended December 31, 2019, operating expenses within our renewable energy segment includes a $3.3 million impairment of intangibles and a $2.6 million loss on the settlement of certain partner settlement agreements. During the year ended December 31, 2018, operating expenses within our renewable energy segment included a $4.0 million loss on the settlement of certain agreements and transaction-related charges associated with the US Solar Transaction of $2.1 million. Those charges were offset by the gain on the US Solar Transaction of $12.4 million. The remaining decrease of $8.4 million was related to the US operations which were sold with the US Solar Transaction.
As a result of the above, our Renewable Energy segment’s operating income decreased by $20.6 million to a loss of $7.2 million compared to income of $13.4 million for the year ended December 31, 2019 and 2018, respectively.
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The following represents a year over year discussion and analysis of our results of operations for the years ended December 31, 2019 and 2018 (in thousands):
| | | | | | | | | | | | |
|
| | | | | | | | | | | |
| | Year Ended |
| Amount of |
| Percent |
| |||||
| | December 31, | | Increase | | Increase |
| |||||
| | 2019 | | 2018 | | (Decrease) | | (Decrease) |
| |||
REVENUE: | | | | | | | | | | | | |
Communication services | | $ | 428,108 | | $ | 425,323 | | $ | 2,785 |
| 0.7 | % |
Other | |
| 10,614 | |
| 25,884 | |
| (15,270) |
| (59.0) | |
Total revenue | | | 438,722 | | | 451,207 | | | (12,485) |
| (2.8) | |
OPERATING EXPENSES (excluding depreciation and amortization unless otherwise indicated): | | | | | | | | | | | | |
Termination and access fees | | | 112,943 | | | 114,478 | | | (1,535) |
| (1.3) | |
Engineering and operations | | | 77,649 | | | 73,031 | | | 4,618 |
| 6.3 | |
Sales and marketing | | | 38,730 | | | 35,207 | | | 3,523 |
| 10.0 | |
General and administrative | | | 100,534 | | | 104,267 | | | (3,733) |
| (3.6) | |
Transaction-related charges | | | 244 | | | 2,642 | | | (2,398) |
| (90.8) | |
Restructuring charges | | | — | | | 515 | | | (515) |
| (100.0) | |
Depreciation and amortization | | | 89,125 | | | 85,719 | | | 3,406 |
| 4.0 | |
Goodwill impairment | | | 3,279 | | | — | | | 3,279 |
| 100.0 | |
(Gain) loss on disposition of long-lived assets | | | 2,841 | | | (26,425) | | | 29,266 | | (110.8) | |
Loss on damaged assets and other hurricane related charges, net of insurance recovery | | | — | | | 750 | | | (750) | | (100.0) | |
Total operating expenses | | | 425,345 | | | 390,184 | | | 35,161 |
| 9.0 | |
Income from operations | | | 13,377 | | | 61,023 | | | (47,646) |
| (78.1) | |
OTHER INCOME (EXPENSE): | | | | | | | | | | | | |
Interest income | | | 2,263 | | | 1,811 | | | 452 |
| 25.0 | |
Interest expense | | | (5,010) | | | (7,973) | | | 2,963 |
| (37.2) | |
Other expense, net | | | (4,558) | | | (1,119) | | | (3,439) |
| 307.3 | |
Other income and expense, net | | | (7,305) | | | (7,281) | | | (24) |
| 0.3 | |
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | |
| 6,072 | |
| 53,742 | |
| (47,670) |
| (88.7) | |
Income tax provisions (benefit) | |
| 4,105 | |
| 18,870 | |
| (14,765) |
| (78.2) | |
NET INCOME | |
| 1,967 | |
| 34,872 | |
| (32,905) |
| (94.4) | |
Net income attributable to non‑controlling interests, net of tax: | |
| (12,773) | |
| (15,057) | |
| 2,284 |
| (15.2) | |
NET INCOME ATTRIBUTABLE TO ATN INTERNATIONAL, INC. STOCKHOLDERS | | $ | (10,806) | | $ | 19,815 | | $ | (30,621) |
| (154.5) | % |
Communications services
Mobility revenue. Mobility revenue decreased by $1.8 million, or 1.9%, to $95.1 million for the year ended December 31, 2019 from $96.9 million for the year ended December 31, 2018. The decrease in Mobility revenue, within our segments, consisted of the following:
| ● | International Telecom. Within our International Telecom segment, Mobility revenue decreased by $0.6 million, or 0.7%, to $84.6 million for the year ended December 31, 2019 from $85.2 million for the year ended December 31, 2018. The decrease was the result of a decrease in subscribers within some of our international markets partially offset by an increase in subscribers within other markets. |
| ● | US Telecom. Mobility revenue within our US Telecom segment decreased by $1.3 million, or 11.0%, to $10.5 million from $11.8 million for the year ended December 31, 2019 and 2018, respectively. This decrease was |
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| primarily related to a decrease in enterprise revenue and a reduction in subscribers within some of our US retail markets. |
Fixed communications revenue. Fixed revenue within our US Telecom segment also includes revenue from the Connect America Fund Phase II program award. Fixed communications revenue increased by $17.1 million, or 7.7%, to $238.7 million from $221.6 million for the year ended December 31, 2019 and 2018, respectively. The net increase in Fixed communications revenue, within our segments, consisted of the following:
| ● | International Telecom. Within our International Telecom segment, Fixed communications revenue increased by $10.7 million, or 5.0%, to $224.5 million from $213.8 million, for the year ended December 31, 2019 and 2018, respectively, primarily as a result of an increase in broadband revenues in many of our international telecom markets partially offset by $15.5 million of additional non-recurring funding from the USF, received during the year ended December 31, 2018, to help our US Virgin Islands operations recover from the impact of the Hurricanes. |
| ● | US Telecom. Fixed communications revenue within our US Telecom segment increased by $6.3 million, or 79.7%, to $14.2 million from $7.9 million for the year ended December 31, 2019 and 2018, respectively. This increase was related to an increase related to the Connect America Fund Phase II program award which began during mid-2019 and an increase in subscribers. |
Carrier Services revenue. Within our US Telecom segment, Carrier Services revenue includes services provided under the FirstNet Transaction, wholesale roaming revenues, the provision of network switching services, tower lease revenue and other services provided to carriers. Carrier Services revenue decreased by $11.7 million, or 11.2%, to $93.0 million from $104.7 million for the year ended December 31, 2019 and 2018, respectively. The decrease, within our segments, consisted of the following:
| ● | International Telecom. Within our International Telecom segment, Carrier Services revenue increased by $0.3 million, or 3.4%, to $9.1 million from $8.8 million for the year ended December 31, 2019 and 2018, respectively, primarily as a result of a decrease in roaming rates and traffic as a result of fewer customers from other carriers roaming on our network in 2019 as compared to 2018. |
| ● | US Telecom. Carrier Services revenue within our US Telecom segment decreased by $12.0 million, or 12.5%, to $83.9 million from $95.9 million, for the year ended December 31, 2019 and 2018, respectively, primarily as a result of a decrease in wholesale traffic and the July 2018 sale of 100 cell sites. |
Other communications services revenue. Other communications services revenue includes miscellaneous services that our operations within our International Telecom segment provide to retail subscribers. Other communications services revenue increased to $1.3 million from $2.1 million for the year ended December 31, 2019 and 2018, respectively.
Other revenue
Renewable energy revenue. Renewable energy revenue decreased by $16.7 million, or 75.0%, to $5.5 million from $22.2 million for the year ended December 31, 2019 and 2018, respectively, primarily as a result of the impact of the US Solar Transaction.
Managed Services revenue. Managed Services revenue increased by $1.4 million, or 37.8%, to $5.1 million from $3.7 million for the year ended December 31, 2019 and 2018, respectively, primarily as a result of an increase in consulting services and equipment sales.
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Operating expenses
Termination and access fee expenses. Termination and access fees decreased by $1.6 million, or 1.3%, to $112.9 million from $114.5 million for the year ended December 31, 2019 and 2018, respectively. The net decrease in termination and access fees, within our segments, consisted of the following:
| ● | International Telecom. Within our International Telecom segment, termination and access fees decreased by $0.3 million, or 0.4%, to $73.7 million from $74.0 million, for the year ended December 31, 2019 and 2018, respectively. Our US Virgin Islands operations incurred an increase in programming and other variable costs of $2.6 million that were not incurred during 2018 as a result of the impact of the Hurricanes. This increase was offset by an expense decrease in other markets as a result of a decline in subscribers. |
| ● | US Telecom. Termination and access fees within our US Telecom segment remained consistent at $38.9 million for the year ended December 31, 2019 and 2018. This consistency was primarily a result of increased circuit costs in 2019 offset by the $2.1 million impact of the sale of approximately 100 cell sites during July 2018, the $3.5 million impact of the completion of the Phase I Mobility Fund support in 2018 which recorded such amounts as an offset to termination and access fees as well as a decrease in termination costs within our wholesale long-distance service as a result of a decline in traffic volume. |
| ● | Renewable Energy. Termination and access fees within our Renewable Energy segment decreased $1.4 million, or 77.8%, to $0.4 million from $1.8 million for the year ended December 31, 2019 and 2018, respectively, as a result of the US Solar Transaction. |
Engineering and operations expenses. Engineering and operations expenses increased by $4.6 million, or 6.3%, to $77.6 million from $73.0 million for the year ended December 31, 2019 and 2018, respectively. The net increase in engineering and operations expenses, within our segments, consisted of the following:
| ● | International Telecom. Within our International Telecom segment, engineering and operations expenses increased by $2.5 million, or 4.2%, to $62.0 million from $59.5 million, for the year ended December 31, 2019 and 2018, respectively. This increase was primarily related to an increase in expenses within most of our international markets, primarily related to the expansion and upgrades of our networks. |
| ● | US Telecom. Engineering and operations expenses increased within our US Telecom segment by $2.3 million, or 18.1%, to $15.0 million from $12.7 million, for the year ended December 31, 2019 and 2018, respectively, primarily as a result of a $2.1 million increase in these expenses in order to support our upgraded networks. |
| ● | Renewable Energy. During 2018, our Renewable Energy segment recorded $0.1 million of engineering and operations expenses. This segment did not incur any engineering and operations expenses during 2019. |
| ● | Corporate Overhead. Engineering and operations expenses within our corporate overhead remained consistent at $0.7 million for the year ended December 31, 2019 and 2018. |
Sales and marketing expenses. Sales and marketing expenses increased by $3.5 million, or 10.0%, to $38.7 million from $35.2 million for the year ended December 31, 2019 and 2018, respectively. The net increase in sales and marketing expenses, within our segments, consisted of the following:
| ● | International Telecom. Within our International Telecom segment, our sales and marketing expenses increased by $1.0 million, or 3.1%, to $33.1 million from $32.1 million for the year ended December 31, 2019 and 2018, respectively. The increase was incurred within most of our international markets. |
| ● | US Telecom. Sales and marketing expenses increased within our US Telecom segment by $2.6 million, or 83.9%, to $5.7 million from $3.1 million, for the year ended December 31, 2019 and 2018, respectively, primarily as a result of our early-stage private network business, which began operations in mid-2018. |
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General and administrative expenses. General and administrative expenses decreased by $3.7 million, or 3.6%, to $100.5 million from $104.3 million for the year ended December 31, 2019 and 2018, respectively. The net decrease in general and administrative expenses, within our segments, consisted of the following:
| ● | International Telecom. General and administrative expenses decreased within our International Telecom segment by $0.9 million, or 1.7%, to $52.6 million from $53.5 million, for the year ended December 31, 2019 and 2018, respectively. The decrease was primarily related to cost reduction measures within both our Managed Services and technology platform businesses as well as certain markets within this segment. |
| ● | US Telecom. General and administrative expenses increased by $1.7 million, or 10.6%, to $17.7 million from $16.0 million for the year ended December 31, 2019 and 2018, respectively, primarily due to our early-stage private network business and to support our operations. |
| ● | Renewable Energy. General and administrative expenses within our Renewable Energy segment decreased by $3.3 million, or 50.0%, to $3.3 million from $6.6 million for the year ended December 31, 2019 and 2018, respectively. This decrease was primarily related to the US Solar Transaction partially offset by an increase in such expenses within our international operations. |
| ● | Corporate Overhead. General and administrative expenses within our corporate overhead decreased by $1.2 million, or 4.3%, to $26.9 million from $28.1 million, for the year ended December 31, 2019 and 2018, respectively, primarily related to certain cost reduction measures, partially offset by an increase in information technology expenditures to further enhance our network security. |
Transaction-related charges.We incurred $0.2 million of transaction-related costs during the year ended December 31, 2019. During the year ended December 31, 2018, we incurred $2.6 million of transaction-related charges relating to our early-stage private network and large-scale fiber network businesses.
Restructuring charges. Restructuring charges are costs incurred as a result of reorganizing our operations from acquisition or disposition activities. During the year ended December 31, 2018, we incurred $0.5 million of restructuring charges which were primarily related to the US Solar Transaction. There were no restructuring charges incurred during 2019.
Depreciation and amortization expenses. Depreciation and amortization expenses increased by $3.4 million, or 4.0%, to $89.1 million from $85.7 million for the year ended December 31, 2019 and 2018, respectively. The net increase in depreciation and amortization expenses, within our segments, consisted primarily of the following:
| ● | International Telecom. Depreciation and amortization expenses increased within our International Telecom segment by $7.1 million, or 14.5%, to $56.0 million from $48.9 million, for the year ended December 31, 2019 and 2018, respectively. This increase was recognized throughout all of our international markets as a result of upgrades and expansions to this segment’s network assets including the network repairs and resiliency enhancements in the US Virgin Islands which were impacted by the Hurricanes. |
| ● | US Telecom. Depreciation and amortization expenses decreased within our US Telecom segment by $1.5 million, or 6.1%, to $23.1 million from $24.6 million, for the year ended December 31, 2019 and 2018, respectively, primarily as a result of the completion of the July 2018 sale of approximately 100 cell sites within our US wireless operations. We recorded approximately $1.9 million of depreciation expense in 2018 related to the 100 disposed cell sites. This decrease was partially offset by the effects of additional capital expenditures within this segment during 2018 and 2019. |
| ● | Renewable Energy. Depreciation and amortization expenses within our Renewable Energy segment decreased by $3.3 million, or 50.0%, to $3.3 million from $6.6 million for the year ended December 31, 2019 and 2018, respectively. Of this decrease, $4.3 million was the result of the impact of the US Solar Transaction. This |
58
| decrease was partially offset by an increase, as a result of capital expenditures, in our international operations of $1.0 million. |
| ● | Corporate Overhead. Depreciation and amortization expenses increased by $1.1 million, or 19.6%, to $6.7 million from $5.6 million for the year ended December 31, 2019 and 2018, respectively, as a result of certain shared services assets being placed into service. |
Goodwill impairment. During the year ended December 31, 2019, we recorded a $3.3 million goodwill impairment charge within our Renewable Energy segment. See Note 8 to the Consolidated Financial Statements in this Report.
(Gain) loss on disposition of long-lived assets. During the year ended December 31, 2019, we recorded a $2.8 million loss on the disposition of long-lived assets primarily in connection with certain asset disposals and partner settlement agreements within our Renewable Energy segment.
During the year ended December 31, 2018, we recorded a gain on the disposition of long-lived assets of $26.4 million. Within our US Telecom segment, we recorded a gain of $17.2 million primarily as the result of a $15.2 million gain on the sale of approximately 100 cell sites and a $2.9 million gain on the sale of certain telecommunication licenses. Within our Renewable Energy segment, we recorded a gain on the US Solar Transaction of $12.4 million. These gains were partially offset by a $3.2 million loss recorded in connection with certain asset disposals and partner settlement agreements within our Renewable Energy segment and a $1.1 million loss on the disposal of miscellaneous assets within our US wireless operations.
Loss on damaged assets and other Hurricane-related charges. During the year ended December 31, 2018, we incurred $0.8 million in expenses associated with the procurement of continued building maintenance, security services, the supply of alternative power and related professional fees.
Interest income. Interest income increased $0.5 million, or 25.0%, to $2.3 million from $1.8 million for the year ended December 31, 2019 and 2018, respectively, as the higher rate of return on our cash, cash equivalents and short-term investments was partially offset by a decrease in those balances.
Interest expense. Interest expense decreased by $3.0 million, or 37.2%, to $5.0 million from $8.0 million for the year ended December 31, 2019 and December 31, 2018, respectively, primarily as a result of the US Solar Transaction and the effects of the April 2019 amendment to our primary credit facility.
During the year ended December 31, 2019, we incurred interest expense on the Viya Debt and the One Communications Debt as well as commitment fees, letter of credit fees and the amortization of debt issuance costs on our outstanding credit facilities. During the year ended December 31, 2018, we also incurred $2.9 million of interest expense on the Ahana Debt which was assumed by the acquirer in November 2018 as a part of the US Solar Transaction.
Other expenses. For the year ended December 31, 2019, other expenses were $4.6 million which was primarily related to a $4.7 million write down of previously acquired non-controlling equity investments and $1.6 million relating to a net loss on foreign currency transactions. These expenses were partially offset by $1.0 million of income recognized on certain employee benefit plans.
For the year ended December 31, 2018, we recorded $1.1 million of other expenses which were primarily related to $2.4 million in losses on foreign currency transactions partially offset by $1.3 million in income related to certain employee benefit plans.
Income taxes.Our effective tax rate for the years ended December 31, 2019 and 2018 was 67.6% and 35.1%, respectively. The effective tax rate for the year ended December 31, 2019 was primarily impacted by the following items: (i) a $3.9 million net increase of unrecognized tax positions, (ii) a $3.8 million net increase for permanently non-deductible expenses, (iii) a $1.2 million deferred tax benefit related to an investment tax credit, and (iv) the mix of income generated among the jurisdictions in which we operate along with the exclusion of losses in jurisdictions where
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we cannot benefit from those losses as required by ASC 740-270-30-36(a), primarily in the US Virgin Islands and India.
The effective tax rate for the year ended December 31, 2018 was primarily impacted by the following items: (i) a $10.6 million net increase of unrecognized tax positions, (ii) a $4.7 million net benefit to record a return to accrual adjustment, (iii) a $1.2 million benefit to recognize a capital loss carryover due to capital gains on sale of wireless licenses, (iv) a $1.4 million net benefit to record a valuation allowance release on an indefinite lived intangible asset, (v) a $1.7 million provision associated with the intercompany sale of assets from the US to the US Virgin Islands, and (vi) the mix of income generated among the jurisdictions in which we operate along with the exclusion of losses in jurisdictions where we cannot benefit from those losses as required by ASC 740-270-30-36(a), primarily in the US Virgin Islands and India.
Our effective tax rate is based upon income before provision for income taxes for the year, composition of the income in different countries, and adjustments, if any, in the applicable quarterly periods for potential tax consequences, benefits and/or resolutions of tax contingencies. Our consolidated tax rate will continue to be impacted by any transactional or one-time items in the future and the mix of income in any given year generated among the jurisdictions in which we operate. While we believe we have adequately provided for all tax positions, amounts asserted by taxing authorities could materially differ from our accrued positions as a result of uncertain and complex applications of tax laws and regulations. Additionally, the recognition and measurement of certain tax benefits include estimates and judgments by management. Accordingly, we could record additional provisions or benefits for US federal, state, and foreign tax matters in future periods as new information becomes available.
Net income attributable to non-controlling interests, net of tax. Net income attributable to non-controlling interests, net of tax reflected an allocation of $12.8 million and $15.1 million of income generated by our less than wholly owned subsidiaries for the year ended December 31, 2019 and 2018, respectively, a decrease of $2.3 million, or 15.2%. Changes in net income attributable to non-controlling interests, net of tax, within our segments, consisted of the following:
| ● | International Telecom. Net income attributable to non-controlling interests, net of tax decreased by $0.1 million, or 1.0%, to $9.7 million from $9.8 million for the year ended December 31, 2019 and 2018, respectively, primarily as a result of a decrease in non-controlling ownership interests partially offset by an increase in profitability at certain less than wholly owned subsidiaries. |
| ● | US Telecom. Net income attributable to non-controlling interests, net of tax decreased by $0.1 million, or 3.1%, to $3.1 million from $3.2 million for the year ended December 31, 2019 and 2018, respectively, primarily as a result of decreased profitability at certain less than wholly owned subsidiaries within our US wireless retail operations. |
| ● | Renewable Energy. As a result of the US Solar Transaction, no allocation of income or losses was recorded to non-controlling interests during the year ended December 31, 2019. Net income attributable to non-controlling interests, net of tax, was $2.1 million during the year ended December 31, 2018. |
Net income (loss) attributable to ATN International, Inc. stockholders. Net income (loss) attributable to ATN International, Inc. stockholders was a loss of $10.8 million and income of $19.8 million for the years ended December 31, 2019 and 2018, respectively.
On a per diluted share basis, net income (loss) per diluted share was a loss of $0.68 and income of $1.24 per diluted share for the year ended December 31, 2019 and 2018, respectively.
Regulatory and Tax Issues
We are involved in a number of regulatory and tax proceedings. A material and adverse outcome in one or more of these proceedings could have a material adverse impact on our financial condition and future operations. For a discussion of ongoing proceedings, see Note 14 to the Consolidated Financial Statements in this Report.
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CARES Act
On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. Certain provisions of the CARES Act impact our income tax provision computations.
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, proceeds from dispositions, borrowings under our credit facilities and seller financings. We believe our current cash, cash equivalents, short term investments and availability under our current credit facility will be sufficient to meet our cash needs for at least the next twelve months for working capital needs and capital expenditures.
Total liquidity. As of December 31, 2020, we had approximately $105.0 million in cash, cash equivalents and restricted cash. Of this amount, $39.7 million was held by our foreign subsidiaries and is indefinitely invested outside the United States. In addition, we had approximately $72.8 million of debt, net of unamortized deferred financing costs, as of December 31, 2020. How and when we deploy our balance sheet capacity will figure prominently in our longer-term growth prospects and stockholder returns.
Uses of Cash
Acquisitions and investments. We funded our acquisitions with a combination of cash-on-hand, borrowings under our credit facilities as well as equity investor and seller financings.
Alaska Transaction. We have secured a commitment for certain debt financing in connection with the Alaska Transaction. See Pending Acquisition of Alaska Communications System Group, Inc.
We continue to explore opportunities to expand our telecommunications business or acquire new businesses and telecommunications licenses in the United States, the Caribbean and elsewhere. Such acquisitions may require external financing. While there can be no assurance as to whether, when or on what terms we will be able to acquire any such businesses or licenses or make such investments, such acquisitions may be accomplished through the issuance of shares of our capital stock, payment of cash or incurrence of additional debt. From time to time, we may raise capital ahead of any definitive use of proceeds to allow us to move more quickly and opportunistically if an attractive investment materializes.
Cash used in investing activities. Cash used in investing activities was $70.2 million and $88.3 million for the year ended December 31, 2020 and 2019, respectively. The net decrease in cash used for investing activities of $18.1 million was primarily related to a $34.6 million reduction in the net cash used for strategic investments offset by the increase in the usage of cash for the acquisition of telecommunications licenses of $20.4 million and capital expenditures of $2.6 million. During the year ended December 31, 2020, we also received an additional $13.2 million in government grants as compared to 2019 and cash from investing activities for the year ended December 31, 2019 includes $6.4 million received as part of the US Solar Transaction.
Cash used in financing activities. Cash used in financing activities was $73.4 million and $29.9 million during the year ended December 31, 2020 and 2019, respectively. The increase in cash used for financing activities of $43.5 million was primarily related to a $24.4 million increase in cash used to acquire non-controlling interests in One Communications (our subsidiary in Bermuda and the Cayman Islands), a $9.1 million increase in the repayments of long-term debt, a $6.4 million increase in cash used for the repurchase of our Common Stock under the 2016 Repurchase Plan (as defined below) and a $3.2 million increase in the distributions made to minority shareholders.
Working Capital.Historically, we have internally funded our working capital needs. Pursuant to the FirstNet Agreement AT&T has the option to repay construction costs, with interest, over an eight year period. To fund the
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working capital needs created by AT&T’s option to extend its payment terms, we completed the Receivables Credit Facility, as discussed below, on March 26, 2020.
Capital expenditures. Historically, a significant use of our cash has been for capital expenditures to expand and upgrade our telecommunications networks and to expand our renewable energy operations.
For the year ended December 31, 2020 and 2019, we spent approximately $75.3 million and $72.7 million, respectively, on capital expenditures. The following notes our capital expenditures, by operating segment, for these periods (in thousands):
| | | | | | | | | | | | | | | |
| | Capital Expenditures | |||||||||||||
| |
| | |
| | |
| | |
| | |
| |
| | | International | | | US | | | Renewable | | | Corporate and | | | |
Year ended December 31, | | | Telecom | | | Telecom | | | Energy | | | Other (1) | | | Consolidated |
2020 | | $ | 38,895 | | $ | 29,883 | | $ | 2,932 | | $ | 3,613 | | $ | 75,323 |
2019 | | | 42,029 | | | 17,490 | | | 6,448 | | | 6,758 | | | 72,725 |
| (1) | Corporate and other items refer to corporate overhead costs and consolidating adjustments. |
We are continuing to invest in our telecommunication networks along with our operating and business support systems in many of our markets. Such investments include the upgrade and expansion of both our Mobility and Fixed telecommunications networks as well as our service delivery platforms. For 2021, we expect International Telecom capital expenditures to be approximately $45 million to $55 million. In the US Telecom segment, we expect capital expenditures to be approximately $40 million to $50 million for 2021 including $20 million to $30 million related to towers and backhaul in conjunction with the FirstNet Agreement.
We expect to fund our current capital expenditures primarily from our current cash balances, cash generated from operations and our existing credit facilities including the FirstNet Receivables Credit Facility.
Income taxes. We have historically used cash-on-hand to make payments for income taxes. Our policy is to allocate capital where we believe we will get the best returns and to date has been to indefinitely reinvest the undistributed earnings of our foreign subsidiaries. As we continue to reinvest our remaining foreign earnings, outside of dividends from Guyana made in 2020, no additional provision for income taxes has been made on accumulated earnings of foreign subsidiaries.
Dividends. We use cash-on-hand to make dividend payments to our stockholders when declared by our Board of Directors. For the National Associationthree months ended December 31, 2020, our Board of Directors declared $2.7 million of dividends to our stockholders which includes a $0.17 per share dividend declared on December 14, 2020 and paid on January 8, 2021. We have declared quarterly dividends for the last 88 fiscal quarters.
Stock Repurchase Plan. On September 19, 2016, our Board of Directors authorized the repurchase of up to $50.0 million of our Common Stock from time to time on the open market or in privately negotiated transactions (the “2016 Repurchase Plan”). We repurchased $6.6 million and $0.2 million of our Common Stock under the 2016 Repurchase Plan during the year ended December 31, 2020 and 2019, respectively. As of December 31, 2020, we have $30.9 million authorized and available for share repurchases under the 2016 Repurchase Plan.
Debt Service and Other Contractual Commitments Table. The following table discloses aggregate information about our debt, lease and other obligations as of December 31, 2020 and the periods in which payments are due:
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| | | | | | | | | | | | | | | | |
| | | | | Less Than | | | | | | | | More Than |
| ||
Contractual Obligations | | Total | | 1 Year | | 1 – 3 Years | | 4 – 5 Years | | 5 Years |
| |||||
| | (In thousands) |
| |||||||||||||
Debt |
| $ | 72,823 |
| $ | 3,750 |
| $ | 9,590 |
| $ | — |
| $ | 59,483 | |
Pension and postretirement benefit obligations | |
| 57,311 | |
| 20,077 | |
| 8,068 | |
| 8,429 | |
| 20,737 | |
Operating lease obligations | |
| 73,632 | |
| 15,211 | |
| 26,667 | |
| 18,660 | |
| 13,094 | |
Total | | $ | 203,766 | | $ | 39,038 | | $ | 44,325 | | $ | 27,089 | | $ | 93,314 | |
We have omitted uncertain income tax liabilities from this table due to the inherent uncertainty regarding the timing of potential issue resolution. Specifically, either the underlying positions have not been fully developed enough under audit to quantify at this time or the years relating to the issues for certain jurisdictions are not currently under audit. At December 31, 2020, we had $40.8 million of gross unrecognized uncertain tax benefits of which $35.8 million is included in “Other Liabilities” and $5.0 million is included in “Accrued Taxes” in the consolidated balance sheet.
Sources of Cash
Cash provided by operations. Cash provided by operating activities was $86.3 million for the year ended December 31, 2020 as compared to $87.9 million for the year ended December 31, 2019. The decrease of $1.6 million was primarily related to an increase in working capital investments made as a part of the FirstNet construction project partially offset by lower tax payments and improved operating income, net of the impact of the Vibrant Transaction.
Credit facility. On April 10, 2019, we entered into the 2019 Credit Facility, with CoBank, ACB and a syndicate of other lenders (the “2019 Credit Facility”). The 2019 Credit Facility provides for a $200 million revolving credit facility that includes (i) up to $75 million for standby or trade letters of credit and (ii) up to $10 million under a swingline sub-facility. Approximately $16.0 million of performance letters of credit have been issued and remain outstanding and undrawn as of December 31, 2020. The 2019 Credit Facility matures on April 10, 2024.
Amounts borrowed under the 2019 Credit Facility bear interest at a rate equal to, at our option, either (i) the London Interbank Offered Rate (“LIBOR”) plus an applicable margin ranging between 1.25% to 2.25% or (ii) a base rate plus an applicable margin ranging from 0.25% to 1.25%. Swingline loans bear interest at the base rate plus the applicable margin for base rate loans. The base rate is equal to the higher of (i) 1.00% plus the higher of (x) LIBOR for an interest period of one month and (y) LIBOR for an interest period of one week; (ii) the Federal Funds Effective Rate (as defined in the 2019 Credit Facility) plus 0.50% per annum; and (iii) the Prime Rate (as defined in the 2019 Credit Facility). The applicable margin is determined based on the Total Net Leverage Ratio (as defined in the 2019 Credit Facility). Under the terms of the 2019 Credit Facility, we must also pay a fee ranging from 0.150% to 0.375% of the average daily unused portion of the 2019 Credit Facility over each calendar quarter.
The 2019 Credit Facility contains customary representations, warranties and covenants, including a financial covenant that imposes a maximum ratio of indebtedness to EBITDA as well as covenants limiting additional indebtedness, liens, guaranties, mergers and consolidations, substantial asset sales, investments and loans, sale and leasebacks, transactions with affiliates and fundamental changes. Our investments in “unrestricted” subsidiaries and certain dividend payments to our stockholders are not limited unless the Total Net Leverage Ratio is equal to or greater than 1.75 to 1.0. The Total Net Leverage Ratio is measured each fiscal quarter and is required to be less than or equal to 2.75 to 1.0. In the event of a Qualifying Acquisition (as defined in the 2019 Credit Facility), the Total Net Leverage Ratio increases to 3.25 to 1.0 for the subsequent three fiscal quarters.
The 2019 Credit Facility also provides for the incurrence by us of incremental term loan facilities, when combined with increases to revolving loan commitments, in an aggregate amount not to exceed $200 million (the “Accordion”). Amounts borrowed under the Accordion are also subject to proforma compliance with a net leverage ratio financial covenant.
As of December 31, 2020, we were in compliance with all of the financial covenants, had no outstanding borrowings and, net of the $16.0 million of outstanding performance letters of credit, had $184.0 million of availability under the 2019 Credit Facility.
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FirstNet Receivables Credit Facility
On March 26, 2020, Commnet Finance, a wholly owned subsidiary of Commnet Wireless, entered into receivables credit facility with the Company, Commnet Wireless, and CoBank, ACB (the “Receivables Credit Facility”).
The Receivables Credit Facility provides for a senior secured delayed draw term loan in an aggregate principal amount of up to $75 million and the proceeds may be used to acquire certain receivables from Commnet Wireless. The receivables to be financed and sold under the Receivables Credit Facility, which provide the loan security, relate to the obligations of AT&T under the FirstNet Agreement. The delayed draw period will expire on December 31, 2021.
The maturity date for each loan will be set by CoBank and will match the weighted average maturity of the certain receivables financed.
Interest on the loans accrues at a rate based on (i) LIBOR plus 2.50%, (ii) a base rate plus 1.50% or (iii) a fixed annual interest rate to be quoted by CoBank
The Receivables Credit Facility contains customary events of termination, representations and warranties, affirmative and negative covenants and events of default customary for facilities of this type.
As of December 31, 2020, we had no outstanding borrowings under the Receivables Credit Facility.
Viya Debt
We, and certain of our subsidiaries, have entered into a $60.0 million loan agreement (the “Viya Debt”) with Rural Telephone Finance Cooperative (“RTFC”). The Viya Debt agreement contains customary representations, warranties and affirmative and negative covenants (including limitations on additional debt, guaranties, sale of assets and liens) and a financial covenant that limits the maximum ratio of indebtedness to annual operating cash flow to 3.5 to 1.0 (the “Net Leverage Ratio”). This covenant is tested on an annual basis at the end of each fiscal year. Interest is paid quarterly at a fixed rate of 4.0% and principal repayment is not required until maturity on July 1, 2026. Prepayment of the Viya Debt may be subject to a fee under certain circumstances. The debt is secured by certain assets of our Viya subsidiaries and is guaranteed by us. With RTFC’s consent, we funded the restoration of Viya’s network, following the Hurricanes in 2017, through an intercompany loan arrangement with a $75.0 million limit. We were not in compliance with the Net Leverage Ratio covenant of the Viya Debt agreement for the year ending December 31, 2020 and received a waiver from the RTFC on February 25, 2021.
We paid a fee of $0.9 million in 2016 to lock the interest rate at 4% per annum over the term of the Viya Debt. The fee was recorded as a reduction to the Viya Debt carrying amount and is being amortized over the life of the loan.
As of December 31, 2020, $60.0 million of the Viya Debt remained outstanding and $0.5 million of the rate lock fee was unamortized.
One Communications Debt
We have an outstanding loan from HSBC Bank Bermuda Limited (the “One Communications Debt”) which is scheduled to mature on May 22, 2022 and bears interest at the one-month LIBOR plus a margin ranging between 2.5% to 2.75%, paid quarterly.
The One Communications Debt contains customary representations, warranties and affirmative and negative covenants (including limitations on additional debt, guaranties, sale of assets and liens) and financial covenants, tested annually as of and for the twelve months ended December 31st, that limit the ratio of tangible net worth to long term debt and total net debt to EBITDA and require a minimum debt service coverage ratio (as defined in the One Communications Debt agreement). We were in compliance with our covenants as of December 31, 2020.
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As a condition of the One Communications Debt, we were required to enter into a hedging arrangement with a notional amount equal to at least 30% of the outstanding loan balance and a term corresponding to the term of the One Communications Debt. As such, we entered into an amortizing interest rate swap that has been designated as a cash flow hedge, which had an original notional amount of $11.0 million, has an interest rate of 1.874%, and expires in March 2022. As of December 31, 2020, the swap had an unamortized notional amount of $7.3 million.
We capitalized $0.3 million of fees associated with the One Communications Debt which are being amortized over the life of the debt and are recorded as a reduction to the debt carrying amount.
As of December 31, 2020, $13.4 million of the One Communications Debt was outstanding and $0.1 million of the capitalized fees remained unamortized.
Ahana Debt
On November 6, 2018, we consummated the US Solar Transaction which included the transfer of the Ahana Debt (as defined below) to the purchaser.
Prior to our US Solar Transaction, our US solar operations issued $20.6 million in aggregate principal amount of 4.427% senior notes due in 2029 (the “Series A Notes”) and $45.2 million in aggregate principal amount of 5.327% senior notes due in 2031 (the “Series B Notes”). These operations also issued a note to Public Service Electricity and Gas which bore interest at a rate of 11.3% due in 2027 (the “PSE&G Loan” and collectively with the Series A Notes and Series B Notes, the “Ahana Debt”).
For the Series A Notes and Series B Notes, interest and principal were payable semi-annually, until their respective maturity dates, and were secured by certain US solar assets and guaranteed by certain subsidiaries.
Repayment of the PSE&G Loan could have been made in either cash or Solar Renewable Energy Credits (“SRECs”) at our discretion, with the value of the SRECs being fixed at the time of the loan’s closing. Historically, we had made all repayments of the PSE&G Loan using SRECs.
We capitalized $2.8 million of fees associated with the Ahana Debt which were recorded as a reduction to the debt carrying amount and amortized over the life of the notes.
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 and renewable energy industries.
Restrictions under Credit Facility. Our 2019 Credit Facility contains customary representations, warranties and covenants, including covenants 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 2019 Credit Facility contains a financial covenant that imposes a maximum ratio of indebtedness to EBITDA. As of December 31, 2020, we were in compliance with all of the financial covenants of the 2019 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 and renewable energy industries, our financial performance, the state of the capital markets and our compliance with SEC requirements for the offering of securities. On May 12, 2020, we filed a “universal” shelf registration statement with the SEC, which automatically became effective upon filing. This filing registered potential future offerings of our securities.
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Foreign Currency
We translate the assets and liabilities of our foreign subsidiaries from their respective functional currencies, primarily the Indian Rupee and the Guyana Dollar, to US Dollars at the appropriate rates as of the balance sheet date. Changes in the carrying value of these assets and liabilities attributable to fluctuations in rates are recognized in foreign currency translation adjustment, a component of accumulated other comprehensive income on our balance sheet. Income statement accounts are translated using the monthly average exchange rates during the year. Monetary assets and liabilities denominated in a currency that is different from a reporting entity’s functional currency must first be remeasured from the applicable currency to the legal entity’s functional currency. The effect of this remeasurement process is reported in other income within our income statement. During the year ended December 31, 2020 and 2019, we recorded $1.4 million and $1.6 million, respectively, in losses on foreign currency transactions. With the completion of the Vibrant Transaction, we will no longer have exposure to the Indian Rupee. We will continue to assess the impact of our exposure to the Guyana Dollar.
Inflation
We do not believe that inflation has had a significant impact on our consolidated operations in any of the periods presented in this Report.
Critical Accounting Estimates
We have based our discussion and analysis of our financial condition and results of operations on our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). We base our estimates on our operating experience and on various conditions existing in the market and we believe them to be reasonable under the circumstances. Our estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions.
We have identified the critical accounting estimates that we believe require significant judgment in the preparation of our Consolidated Financial Statements. We consider these accounting estimates to be critical because changes in the assumptions or estimates we have selected have the potential of materially impacting our financial statements.
Revenue Recognition. In determining the appropriate amount of revenue to recognize for a particular transaction, we apply the criteria established by the authoritative guidance for revenue recognition and defer those items that do not meet the recognition criteria. As a result of the cutoff times of our billing cycles, we are often required to estimate the amount of revenues earned but not billed from the end of each billing cycle to the end of each reporting period. These estimates are based primarily on rate plans in effect and historical evidence with each customer or carrier. Adjustments affecting revenue can and occasionally do occur in periods subsequent to the period when the services were provided, billed and recorded as revenue, however, historically, these adjustments have not been material.
We apply our judgment when assessing the ultimate realization of receivables, including assessing the probability of collection and the current credit- worthiness of customers. We establish an allowance for credit losses on trade receivables sufficient to cover probable and reasonably estimable losses. Our estimate of the allowance for credit losses on trade receivables considers collection experience, aging of the accounts receivable, the credit quality of the customer and, where necessary, other macro-economic factors.
Goodwill and Long-Lived Intangible Assets. In accordance with the authoritative guidance regarding the accounting for impairments or disposals of long-lived assets and the authoritative guidance for the accounting for goodwill and other intangible assets, we evaluate the carrying value of our long-lived assets, including property and equipment, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss exists when estimated undiscounted cash flows attributable to non-current assets subject to depreciation and amortization and discounted cash flows for intangible assets not subject to amortization are less than their carrying amount. For long lived assets other than goodwill, if an asset is deemed to be impaired, the
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amount of the impairment loss recognized represents the excess of the asset’s carrying value as compared to its estimated fair value, based on management’s assumptions and projections.
Our estimates of the future cash flows attributable to our long-lived assets and the fair value of our businesses involve significant uncertainty. Those estimates are based on management’s assumptions of future results, growth trends and industry conditions. If those estimates are not met, we could have additional impairment charges in the future, and the amounts may be material.
We also assess the carrying value of goodwill and indefinite-lived intangible assets on an annual basis or more frequently if events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable. The carrying value of each reporting unit, including goodwill assigned to that reporting unit, is compared to its fair value. If the carrying value of the reporting unit, including goodwill, exceeds the fair value of the reporting unit, an impairment charge is recorded equal to the excess, but not more than the total amount of goodwill allocated to the reporting unit.
We assess the recoverability of the value of our telecommunications licenses using either a market or income approach. We believe that our telecommunications licenses generally have an indefinite life based on historical ability to renew such licenses, that such renewals may be obtained indefinitely and at little cost, and that the related technology used is not expected to be replaced in the foreseeable future. If the value of these assets was impaired by some factor, such as an adverse change in the subsidiary’s operating market, we may be required to record an impairment charge. We test the impairment of our telecommunications licenses annually or more frequently if events or changes in circumstances indicate that such assets might be impaired. The impairment test consists of a comparison of the fair value of telecommunications licenses with their carrying amount on a license by license basis.
We performed our annual impairment assessment of our goodwill and telecommunications licenses as of October 1, 2020 for all of our reporting units and determined that no impairment relating to our goodwill or telecommunications licenses existed during the year ended December 31, 2020.
During the year ended December 31, 2019, we recorded a $3.3 million goodwill impairment charge within our Renewable Energy segment. See Note 8 to the Consolidated Financial Statements in this Report.
Contingencies. We are subject to proceedings, lawsuits, tax audits and other claims related to lawsuits and other legal and regulatory proceedings that arise in the ordinary course of business as further described in Note 14 to the Consolidated Financial Statements included in this Report. We are required to assess the likelihood of any adverse judgments or outcomes to these matters as well as the potential ranges of probable losses. A determination of the amount of loss accruals required, if any, for these contingencies is made after careful analysis of each individual issue. We consult with legal counsel and other experts where necessary in connection with our assessment of any contingencies. The required accrual for any such contingency may change materially in the future due to new developments or changes in each matter. We estimate these contingencies amounted to approximately $44.1 million at December 31, 2020. We believe that some adverse outcome is probable and have accordingly accrued $5.0 million as of December 31, 2020 for these matters.
Recent Accounting Pronouncements
See Note 2 to the Consolidated Financial Statements included in this Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Translation and Remeasurement. We translate the assets and liabilities of our foreign subsidiaries from their respective functional currencies, primarily the Indian Rupee and the Guyana Dollar, to US Dollars at the appropriate rates as of the balance sheet date. Changes in the carrying value of these assets and liabilities attributable to fluctuations in rates are recognized in foreign currency translation adjustment, a component of accumulated other comprehensive income on our balance sheet. Income statement accounts are translated using the monthly average exchange rates during the year.
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Monetary assets and liabilities denominated in a currency that is different from a reporting entity’s functional currency must first be remeasured from the applicable currency to the legal entity’s functional currency. The effect of this remeasurement process is reported in other income on our income statement.
Employee Benefit Plans. We sponsor pension and other postretirement benefit plans for employees of certain subsidiaries. Net periodic pension expense is recognized in our income statement. We recognize a pension or other postretirement plan’s funded status as either an asset or liability in our consolidated balance sheet. Actuarial gains and losses are reported as a component of other comprehensive income and amortized through other income in subsequent periods.
Interest Rate Sensitivity. As of December 31, 2020, we had $6.1 million of variable rate debt outstanding, which is subject to fluctuations in interest rates. Our interest expense may be affected by changes in interest rates. We believe that a 10% increase in the interest rates on our variable rate debt would have an immaterial impact on our Financial Statements. We may have additional exposure to fluctuations in interest rates if we again borrow amounts under our revolver loan within our 2019 Credit Facility.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted as a separate section to this Report. See “Item 15. Exhibits, Financial Statement Schedules.”
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2020. Disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Dealers. HeExchange Act of 1934, as amended (the “Exchange Act”), mean controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s (“SEC”) rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of December 31, 2020, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act, as a memberprocess designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer or persons performing similar functions, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
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statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
| ● | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; |
| ● | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and |
| ● | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. |
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2020. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control—Integrated Framework (2013). Based on its assessment, management concluded that, as of December 31, 2020, our internal control over financial reporting was effective based on those criteria.
Our internal control over financial reporting as of December 31, 2020 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears on page F-2
Changes in Internal Control Over Financial Reporting.
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
On July 1, 2016, we and certain of our subsidiaries entered into a $60.0 million loan agreement (the “Viya Debt”) with Rural Telephone Finance Cooperative (“RTFC”). The Viya Debt agreement contains customary representations, warranties and affirmative and negative covenants (including limitations on additional debt, guaranties, sale of assets and liens) and a financial covenant that limits the maximum ratio of indebtedness to annual operating cash flow to 3.5 to 1.0 (the “Net Leverage Ratio”). This covenant is tested on an annual basis at the end of each fiscal year. Interest is paid quarterly at a fixed rate of 4.0% and principal repayment is not required until maturity on July 1, 2026. Prepayment of the Viya Debt may be subject to a fee under certain circumstances. The debt is secured by certain assets of our Viya subsidiaries and is guaranteed by us. In 2018, we began funding the restoration of Viya’s network following the Hurricanes through an intercompany loan arrangement which exceeded certain limitations on Viya incurring additional debt. RTFC consented to these intercompany advances and increased the intercompany debt limit to $50.0 million. Subsequently, the RTFC increased the limit to $75.0 million at our request due to an increase in the on-going restoration and resiliency costs. We were not in compliance with the Net Leverage Ratio covenant for the year ending December 31, 2020 and received a waiver from the RTFC on February 25, 2021.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information regarding our executive officers is contained in Part I of this Form 10-K under the caption “Information About Our Executive Officers”.
The following table sets forth information regarding our directors as of March 1, 2021:
| | | | |
Name | Age | Position | ||
Michael T. Prior | 56 | Chairman, President, Chief Executive Officer, and Director | ||
Bernard Bulkin | | 78 | | Director |
James S. Eisenstein | | 62 | | Director |
Richard J. Ganong | | 57 | | Director |
John C. Kennedy | | 56 | | Director |
Pamela F. Lenehan | | 68 | | Director |
Liane J. Pelletier | | 63 | | Director |
Charles J. Roesslein | | 72 | | Director |
Employee Directors
Michael T. Prior is the chairman of the Board of TrusteesDirectors and has been our President and Chief Executive Officer since December 2005 and an officer of the Hartford Seminary.Company since June 2003. He was elected to the Board in May 2008. Previous to joining the Company, Mr. Budd alsoPrior was a partner with Q Advisors LLC, a Denver based investment banking and financial advisory firm focused on the technology and telecommunications sectors. Mr. Prior began his career as a corporate attorney with Cleary Gottlieb Steen & Hamilton LLP in London and New York. He received a B.A. degree from Vassar College and a J.D. degree summa cum laude from Brooklyn Law School. Mr. Prior currently serves on the Board of Directors of the "I Have a Dream" Foundation.Competitive Carriers Association. In 2008, Mr. Budd earned his legal degree fromPrior was named Entrepreneur of the Harvard Law School.Year for the New England Region by Ernst & Young LLP and One of America’s Best CEOs by DeMarche Associates, Inc.
Non-Employee Directors
Dr. Bernard Bulkin has been was elected in March 2016 as a director of our since March 2016ATN International, Inc. (the “Company”) and is the Chair of our Nominating and Corporate Governance Committee and a member of our Audit Committee. Dr. Bulkin brings particular expertise in the field of renewable energy.energy, and is shareholder director for the ATN renewable energy joint venture, Aragorn Holding Company Two. He held several senior management roles throughout his approximately twenty-year career at British Petroleum, including Director of the refining business, Vice President Environmental Affairs, and Chief Scientist, and left BP in 2003. He is currently a Director of K3Solar Ltd., IDSolar Power Ltd,VH-Global Sustainable Energy Opportunities plc (Chairman), and Sustainable Power Ltd,.ARQ, Ltd. Dr. Bulkin has served on the boards of Severn Trent plc, Ludgate Investments Limited, HMN Colmworth Ltd., Chemrec AB and REAC Fuel AB, each a Swedish biofuel technology developer, and Ze-gen Corporation, a renewable energy company, and chaired the boards of two UK public companies: AEA Technology plc (from 2005 until 2009), and Pursuit Dynamics Plc (from 2011 until 2013). Dr. Bulkin served as Chair of the UK Office of Renewable Energy from 2010 until 2013, was a member of the FTSE Environmental Markets Advisory Committee (2010-2017) and has held several other UK government roles in sustainable energy and transport. He earned a B.S. in Chemistry from the Polytechnic Institute of Brooklyn and a Ph.D. in Physical Chemistry from Purdue University. Dr. Bulkin is aEmeritus Professorial Fellow at the University of Cambridge and is the author of Crash Course published in March 2015. (2015) and Solving Chemistry (2019). He was awarded the Honour of Officer of the Order of the British Empire (OBE) in the 2017 New Year Honours List.
Michael T. FlynnJames S. Eisenstein has been a director of ours since June 2010October 2019 and is a member of our AuditCompensation Committee and our Nominating and Corporate Governance Committees.Committee. He is currently Chairman and Chief Executive Officer of Grupo TorreSur, a directorLatin American focused wireless tower company. Prior to co-founding Grupo TorreSur, Mr. Eisenstein was Chairman and Chief Executive Officer of Airspan Networks,Optasite Holding Company, Inc. from 2003 to 2008; Chief Executive Officer of Concourse Communications Group LLC in 2003 and Chief Operating Officer and, later, Chief
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Development Officer of American Tower Corporation, which he co-founded, from 1995 to 2003. Before co-founding American Tower, Mr. Eisenstein was a Partner and Chief Operating Officer of Amaturo Group, Ltd., a provider of wireless broadband equipment and CALIX, Inc., a manufacturer of broadband equipment. Mr. Flynn has forty years of experience in the telecommunications wireline and wireless businesses, and spent ten years as an officer at Alltel Corporation prior to his retirement in 2004. He also previously served as an officer of Southwestern Bell Telephone Co. and its parent SBC Communications from 1987 to 1994. Mr. Flynn has previously served on the board of directors of WebEx Communications, Inc., a provider of internet collaboration services, Equity Media Holding Corporation, an owner and operator of televisionradio stations, throughoutfrom 1990 to 1995; was Deputy General Counsel of Home Shopping Network from 1988 to 1990; and an associate at Skadden, Arps, Slate, Meagher and Flom from 1986 to 1988 and at Vinson & Elkins from 1984 to 1986. He was Chairman of the United States, iLinc Communications,Board of Directors of Eaton Towers, Ltd. until the end of 2019, at which time the Company was sold, and was a member of the Board of Directors of CTI Towers, Inc., until the end of 2020, at which time that Company was sold. He also served as a providerdirector of SaS web collaboration and GENBAND,Nexamp, Inc. from 2011-2016. Mr. Eisenstein is a worldwide leadergraduate of next generation network systems. Mr. Flynn received a Bachelor of Science degree in Industrial Engineering from Texas A&MGeorgetown University and attendedholds an M.B.A. from The Wharton School and a J.D. from the Dartmouth Institute and the Harvard Graduate SchoolUniversity of Business’ Advanced Management Program.Pennsylvania Law School.
Richard J. Ganong has been a director of ours since June 2018 and is a memberthe Chair of our AuditCompensation Committee. Mr. Ganong has more than 25 years of experience in the financial services industry with a focus on venture capital and hedge fund investing. He was a Partner at the Tudor Investment Corporation from 1993 to 2009, an internationally recognized diversified investment management firm, and was a founding General Partner of the Tudor Venture Group which managed a series of funds providing growth capital to private companies in various information technology industries.
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Mr. Ganong was the Senior Vice President of Development and Alumni Relations at Bowdoin College from 2014 to 2016 and most recently founded Five Pine Partners, where he focuses on advisingan investment and investing in emerging companies in the information technology, consumer and food sectors.advisory boutique. Mr. Ganong also is an emeritus member of the Board of Overseers at The Tuck School at Dartmouth. He is currently a member of the Board of Directors for The Maine Technology Institute, The Gulf of Maine Research Institute, and Wolfe's Neck Center for Agriculture and the Environment, all private entities.a Director at Ethic Bank. Mr. Ganong holds a Bachelor of Arts from Bowdoin College and an MBAM.B.A. from the Tuck School at Dartmouth.
John C. Kennedy has been a director of ours since June 2018 and is a member of our CompensationNominating and Corporate Governance Committee. Mr. Kennedy is the founder and CEO of Platform Science, Inc., an emerging company in the connected vehicle and transportation technology space. Previously, he was the President of Qualcomm Enterprise Services and the President of Qualcomm's Omnitracs Inc.business unit. Mr. Kennedy is a veteran of News Corp., where he served as Executive Vice President of Operations—Digital Media, from 2009 to 2012. From 2007 to 2008 he served as Executive Vice President of Strategy and Corporate Development at Fox Interactive Media and began his career at Fox as a Senior Vice President of Corporate Development at Fox Networks Group, where he was part of the joint Fox/NBC Universal team that created the joint venture now known as "Hulu"“Hulu”. His background includes multiple leadership and strategic roles with technology start-ups, including satellite broadband start-up Teledesic; pioneering online video site Load Media Network, where Mr. Kennedy served as Chief Executive Officer; Leap Wireless, and Wireless Facilities International. He began his business career as a venture capital associate with Idanta Partners. Mr. Kennedy retired as a Commander in the U.S. Navy Reserves in 2016, after serving as a founding team member of DiUX, the Department of Defense's recently established Silicon Valley presence. HePreviously, he served on the staff of U.S. Senator John McCain;McCain, was the Aide de Camp to the vice chairmanVice Chairman of the Joint Chiefs of Staff;Staff and wasdeployed as a naval aviator inNaval Flight Officer during the first Gulf War. Mr. Kennedy holds a BSB.S. in Economics and Engineering from the United States Naval Academy and an MBAM.B.A. from the Harvard Business School, and was a Legis Fellow of the Brookings Institution.
Pamela F. Lenehan has been a director of ours since June 2020 and is a member of our Audit Committee. Ms. Lenehan spent more than 20 years in financial services. In June 2002, Ms. Lenehan founded Ridge Hill Consulting, LLC and has served as President since that time. Previously, she served as Chief Financial Officer of Convergent Networks, a high technology start-up and was Senior Vice President, Corporate Development and Treasurer of Oak Industries, a NYSE-listed manufacturer of telecommunications components. She also previously served as a Managing Director in Investment Banking for 14 years at Credit Suisse First Boston and started her career in corporate banking at Chase Manhattan Bank. Ms. Lenehan is also currently a director of New Residential Investment Corp., the Center for Women & Enterprise, the National Association of Corporate Directors New England Chapter, and is co-chair of the Boston Chapter of Women Corporate Directors. Ms. Lenehan previously served on the boards of Monotype Imaging, Civitas Solutions, American Superconductor, Spartech Corporation and Avid Technology. Ms. Lenehan has a B.A. in Mathematical Economics, Cum Laude and with Honors, and a M.A. in Economics from Brown University. She holds an Executive Masters Professional Director Certification, Platinum Level, from the American College of Corporate Directors, a national director education organization, and in 2017 received their Distinguished Director Award.
Liane J. Pelletier has been a director of ours since June 2012, is the Independent Lead Director of our Board of Directors and a member of our Nominating and Corporate Governance and Compensation Committees.Committee. Ms. Pelletier has over twenty-five years of experience in the telecommunications industry. From October 2003 through April 2011, she served as the Chief Executive Officer and Chairman of Alaska Communications Systems, and prior to that time served as the former Senior Vice President of Corporate Strategy and Business Development for Sprint Corporation. Ms. Pelletier earned her M.S. in Management at
71
the Sloan School of Business at the Massachusetts Institute of Technology and a B.A. in Economics, magna cum laude, from Wellesley College. Ms. Pelletier currently serves as Chairman of the Nominating and Corporate Governance Committee and as a member of the Audit Committee of the Board of Expeditors InternationalInternational; is a board member and committee member of both the Audit and Compensation Committees of Frontdoor, Inc.; and is Chairmana board member and committee member of the National AssociationNominating and Corporate Governance Committee of Corporate Directors (“NACD”), Northwest Chapter.Switch Inc. Ms. Pelletier is a NACD Board Leadership Fellow and has earned the CERT Certificate in Cybersecurity Oversight from the Software Engineering Institute of Carnegie Mellon.
Charles J. Roesslein has been a director of ours since April 2002 and is the Chair of our Audit Committee. He has been a director of National Instruments Corporation since July 2000 and is the Co-Founder of Austin Tele-Services Partners, LP, a telecommunications provider, for whom he served as Chief Executive Officer from 2004 to January 2016. He is a retired officer of SBC Communications. Mr. Roesslein previously served as Chairman of the Board of Directors, President and Chief Executive Officer of Prodigy Communications Corporation from June of 2000 until December of 2000. He served as President and Chief Executive Officer of SBC-CATV from October 1999 until May 2000, and as President and Chief Executive Officer of SBC Technology Resources from August 1997 to October 1999. Mr. Roesslein holds a BS in Mechanical Engineering from the University of Missouri-Columbia and a master’s degree in Finance from the University of Missouri-Kansas City.
Additional information required by this Item 10 will be set forth in our Definitive Proxy Statement for the 20192021 Annual Meeting of Stockholders (the “2019“2021 Proxy Statement”) and is incorporated herein by reference.
Information regarding our Code of Ethics applicable to our principal executive officer, our principal financial officer, our controller and other senior financial officers appears in Item 1 of this Report under the caption “Business—Available Information.”
76
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item 11 will be set forth in our 20192021 Proxy Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information required by this Item 12 will be set forth in our 20192021 Proxy Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information required by this Item 13 will be set forth in our 20192021 Proxy Statement and is incorporated herein by reference.
Information required by this Item 14 will be set forth in our 20192021 Proxy Statement and is incorporated herein by reference.
7772
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
| (a) |
| The following documents are filed as part of this Report: |
(1) | Financial Statements. See Index to Consolidated Financial Statements, which appears on page |
(2) | Schedule II. Valuation and Qualifying Accounts for the years ended December 31, |
(3) | Exhibits. The exhibits listed below are filed herewith in response to this Item 15. |
EXHIBIT INDEX
to Form 10‑K10-K for the Year Ended December 31, 20182020
2.1 |
| ||
2.2 | | ||
2.3 | | ||
2.4 | | ||
3.1 | | ||
3.2 | | ||
3.3 | | ||
3.4 |
| ||
10.1 | * | ||
10.2 | * | ||
73
10.3 | * | ||
10.4 | * | ||
78
10.5 | * | ||
10.6 | * | ||
10.7 | * | ||
10.8 | * | ||
10.9 | * | ||
10.10 | * | ||
10.11 | | ||
10.12 | | ||
10.13 | | ||
10.14 | | ||
10.15 | | ||
10.16 | | ||
74
10.17 |
| ||
| |||
10.18 | | ||
10.19 |
| ||
79
10.20 | | ||
10.21 | ** | ||
10.22 | | ||
10.23 | | ||
10.24 | | ||
10.25 | # | ||
10.26 | | ||
10.27 | | ||
10.28 | | ||
10.29 | | ||
10.30 | | ||
10.31 | | ||
10.32 | | ||
21 | ** | ||
23.1 | ** | Consent of Independent Registered Public Accounting Firm—PricewaterhouseCoopers LLP. | |
75
31.1 | ** | ||
31.2 | ** | ||
32.1 | *** | ||
32.2 | *** | ||
101.INS |
| Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |
101.SCH | ** | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL | ** | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | ** | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | ** | Inline XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | ** | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
104 | | Cover Page Interactive Data file (formatted as Inline XBRL and embedded within Exhibit 101). | |
* | Management contract or compensatory plan or arrangement. |
** | Filed herewith. |
*Management contract or compensatory plan or arrangement.
*** | The certifications furnished in Exhibit 32.1 and Exhibit 32.2 hereto are deemed to accompany this Report and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the company specifically incorporates it by reference. |
# Portions of this exhibit (indicated by asterisks) have been omitted in accordance with the rules of the Securities and Exchange Act of 1934, as amended, except to the extent that the company specifically incorporates it by reference.Commission.
None
8076
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in Beverly, Massachusetts on the 28Th1st day of February, 2019.March, 2021.
| |||
| | ATN International, Inc. | |
|
| By: | /s/ Michael T. Prior |
| | | |
| | | Michael T. Prior |
| | | Chairman, President and Chief Executive Officer |
| | | |
Pursuant to the requirements of the Securities Exchange Act of 1934 this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 28Th1st day of February, 2019.March, 2021.
Signature | Title | |
/s/ Michael T. Prior | | Chairman, President and Chief Executive Officer |
Michael T. Prior | | (Principal Executive Officer) |
| | |
/s/ Justin D. Benincasa | | Chief Financial Officer |
Justin D. Benincasa | | (Principal Financial and Accounting Officer) |
| | |
/s/ |
| |
| ||
| | Director |
Bernard J. Bulkin | | |
| | |
/s/ | | Director |
| | |
| | |
/s/ Richard J. Ganong | | Director |
Richard J. Ganong | | |
| | |
/s/ John C. Kennedy | | Director |
John C. Kennedy | | |
| | |
/s/ Pamela F. Lenehan | | Director |
Pamela F. Lenehan | | |
| | |
/s/ Liane J. Pelletier | | Director |
Liane J. Pelletier | | |
| | |
/s/ Charles J. Roesslein | | Director |
Charles J. Roesslein | | |
8177
ATN INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
December 31, 2018, 20172020, 2019 and 20162018
INDEX
| | |
| F-2 | |
FINANCIAL STATEMENTS | | |
Consolidated Balance Sheets—December 31, | |
|
Consolidated Income Statements for the Years Ended December 31, | |
|
|
| |
Consolidated Statements of Equity for the Years Ended December 31, | |
|
|
| |
|
| |
FINANCIAL STATEMENT SCHEDULE | | |
|
|
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
ATN International, Inc.:
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of ATN International, Inc. and its subsidiaries (“the Company”(the “Company”) as of December 31, 20182020 and 2017,2019, and the related consolidatedincome statements statementsof income, of comprehensive income, of equity, and of cash flowsfor each of the three years in the period ended December 31, 2018,2020, including the related notes and financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”).We also have audited the Company's internal control over financial reporting as of December 31, 2018,2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20182020 and 2017,2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 20182020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 20182020, based on criteria established in Internal Control - Integrated Framework(2013)issued by the COSO.
ChangeChanges in Accounting PrinciplePrinciples
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for revenues from contracts with customersleases in 2018.2019.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management'sManagement’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits inin accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
F-2
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Goodwill Impairment Assessment for Viya Reporting Unit
As described in Notes 2 and 8 to the consolidated financial statements, the Company’s consolidated goodwill balance was $60.7 million as of December 31, 2020, and the goodwill balance associated with the Viya Reporting Unit was $20.6 million. Management tests goodwill for impairment at each of the reporting units on an annual basis, which has been determined to be as of October 1st, or more frequently if events or circumstances indicate that the carrying value of goodwill may be impaired. If the carrying value of the reporting unit, including goodwill, exceeds the fair value of the reporting unit an impairment charge is recorded equal to the excess, but not more than the total amount of goodwill allocated to the reporting unit. Management determines the fair value of the Viya Reporting Unit using the income approach. The income approach is based on a discounted cash flow model. The discounted cash flow model requires the exercise of significant judgment, including judgments and assumptions about appropriate discount rates and revenue growth.
The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment of the Viya Reporting Unit is a critical audit matter are (i) the significant judgment by management when developing the fair value measurement of the reporting unit; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to revenue growth and the discount rate; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment, including controls over the valuation of the Viya reporting unit. These procedures also included, among others, testing management’s process for developing the fair value estimate of the Viya reporting unit; evaluating the appropriateness of the discounted cash flow model; testing the completeness and accuracy of underlying data used in the model; and evaluating the reasonableness of significant
F-3
assumptions used by management related to revenue growth and the discount rate. Evaluating the reasonableness of management’s significant assumptions related to revenue growth involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the reporting unit, (ii) the consistency with external market and industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the discounted cash flow model and the discount rate assumption.
/s/PricewaterhouseCoopers LLP
Boston, Massachusetts
February 28, 2019March 1, 2021
We have served as the Company’s auditor since 2002.
F-3F-4
ATN INTERNATIONAL, INC. AND SUBSIDIARIES
December 31, 20182020 and 20172019
(In Thousands, Except Share Data)
|
|
|
|
|
|
|
|
|
|
| December 31, |
| December 31, |
|
| ||
|
| 2018 |
| 2017 |
|
| ||
ASSETS |
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 191,836 |
| $ | 207,956 |
|
|
Restricted cash |
|
| 1,071 |
|
| 833 |
|
|
Short-term investments |
|
| 393 |
|
| 7,076 |
|
|
Accounts receivable, net of allowances of $16.5 million and $15.0 million, respectively |
|
| 38,305 |
|
| 43,529 |
|
|
Inventory, materials and supplies |
|
| 6,305 |
|
| 15,398 |
|
|
Prepayments and other current assets |
|
| 37,855 |
|
| 68,136 |
|
|
Total current assets |
|
| 275,765 |
|
| 342,928 |
|
|
Fixed Assets: |
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
| 1,188,916 |
|
| 1,169,806 |
|
|
Less accumulated depreciation |
|
| (562,064) |
|
| (526,660) |
|
|
Net fixed assets |
|
| 626,852 |
|
| 643,146 |
|
|
Telecommunication licenses, net |
|
| 93,686 |
|
| 95,952 |
|
|
Goodwill |
|
| 63,970 |
|
| 63,970 |
|
|
Customer relationships, net |
|
| 9,323 |
|
| 11,734 |
|
|
Restricted cash |
|
| — |
|
| 11,101 |
|
|
Other assets |
|
| 37,708 |
|
| 36,774 |
|
|
Total assets |
| $ | 1,107,304 |
| $ | 1,205,605 |
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Current portion of long-term debt |
| $ | 4,688 |
| $ | 10,919 |
|
|
Accounts payable and accrued liabilities |
|
| 80,873 |
|
| 116,133 |
|
|
Dividends payable |
|
| 2,720 |
|
| 2,724 |
|
|
Accrued taxes |
|
| 31,795 |
|
| 6,751 |
|
|
Advance payments and deposits |
|
| 20,574 |
|
| 25,178 |
|
|
Total current liabilities |
|
| 140,650 |
|
| 161,705 |
|
|
Deferred income taxes |
|
| 10,276 |
|
| 31,732 |
|
|
Other liabilities |
|
| 46,760 |
|
| 37,072 |
|
|
Long-term debt, excluding current portion |
|
| 86,294 |
|
| 144,873 |
|
|
Total liabilities |
|
| 283,980 |
|
| 375,382 |
|
|
Commitments and contingencies (Note 14) |
|
|
|
|
|
|
|
|
ATN International, Inc. Stockholders’ Equity: |
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value per share; 10,000,000 shares authorized, none issued and outstanding |
|
| — |
|
| — |
|
|
Common stock, $0.01 par value per share; 50,000,000 shares authorized; 17,274,215 and 17,102,530 shares issued, respectively, 16,002,699 and 16,025,745 shares outstanding respectively |
|
| 172 |
|
| 170 |
|
|
Treasury stock, at cost; 1,271,516 and 1,076,785 shares, respectively |
|
| (48,547) |
|
| (36,110) |
|
|
Additional paid-in capital |
|
| 181,778 |
|
| 167,973 |
|
|
Retained earnings |
|
| 563,593 |
|
| 552,948 |
|
|
Accumulated other comprehensive income |
|
| (1,609) |
|
| 3,746 |
|
|
Total ATN International, Inc. stockholders’ equity |
|
| 695,387 |
|
| 688,727 |
|
|
Non-controlling interests |
|
| 127,937 |
|
| 141,496 |
|
|
Total equity |
|
| 823,324 |
|
| 830,223 |
|
|
Total liabilities and equity |
| $ | 1,107,304 |
| $ | 1,205,605 |
|
|
| | | | | | |
| | December 31, | | December 31, | ||
|
| 2020 |
| 2019 | ||
ASSETS | | | | | | |
Current Assets: | | | | | | |
Cash and cash equivalents | | $ | 103,925 | | $ | 161,287 |
Restricted cash | |
| 1,072 | |
| 1,071 |
Short-term investments | |
| — | |
| 416 |
Accounts receivable, net of allowances for credit losses of $12.1 million and $12.7 million, respectively | |
| 45,379 | |
| 35,904 |
Inventory, materials and supplies | |
| 5,504 | |
| 5,253 |
Prepayments and other current assets | |
| 49,450 | |
| 24,792 |
Assets held for sale | | | 34,735 | | | — |
Total current assets | |
| 240,065 | |
| 228,723 |
Fixed Assets: | | | | | | |
Property, plant and equipment | |
| 1,252,780 | |
| 1,237,555 |
Less accumulated depreciation | |
| (716,318) | |
| (631,974) |
Net fixed assets | |
| 536,462 | |
| 605,581 |
Telecommunication licenses, net | |
| 114,083 | |
| 93,686 |
Goodwill | |
| 60,691 | |
| 60,691 |
Customer relationships, net | |
| 5,913 | |
| 7,441 |
Operating lease right-of-use assets | |
| 63,235 | |
| 68,763 |
Other assets | |
| 63,262 | |
| 65,841 |
Total assets | | $ | 1,083,711 | | $ | 1,130,726 |
LIABILITIES AND EQUITY | | | | | | |
Current Liabilities: | | | | | | |
Current portion of long-term debt | | $ | 3,750 | | $ | 3,750 |
Accounts payable and accrued liabilities | |
| 96,205 | |
| 74,093 |
Dividends payable | |
| 2,703 | |
| 2,721 |
Accrued taxes | |
| 7,501 | |
| 8,517 |
Current portion of lease liabilities | | | 12,371 | | | 11,406 |
Advance payments and deposits | |
| 24,681 | |
| 19,182 |
Liabilities held for sale | |
| 717 | |
| — |
Total current liabilities | |
| 147,928 | |
| 119,669 |
Deferred income taxes | |
| 10,675 | |
| 8,680 |
Lease liabilities, excluding current portion | | | 51,082 | | | 56,164 |
Other liabilities | |
| 50,617 | |
| 57,454 |
Long-term debt, excluding current portion | |
| 69,073 | |
| 82,676 |
Total liabilities | |
| 329,375 | |
| 324,643 |
Commitments and contingencies (Note 14) | | | | | | |
ATN International, Inc. Stockholders’ Equity: | | | | | | |
Preferred stock, $0.01 par value per share; 10,000,000 shares authorized, NaN issued and outstanding | |
| — | |
| — |
Common stock, $0.01 par value per share; 50,000,000 shares authorized; 17,383,898 and 17,324,858 shares issued, respectively, 15,898,477 and 16,001,937 shares outstanding, respectively | |
| 172 | |
| 172 |
Treasury stock, at cost; 1,485,421 and 1,322,921 shares, respectively | |
| (59,456) | |
| (51,129) |
Additional paid-in capital | |
| 187,754 | |
| 188,471 |
Retained earnings | |
| 516,901 | |
| 541,890 |
Accumulated other comprehensive income | |
| 278 | |
| (3,282) |
Total ATN International, Inc. stockholders’ equity | |
| 645,649 | |
| 676,122 |
Non-controlling interests | |
| 108,687 | |
| 129,961 |
Total equity | |
| 754,336 | |
| 806,083 |
Total liabilities and equity | | $ | 1,083,711 | | $ | 1,130,726 |
The accompanying notes are an integral part of these consolidated financial statements.
F-4F-5
ATN INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
For the Years Ended December 31, 2018, 20172020, 2019 and 20162018
(In Thousands, Except Per Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, |
| |||||||
|
| 2018 |
| 2017 |
| 2016 |
| |||
REVENUE: |
|
|
|
|
|
|
|
|
|
|
Wireless |
| $ | 198,824 |
| $ | 232,501 |
| $ | 244,404 |
|
Wireline |
|
| 230,225 |
|
| 227,827 |
|
| 190,598 |
|
Renewable energy |
|
| 22,158 |
|
| 20,865 |
|
| 22,001 |
|
Total revenue |
|
| 451,207 |
|
| 481,193 |
|
| 457,003 |
|
OPERATING EXPENSES (excluding depreciation and amortization unless otherwise indicated): |
|
|
|
|
|
|
|
|
|
|
Termination and access fees |
|
| 114,478 |
|
| 120,624 |
|
| 126,443 |
|
Engineering and operations |
|
| 73,031 |
|
| 74,614 |
|
| 60,414 |
|
Sales, marketing and customer service |
|
| 35,207 |
|
| 35,184 |
|
| 30,253 |
|
General and administrative |
|
| 104,267 |
|
| 102,294 |
|
| 90,431 |
|
Transaction-related charges |
|
| 2,642 |
|
| 1,009 |
|
| 18,064 |
|
Restructuring charges |
|
| 515 |
|
| 1,169 |
|
| — |
|
Depreciation and amortization |
|
| 85,719 |
|
| 86,934 |
|
| 75,980 |
|
Impairment of intangible assets |
|
| — |
|
| — |
|
| 11,425 |
|
Bargain purchase gain |
|
| — |
|
| — |
|
| (7,304) |
|
(Gain) loss on disposition of long-lived assets |
|
| (26,425) |
|
| 101 |
|
| 27 |
|
Loss on damaged assets and other hurricane related charges, net of insurance recovery |
|
| 750 |
|
| 3,956 |
|
| — |
|
Total operating expenses |
|
| 390,184 |
|
| 425,885 |
|
| 405,733 |
|
Income from operations |
|
| 61,023 |
|
| 55,308 |
|
| 51,270 |
|
OTHER INCOME (EXPENSE) |
|
|
|
|
|
|
|
|
|
|
Interest income |
|
| 1,811 |
|
| 1,613 |
|
| 1,239 |
|
Interest expense |
|
| (7,973) |
|
| (8,838) |
|
| (5,362) |
|
Loss on deconsolidation of subsidiary |
|
| — |
|
| (529) |
|
| — |
|
Other expenses |
|
| (1,119) |
|
| (1) |
|
| (1,773) |
|
Other expense, net |
|
| (7,281) |
|
| (7,755) |
|
| (5,896) |
|
INCOME BEFORE INCOME TAXES |
|
| 53,742 |
|
| 47,553 |
|
| 45,374 |
|
Income tax provisions (benefit) |
|
| 18,870 |
|
| (1,341) |
|
| 21,160 |
|
NET INCOME |
|
| 34,872 |
|
| 48,894 |
|
| 24,214 |
|
Net income attributable to non-controlling interests, net of tax expense of $1.5 million, $1.0 million, and $1.3 million, respectively. |
|
| (15,057) |
|
| (17,406) |
|
| (12,113) |
|
NET INCOME ATTRIBUTABLE TO ATN INTERNATIONAL, INC. STOCKHOLDERS |
| $ | 19,815 |
| $ | 31,488 |
| $ | 12,101 |
|
NET INCOME PER WEIGHTED AVERAGE SHARE ATTRIBUTABLE TO ATN INTERNATIONAL, INC. STOCKHOLDERS: |
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 1.24 |
|
| 1.95 |
|
| 0.75 |
|
Diluted |
|
| 1.24 |
|
| 1.94 |
|
| 0.75 |
|
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: |
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 15,988 |
|
| 16,138 |
|
| 16,131 |
|
Diluted |
|
| 16,042 |
|
| 16,210 |
|
| 16,227 |
|
DIVIDENDS PER SHARE APPLICABLE TO COMMON STOCK |
| $ | 0.68 |
| $ | 1.02 |
| $ | 1.32 |
|
| | | | | | | | | | |
| | December 31, | | |||||||
|
| 2020 |
| 2019 |
| 2018 |
| |||
REVENUE: | | | | | | | | | | |
Communication services | | $ | 433,509 | | $ | 428,108 | | $ | 425,323 | |
Other | |
| 21,935 | |
| 10,614 | |
| 25,884 | |
Total revenue | |
| 455,444 | |
| 438,722 | |
| 451,207 | |
OPERATING EXPENSES (excluding depreciation and amortization unless otherwise indicated): | | | | | | | | | | |
Termination and access fees | |
| 111,763 | |
| 112,943 | |
| 114,478 | |
Construction costs | | | 10,616 | | | — | | | — | |
Engineering and operations | |
| 73,350 | |
| 77,649 | | | 73,031 | |
Sales, marketing and customer service | |
| 37,557 | |
| 38,730 | |
| 35,207 | |
General and administrative | |
| 101,454 | |
| 100,534 | |
| 104,267 | |
Transaction-related charges | |
| 1,641 | |
| 244 | |
| 2,642 | |
Restructuring charges | | | — | | | — | | | 515 | |
Depreciation and amortization | |
| 88,311 | |
| 89,125 | |
| 85,719 | |
Goodwill impairment | | | — | | | 3,279 | | | — | |
(Gain) Loss on disposition of long-lived assets | | | 21,572 | | | 2,841 | | | (26,425) | |
Loss on damaged assets and other hurricane related charges, net of insurance recovery | | | — | | | — | | | 750 | |
Total operating expenses | |
| 446,264 | |
| 425,345 | |
| 390,184 | |
Income from operations | |
| 9,180 | |
| 13,377 | |
| 61,023 | |
OTHER INCOME (EXPENSE) | | | | | | | | | | |
Interest income | | | 421 | | | 2,263 | | | 1,811 | |
Interest expense | |
| (5,347) | |
| (5,010) | |
| (7,973) | |
Other income (expense) | |
| (4,161) | |
| (4,558) | |
| (1,119) | |
Other income (expense), net | |
| (9,087) | |
| (7,305) | |
| (7,281) | |
INCOME BEFORE INCOME TAXES | |
| 93 | |
| 6,072 | |
| 53,742 | |
Income tax provisions | |
| 801 | |
| 4,105 | |
| 18,870 | |
NET INCOME | |
| (708) | |
| 1,967 | |
| 34,872 | |
Net income attributable to non-controlling interests, net of tax expense of $1.1 million, $1.3 million, and $1.5 million, respectively. | |
| (13,414) | |
| (12,773) | |
| (15,057) | |
NET INCOME (LOSS) ATTRIBUTABLE TO ATN INTERNATIONAL, INC. STOCKHOLDERS | | $ | (14,122) | | $ | (10,806) | | $ | 19,815 | |
NET INCOME (LOSS) PER WEIGHTED AVERAGE SHARE ATTRIBUTABLE TO ATN INTERNATIONAL, INC. STOCKHOLDERS: | | | | | | | | | | |
Basic | | $ | (0.89) | | $ | (0.68) | | $ | 1.24 | |
Diluted | | $ | (0.89) | | $ | (0.68) | | $ | 1.24 | |
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | | | | | | | | | | |
Basic | |
| 15,923 | |
| 15,983 | |
| 15,988 | |
Diluted | |
| 15,923 | |
| 15,983 | |
| 16,042 | |
DIVIDENDS PER SHARE APPLICABLE TO COMMON STOCK | | $ | 0.68 | | $ | 0.68 | | $ | 0.68 | |
The accompanying notes are an integral part of these consolidated financial statements.
F-5F-6
ATN INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Years Ended December 31, 2018, 2017,2020, 2019, and 20162018
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, |
| |||||||
|
| 2018 |
| 2017 |
| 2016 |
| |||
Net income |
| $ | 34,872 |
| $ | 48,894 |
| $ | 24,214 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
| (4,390) |
|
| 1,265 |
|
| (687) |
|
Reclassifications of gains on sale of marketable securities to net income |
|
| — |
|
| (1,044) |
|
| — |
|
Unrealized gain on securities |
|
| 78 |
|
| 440 |
|
| 868 |
|
Projected pension benefit obligation, net of tax expense of $0.6 million, $0.7 million and $0.7 million |
|
| (840) |
|
| 1,357 |
|
| 5,251 |
|
Other comprehensive income (loss), net of tax |
|
| (5,152) |
|
| 2,018 |
|
| 5,432 |
|
Comprehensive income |
|
| 29,720 |
|
| 50,912 |
|
| 29,646 |
|
Less: Comprehensive income attributable to non-controlling interests |
|
| (15,057) |
|
| (17,406) |
|
| (12,113) |
|
Comprehensive income attributable to ATN International, Inc. |
| $ | 14,663 |
| $ | 33,506 |
| $ | 17,533 |
|
| | | | | | | | | |
| | | | | | | | | |
| Year Ended December 31, | | |||||||
| 2020 | | 2019 |
| 2018 | | |||
Net income | $ | (708) | | $ | 1,967 | | $ | 34,872 | |
Other comprehensive income (loss): | | | | | | | | | |
Foreign currency translation adjustment |
| 37 | |
| (1,041) | |
| (4,390) | |
Unrealized gain (loss) on derivatives | | (101) | | | (187) | | | 78 | |
Reclassification of foreign currency losses on assets held for sale | | 6,036 | | | — | | | — | |
Projected pension and postretirement benefit obligations, net of tax expense of $0.1 million, $0.1 million and $0.6 million, respectively | | (2,412) | | | (445) | | | (840) | |
Other comprehensive income (loss), net of tax |
| 3,560 | |
| (1,673) | |
| (5,152) | |
Comprehensive income |
| 2,852 | |
| 294 | |
| 29,720 | |
Less: Comprehensive income attributable to non-controlling interests |
| (13,414) | |
| (12,773) | |
| (15,057) | |
Comprehensive income (loss) attributable to ATN International, Inc. | $ | (10,562) | | $ | (12,479) | | $ | 14,663 | |
The accompanying notes are an integral part of these consolidated financial statements.
F-6F-7
ATN INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
For the Years Ended December 31, 2016, 2017,2020, 2019, and 2018
(In Thousands, Except Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
| Total |
|
|
|
|
|
|
| ||
|
|
|
|
| Treasury |
| Additional |
|
|
|
| Other |
| ATNI |
| Non- |
|
|
|
| |||||
|
| Common |
| Stock, |
| Paid In |
| Retained |
| Comprehensive |
| Stockholders’ |
| Controlling |
| Total |
| ||||||||
|
| Stock |
| at cost |
| Capital |
| Earnings |
| Income/(Loss) |
| Equity |
| Interests |
| Equity |
| ||||||||
Balance, December 31, 2015 |
| $ | 168 |
| $ | (18,254) |
| $ | 154,768 |
| $ | 547,321 |
| $ | (3,704) |
| $ | 680,299 |
| $ | 81,425 |
| $ | 761,724 |
|
Issuance of 100,005 restricted shares of common stock |
|
| — |
|
| — |
|
| (1) |
|
| — |
|
| — |
|
| (1) |
|
| — |
|
| (1) |
|
Issuance of 43,053 shares of common stock upon exercise of stock options |
|
| 1 |
|
| — |
|
| 1,408 |
|
| — |
|
| — |
|
| 1,409 |
|
| — |
|
| 1,409 |
|
Purchase of 70,686 shares of common stock |
|
| — |
|
| (4,873) |
|
| — |
|
| — |
|
| — |
|
| (4,873) |
|
| — |
|
| (4,873) |
|
Stock-based compensation |
|
| — |
|
| — |
|
| 6,440 |
|
| — |
|
| — |
|
| 6,440 |
|
| — |
|
| 6,440 |
|
Dividends declared on common stock |
|
| — |
|
| — |
|
| — |
|
| (21,313) |
|
| — |
|
| (21,313) |
|
| (8,848) |
|
| (30,161) |
|
Excess tax benefits from share-based compensation |
|
| — |
|
| — |
|
| 592 |
|
| — |
|
| — |
|
| 592 |
|
| — |
|
| 592 |
|
Non-controlling interest in equity acquired |
|
| — |
|
| — |
|
| (4,106) |
|
| — |
|
| — |
|
| (4,106) |
|
| 29,998 |
|
| 25,892 |
|
Investments made by minority shareholders |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 22,409 |
|
| 22,409 |
|
Deconsolidation of subsidiary |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (310) |
|
| (310) |
|
Repurchase of non-controlling interests |
|
| — |
|
| — |
|
| 1,075 |
|
| — |
|
| — |
|
| 1,075 |
|
| (4,673) |
|
| (3,598) |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
Net income |
|
| — |
|
| — |
|
| — |
|
| 12,101 |
|
| — |
|
| 12,101 |
|
| 12,113 |
|
| 24,214 |
|
Other comprehensive loss, net of tax of $677 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 5,432 |
|
| 5,432 |
|
| — |
|
| 5,432 |
|
Total comprehensive income |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 17,533 |
|
| 12,113 |
|
| 29,646 |
|
Balance, December 31, 2016 |
|
| 169 |
|
| (23,127) |
|
| 160,176 |
|
| 538,109 |
|
| 1,728 |
|
| 677,055 |
|
| 132,114 |
|
| 809,169 |
|
Issuance of 95,095 restricted shares of common stock |
|
| 1 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 1 |
|
| — |
|
| 1 |
|
Issuance of 35,081 shares of common stock upon exercise of stock options |
|
| — |
|
| — |
|
| 1,156 |
|
| — |
|
| — |
|
| 1,156 |
|
| — |
|
| 1,156 |
|
Purchase of 234,746 shares of common stock |
|
| — |
|
| (12,983) |
|
| — |
|
| — |
|
| — |
|
| (12,983) |
|
| — |
|
| (12,983) |
|
Stock-based compensation |
|
| — |
|
| — |
|
| 6,970 |
|
| — |
|
| — |
|
| 6,970 |
|
| — |
|
| 6,970 |
|
Dividends declared on common stock |
|
| — |
|
| — |
|
| — |
|
| (16,465) |
|
| — |
|
| (16,465) |
|
| (7,318) |
|
| (23,783) |
|
Investments made by minority shareholders |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 123 |
|
| 123 |
|
Deconsolidation of subsidiary |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 529 |
|
| 529 |
|
Repurchase of non-controlling interests |
|
| — |
|
| — |
|
| (670) |
|
| — |
|
| — |
|
| (670) |
|
| (1,356) |
|
| (2,026) |
|
Cumulative effect adjustment due to adoption of new accounting pronouncements |
|
| — |
|
| — |
|
| 341 |
|
| (186) |
|
| — |
|
| 155 |
|
| — |
|
| 155 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
| — |
|
| — |
|
| — |
|
| 31,490 |
|
| — |
|
| 31,490 |
|
| 17,404 |
|
| 48,894 |
|
Other comprehensive loss, net of tax of $679 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 2,018 |
|
| 2,018 |
|
| — |
|
| 2,018 |
|
Total comprehensive income |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 33,508 |
|
| 17,404 |
|
| 50,912 |
|
Balance, December 31, 2017 |
|
| 170 |
|
| (36,110) |
|
| 167,973 |
|
| 552,948 |
|
| 3,746 |
|
| 688,727 |
|
| 141,496 |
|
| 830,223 |
|
Issuance of 13,664 restricted shares of common stock |
|
| 2 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 2 |
|
| — |
|
| 2 |
|
Issuance of 158,021 shares of common stock upon exercise of stock options |
|
| — |
|
| — |
|
| 6,319 |
|
| — |
|
| — |
|
| 6,319 |
|
| — |
|
| 6,319 |
|
Purchase of 171,907 shares of common stock |
|
| — |
|
| (12,437) |
|
| — |
|
| — |
|
| — |
|
| (12,437) |
|
| — |
|
| (12,437) |
|
Stock-based compensation |
|
| — |
|
| — |
|
| 6,420 |
|
| — |
|
| — |
|
| 6,420 |
|
| — |
|
| 6,420 |
|
Dividends declared on common stock |
|
| — |
|
| — |
|
| — |
|
| (10,863) |
|
| — |
|
| (10,863) |
|
| (19,033) |
|
| (29,896) |
|
Repurchase of non-controlling interests |
|
| — |
|
| — |
|
| 1,066 |
|
| — |
|
| — |
|
| 1,066 |
|
| (10,729) |
|
| (9,663) |
|
Cumulative effect adjustment due to adoption of new accounting pronouncements |
|
| — |
|
| — |
|
|
|
|
| 1,693 |
|
| (203) |
|
| 1,490 |
|
| 1,146 |
|
| 2,636 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
| — |
|
| — |
|
| — |
|
| 19,815 |
|
| — |
|
| 19,815 |
|
| 15,057 |
|
| 34,872 |
|
Other comprehensive loss, net of tax of $637 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (5,152) |
|
| (5,152) |
|
| — |
|
| (5,152) |
|
Total comprehensive income |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 14,663 |
|
| 15,057 |
|
| 29,720 |
|
Balance, December 31, 2018 |
| $ | 172 |
| $ | (48,547) |
| $ | 181,778 |
| $ | 563,593 |
| $ | (1,609) |
| $ | 695,387 |
| $ | 127,937 |
| $ | 823,324 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | |
| | |
| | |
| | |
| Accumulated |
| Total |
| | |
| | | | ||
| | | | | Treasury | | Additional | | | | | Other | | ATNI | | Non- | | | | | |||||
| | Common | | Stock, | | Paid In | | Retained | | Comprehensive | | Stockholders’ | | Controlling | | Total | | ||||||||
| | Stock | | at cost | | Capital | | Earnings | | Income/(Loss) | | Equity | | Interests | | Equity |
| ||||||||
Balance, December 31, 2019 | | $ | 172 | | $ | (51,129) | | $ | 188,471 | | $ | 541,890 | | $ | (3,282) | | $ | 676,122 | | $ | 129,961 | | $ | 806,083 | |
Purchase of 161,500 shares of common stock | |
| — | | | (8,327) | | | — | | | — | | | — | | | (8,327) | | | — | | | (8,327) | |
Stock-based compensation | |
| — | | | — | | | 5,603 | | | — | | | — | | | 5,603 | | | 309 | | | 5,912 | |
Dividends declared on common stock ($0.68 per common share) | |
| — | | | — | | | — | | | (10,867) | | | — | | | (10,867) | | | — | | | (10,867) | |
Distributions to non-controlling interests | |
| — | | | — | | | — | | | — | | | — | | | — | | | (12,378) | | | (12,378) | |
Investments made by minority shareholders | |
| — | | | — | | | (1,300) | | | — | | | — | | | (1,300) | | | 1,300 | | | — | |
Repurchase of non-controlling interests | | | — | | | — | | | (5,020) | | | — | | | — | | | (5,020) | | | (23,919) | | | (28,939) | |
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | |
| — | | | — | | | — | | | (14,122) | | | — | | | (14,122) | | | 13,414 | | | (708) | |
Other comprehensive loss | |
| — | | | — | | | — | | | — | | | 3,560 | | | 3,560 | | | — | | | 3,560 | |
Total comprehensive income | | | — | | | — | | | — | | | — | | | — | |
| (10,562) | |
| 13,414 | |
| 2,852 | |
Balance, December 31, 2020 | | $ | 172 | | $ | (59,456) | | $ | 187,754 | | $ | 516,901 | | $ | 278 | | $ | 645,649 | | $ | 108,687 | | $ | 754,336 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2018 | | $ | 172 | | $ | (48,547) | | $ | 181,778 | | $ | 563,593 | | $ | (1,609) | | $ | 695,387 | | $ | 127,937 | | $ | 823,324 | |
Issuance of 17,000 shares of common stock upon exercise of stock options | |
| — | | | — | | | 771 | | | — | | | — | | | 771 | | | — | | | 771 | |
Purchase of 45,807 shares of common stock | |
| — | | | (2,582) | | | — | | | — | | | — | | | (2,582) | | | — | | | (2,582) | |
Stock-based compensation | |
| — | | | — | | | 5,922 | | | — | | | — | | | 5,922 | | | 462 | | | 6,384 | |
Dividends declared on common stock ($0.68 per common share) | |
| — | | | — | | | — | | | (10,897) | | | — | | | (10,897) | | | — | | | (10,897) | |
Distributions to non-controlling interests | |
| — | | | — | | | — | | | — | | | — | | | — | | | (7,195) | | | (7,195) | |
Repurchase of non-controlling interests | | | — | | | — | | | — | | | — | | | — | | | — | | | (4,504) | | | (4,504) | |
Investments made by minority shareholders in consolidated affiliates | | | — | | | — | | | — | | | — | | | — | | | — | | | 488 | | | 488 | |
Comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | |
| — | | | — | | | — | | | (10,806) | | | — | | | (10,806) | | | 12,773 | | | 1,967 | |
Other comprehensive income | |
| — | | | — | | | — | | | — | | | (1,673) | | | (1,673) | | | — | | | (1,673) | |
Total comprehensive income (loss) | | | — | | | — | | | — | | | — | | | — | |
| (12,479) | |
| 12,773 | |
| 294 | |
Balance, December 31, 2019 | | $ | 172 | | $ | (51,129) | | $ | 188,471 | | $ | 541,890 | | $ | (3,282) | | $ | 676,122 | | $ | 129,961 | | $ | 806,083 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2017 | | $ | 170 | | $ | (36,110) | | $ | 167,973 | | $ | 552,948 | | $ | 3,746 | | $ | 688,727 | | $ | 141,496 | | $ | 830,223 | |
Issuance of restricted shares of common stock | | | 2 | | | — | | | — | | | — | | | — | | | 2 | | | — | | | 2 | |
Issuance of 158,021 shares of common stock upon exercise of stock options | |
| — | | | — | | | 6,319 | | | — | | | — | | | 6,319 | | | — | | | 6,319 | |
Purchase of 171,907 shares of common stock | |
| — | | | (12,437) | | | — | | | — | | | — | | | (12,437) | | | — | | | (12,437) | |
Stock-based compensation | |
| — | | | — | | | 6,420 | | | — | | | — | | | 6,420 | | | — | | | 6,420 | |
Dividends declared on common stock ($0.68 per common share) | |
| — | | | — | | | ��� | | | (10,863) | | | — | | | (10,863) | | | — | | | (10,863) | |
Distributions to non-controlling interests | | | — | | | — | | | — | | | — | | | — | | | — | | | (19,033) | | | (19,033) | |
Repurchase of non-controlling interests | | | — | | | — | | | 1,066 | | | — | | | — | | | 1,066 | | | (10,729) | | | (9,663) | |
Cumulative effect adjustment due to adoption of new accounting pronouncements | | | — | | | — | | | — | | | 1,693 | | | (203) | | | 1,490 | | | 1,146 | | | 2,636 | |
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | |
| — | | | — | | | — | | | 19,815 | | | — | | | 19,815 | | | 15,057 | | | 34,872 | |
Other comprehensive loss | |
| — | | | — | | | — | | | — | | | (5,152) | | | (5,152) | | | — | | | (5,152) | |
Total comprehensive income | | | — | | | — | | | — | | | — | | | — | |
| 14,663 | |
| 15,057 | |
| 29,720 | |
Balance, December 31, 2018 | | $ | 172 | | $ | (48,547) | | $ | 181,778 | | $ | 563,593 | | $ | (1,609) | | $ | 695,387 | | $ | 127,937 | | $ | 823,324 | |
The accompanying notes are an integral part of these consolidated financial statements.
F-7F-8
ATN INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2018, 20172020, 2019 and 20162018
(In Thousands)
|
|
|
|
|
|
|
|
|
| Year Ended December 31, | |||||||
| 2018 |
| 2017 |
| 2016 | |||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income | $ | 34,872 |
| $ | 48,894 |
| $ | 24,214 |
Adjustments to reconcile net income to net cash flows provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
| 85,719 |
|
| 86,934 |
|
| 75,980 |
Provision for doubtful accounts |
| 5,134 |
|
| 3,993 |
|
| 2,454 |
Amortization and write off of debt discount and debt issuance costs |
| 763 |
|
| 670 |
|
| 505 |
Stock-based compensation |
| 6,420 |
|
| 6,977 |
|
| 6,410 |
Unrealized loss on foreign currency |
| 1,342 |
|
| (1,209) |
|
| — |
Deferred income taxes |
| (23,242) |
|
| (13,505) |
|
| (5,636) |
Loss on equity method investments |
| — |
|
| 2,033 |
|
| — |
Bargain purchase gain |
| — |
|
| — |
|
| (7,304) |
Loss on damaged assets from Hurricanes |
| — |
|
| 35,443 |
|
| — |
Insurance recovery related to hurricane claims |
| — |
|
| (34,606) |
|
| — |
(Gain) Loss on disposition of long-lived assets |
| (26,425) |
|
| 101 |
|
| 27 |
Gain on sale of investments |
| — |
|
| (826) |
|
| — |
Impairment of long-lived assets |
| — |
|
| — |
|
| 11,425 |
Pension funding required by Viya acquisition |
| — |
|
| — |
|
| (22,494) |
Loss on deconsolidation of subsidiary |
| — |
|
| 529 |
|
| — |
Other non-cash activity |
| 308 |
|
| 424 |
| �� | 566 |
Changes in operating assets and liabilities, excluding the effects of acquisitions and dispositions: |
|
|
|
|
|
|
|
|
Accounts receivable |
| (1,682) |
|
| (4,074) |
|
| 2,601 |
Materials and supplies, prepayments, and other current assets |
| 5,924 |
|
| 1,002 |
|
| (8,410) |
Prepaid income taxes |
| 3,147 |
|
| 996 |
|
| — |
Accounts payable and accrued liabilities, advance payments and deposits and other current liabilities |
| (7,044) |
|
| 4,649 |
|
| 6,522 |
Accrued taxes |
| 29,089 |
|
| (1,385) |
|
| 21,547 |
Other assets |
| (238) |
|
| 4,102 |
|
| (12,122) |
Other liabilities |
| 1,778 |
|
| 4,583 |
|
| 15,371 |
Net cash provided by operating activities |
| 115,865 |
|
| 145,725 |
|
| 111,656 |
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Capital expenditures |
| (105,769) |
|
| (133,786) |
|
| (124,282) |
Hurricane rebuild capital expenditures |
| (80,152) |
|
| (8,585) |
|
| — |
Hurricane insurance proceeds |
| 34,606 |
|
| — |
|
| — |
Receipt of government grants |
| 5,400 |
|
| — |
|
| — |
Purchase of strategic investments |
| (3,000) |
|
| (18,107) |
|
| (2,000) |
Divestiture of businesses, net of transferred cash of $11.5 million and $2.1 million, respectively |
| 48,270 |
|
| 22,381 |
|
| — |
Acquisition of businesses, net of acquired cash of $0.0 million and $12.6 million, respectively |
| — |
|
| (1,183) |
|
| (146,395) |
Purchases of spectrum licenses and other intangible assets, including deposits |
| — |
|
| (36,832) |
|
| (10,860) |
Acquisition of non-controlling interest in subsidiary |
| — |
|
| — |
|
| (7,045) |
Purchase of short-term investments |
| (138) |
|
| — |
|
| (7,422) |
Proceeds from sale of investments |
| 6,564 |
|
| 3,794 |
|
| — |
Proceeds from disposition of long-lived assets |
| 6,900 |
|
| — |
|
| 1,424 |
Net cash used in investing activities |
| (87,319) |
|
| (172,318) |
|
| (296,580) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Dividends paid on common stock |
| (10,866) |
|
| (19,227) |
|
| (20,965) |
Proceeds from new borrowings |
| — |
|
| 8,571 |
|
| 125,800 |
Distribution to non-controlling interests |
| (18,780) |
|
| (6,858) |
|
| (8,632) |
Payment of debt issuance costs |
| — |
|
| (326) |
|
| (2,763) |
Proceeds from stock option exercises |
| 72 |
|
| 1,030 |
|
| 649 |
Principal repayments of term loan |
| (9,795) |
|
| (9,355) |
|
| (33,564) |
Repurchase of common stock |
| (6,198) |
|
| (12,855) |
|
| (4,114) |
Acquisition of businesses, net of acquired cash of $0.0 million |
| — |
|
| (1,178) |
|
| — |
Repurchases of non-controlling interests |
| (9,663) |
|
| (2,025) |
|
| (3,485) |
Investments made by minority shareholders in consolidated affiliates |
| — |
|
| 122 |
|
| 22,408 |
Net cash used in provided by financing activities |
| (55,230) |
|
| (42,101) |
|
| 75,334 |
Effect of foreign currency exchange rates on cash and cash equivalents |
| (299) |
|
| 226 |
|
| (626) |
Net change in cash, cash equivalents, and restricted cash |
| (26,983) |
|
| (68,468) |
|
| (110,216) |
Total cash, cash equivalents, and restricted cash, beginning of period |
| 219,890 |
|
| 288,358 |
|
| 398,574 |
Total cash, cash equivalents, and restricted cash, end of period | $ | 192,907 |
| $ | 219,890 |
| $ | 288,358 |
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
Interest paid | $ | 7,235 |
| $ | 7,411 |
| $ | 4,451 |
Taxes paid | $ | 12,486 |
| $ | 13,685 |
| $ | 8,237 |
Dividends declared, not paid | $ | 2,720 |
| $ | 2,724 |
| $ | 5,487 |
Noncash investing activity: |
|
|
|
|
|
|
|
|
Transfer from inventory, materials and supplies to property, plant and equipment | $ | 6,708 |
| $ | — |
| $ | — |
Purchases of property, plant and equipment included in accounts payable and accrued expenses | $ | 12,877 |
| $ | 19,466 |
| $ | 16,847 |
| | | | | | | | |
| Year Ended December 31, | |||||||
| 2020 |
| 2019 |
| 2018 | |||
Cash flows from operating activities: | | | | | | | | |
Net income | $ | (708) | | $ | 1,967 | | $ | 34,872 |
Adjustments to reconcile net income to net cash flows provided by operating activities: | | | | | | | | |
Depreciation and amortization | | 88,311 | |
| 89,125 | |
| 85,719 |
Provision for doubtful accounts | | 5,010 | |
| 5,816 | |
| 5,134 |
Amortization of debt discount and debt issuance costs | | 530 | |
| 542 | |
| 763 |
Stock-based compensation | | 5,912 | |
| 6,384 | |
| 6,420 |
Deferred income taxes | | (7,317) | |
| (2,192) | |
| (23,242) |
Loss on equity investments | | 3,427 | | | 4,724 | | | — |
(Gain) loss on disposition of long-lived assets | | 21,572 | | | 2,841 | | | (26,425) |
Goodwill impairment | | — | | | 3,279 | | | — |
Unrealized loss on foreign currency | | 357 | | | 362 | | | 1,342 |
Other non-cash activity | | — | | | (42) | | | 308 |
Changes in operating assets and liabilities, excluding the effects of acquisitions and dispositions: | | | | | | | | |
Accounts receivable | | (17,774) | |
| (3,511) | | | (1,682) |
Materials and supplies, prepayments, and other current assets | | (18,624) | |
| (1,613) | | | 5,924 |
Prepaid income taxes | | 2,218 | |
| 4,581 | | | 3,147 |
Accounts payable and accrued liabilities, advance payments and deposits and other current liabilities | | 12,597 | |
| (2,536) | | | (7,044) |
Accrued taxes | | 799 | |
| (19,053) | | | 29,089 |
Other assets | | (8,790) | | | (5,711) | | | (238) |
Other liabilities | | (1,236) | |
| 2,940 | | | 1,778 |
Net cash provided by operating activities |
| 86,284 | |
| 87,903 | |
| 115,865 |
Cash flows from investing activities: | | | | | | | | |
Capital expenditures |
| (75,323) | |
| (72,602) | | | (105,769) |
Hurricane rebuild capital expenditures | | — | | | (123) | | | (80,152) |
Hurricane insurance proceeds | | — | | | — | | | 34,606 |
Receipt of government grants | | 16,316 | | | 3,140 | | | 5,400 |
Divestiture of businesses, net of transferred cash of $0.0 million, $0.0 million, and $11.5 million, respectively | | — | | | 6,572 | | | 48,270 |
Purchase of spectrum; including deposits | | (20,396) | | | — | | | — |
Purchases of strategic investments | | (2,768) | | | (25,362) | | | (3,000) |
Proceeds from strategic investments | | 11,969 | | | — | | | — |
Purchase of short-term investments | | (116) | | | (8,028) | | | (138) |
Proceeds from disposition of long-lived assets | | — | | | — | | | 6,900 |
Proceeds from sale of short-term investments | | 120 | | | 8,141 | | | 6,564 |
Net cash used in investing activities |
| (70,198) | |
| (88,262) | |
| (87,319) |
Cash flows from financing activities: | | | | | | | | |
Dividends paid on common stock |
| (10,891) | |
| (10,880) | | | (10,866) |
Distributions to non-controlling interests |
| (10,368) | |
| (7,161) | | | (18,780) |
Payment of debt issuance costs |
| (1,096) | |
| (1,340) | | | — |
Principal repayments of term loan |
| (13,751) | |
| (4,700) | | | (9,795) |
Proceeds from stock option exercises | | — | | | — | | | 72 |
Purchases of common stock – stock-based compensation |
| (1,733) | |
| (1,649) | | | (4,622) |
Purchases of common stock – share repurchase plan | | (6,589) | | | (162) | | | (1,576) |
Repurchases of non-controlling interests | | (28,939) | | | (4,504) | | | (9,663) |
Investments made by minority shareholders in consolidated affiliates |
| — | |
| 488 | | | — |
Net cash used in financing activities |
| (73,367) | |
| (29,908) | |
| (55,230) |
Effect of foreign currency exchange rates on cash and cash equivalents |
| (80) | |
| (282) | |
| (299) |
Net change in cash, cash equivalents, and restricted cash |
| (57,361) | |
| (30,549) | |
| (26,983) |
Total cash, cash equivalents, and restricted cash, beginning of period |
| 162,358 | |
| 192,907 | |
| 219,890 |
Total cash, cash equivalents, and restricted cash, end of period | $ | 104,997 | | $ | 162,358 | | $ | 192,907 |
Supplemental cash flow information: | | | | | | | | |
Interest paid | $ | 4,829 | | $ | 4,554 | | $ | 7,235 |
Taxes paid | $ | 6,117 | | $ | 30,411 | | $ | 12,486 |
Dividends declared, not paid | $ | 2,703 | | $ | 2,721 | | $ | 2,720 |
Noncash investing activity: | | | | | | | | |
Transfer (to) from operating activities to property, plant and equipment | $ | (1,219) | | $ | — | | $ | 6,708 |
Purchases of property, plant and equipment included in accounts payable and accrued expenses | $ | 21,746 | | $ | 11,668 | | $ | 12,877 |
| | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
F-8F-9
1. ORGANIZATION AND BUSINESS OPERATIONS
The Company isstrives to be a holding company that, directlyleading platform for the operation of, and through itsinvestment in, smaller and specialty market communications services and technology companies. The Company has a long track record of delivering critical infrastructure-based solutions to underserved markets. The Company’s majority-owned operating subsidiaries owns and operates telecommunications and renewable energy businessesprovide facilities-based communications services, along with related information technology solutions in North America, India,the United States, Bermuda, and the Caribbean. The Company also has non-controlling investments in several communications and technology companies, and it continues to consider opportunities to make controlling and minority investments in businesses that it believes have the potential for generating substantial and relatively steady cash flows over extended periods of time or have technologies or business models that might prove valuable to the Company’s main operating subsidiaries or create significant longer term growth potential for the Company as a whole.
At the holding company level, the Company oversees the allocation of capital within and among its subsidiaries, affiliates, minority investments, and stockholders. The Company also has developed significant operational expertise and resources that it uses to augment the capabilities of its individual operating subsidiaries. Over the past ten years, the Company has built a platform of resources and expertise to support its operating subsidiaries and to improve their quality of service, and customer acquisition, retention, and satisfaction while maintaining optimal operating efficiencies. The Company has a number of shared service functions, including billing, network and engineering and customer service, and the parent company also employs personnel with specialized skills that provide greater economies of scale and expertise than would typically be available at the operating subsidiary level.
The Company was incorporated in Delaware in 1987, began trading publicly in 1991 and spun off more than a half of its operations to stockholders in 1998. SinceThe Company actively evaluates potential acquisitions, investment opportunities and other strategic transactions, both domestic and international, that time,it believes has the potential for generating steady excess cash flows over extended periods of time. In addition, the Company considers non-controlling investments in earlier stage businesses that it considers strategically relevant, and which may offer long-term growth potential for us, either individually, or as research and development businesses that can support the Company’s operating subsidiaries in new technology, product, and service development and offerings. The Company has engaged in many strategic acquisitions and investments to help grow its operations, usingused the cash generated from its established operating units, and any asset sales, to re-invest in its existing businesses, and to make strategic investments in earlier stage businesses.additional businesses, and to return cash to the Company’s investors. The Company looks for businesses that offer growth opportunities or potential strategic benefits, but that required additional capital investmentprovides management, technical, financial, regulatory, and marketing services to its subsidiaries and typically receive a management fee equal to a percentage of their revenues, which is eliminated in order to execute on their business plans. The Company holds controlling positions with respect to some ofconsolidation. For further information about the Company’s financial segments and geographical information about its investmentsoperating revenues and minority positions in others. These strategic investments frequently offer a productassets, see Notes 1 and service development component in addition15 to the prospects of generating returns on invested capital. TheConsolidated Financial Statements included in this Report.
Through December 31, 2020, the Company hashad identified three3 operating segments to manage and review its operations and to facilitate investor presentations of its results,results. Those 3 operating segments are as follows:
|
|
|
|
| ● | US Telecom. In |
|
|
F-10
The following chart summarizes the operating activities of the Company’s principal subsidiaries, the segments in which it reports its revenue and the markets it served as of December 31, 2018:2020:
| | | | | | | |
Segment | Services | Markets | Tradenames | ||||
International Telecom |
| Mobility |
| Bermuda, Guyana, US Virgin Islands |
| One, GTT+, Viya | |
|
|
|
|
|
|
| One, Logic, GTT+, Viya |
| | Carrier Services | | Bermuda, Guyana, US Virgin Islands | | One, GTT+, Viya | |
| | Managed Services | | Bermuda, Cayman Islands, US Virgin Islands, Guyana | | Fireminds, One, Logic, GTT+, Viya | |
US Telecom |
|
|
| United States (rural markets) |
| Choice, Choice NTUA Wireless, | |
| | Fixed | | United States | | Commnet, Choice, Choice NTUA Wireless, Deploycom | |
| | Carrier Services | | United States | | Commnet, Essextel | |
|
|
|
| United States |
|
| Choice |
|
|
|
| ||||
|
|
| |||||
|
|
| |||||
| | Solar | | India | | Vibrant Energy |
The Company actively evaluates potential acquisitions, investment opportunities and other strategic transactions, both domestic and international, that meet its return on investment and other criteria. In addition, the Company considers non-controlling investments in earlier stage businesses that it considers strategically relevant, and which may offer long-term growth potential for the Company, either individually, or as research and development businesses that can support the Company’s operating subsidiaries in new product and service development and offerings.
F-9
The Company provides management, technical, financial, regulatory, and marketing services to its subsidiaries and typically receives a management fee equal to a percentage of their revenues which is eliminated in consolidation. For information about the Company’s financial segments and geographical information about its operating revenues and assets see Notes 1 and 1715 to the Consolidated Financial Statements included in this Report.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of the Company, its majority-owned subsidiaries and certain entities, which are consolidated in accordance with the provisions of the Financial Accounting Standards Board’s (“FASB”) authoritative guidance on the consolidation of variable interest entities since it is determined that the Company is the primary beneficiary of these entities.
Certain reclassifications have been made in the December 31, 2016 financial statements to conform to the Company’s consolidated income statements to how it analyzes its operations in the current period. These changes did not impact operating income. For the year ended December 31, 2016 the aggregate impact of the changes included a decrease to termination and access fees of $4.9 million, an increase to engineering and operations expenses of $7.5 million, a decrease to sales and marketing expenses of $0.8 million, an increase to equipment expense of $0.6 million and a decrease to general and administrative expenses of $2.4 million.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. The most significant estimates relate to the allowance for doubtful accounts,credit losses on trade receivables, useful lives of the Company’s fixed and finite-lived intangible assets, allocation of purchase price to assets acquired and liabilities assumed in business combinations, fair value of indefinite-lived intangible assets, goodwill and income taxes. Actual results could differ significantly from those estimates.
F-11
Cash and Cash Equivalents
The Company considers all investments with an original maturity of three months or less at date of purchase to be cash equivalents. The Company places its cash and temporary investments with banks and other institutions that it believes have a high credit quality. At December 31, 2018,2020, the Company had deposits with banks in excess of FDIC insured limits and $25.2$32.3 million of its cash is on deposit with noninsured institutions such as corporate money market issuers and cash held in foreign banks. The Company’s cash and cash equivalents are not subject to any restrictions (see Note 9). As of December 31, 20182020 and 2017,2019, the Company held $7.5$5.7 million and $12.6$6.6 million, respectively, of its cash in Guyana dollars. While there are risks associated with the conversion of Guyana dollars to U.S.US dollars due to limited liquidity in the Guyana foreign currency markets, to date it has not prevented the Company from converting Guyana dollars into U.S.US dollars within a given three month period or from converting at a price that reasonably approximates the reported exchange rate.
Short Term Investments
The Company's short-term investments consist of corporate bonds, which have remaining maturities of more than three months at the date of purchase, and equity securities classified as available for sale, which are stated at fair value. Unrealized gains and losses are recorded in other income. The estimated fair values of investments are based on quoted market prices as of the end of the reporting period.
F-10
Restricted Cash
The Company generally classifies cash that is legally restricted as to withdrawal or usage as restricted cash. Generally, the cash is restricted due to debt service obligations, acquisitions, or to support the Company’s telecommunications operations. In 2018, the Company disposed of $8.4$8.4 million of restricted cash as a result of the U.S.US Solar Transaction described in Note 4. 6.
Allowance for Doubtful AccountsCredit Losses
The Company maintainsadopted ASU 2016-13 on January 1, 2020. The standard requires that certain financial assets be measured at amortized cost reflecting an allowance for doubtful accounts forestimated credit losses expected to occur over the estimated probablelife of the assets. The estimate of credit losses on uncollectible accounts receivable. The allowance is based upon a numberon all relevant information including historical information, current conditions, and reasonable and supportable forecasts that affect the collectability of factorsthe amounts. The Company adopted ASU 2016-13 using the modified retrospective approach, however, there was 0 impact of adoption on retained earnings.
The standard impacted the Company’s calculation of credit losses from trade receivables. Historically, the
Company recorded credit losses subsequent to the initial revenue transaction. After adoption of ASU 2016-13, the Company will record an estimate of future credit losses in conjunction with the revenue transactions based on the
information available including thehistorical experience, credit worthiness of customers, the Company’s historical experience with customers, the age of the receivable and current market and economic conditions, and management’s expectations of future conditions. Such factors are reviewed andThose estimates will be updated by the Company on a quarterly basis.as additional information becomes available. Uncollectible amounts are charged against the allowance account. The Company’s allowance for uncollectible accounts receivable is based on management’s assessment of the collectability of assets pooled together with similar risk characteristics. There is no significant impact to the Company’s operating results for the current period due to the adoption of this standard.
Inventory, Materials and Supplies
Inventory, materials and supplies primarily include handsets and other equipment held for sale to customers. These balances are recorded at the lower of cost or market cost being determined on the basis of specific identification and market determined using replacement.
F-12
Fixed Assets
The Company’s fixed assets are recorded at cost and depreciated using the straight‑linestraight-line method generally between 3 and 39 years.years. Expenditures for major renewals and betterments that extend the useful lives of fixed assets are capitalized. Repairs and replacements of minor items of property are charged to maintenance expense as incurred. The cost of fixed assets in service and under construction includes internal and external costs necessary to bring an allocation of indirect costs applicableasset to construction.the condition and location necessary for its intended use. Grants received for the construction of assets are recognized as a reduction of the cost of fixed assets, a reduction of depreciation expense over the useful lives of the assets and as a reduction of capital expendituresan investing cash flow in the statements of cash flows.
The Company capitalizes certain costs of developing and purchasing new information systems in accordance with internal use software guidance. These costs are depreciated over the useful life of the information system. The Company also incurs implementation costs associated with cloud computing arrangements. If these costs do not meet internal use software capitalization guidance, the implementation costs are recorded as prepaid assets and expensed through operating expense over the life of the arrangement.
The fair value of a liability for an asset retirement obligation is recorded in the period in which it is incurred if a reasonable estimate of fair value can be made. In periods subsequent to initial measurement, period‑to‑periodperiod-to-period changes in the liability for an asset retirement obligation resulting from the passage of time and revisions to either the timing or the amount of the original estimate of undiscounted cash flows are recognized. The increase in the carrying value of the associated long‑livedlong-lived asset is depreciated over the corresponding estimated economic life. The consolidated balance sheets include accruals of $3.8$4.2 million and $3.9$4.0 million as of December 31, 20182020 and 2017,2019, respectively, for estimated costs associated with asset retirement obligations.
In accordance with the authoritative guidance for the accounting for the impairment or disposal of long‑livedlong-lived assets, the Company evaluates the carrying value of long‑livedlong-lived assets, including property and equipment, in relation to the operating performance and future undiscounted cash flows of the underlying business whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss exists when estimated undiscounted cash flows attributable to an asset are less than its carrying amount. If an asset is deemed to be impaired, the amount of the impairment loss recognized represents the excess of the asset’s carrying value as compared to its estimated fair value, based on management’s assumptions and projections.
Management’s estimate of the future cash flows attributable to its long‑livedlong-lived assets and the fair value of its businesses involve significant uncertainty. Those estimates are based on management’s assumptions of future results, growth trends and industry conditions. If those estimates are not met, the Company could have additional impairment charges in the future, and the amounts may be material.
The Company did not record any fixed asset impairments for the year ended December 31, 2020, 2019 or 2018. See Note 3, Impact of Hurricanes Irma and Maria, regarding the Company’s write off of certain damaged fixed assets. See Note 4,
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Disposition- U.S. Telecom, regarding the Company’s impairment of certain fixed assets in the year ended December 31, 2016.
Goodwill and Indefinite‑LivedIndefinite-Lived Intangible Assets
Goodwill is recognized in business combinations equal to the amount by which the cost of acquired net assets exceeded the fair value of those net assets on the date of acquisition. The Company allocates goodwill to reporting units at the time of acquisition and bases that allocation on which reporting units will benefit from the acquired assets and liabilities. Reporting units are defined as operating segments or one level below an operating segment, referred to as a component. The Company has determined that its reporting units are components of its multiple operating segments. The Company assesses goodwill for impairment on an annual basis in the fourth quarter or more frequently when events and circumstances occur indicating that the recorded goodwill may be impaired. The assessment begins with a qualitative analysis to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If the reporting unit passes this analysis, the impairment assessment is complete and no impairment is recorded. If the reporting unit does not pass the analysis, the Company performs additional quantitative analysis by calculating the fair value of the reporting unit. If the fair value exceeds the carrying value, the test is complete and no impairment is recorded. If the carrying value of the reporting unit, including goodwill, exceeds the fair value of the reporting unit an
F-13
impairment charge is recorded equal to the excess, but not more than the total amount of goodwill allocated to the reporting unit.
A significant majority of the Company’s telecommunications licenses are not amortized and are carried at their historical costs. The Company believes that telecommunications licenses generally have an indefinite life based on the historical ability to renew such licenses, that such renewals may be obtained indefinitely and at little cost, and that the related technology used is not expected to be replaced in the foreseeable future. The Company has elected to perform its annual testing of its telecommunications licenses in the fourth quarter of each fiscal year, or more often if events or circumstances indicate that there may be impairment. The assessment begins with a qualitative analysis to determine whether it is more likely than not that the license fair value exceeds its carrying value. If the reporting unit passes this analysis, the impairment assessment is complete and no impairment is recorded. If the reporting unit does not pass the analysis, the Company performs additional quantitative analysis to calculate the fair value of the license. If the carrying value of the license exceeds the license fair value an impairment charge is recorded. As a part of the impairment test the Company assesses the appropriateness of the application of the indefinite-lived assertion. If the value of these assets were impaired by some factor, such as an adverse change in the subsidiary’s operating market, the Company may be required to record an impairment charge. The impairment test consists of a comparison of the fair value of telecommunications licenses with their carrying amount on a license by license basis and as a part of the test the Company assesses the appropriateness of the application of the indefinite‑lived assertion.
As of December 31, 2018 and 2017, theThe Company performed its annual impairment assessment of its goodwill and indefinite‑livedindefinite-lived intangible assets (telecommunications licenses) for the years ended December 31, 2020 and determined that no impairment charge was required.2019. See Note 8 for a discussion of the Company’s quantitative and qualitative testsimpairment of a portion of its goodwill. Also, see Note 4, Disposition- U.S. Telecom, regarding the Company’s impairment of goodwill inwithin its Renewable Energy segment during the year ended December 31, 2016.2019.
Other Intangible Assets
Intangible assets resulting from the acquisitions of entities accounted for using the purchase method of accounting are estimated by management based on the fair value of assets acquired. These include acquired customer relationships, tradenames, and franchise rights.
Customer relationships are amortized over their estimated lives ranging from 7-13 years, which are based on the pattern in which economic benefit of the customer relationship is estimated to be realized.
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Debt
Debt
Debt is measured at amortized cost. Debt issuance costs on term loans and specified maturity borrowings are recorded as a reduction to the carrying value of the debt and are amortized as interest expense in the consolidated income statements over the period of the debt. Fees related to revolving credit facilities and lines of credit are recorded in other assets in the consolidated balance sheet and are amortized as interest expense in the consolidated income statements over the life of the facility. Except for interest costs incurred for the construction of a qualifying asset which are capitalized during the period the assets are prepared for their intended use, interest costs are expensed.
Non‑ControllingNon-Controlling Interests
The non‑non-controlling interests in the accompanying consolidated balance sheets reflect the original investments and subsequent capital contributions made by the minority stockholders in the Company’s subsidiaries which are less than wholly-owned. Non-controlling interests acquired in a business combination are initially recorded at fair value. Subsequently, all non-controlling interest is adjusted for the minority stockholder’s proportional share of the earnings or losses, net of any distributions.
F-14
Changes in Accumulated Other Comprehensive Income (Loss)
Changes in accumulated other comprehensive income (loss), by component, were as follows (in thousands):
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| Projected |
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| |
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|
| Pension |
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| |
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| Benefit |
| Translation |
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| |||
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| Obligation |
| Adjustment |
| Other |
| Total |
| ||||
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Balance at December 31, 2015 |
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| $ | (3,481) |
| $ | (223) |
| $ | — |
| $ | (3,704) |
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Adjust funded status of pension plan, net of tax of $0.7 million |
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| 5,251 |
|
| — |
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| — |
|
| 5,251 |
|
Foreign currency translation adjustment |
|
|
| — |
|
| (687) |
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| — |
|
| (687) |
|
Unrealized gain on marketable securities |
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|
| — |
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| — |
|
| 868 |
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| 868 |
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Balance at December 31, 2016 |
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| 1,770 |
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| (910) |
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| 868 |
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| 1,728 |
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Adjust funded status of pension plan, net of tax of $0.7 million |
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| 1,357 |
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| — |
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| — |
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| 1,357 |
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Foreign currency translation adjustment |
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| — |
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| 1,265 |
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| — |
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| 1,265 |
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Reclassifications of gains on sale of marketable securities to net income |
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| — |
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| — |
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| (1,044) |
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| (1,044) |
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Unrealized gain on marketable securities |
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| — |
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| — |
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| 440 |
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| 440 |
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Balance at December 31, 2017 |
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| 3,127 |
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| 355 |
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| 264 |
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| 3,746 |
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Adjust funded status of pension plan, net of tax of $0.6 million |
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| (840) |
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| — |
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| — |
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| (840) |
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Foreign currency translation adjustment |
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| — |
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| (4,390) |
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| — |
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| (4,390) |
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Adoption of ASU 2016-01 |
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| — |
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| — |
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| (203) |
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| (203) |
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Interest rate swap |
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| — |
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| — |
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| 78 |
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| 78 |
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Balance at December 31, 2018 |
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| $ | 2,287 |
| $ | (4,035) |
| $ | 139 |
| $ | (1,609) |
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| | | | | | | | | | | | | | |
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| Projected |
| | |
| | |
| | | | |
| | | Pension and | | | | | | | | | | | |
| | | Postretirement Benefit | | Translation | | | | | | | |||
| | | Obligations | | Adjustment | | Other | | Total |
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| | | | | | | | | | | | | | |
Balance at December 31, 2017 | | | $ | 3,127 | | $ | 355 | | $ | 264 | | $ | 3,746 | |
Unrecognized actuarial gain (loss), net of tax of $0.6 million | | |
| (840) | | | — | | | — | | | (840) | |
Foreign currency translation adjustment | | |
| — | | | (4,390) | | | — | | | (4,390) | |
Adoption of ASU 2016-01 | | | | — | | | — | | | (203) | | | (203) | |
Interest rate swap | | | | — | | | — | | | 78 | | | 78 | |
Balance at December 31, 2018 | | | $ | 2,287 | | $ | (4,035) | | $ | 139 | | $ | (1,609) | |
Unrecognized actuarial gain (loss), net of tax of $0.1 million | | | | (445) | | | — | | | — | | | (445) | |
Foreign currency translation adjustment | | | | — | | | (1,041) | | | — | | | (1,041) | |
Interest rate swap | | | | — | | | — | | | (187) | | | (187) | |
Balance at December 31, 2019 | | | | 1,842 | | | (5,076) | | | (48) | | | (3,282) | |
Unrecognized actuarial gain (loss), net of tax of $0.1 million | | | | (2,412) | | | — | | | — | | | (2,412) | |
Foreign currency translation adjustment | | | | — | | | 37 | | | — | | | 37 | |
Interest rate swap | | | | — | | | — | | | (101) | | | (101) | |
Reclassification of foreign currency losses on assets held for sale | | | | — | | | — | | | 6,036 | | | 6,036 | |
Balance at December 31, 2020 | | | $ | (570) | | $ | (5,039) | | $ | 5,887 | | $ | 278 | |
Amounts reclassified from accumulated other comprehensive income to net income for pension and other postretirement benefits plans were $(100.0) thousand, $(64.0) thousand, and $54.0 thousand for the year ended December 31, 2020, December 31, 2019, and December 31, 2018, respectively. Additionally, $6.0 million was reclassified from accumulated other comprehensive income to net income as follows (in thousands):
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| 2018 |
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| 2017 |
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| 2016 |
Pension and other postretirement benefit plans |
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| $ | 54 |
| $ | 716 |
| $ | 1,300 |
Realized gains on marketable securities |
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|
| — |
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| (1,044) |
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| — |
Total |
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| $ | 54 |
| $ | (328) |
| $ | 1,300 |
a result of the foreign currency losses on assets held for sale from the Vibrant Transaction for the year ended December 31, 2020.
F-13
Revenue Recognition
The Company earns revenue from its telecommunication and renewable energy operations. The Company recognizes revenue through the following steps:
- | Identification of the contract with a customer |
- | Identification of the performance obligations in the contract |
- | Determination of the transaction price |
- | Allocation of the transaction price to the performance obligations in the contract |
- | Recognize revenue when, or as, the Company satisfies performance obligations |
Revenue Recognition- TelecommunicationsCommunications Services
WirelessCommunication services consists of Mobility, Fixed, and Carrier Services revenue. Mobility revenue consists of wholesale and retail revenue. Wholesale revenue is generated from providing mobile voice and data services to the customers of other wireless carriers, the provision of network switching services and certain transport services using the Company’s wireless networks. The transaction price of some wholesale revenue contracts includes variable consideration in the form of volume discounts. Management uses its judgment based on projected transaction volumes to estimate the transaction price and to allocate the transaction price to the performance obligations in the contract. Revenue is recognized over time as the service is rendered to the customer. Retail revenue is generated from providing mobile voice and data services to subscribers as well as roaming services provided to other carriers’ customers roaming intoover the Company’s retail markets. Thiswireless networks and the sale of related equipment such as handsets and other accessories to its subscribers. The service revenue
F-15
generated is recognized over time as the service is rendered. Lastly, wireless revenue includesrendered and revenues from equipment sold to customers which isare recognized when the equipment is delivered to the customer.
Management considers transactions where customers purchase subsidized or discounted equipment and mobile voice or data services to be a single contract. For these contracts, the transaction price is allocated to the equipment and mobile service based on their standalone selling prices. The standalone selling price is based on the amount the Company charges for the equipment and service to similar customers. Equipment revenue is recognized when the equipment is delivered to customers and service revenue is recognized as service is rendered.
WirelineFixed Communications revenue is primarily generated from access and usage fees forby internet, voice, and video services charged to subscribers as well as wholesale long-distance voice servicesservice revenues provided to telecommunication carriers at contracted rates.retail and enterprise customers over the Company’s wireline networks. Revenue from these contracts is recognized over time as the service is rendered to the customer. Fixed revenue also includes revenue from government grants and is recognized in accordance with the grant terms and conditions.
In the Company’s International Telecom segment, Carrier Services revenue is generated from providing international long-distance services, roaming services to other carriers’ customers roaming into the Company’s retail markets, transport services, and access services provided to other telecommunication carriers. In the Company’s US Telecom segment, Carrier Services revenue includes services provided under the FirstNet Transaction, wholesale roaming revenues, the provision of network switching services, tower lease revenue and other services provided to carriers. Revenue is recognized over time as the service is rendered to the customer.
The Company also has certain wholesale roaming agreements that contain stand ready performance obligations and management allocates transaction value to performance obligations based on the standalone selling price. The standalone selling price is the estimated price the Company would charge for the good or service with similar customers in similar circumstances. Management determined the performance obligations were obligations to make the service continuously available and will recognize revenue evenly over the service period.
In July 2019 the Company entered into a Network Build and Maintenance Agreement (the “FirstNet Agreement”) with AT&T Mobility, LLC (“AT&T”) to build a portion of AT&T’s network for the First Responder Network Authority (“FirstNet”) as well as a commercial wireless network in or near the Company’s wirelesscurrent operating area in the Southwestern United States (the “FirstNet Transaction”). The FirstNet transaction includes construction and wirelineservice performance obligations. The Company allocated the transaction price of the FirstNet Agreement to each performance obligation based on the relative standalone selling price of each performance obligation in the contract. The standalone selling price is the estimated price the Company would charge for the good or service in a separate transaction with similar customers in similar circumstances. The construction revenue is recognized when the assets are delivered and the service revenue is recognized over time as the service is rendered to the customer.
The Company’s Mobility, Carrier Services, and Fixed communications contracts occasionally include promotional discounts such as free service periods or discounted products. If a contract contains a substantive termination penalty, the transaction price is allocated to the performance obligations based on a standalone selling price resulting in accelerated revenue recognition and the establishment of a contract asset that will be recognized over the life of the contract. If a contract includes a promotional discount but no substantive termination penalty the discount is recorded in the promotional period and no contract asset is established. The Company’s customers also have the option to purchase additional telecommunication services. Generally, these options are not performance obligations and are excluded from the transaction price because they do not provide the customers with a material right.
The Company may charge upfront fees for activation and installation of some of its products and services. These fees are reviewed to determine if they represent a separate performance obligation. If they aredo not represent a separate performance obligation, the contract price associated with them is recognized over the life of the customer. If the fees represent a performance obligation they are recognized when delivered to the customer based on the standalone selling price.
Sales and use and state excise taxes collected from customers that are remitted to the governmental authorities are reported on a net basis and excluded from the revenues and sales.
F-14F-16
The Company also enters into build and maintenance agreements with its customers. The agreements include construction and service performance obligations. The Company allocates the transaction price to each performance obligation based on the relative standalone selling price of each performance obligation in the contract. The standalone selling price is the estimated price the Company would charge for the good or service in a separate transaction with similar customers in similar circumstances.
Revenue Recognition-Renewable EnergyRecognition-Other Revenue
RevenueOther revenue consists of renewable energy revenue and Managed Services revenue. Renewable energy revenue includes the generation of power through Power Purchase Agreements (“PPAs”) from the Company’s Renewable Energy segment is generated fromsolar plants in India, and prior to its sale in 2018, the sale of electricity through power purchase agreements (“PPAs”) with various customers that generally range from 10 to 25 years.United States. The Company recognizes revenue at contractual PPA rates over time as electricity is generated and simultaneously consumed by the customer. Managed services revenue is generated from network, application, infrastructure, and hosting services delivered to customers. The revenue is recognized as the service is delivered to customers.
Contract Assets and Liabilities
The Company recognizes contract assets and liabilities on its balance sheet. Contract assets represent unbilled amounts typically resulting from retail wireless contracts with both a multiyear service period and a promotional discount. In these contracts the United States,revenue recognized exceeds the amount billed to the customer. The current portion of the contract asset is recorded in prepayments and other current assets and the noncurrent portion is included in other assets on the Company’s Renewable Energy segment also generatesbalance sheet.
Contract liabilities consist of advance payments and billings in excess of revenue fromrecognized. Retail revenue for postpaid customers is generally billed one month in advance and recognized over the sale of Solar Renewable Energy Credits (“SRECs”). Revenueperiod that the corresponding service is rendered to customers. To the extent the service is not provided by the reporting date the amount is recognized over time as SRECsa contract liability. Prepaid service, including mobile voice and data services, sold to customers is recorded as deferred revenue prior to the commencement of services. The current portion of contract liabilities are sold through long-term purchase agreements atrecorded in advanced payments and deposits and the contractual rate specifiednoncurrent portion is included in other liabilities on the agreement.Company’s balance sheets.
Contract Acquisition Costs
The Company pays sales commissions to its employees and agents for obtaining customer contracts. These costs are incremental because they would not have been incurred if the contract was not obtained. The Company recognizes an asset for these costs and subsequently amortizes the asset on a systematic basis consistent with the pattern of the transfer of the services to the customer. The amortization period, which is between 2 and 6 years, considers both the original contract period as well as anticipated contract renewals as appropriate. The amortization period also includes renewal commissions when those commissions are not commensurate with new commissions. The Company estimates contract renewals based on its actual renewals in recent periods. When the expected amortization period is one year or less the Company utilizes the practical expedient and expenses the costs as incurred.
Leases
The Company determines if an agreement is a lease at inception. Operating leases are included in right-of-use (“ROU”) assets, current portion of operating lease liabilities, and operating lease liabilities in the Company’s consolidated balance sheets. Finance leases are included in property and equipment in the Company’s consolidated balance sheets.
ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The present value is calculated using the Company’s incremental borrowing rate based on the information available at the commencement date, as the
F-17
Company’s leases do not contain an implicit rate. The Company utilizes assumptions based on its existing borrowing facilities and other market specific data to determine its incremental borrowing rate. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. The Company’s lease terms may include renewal options to extend the lease. The Company includes renewal options that are reasonably certain to be exercised in the initial lease term. When determining whether a renewal option is reasonably certain to be exercised, the Company considers several factors, including the present and anticipated future needs of its customers being serviced by the asset. Lease expense is recognized on a straight-line basis over the lease term. The Company does not separate non-lease components from lease components.
Operating Expenses
Termination and access fee expenses. Termination and access fee expenses are charges that are incurred for voice and data transport circuits (in particular, the circuits between the Company’s wirelessMobility sites and its switches), internet capacity, video programming costs, other access fees the Company pays to terminate its calls, telecommunication spectrum fees and direct costs associated with the Company’s managed servicesManaged Services and technology business as well as within its Renewable Energy segment.renewable energy operations. Termination and access fees also include the allowance for credit losses and the cost of handsets and customer resale equipment incurred by the Company’s retail businesses.
Construction costs. Construction costs include the expenses associated with constructing and making the FirstNet sites available for delivery to ATT.
Engineering and operations expenses. Engineering and operations expenses include the expenses associated with developing, operating, upgrading, and supporting the Company’s expanding telecommunications networks and renewable energy operations, including the salaries and benefits paid to employees directly involved in the development and operation of the Company’s networks and renewable energy operations.those businesses.
Sales and marketing expenses. Sales and marketing expenses include salaries and benefits the Company pays to sales personnel, customer service expenses, sales commissions and the costs associated with the development and implementation of the Company’s promotion and marketing campaigns.
General and administrative expenses. General and administrative expenses include salaries, benefits and related costs for general corporate functions including executive management, finance and administration, legal and regulatory, facilities, information technology and human resources. General and administrative expenses also include internal costs associated with the Company’s performance of due-diligence in connection with acquisition activities.
Transaction-related charges. Transaction-related charges include the external costs, such as legal, tax, 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.
Restructuring charges. Restructuring charges are costs incurred as a result of reorganizing the Company’s operating fromoperations as a result of acquisition or disposition activities.
Depreciation and amortization expenses. Depreciation and amortization expenses represent the depreciation and amortization charges the Company records on its property and equipment and on certain intangible assets.
F-15
Impairment of goodwill or intangible assets. The Company evaluates the carrying value of its long lived assets, including property and equipment, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss exists when estimated undiscounted cash flows attributable to non-current assets subject to depreciation and amortization and discounted cash flows for intangible assets not subject to amortization are less than their carrying amount. For long lived assets other than goodwill, if an asset is deemed to be impaired, the amount of the impairment loss recognized represents the excess of the asset’s carrying value as compared to its estimated fair value, based on management’s assumptions and projections.
The Company also assesses the carrying valueF-18
(Gain) loss on disposition of long-lived assets. The Company sells or disposes assets from time to time. A gain or loss is recorded by comparing the carrying amount of the assets to the proceeds received. The Company also records losses on assets held for sale if the expected sale price exceeds the carrying value of the assets.
Loss on damaged assets and other Hurricane-related charges, net of insurance recovery.During September 2017, the Company’s operations and customers in the U.S.US Virgin Islands were severely impacted by Hurricanes Irma and Maria (the “Hurricanes”). Loss on damaged assets and other hurricane related charges, net of insurance recovery represents the write off of damaged assets, net of insurance recoveries and also includes additional operating expenses that were specifically incurred to address the impact of the Hurricanes.
Accounting for Grants
The Company receives funding from the U.S.US Government and its agencies under Stimulusstimulus and Universal Service FundUSF and other programs. These funding programs are generally designed to fund telecommunications operations, and infrastructure expansion into rural or underserved areas. The funding programs are evaluated to determine if they represent funding related to revenue, capital expenditures, or operating activities. Funding for revenue and operating activities are recorded as revenue or contra expense in the Company’s consolidated income statement as the services are provided. Funding for capital expenditures is recorded as a reduction to property, plant and equipment on the Company’s consolidated balance sheets and a future reduction in depreciation expense in the consolidated income statements. Government funding related to revenue and operations are recorded as operating cash inflows and grants for capital expenditures are recorded as investing cash inflows.
The Company monitors government funding for grant requirements to ensure that conditions related to grants have been met and there is reasonable assurance that the Company will be able to retain the grant proceeds and to ensure that any contingencies that may arise from not meeting the conditions are appropriately recognized. See Note 10, Government Grants.
Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Company recognizes deferred tax assets to the extent that the Company believes these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax‑planningtax-planning strategies, and results of recent operations. If the Company determines that it would be able to realize its
F-16
deferred tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process whereby (1) the Company determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more‑likely‑more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related authority. It is possible that the ultimate resolution of these uncertain matters may be greater or less than the amount that the Company estimated. If payment of these amounts proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period in which it is determined that the liabilities are no longer necessary. If the estimate of tax liabilities proves to be more than the ultimate assessment, a further charge to expense would result.
F-19
The Company recognizes interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying consolidated statements of operations.�� Accrued interest and penalties are included within the related tax liability line in the consolidated balance sheets.
The Company does not provide for United States income taxes on earnings of foreign subsidiaries as such earnings are considered to be indefinitely reinvested. The Tax Cuts and Jobs Act of 2017 (the “Tax Act” also commonly referred to as US tax reform),resulted in a one-time transition tax on the deemed repatriation of foreign earnings for federal tax purposes.
Credit Concentrations and Significant Customers
Historically, the Company has been dependent on a limited amount of customers for its wholesale roaming business. For the year ended December 31, 2020 and December 31, 2019, 1 customer accounted for 10% and 11% of the Company’s consolidated revenue, respectively. For the year ended December 31, 2018, one customer2 customers accounted for 11% of the Company’s consolidated revenue. For the years ended December 31, 2017, two customers accounted for 13% and 10% of the Company’s consolidated revenue. For the year ended December 31, 2016, two customers accounted for 14% and 12% of the Company’s consolidated revenue.
As of December 31, 2018, no customer2020, 2 customers accounted for more than 10% of the Company’s consolidated accounts receivable. As of December 31, 2017, one2019, 1 customer accounted for 18%more than 10% of the Company’s consolidated accounts receivable, net of allowances.receivable.
Foreign Currency Gains and Losses
The Company translate the assets and liabilities of its foreign subsidiaries from their respective functional currencies, primarily the Indian Rupee and the Guyana Dollar, to U.S.US dollars at the appropriate spot rates as of the balance sheet date. Changes in the carrying valuevalues of these assets and liabilities attributable to fluctuations in spot rates are recognized in foreign currency translation adjustment, a component of accumulated other comprehensive income. Income statement accounts are translated using the monthly average exchange rates during the year.
Monetary assets and liabilities denominated in a currency that is different from a reporting entity’s functional currency must first be remeasured from the applicable currency to the legal entity’s functional currency. The effect of this remeasurement process is reported in other income on the income statement.
Employee Benefit Plans
The Company sponsors pension and other postretirement benefit plans for employees of certain subsidiaries. Net periodic pension expense is recognized in the Company’s income statement. The service cost component of net periodic pension expense is presented with other employee compensation within income from operations. Other components of net periodic pension expense, such as interest cost, expected return on plan assets, and amortization of actuarial gains and losses are presented in other income. The Company recognizes a pension or other postretirement benefit plan’s funded status as either an asset or liability in its consolidated balance sheet. Actuarial gains and losses are
F-17
deferred, reported as a component of other comprehensive income, and amortized through net periodic pension expense in subsequent periods.
Fair Value of Financial Instruments
In accordance with the provisions of fair value accounting, a fair value measurement assumes that a transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability, and defines fair value based upon an exit price model.
F-20
The fair value measurement guidance establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance describes three levels of inputs that may be used to measure fair value:
| |
Level 1 | Quoted prices in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset and liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 assets and liabilities include money market funds, debt and equity securities and derivative contracts that are traded in an active exchange market. |
Level 2 | Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than |
Level 3 | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments and intangible assets that have been impaired whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. |
Assets and liabilities of the Company measured at fair value on a recurring basis as of December 31, 20182020 and 20172019 are summarized as follows:
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|
|
|
|
| December 31, 2018 |
|
|
|
| |
|
|
|
|
| Significant Other |
|
|
|
| |
|
| Quoted Prices in |
| Observable |
|
|
|
| ||
|
| Active Markets |
| Inputs |
|
|
|
| ||
Description |
| (Level 1) |
| (Level 2) |
| Total |
| |||
Certificates of deposit |
| $ | — |
| $ | 380 |
| $ | 380 |
|
Money market funds |
|
| 2,266 |
|
| — |
|
| 2,266 |
|
Short term investments |
|
| 393 |
|
| — |
|
| 393 |
|
Commercial paper |
|
| — |
|
| 13,972 |
|
| 13,972 |
|
Interest rate swap |
|
| — |
|
| 140 |
|
| 140 |
|
Total assets and liabilities measured at fair value |
| $ | 2,659 |
| $ | 14,492 |
| $ | 17,151 |
|
| | | | | | | | | | | | |
| | December 31, 2020 | ||||||||||
| | Significant Other | ||||||||||
| | Quoted Prices in | | Observable | | Unobservable | | | | |||
| | Active Markets | | Inputs | | Inputs | | | | |||
Description | | (Level 1) | | (Level 2) | | (Level 3) | | Total | ||||
Certificates of deposit | | $ | — | | $ | 380 | | $ | — | | $ | 380 |
Money market funds | | | 2,785 | | | — | | | — | | | 2,785 |
Other investments | | | — | | | — | | | 13,357 | | | 13,357 |
Interest rate swap | | | — | | | (157) | | | — | | | (157) |
Total assets and liabilities measured at fair value | | $ | 2,785 | | $ | 223 | | $ | 13,357 | | $ | 16,365 |
| | | | | | | | | | | | | |
| | December 31, 2019 | | ||||||||||
| | Significant Other | | ||||||||||
| | Quoted Prices in | | Observable | | Unobservable | | | | | |||
| | Active Markets | | Inputs | | Inputs | | | | | |||
Description | | (Level 1) | | (Level 2) | | (Level 3) | | Total |
| ||||
Certificates of deposit | | $ | — | | $ | 380 | | $ | — | | $ | 380 | |
Money market funds | | | 2,329 | | | — | | | — | | | 2,329 | |
Short term investments | | | 416 | | | — | | | — | | | 416 | |
Other investments | | | — | | | — | | | 12,700 | | | 12,700 | |
Interest rate swap | | | — | | | (56) | | | — | | | (56) | |
Total assets and liabilities measured at fair value | | $ | 2,745 | | $ | 324 | | $ | 12,700 | | $ | 15,769 | |
F-18F-21
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|
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|
|
| December 31, 2017 |
| |||||||
|
|
|
|
| Significant Other |
|
|
|
| |
|
| Quoted Prices in |
| Observable |
|
|
|
| ||
|
| Active Markets |
| Inputs |
|
|
|
| ||
Description |
| (Level 1) |
| (Level 2) |
| Total |
| |||
Certificates of deposit |
| $ | — |
| $ | 391 |
| $ | 391 |
|
Money market funds |
|
| 2,894 |
|
| — |
|
| 2,894 |
|
Short term investments |
|
| 555 |
|
| 6,521 |
|
| 7,076 |
|
Commercial paper |
|
| — |
|
| 49,954 |
|
| 49,954 |
|
Interest rate swap |
|
| — |
|
| 52 |
|
| 52 |
|
Total assets and liabilities measured at fair value |
| $ | 3,449 |
| $ | 56,918 |
| $ | 60,367 |
|
CertificateCertificates of Deposit
As of December 31, 20182020 and December 31, 20172019 this asset class consisted of a time deposit at a financial institution denominated in U.S.US dollars. The asset class is classified within Level 2 of the fair value hierarchy because the fair value was based on observable market data.
Money Market Funds
As of December 31, 20182020 and December 31, 2017,2019, this asset class consisted of a money market portfolio that comprises Federal government and U.S.US Treasury securities. The asset class is classified within Level 1 of the fair value hierarchy because its underlying investments are valued using quoted market prices in active markets for identical assets.
Short Term Investments and Commercial Paper
As of December 31, 20182020 and December 31, 2017,2019, these asset classes consisted of short term foreign and U.S.US corporate bonds, equity securities, and commercial paper. Corporate bonds and commercial paper are classified within Level 2 of the fair value hierarchy because the fair value is based on observable market data. Equity securities are classified within Level 1 because fair value is based on quoted market prices in active markets for identical assets. The Company held equity securities with a fair value of $0.3$0.2 million and $0.6 million atas of December 31, 2018 and December 31, 2017, respectively.2019. Net income for the year ended December 31, 20182020 and 2019 includes $0.3$0.2. million and $0.1 million of losses, respectively, on these securities.
Other Fair Value DisclosuresInvestments
In the first quarter of 2019, the Company made an investment in an early-stage venture through the acquisition of a convertible debt instrument. The carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable and accrued expenses approximate theirCompany elected to fair values because ofvalue the relatively short-term maturities of these financial instruments. Theinvestment upon acquisition. At December 31, 2020, the fair value of the interest rate swap is measured using Level 2 inputs.
Atinvestment was $11.0 million. During the years ended December 31, 2018,2020 and 2019, the Company holds $23.1recorded $0.8 million and $0.2 million of income, respectively, from changes in the fair value of the investment. The asset is classified within Level 3 of the fair value hierarchy. The Company used the income approach to fair value the investment and the inputs consisted of a discount rate calculated based on the investment attributes and the probability of potential future scenarios occurring.
In the third quarter of 2019, the Company made a $14.4 million investment in a renewable energy partnership, as a tax equity investor. The Company received an investment tax credit of $12.0 million in the year ended December 31, 2020 and will receive future cash distributions from the partnership’s operations. The Company elected the deferral method to account for the credit and elected the fair value option to account for the equity investment. The Company’s investment had a fair value of $2.3 million at December 31, 2020, and $2.5 million at December 31, 2019. The asset is classified within Level 3 of the fair value hierarchy. The Company used the income approach to fair value the investment and the inputs consisted of a discount rate and future cash flows calculated based on the investment attributes.
The Company also holds investments in equity securities consisting of non-controlling investments in privately held companies. These investments, over which the Company does not have the ability to exercise significant influence, are without readily determinable fair values. The investments are measured at cost, less any impairment, adjusted for observable price changes of similar investments of the same issuer. Fair value is not estimated for these investments if there are no identified events or changes in circumstances that may have an effect on the fair value of the investment. The carrying value of the strategic investments was $23.1 million and $20.1$1.3 million at December 31, 20182020 and $2.1 million at December 31, 2017, respectively. As of2019. During the year ended December 31, 2018 no impairments or2020 the Company recorded a loss of $0.8 million as the result of an observable price adjustments were recorded onchange in the investments. StrategicThese investments are included with other assets on the consolidated balance sheets.
Equity Method Investments
In the first quarter of 2020, the Company increased its ownership in one investment of a privately held company to approximately 24% of the outstanding voting equity through an additional $2.8 million investment. With this investment, the Company obtained the ability to exercise significant influence over the investee and began accounting
F-22
for the investment under the equity method of accounting including the recording of its share of the investee’s earnings or losses. The carrying value of the investment was $17.9 million and $15.5 million at December 31, 2020 and December 31, 2019, respectively. The value increased $2.4 million from the December 31, 2019 balance due to an additional investment of $2.8 million, and currency gains of $1.6 million offset partially by $2.0 million of the Company’s share of investee losses. The investment is included with other assets on the consolidated balance sheets.
Other Fair Value Disclosures
The carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable and accrued expenses approximate their fair values because of the relatively short-term maturities of these financial instruments. The fair value of the interest rate swap is measured using Level 2 inputs.
The fair value of long-term debt is estimated using Level 2 inputs. At December 31, 2018,2020, the fair value of long-term debt, including the current portion, was $91.6$73.3 million and its book value was $91.0 $72.8 million. At December 31, 2017,2019, the fair value of long-term debt, including the current portion, was $159.2$86.9 million and its book value was $155.8$86.4 million.
F-19
Net Income (Loss) Per Share
Basic net income per share is computed by dividing net income attributable to the Company’s stockholders by the weighted‑averageweighted-average number of common shares outstanding during the period and does not include any other potentially dilutive securities. Diluted net income per share gives effect to all potentially dilutive securities using the treasury stock method.
The reconciliation from basic to diluted weighted average shares of Common Stock outstanding is as follows (in thousands):
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| |||||||
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| Year ended December 31, |
| |||||||||||
|
| 2018 |
| 2017 |
| 2015 |
| |||||||
| | | | | | | | |||||||
| | Year ended December 31, | | |||||||||||
|
| 2020 |
| 2019 |
| 2018 |
| |||||||
Basic weighted-average shares of common stock outstanding |
| 15,988 |
| 16,138 |
| 16,131 |
|
| 15,923 | | 15,983 | | 15,988 | |
Stock options |
| 54 |
| 72 |
| 96 |
|
| — | | — | | 54 | |
Diluted weighted-average shares of common stock outstanding |
| 16,042 |
| 16,210 |
| 16,227 |
|
| 15,923 | | 15,983 | | 16,042 | |
The following notesFor the numberyear ended December 31, 2020, 2019, and 2018 the calculation of potentialbasic and diluted weighted average shares of commonCommon Stock outstanding does not include 5,000 shares, 8,800 shares and 5,000 shares, respectively, relating to stock not included in the above calculation becauseoptions as the effects of suchthose options were anti‑dilutive (in thousands of shares):anti-dilutive.
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| For the Year Ended |
| ||||
|
| December 31, |
| ||||
|
| 2018 |
| 2017 |
| 2016 |
|
Stock options |
| 5 |
| 7 |
| 5 |
|
Total |
| 5 |
| 7 |
| 5 |
|
Stock‑BasedStock-Based Compensation
The Company applies the fair value recognition provisions of the authoritative guidance for the accounting for stock‑basedstock-based compensation and is expensing the fair value of the grants of options to purchase common stockCommon Stock over their vesting period of four years.years. Relating to grants of options, the Company recognized $0.1 million $0.1 million and $0.1 million of non‑cash, share‑basednon-cash, share-based compensation expense during 2018, 2017, and 2016, respectively.2018. See Note 11 for assumptions used to calculate the fair value of the options granted.
The Company also issued 116,404 restricted shares of Common Stock in 2020; 108,278 restricted shares of Common Stock in 2019; and 111,474 restricted shares of common stockCommon Stock in 2018; 95,095 restricted2018. These shares of common stock in 2017 and 100,005 restricted shares of common stock in 2016. These sharesissued to employees are being charged to income based upon their fair values over their vesting period of four years. Shares issued to Directors are being charged to income based upon their fair values upon their grant. The Company accounts for forfeitures as they occur. Non‑cash equity‑basedNon-cash equity-based compensation expense, related to the vesting of restricted shares issued was $5.6 million, $6.4 million and $6.1 million $6.6 millionin 2020, 2019, and $6.2 million in 2018, 2017, and 2016, respectively.
F-23
In connection with certain acquisitions, the Company issued shares of the acquired company to its local management and recorded $0.2 million, $0.3 million, $0.5 million and $0.1$0.2 million of stock based compensation during 2018, 20172020, 2019, and 2016,2018, respectively.
Stock‑basedStock-based compensation expense is recognized within general and administrative expenses within the consolidated income statements.
Business Combinations
The Company accounts for business combinations using the acquisition method of accounting, under which the purchase price of the acquisition is allocated to the assets acquired and liabilities assumed using the fair values determined by management as of the acquisition date. Contingent consideration obligations that are elements of the consideration transferred are recognized as of the acquisition date as part of the fair value transferred in exchange for the
F-20
acquired business. Acquisition-related costs incurred in connection with a business combination are expensed as incurred.
Recent Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”), and subsequently issued related updates, (collectively(collectively known as ASC 606), which provides 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 Company adopted this standard on January 1, 2018. Refer to Note 3 to the Consolidated Financial Statements in this Report.
In April 2015, the FASB issued ASU 2015-05, “Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement”, which provides guidance about whether a cloud computing arrangement includes software and how to account for the license for software. The new guidance does not change the accounting for a customer’s accounting for service contracts. The adoption of ASU 2015-05 by the Company on January 1, 2017 did not have a material impact on the Company’s financial position, result of operations or cash flows.
In January 2016, the FASB issued ASU 2016-01, “Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”),Liabilities,” which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The Company adopted this standard on January 1, 2018.2018. Upon adoption the Company held $20.1 million of equity investments that did not have readily determinable fair values. As a result these investments are measured at cost less impairments, adjusted for observable price changes of similar investments of the same issuer. The Company has not adjusted the cost of these investments since acquisition. Upon adoption, the Company held $0.6 million of equity investments with readily determinable fair values and reclassified $0.2 million of unrealized gains on this investment to retained earnings.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” and subsequently issued related updates,” (“ASU 2016-02”), which provide comprehensive lease accounting guidance. The standard requires entities to recognize lease assets and liabilities on the balance sheet as well as disclosure of key information about leasing arrangements. ASU 2016-02 will becomebecame effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company has implemented new systems, processes and controls to implement the guidance. The Company will adopt the standardadopted ASC 2016-02 on January 1, 2019 by applyingutilizing the new lease requirements atoptional transition method with a cumulative adjustment on the effective date and will recognize a cumulative-effect adjustment to the opening balance sheet retained earnings in the period of adoption with no adjustments toand not adjusting prior periods. The Company expectsRefer to adopt the package of practical expedients which allows it to not reassess: i) whether an arrangement contains a lease, ii) operating and capital lease classifications; and iii) previously recorded initial direct costs. The adoption will result in right to use assets and liabilities being recorded on the Company’s balance sheet. The Company is finalizing quantitative information related to the impactNote 4 of the guidance including the incremental borrowing rates for classes of leases. The right of use asset and liability balances recorded will be material to the Company’s financial statements.Condensed Consolidated Financial Statements.
In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”. The standard is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. The Company adopted ASU 2016-09 on January 1, 2017. The guidance requires the recognition of the income tax effects of awards in the income statement when the awards vest or are settled, thus eliminating additional paid-in capital pools. This had no impact on the Company’s historical results. Also as a result of the adoption, the Company changed its policy election to account for forfeitures as they occur rather than on an estimated basis. The change resulted in the Company reclassifying $0.3 million from additional paid-in capital to retained earnings for the net cumulative-effect adjustment in stock compensation expense related to prior periods.
In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments”Payments,” (“ASU 2016-15”), which provides further clarification on eight cash flow
F-21
classification issues. The Company adopted this standard on January 1, 2018. In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash,” (“ASU 2016-18”). The amendments in ASU 2016-18 are intended to reduce diversity in practice related to the classification and presentation of changes in restricted cash or restricted cash equivalents on the statement of cash flows. The amendments in ASU 2016-18 require that amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Company adopted this standard on January 1, 2018.
The Company’s statementF-24
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| Statement of Cash flows |
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| Year ended December 31, 2017 |
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| Year ended December 31, 2016 |
| ||||||||
|
| Reported |
| Change |
| Under previous guidance |
|
| Reported |
| Change |
| Under previous guidance |
|
Net cash provided by operating activities | $ | 145,725 | $ | — | $ | 145,725 |
| $ | 111,656 | $ | — | $ | 111,656 |
|
Net cash used in investing activities |
| (172,318) |
| 5,525 |
| (166,793) |
|
| (296,580) |
| (12,108) |
| (308,688) |
|
Net cash used in financing activities |
| (42,101) |
| 1,178 |
| (40,923) |
|
| 75,334 |
| — |
| 75,334 |
|
Effect of foreign currency exchange rates on total cash |
| 226 |
| — |
| 226 |
|
| (626) |
| — |
| (626) |
|
Net change in total cash | $ | (68,468) | $ | 6,703 | $ | (61,765) |
| $ | (110,216) | $ | (12,108) | $ | (122,324) |
|
Total cash, beginning of period |
| 288,358 |
| (18,637) |
| 269,721 |
|
| 398,574 |
| (6,529) |
| 392,045 |
|
Total cash, end of period | $ | 219,890 | $ | (11,934) | $ | 207,956 |
| $ | 288,358 | $ | (18,637) | $ | 269,721 |
|
In October 2016 the FASB issued ASU 2016-16, “Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory”.Inventory.” The new standard eliminates all intra-entity sales of assets other than inventory, the exception under current standards that permits the tax effects of intra-entity asset transfers to be deferred until the transferred asset is sold to a third party or otherwise recovered through use. As a result, a reporting entity would recognize the tax expense from the sale of the asset in the seller’s tax jurisdiction when the transfer occurs. Any deferred tax asset that arises in the buyer’s jurisdiction would also be recognized at the time of the transfer. The new standard was effective for the Company on January 1, 2018. There was not a material impact to the Company’s Consolidated Financial Statements upon adoption.
In January 2017, the FASB issued Accounting Standards Update 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business,” or ASU 2017-01. The amendments in ASU 2017-01 provide a screen to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. Under ASU 2017-01, an entity first determines whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold is met, the set is not a business and the entity then evaluates whether the set meets the requirement that a business include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. ASU 2017-01 also narrows the definition of outputs by more closely aligning it with how outputs are described in ASC 606. ASU 2017-01 is effective for annual reporting periods, including interim periods within those periods, beginning after December 15, 2017, with early adoption permitted. The Company prospectively adopted ASU 2017-01 in the fourth quarter of 2016. The Company expects that the standard will result in accounting for more transactions as asset acquisitions as opposed to business combination.
F-22
In January 2017, the FASB issued Accounting Standards Update 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” or ASU 2017-04. The amendments in ASU 2017-04 simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities. Instead, under the amendments in ASU 2017-04, an entity performs its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, but not more than the total amount of goodwill allocated to the reporting unit. ASU 2017-04 is effective for annual reporting periods, including interim periods within those periods, beginning after December 15, 2019, with early adoption permitted. The Company adopted this standard in the third quarter of 2017.
In March 2017, the FASB issued ASU 2017-07, “Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”.Cost.” The new guidance requires the service cost component to be presented separately from the other components of net benefit costs. Service cost will be presented with other employee compensation cost within income from operations. The other components of net benefit cost, such as interest cost, expected return on plan assets, amortization of prior service cost and gains or losses are required to be presented in other income. The Company adopted this standard on January 1, 2018.
Prior to January 1, 2018, all components of pension expense were recognized in operating income. The adoption of the standard impacted the Company’s Statement of Operations for year ending December 31, 2017 by increasing operating expenses $0.2 million and increasing other income by the same amount. For the year ending December 31, 2016 the adoption decreased operating expenses by $1.4 million and decreased other income by the same amount. There was no impact on income before income taxes. The Company elected the practical expedient allowing the use of the amounts disclosed for the various components of net benefit cost in the pension and other postretirement benefit plans footnote as the basis for the retrospective application. The Company adopted this standard on January 1, 2018.
In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815) – Targeted Improvements to Accounting for Hedging Activities”Activities,” (“ASU 2017-12”). The standard: (a) expands and refines hedge accounting for both financial and non-financial risk components, (b) aligns the recognition and presentation of the effects of hedging instruments and hedge items in the financial statements, and (c) includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company adopted ASU 2017-12 on January 1, 2019. There was not a material impact to the Company’s Consolidated Financial Statements upon adoption.
In February 2018, the FASB issued ASU 2018-02 “Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” (“ASU 2018-02”). The standard gives entities the option to reclassify to retained earnings tax effects related to items in accumulated other comprehensive income that were impacted by the 2017 Tax Cuts and Jobs Act. The guidance is effective for all entities for fiscal years beginning after December 31, 2018 and interim periods within those fiscal years. Early adoption is permitted. The guidance may be applied in the period of adoption or retrospectively to each impacted period. The Company has elected to early adopt ASU 2018-02adopted this standard on its consolidated financial StatementsJanuary 1, 2018 and applyapplied it to the period of adoption. The impact of the adoption results in a $0.8$0.8 million reclassification from accumulated other comprehensive income to retained earnings, which is offset by an equivalent valuation allowance, theresulting in a net impact isof zero.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles“Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,” (“ASU 2018-15”). This standard requires entities that are customers in cloud computing arrangements to defer implementation costs if they would be capitalized by the entity in software licensing arrangements under the internal-use software guidance. The guidance may be applied retrospectively or prospectively to implementation costs incurred after the date of adoption. ASU 2018-15 is effective for annual and interim reporting periods beginning after December 15, 2019, with early adoption permitted. The Company prospectively adopted this standard in the fourth quarter of 2018. At December 31, 2018,
In June 2016, the Company capitalized $0.6 millionFASB issued ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of implementation costsCredit Losses on Financial Instruments,” (“ASU 2016-13”). ASU 2016-13 requires entities to use a new forward-looking, expected loss model to estimate credit losses. It also requires additional disclosure relating to the credit quality of trade and noneother receivables, including information relating to management’s estimate of that amount was amortized during the quarter.
F-23
3. REVENUE RECOGNITION
credit allowances. The Company adopted ASC 606ASU 2016-13 using the modified retrospective approach on January 1, 2018. The adoption of ASC 606 impacted the accounting for contract acquisition costs, multiyear retail wireless contracts with promotional discounts, and deferral of certain activation fees as further described below. As a result of the adoption, the company established contract asset and liability balances and began capitalizing and subsequently amortizing contract acquisition costs.
Contract Assets and Liabilities
The Company recognizes contract assets and liabilities on its balance sheet. Contract assets represent unbilled amounts typically resulting from retail wireless contracts with both a multiyear service period and a promotional discount. In these contracts the revenue recognized exceeds the amount billed to the customer. The current portion of the contract asset is recorded in prepayments and other current assets and the noncurrent portion is included in other assets on the Company’s balance sheet. Contract liabilities consist of advance payments and billings in excess of revenue recognized. Retail revenue for postpaid customers is generally billed one month in advance and recognized over the period that the corresponding service is rendered to customers. To the extent the service is not provided by the reporting date the amount is recognized as a contract liability. Prepaid service, including mobile voice and data services, sold to customers is recorded as deferred revenue prior to the commencement of services. Contract liabilities are recorded in advanced payments and deposits on its balance sheets. Contract assets and liabilities consisted of the following (amounts in thousands):
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|
| December 31, 2018 |
| January 1, 2018 |
| $ Change |
| % Change |
Contract asset – current | $ | 1,900 | $ | 1,176 | $ | 724 |
| 62% |
Contract asset – noncurrent |
| 802 |
| 453 |
| 349 |
| 77% |
Contract liabilities |
| (13,787) |
| (9,912) |
| (3,875) |
| 39% |
Net contract liability | $ | (11,085) | $ | (8,283) | $ | (2,802) |
| 34% |
The contract asset-current is included in prepayments and other current assets, the contract asset – noncurrent is included in other assets, and the contract liabilities are included in advance payments and deposits on the Company’s balance sheet. The increase in the Company’s net contract liability was due to the timing of customer prepayments and contract billings. During the year ended December 31, 2018, the Company recognized revenue of $8.0 million related to its January 1, 2018 contract liability and amortized $1.8 million of the January 1, 2018 contract asset into revenue. The Company did not recognize any revenue in the year ended December 31, 2018 related to performance obligations that were satisfied or partially satisfied in previous periods. 2020 effective date.
Contract Acquisition Costs
The December 31, 2018 balance sheet includes current contract acquisition costs of $1.4 million in prepayments and other current assets and long term contract acquisition costs of $1.0 million in other assets. During the year ended December 31, 2018 the Company amortized $1.6 million of contract acquisition cost.
Remaining Performance Obligations
Remaining performance obligations represent the transaction price allocated to unsatisfied performance obligations of certain multiyear retail wireless contracts that include a promotional discount. The transaction price allocated to unsatisfied performance obligations was $12.1 million at December 31, 2018. The Company expects to satisfy the remaining performance obligations and recognize the transaction price within 24 months. The Company has certain retail, wholesale, and renewable energy contracts where transaction price is allocated to remaining performance obligations. However, the Company omits these contracts from the disclosure by applying the right to invoice, one year or less, and wholly unsatisfied performance obligation practical expedients.
F-24F-25
3. REVENUE RECOGNITION AND RECEIVABLES
Disaggregation
The Company's revenue is presented on a disaggregated basis in Note 16 based on an evaluation of disclosures outside the financial statements, information regularly reviewed by the chief operating decision maker for evaluating the financial performance of operating segments and other information that is used for performance evaluation and resource allocations. This includes revenue from wireline, wireless and renewable energy, as well as domestic versus international wireline and wireless services. This disaggregation of revenue depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
ImpactsImpact of adoption in the current period
The Company adopted ASC 606 on January 1, 2018 using the modified retrospective method. The Company elected the practical expedient to apply the new guidance only to contracts that were not substantially complete at the adoption date. The cumulative effect of adopting ASC 606 resulted in a contract asset of $1.6 million, of which $1.2 million was recorded in prepayments and other current assets and $0.4 million was recorded in other assets, a contract liability of $0.2 million recorded in advance payments and deposits, contract acquisition costs of $1.5 million of which $0.9 million was recorded in prepayments and other current assets and $0.6 million was recorded in other assets, and a deferred tax liability of $0.3 million with the offset of $1.5 million recorded to retained earnings and $1.1 million recorded to minority interest.
Contract Assets and Liabilities
The tables below identify changesCompany recognizes contract assets and liabilities on its balance sheet. Contract assets represent unbilled amounts typically resulting from retail wireless contracts with both a multiyear service period and a promotional discount. In these contracts the revenue recognized exceeds the amount billed to the customer. The current portion of the contract asset is recorded in prepayments and other current assets and the noncurrent portion is included in other assets on the Company’s balance sheets.
Contract liabilities consist of advance payments and billings in excess of revenue recognized. Retail revenue for postpaid customers is generally billed one month in advance and recognized over the period that the corresponding service is rendered to customers. To the extent the service is not provided by the reporting date the amount is recognized as a contract liability. Prepaid service, including mobile voice and data services, sold to customers is recorded as deferred revenue prior to the commencement of services. Contract liabilities are recorded in advanced payments and deposits on the Company’s balance sheets.
In July 2019 and August 2020, the Company entered into the FirstNet Agreement and a First Amendment to the FirstNet Agreement , respectively, in connection with the FirstNet Transaction. The FirstNet Transaction includes construction and service performance obligations. The Company allocated the transaction price of the FirstNet Agreement to each performance obligation based on the relative standalone selling price of each performance obligation in the contract. The standalone selling price is the estimated price the Company would charge for the good or service in a separate transaction with similar customers in similar circumstances.
The Company has certain wholesale roaming agreements that contain stand ready performance obligations and management allocates transaction value to performance obligations based on the standalone selling price. The standalone selling price is the estimated price the Company would charge for the good or service with similar customers in similar circumstances. Management determined the performance obligations were obligations to make the service continuously available and will recognize revenue evenly over the service period.
Contract assets and liabilities consisted of the following (amounts in thousands):
| | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 | | | $ Change | | % Change | |||
Contract asset – current | $ | 2,478 | | $ | 2,413 | | $ | 65 | | 3 | % |
Contract asset – noncurrent | | 910 | | | 905 | | | 5 | | 1 | % |
Contract liability – current | | (18,544) | | | (15,044) | | | (3,500) | | (23) | % |
Contract liability – noncurrent | | (2,193) | | | (5,450) | | | 3,257 | | 60 | % |
Net contract liability | $ | (17,349) | | $ | (17,176) | | $ | (173) | | (1) | % |
The contract asset-current is included in prepayments and other current assets, the contract asset-noncurrent is included in other assets, the contract liability-current is included in advance payments and deposits, and the contract liability-noncurrent is included in other liabilities on the Company’s balance sheet. The increase in the Company’s net
F-26
contract liability was due to the timing of customer prepayments and contract billings, and the FirstNet Transaction. During the year ended December 31, 2020, the Company recognized revenue of $16.9 million related to its December 31, 2019 contract liability and amortized $2.3 million of the December 31, 2019 contract asset into revenue. The Company did 0t recognize any revenue in the years ended December 31, 2020 and 2019 related to performance obligations that were satisfied or partially satisfied in previous periods.
Contract Acquisition Costs
The December 31, 2020 balance sheet includes current contract acquisition costs of $1.9 million in prepayments and other current assets and long term contract acquisition costs of $1.2 million in other assets. The December 31, 2019 balance sheet includes current contract acquisition costs of $1.7 million in prepayments and other current assets and long term contract acquisition costs of $1.1 million in other assets. During the years ended December 31, 2020 and 2019 the Company amortized $2.1 million and $1.8 million, respectively, of contract acquisition cost.
Remaining Performance Obligations
Remaining performance obligations represent the transaction price allocated to unsatisfied performance obligations of certain multiyear retail wireless contracts, which include a promotional discount, and the Company’s construction and service contracts. The transaction price allocated to unsatisfied performance obligations was $299 million and $241 million at December 31, 2020 and December 31, 2019, respectively. The Company expects to satisfy the majority of the remaining performance obligations and recognize the transaction price within 24 months and the remainder thereafter.
The Company has certain retail, wholesale, and renewable energy contracts where transaction price is allocated to remaining performance obligations. However, the Company omits these contracts from the disclosure by applying the right to invoice, one year or less, and wholly unsatisfied performance obligation practical expedients.
Disaggregation
The Company's revenue is presented on a disaggregated basis in Note 15 based on an evaluation of disclosures outside the financial statements, information regularly reviewed by the chief operating decision maker for evaluating the financial performance of operating segments and other information that is used for performance evaluation and resource allocations. This includes revenue from Communication Services and Other revenues. Communication Services is further disaggregated into Mobility, Fixed, Carrier Services, and Other revenue. Other revenue is further disaggregated into Renewable Energy, Managed Services, and Construction revenue. Each of the revenue streams is presented for the Company’s International Telecom and US Telecom segments. This disaggregation of revenue depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
F-27
Receivables
At December 31, 2020, the Company had gross accounts receivable of $67.1 million of which $57.5 million was recorded in accounts receivable and $9.6 million was long-term recorded in other assets on the Company’s balance sheet. The Company recorded an allowance for credit loss of $12.1 million. At January 1, 2020, the Company had gross accounts receivable of $48.6 million and an allowance for credit losses of $12.7 million. The Company monitors receivables through the use of historical operating data adjusted for expectation of future performance as appropriate. Activity in the allowance for credit losses is below:
| | | |
|
| Year ended December 31, 2020 | |
| | | |
Balance at January 1, 2020 |
| $ | 12,724 |
Current period provision for expected losses |
| | 5,010 |
Write-offs charged against the allowance |
| | (6,351) |
Recoveries collected | | | 738 |
Balance at December 31, 2020 | | $ | 12,121 |
| | | | | | | |
|
| 2020 |
| 2019 |
| ||
Retail | | $ | 22,178 | | $ | 13,659 | |
Wholesale - current | | | 35,322 | |
| 34,969 | |
Wholesale - long- term | |
| 9,614 | |
| — | |
Accounts receivable | |
| 67,114 | |
| 48,628 | |
Less: allowance for doubtful accounts | |
| (12,121) | |
| (12,724) | |
Total accounts receivable, net | | $ | 54,993 | | $ | 35,904 | |
4. LEASES
Impact of Adoption
The Company adopted ASC 842 on January 1, 2019, utilizing the optional transition method with a cumulative adjustment on the date of adoption. Under this approach, the guidance was applied to leases that had commenced as of January 1, 2019 with a cumulative effect adjustment as of that date and prior periods were not adjusted. Upon adoption, the Company recognized an operating lease ROU asset of $70.8 million, a short-term lease liability of $8.2 million, and a long-term lease liability of $61.2 million. The adoption had 0 impact on retained earnings or other components of equity.
The Company elected the package of practical expedients. Under the package of practical expedients, for existing leases, the Company does not reassess: i) whether the arrangement contains a lease; ii) lease classification and; iii) initial direct costs.
The Company has operating and financing leases for towers, land, corporate offices, retail facilities, and data transport capacity. The leaseterms are generally between 3 and 10 years, some of which include additional renewal options.
F-28
Supplemental lease information
The components of lease expense were as follows (in thousands):
| | | | | | |
| | | | | | |
| December 31, 2020 | | December 31, 2019 | | ||
Operating lease cost: | | | | | | |
Operating lease cost | $ | 16,409 | | $ | 15,194 | |
Short-term lease cost | | 2,712 | | | 3,426 | |
Variable lease cost | | 4,059 | | | 2,803 | |
Total operating lease cost | $ | 23,180 | | $ | 21,423 | |
| | | | | | |
Finance lease cost: | | | | | | |
Amortization of right-of-use asset | $ | 2,181 | | $ | 2,318 | |
Variable costs | | 852 | | | 964 | |
Total finance lease cost | $ | 3,033 | | $ | 3,282 | |
During the year ended December 31, 2020 and December 31, 2019, the Company paid $16.1 million and $15.1 million, respectively, related to operating lease liabilities. Also during the year ended December 31, 2020 and December 31, 2019, the Company recorded $7.8 million and $9.7 million, respectively, of lease liabilities arising from ROU assets.
At December 31, 2020, finance leases with a cost of $25.4 million and accumulated amortization of $9.5 million were included in property, plant and equipment. During the year ended December 31, 2020, the Company paid $0.4 million for finance lease liabilities and recorded $1.6 million of additional finance lease liabilities. At December 31, 2020, finance leases had a lease liability of $1.2 million, of which $0.3 million was current. At December 31, 2019, finance leases with a cost of $25.9 million and accumulated amortization of $9.4 million were included in property, plant and equipment.
F-29
The weighted average remaining lease terms and discount rates as of December 31, 20182020 and forDecember 31, 2019 are noted in the year then endedtable below:
| | | | | |
| December 31, 2020 | | December 31, 2019 | ||
Weighted-average remaining lease term | | | | | |
Operating leases | | 5.9 years | | | 6.5 years |
Financing leases | | 10.9 years | | | 11.7 years |
| | | | | |
Weighted-average discount rate | | | | | |
Operating leases | | 5.0% | | | 5.0% |
Financing leases | | 3.3% | | | n/a |
Maturities of lease liabilities as a result of the adoption of ASC 606December 31, 2020 were as compared to previous revenue guidance (amounts infollows (in thousands):
|
|
|
|
|
|
|
Balance Sheet - December 31, 2018 | ||||||
|
| Reported |
| Change |
| Under previous guidance |
Prepayments and other current assets | $ | 37,855 | $ | (3,319) | $ | 34,536 |
|
|
|
|
|
|
|
Total current assets |
| 275,765 |
| (3,319) |
| 272,446 |
|
|
|
|
|
|
|
Other assets |
| 37,708 |
| (1,785) |
| 35,923 |
|
|
|
|
|
|
|
Total assets |
| 1,107,304 |
| (5,104) |
| 1,102,200 |
|
|
|
|
|
|
|
Advance payments and deposits |
| 20,574 |
| (337) |
| 20,237 |
Accrued taxes |
| 31,795 |
| (131) |
| 31,664 |
|
|
|
|
|
|
|
Total current liabilities |
| 140,650 |
| (468) |
| 140,182 |
|
|
|
|
|
|
|
Deferred income taxes |
| 10,276 |
| (302) |
| 9,974 |
|
|
|
|
|
|
|
Total liabilities |
| 283,980 |
| (770) |
| 283,210 |
|
|
|
|
|
|
|
Retained earnings |
| 563,593 |
| (2,481) |
| 561,112 |
Minority interest |
| 127,937 |
| (1,853) |
| 126,084 |
|
|
|
|
|
|
|
Total equity |
| 823,324 |
| (4,334) |
| 818,990 |
|
|
|
|
|
|
|
Total liabilities and equity | $ | 1,107,304 | $ | (5,104) | $ | 1,102,200 |
| | |
| Operating Leases | |
2021 | $ | 15,211 |
2022 | | 14,535 |
2023 | | 12,132 |
2024 | | 10,844 |
2025 | | 7,816 |
Thereafter | | 13,094 |
Total lease payments | | 73,632 |
Less imputed interest | | (10,179) |
Total | $ | 63,453 |
F-25
|
|
|
|
|
|
|
|
|
| Statement of Operations |
| ||||
|
|
|
|
|
|
|
|
|
| Year ended December 31, 2018 |
| ||||
|
|
|
|
|
|
|
|
|
| Reported |
| Change |
| Under previous guidance |
|
Wireless revenue | $ | 198,824 | $ | (1,075) | $ | 197,749 |
|
|
|
|
|
|
|
|
|
Total revenue |
| 451,207 |
| (1,075) |
| 450,132 |
|
|
|
|
|
|
|
|
|
Sales, marketing and customer service |
| 35,207 |
| 755 |
| 35,962 |
|
|
|
|
|
|
|
|
|
Total operating expenses |
| 390,184 |
| 755 |
| 390,939 |
|
|
|
|
|
|
|
|
|
Income from operations |
| 61,023 |
| (1,830) |
| 59,193 |
|
Income before taxes |
| 53,742 |
| (1,830) |
| 51,912 |
|
Income tax provision |
| 18,870 |
| (131) |
| 18,739 |
|
|
|
|
|
|
|
|
|
Net income |
| 34,872 |
| (1,699) |
| 33,173 |
|
Net income attributable to non-controlling interests |
| (15,057) |
| 706 |
| (14,351) |
|
Net income attributable to ATN International, Inc. stockholders | $ | 19,815 | $ | (993) | $ | 18,822 |
|
|
|
|
|
|
|
|
|
|
| Statement of Comprehensive Loss |
| ||||
|
|
|
|
|
|
|
|
|
| Year ended December 31, 2018 |
| ||||
|
|
|
|
|
|
|
|
|
| Reported |
| Change |
| Under previous guidance |
|
Net income | $ | 34,872 | $ | (1,699) | $ | 33,173 |
|
Other comprehensive loss, net of tax |
| (5,152) |
| — |
| (5,152) |
|
Comprehensive loss |
| 29,720 |
| (1,699) |
| 28,021 |
|
Less: Comprehensive income attributable to non-controlling interests |
| (15,057) |
| 706 |
| (14,351) |
|
Comprehensive income (loss) attributable to ATN International, Inc. | $ | 14,663 | $ | (993) | $ | 13,670 |
|
|
|
|
|
|
|
|
Statement of Cash Flows - Year ended December 31, 2018 | ||||||
|
|
|
|
|
|
|
|
| Reported |
| Change (1) |
| Under previous guidance |
Net income | $ | 34,872 | $ | (1,699) | $ | 33,173 |
|
|
|
|
|
|
|
Materials and supplies, prepayments and other current assets | $ | 5,924 | $ | 1,243 | $ | 7,167 |
Accrued taxes |
| 29,089 |
| (131) |
| 28,958 |
Accounts payable and accrued liabilities, advance payments and deposits and other current liabilities |
| (7,044) |
| (107) |
| (7,151) |
Other assets | $ | (238) | $ | 694 | $ | 456 |
|
|
lease liabilities as of December 31, 2019 were as follows (in thousands):
4.
| | |
| Operating Leases | |
2020 | $ | 14,526 |
2021 | | 13,714 |
2022 | | 12,787 |
2023 | | 10,713 |
2024 | | 9,671 |
Thereafter | | 18,355 |
Total lease payments | | 79,766 |
Less imputed interest | | (12,195) |
Total | $ | 67,571 |
As of December 31, 2020, the Company did not have any material operating or finance leases that have not yet commenced.
5. IMPACT OF HURRICANES IRMA AND MARIA
During September 2017, the US Virgin Islands economy, the Company’s customer base and its operations in the U.S. Virgin Islands were severely impacted by the Hurricanes Irma and Maria.Hurricanes. The Company’s wireless and wireline networks as well as itsand commercial operations were all severely damaged by these storms. Asstorms and as a result of the significant damage to the wireline network and the lack of consistent commercial power in the territory, the Company was unable to provide most of its wireline services, which comprise the majority of its revenue in this business, subsequent to the Hurricanesfrom mid-September 2017 and through a majoritymost of 2018.
F-26F-30
During the year ended December 31, 2017, the Company recorded a net pre-tax loss within the Company’s consolidated statement of operations of $4.0 million related to the impact of the Hurricanes. This loss consisted of $35.4 million for the write off of damaged assets, net of insurance recoveries of $34.6 million which were received in February 2018. This loss also included $3.2 million of additional operating expenses that were specifically incurred to address the impact of the Hurricanes.
During the year ended December 31, 2018, the Company received $15.5 million in one-time additional funding from the Federal Communications Commission’s (“FCC”) Universal Service Fund (“USF”) to further subsidize its operations in the U.S.US Virgin Islands thatIslands. This amount was recorded as revenue. This level of additional funding is not expected to continue in future periods. revenue during the year ended December 31, 2018.
During the years ended December 31, 20172019 and 2018, the Company spent $8.6$0.1 million and $80.2 million, respectively, for network restoration and resiliency enhancements whichthat allowed the reconnection of a significant majority of affected US Virgin Islands households and businesses. The Company believes that the wireline network restoration work is substantially complete, however, returning the Company’s revenue to pre-Hurricane levels may take significant time as a result
6. DISPOSITIONS AND PLATFORM INVESTMENTS
Renewable Energy
Disposition of population movements, the economic impact the Hurricanes had on the market, and the Company’s subscriber base’s appetite for continued wireline services.US Solar Business
5. ACQUISITIONS AND DISPOSITIONS
International Telecom
Acquisitions
One Communications (formerly KeyTech Limited)
On May 3, 2016, the Company completed its acquisition of a controlling interest in One Communications Ltd. (formerly known as KeyTech Limited, “One Communications”), a publicly held Bermuda company listed on the Bermuda Stock Exchange (“BSX”) that provides broadband and video services and other telecommunications services to residential and enterprise customers in Bermuda and the Cayman Islands (the “One Communications Acquisition”). Subsequent to the completion of the Company’s acquisition, One Communications changed its legal name from KeyTech Limited and changed its “CellOne” and “Logic” trade names in Bermuda to “One Communications”. Prior to the Company’s acquisition, One Communications also owned a minority interest of approximately 43% in the Company’s previously held and consolidated subsidiary, Bermuda Digital Communications Ltd. (“BDC”), that provides wireless services in Bermuda. As part of the transaction, the Company contributed its ownership interest of approximately 43% in BDC and approximately $42 million in cash in exchange for a 51% ownership interest in One Communications. As part of the transaction, BDC was merged with and into a company within the One Communications group. The approximate 15% interest in BDC held in the aggregate by BDC’s minority shareholders was converted into the right to receive common shares in One Communications. Following the transaction, BDC became wholly-owned by One Communications, and One Communications continues to be listed on the BSX. A portion of the cash proceeds that One Communications received upon closing was used to fund a one-time special dividend to One Communications’ existing shareholders and to retire One Communications’ subordinated debt. On May 3, 2016, the Company began consolidating the results of One Communications within its financial statements in its International Telecom segment.
The One Communications Acquisition was accounted for as a business combination of a controlling interest in One Communications in accordance with ASC 805, Business Combinations, and the acquisition of an incremental ownership interest in BDC in accordance with ASC 810, Consolidation. The total purchase consideration of $41.6
F-27
million of cash was allocated to the assets acquired and liabilities assumed at their estimated fair values as of the date of the acquisition.
|
|
|
|
Consideration Transferred |
|
|
|
Cash consideration - One Communications | $ | 34,518 |
|
Cash consideration - BDC |
| 7,045 |
|
Total consideration transferred |
| 41,563 |
|
Non-controlling interests - One Communications |
| 32,909 |
|
Total value to allocate | $ | 74,472 |
|
Value to allocate - One Communications | $ | 67,427 |
|
Value to allocate - BDC |
| 7,045 |
|
|
|
|
|
Purchase price allocation One Communications: |
|
|
|
Cash |
| 8,185 |
|
Accounts receivable |
| 6,451 |
|
Other current assets |
| 3,241 |
|
Property, plant and equipment |
| 100,892 |
|
Identifiable intangible assets |
| 10,590 |
|
Other long term assets |
| 3,464 |
|
Accounts payable and accrued liabilities |
| (16,051) |
|
Advance payments and deposits |
| (6,683) |
|
Current debt |
| (6,429) |
|
Long term debt |
| (28,929) |
|
Net assets acquired |
| 74,731 |
|
|
|
|
|
Gain on One Communications bargain purchase | $ | 7,304 |
|
|
|
|
|
Purchase price allocation BDC: |
|
|
|
Carrying value of BDC non-controlling interest acquired |
| 2,940 |
|
|
|
|
|
Excess of purchase price paid over carrying value of non-controlling interest acquired | $ | 4,105 |
|
The acquired property, plant and equipment is comprised of telecommunication equipment located in Bermuda and the Cayman Islands. The property, plant and equipment was valued using the income and cost approaches. Cash flows were discounted at an approximate 15% rate to determine fair value under the income approach. The property, plant and equipment have useful lives ranging from 3 to 18 years and the customer relationships acquired have useful lives ranging from 9 to 12 years. The fair value of the non-controlling interest was determined using the income approach and a discount rate of approximately 15%. The acquired receivables consist of trade receivables incurred in the ordinary course of business. The Company has subsequently collected the full amount of the receivables.
The purchase price and resulting bargain purchase gain are the result of the market conditions and competitive environment in which One Communications operates along with the Company's strategic position and resources in those same markets. Each of the Company and One Communications realized that their combined resources could better serve customers in Bermuda. The bargain purchase gain is included in operating income for the year ended December 31, 2016.
The Company’s income statement for the year ended December 31, 2016 includes $55.5 million of revenue and $2.8 million of income before taxes attributable to the One Communications Acquisition. The Company incurred $4.3 million of transaction related charges pertaining to legal, accounting and consulting services associated with the
F-28
transaction, of which $3.4 million was incurred during the year ended December 31, 2016 and $0.9 million was incurred during the year ended December 31, 2015.
Viya (formerly Innovative) Transaction
On July 1, 2016, the Company completed its acquisition of all of the membership interests of Caribbean Asset Holdings LLC (“CAH”), the holding company for the group of companies operating video services, Internet, wireless and landline services in the U.S. Virgin Islands, British Virgin Islands and St. Maarten (collectively, “Viya”), from the National Rural Utilities Cooperative Finance Corporation (“CFC”). In April 2017, the U.S. Virgin Islands operations and the Company’s existing wireless operations rebranded their tradenames from “Innovative” and “Choice”, respectively, to “Viya.” The Company acquired the Viya operations for a contractual purchase price of $145.0 million, reduced by purchase price adjustments of $5.3 million (the “Viya Transaction”). In connection with the transaction, the Company financed $60.0 million of the purchase price with a loan from an affiliate of CFC, the Rural Telephone Finance Cooperative (“RTFC”) on the terms and conditions of a Loan Agreement by and among RTFC, CAH and ATN VI Holdings, LLC, the parent entity of CAH and a wholly-owned subsidiary of the Company. The Company funded the remaining purchase price with (i) $51.9 million in cash paid to CFC, (ii) $22.5 million in additional cash paid directly to fund Viya’ s pension in the fourth quarter of 2016, and (iii) $5.3 million to satisfy Viya’ s other postretirement benefit plan liability. On July 1, 2016, the Company began consolidating the results of Viya within its financial statements in its International Telecom segment. Subsequent to the Viya Transaction, the Company sold the acquired businesses in St. Maarten and the British Virgin Islands, as further described in “Dispositions” below.
The Viya Transaction was accounted as a business combination in accordance with ASC 805. The consideration transferred to CFC of $111.9 million, and used for the purchase price allocation, differed from the contractual purchase price of $145.0 million due to certain GAAP purchase price adjustments including a reduction of $5.3 million related to working capital adjustments and the Company assuming pension and other postretirement benefit liabilities of $27.8 million as discussed above. The Company transferred $51.9 million in cash and $60.0 million in loan proceeds to CFC for total consideration of $111.9 million that was allocated to the assets acquired and liabilities assumed at their estimated fair values as of the date of the acquisition. The table below represents the allocation of the consideration transferred to the net assets of Viya based on their acquisition date fair values:
|
|
|
|
Consideration Transferred | $ | 111,860 |
|
Non-controlling interests |
| 221 |
|
Total value to allocate |
| 112,081 |
|
Purchase price allocation: |
|
|
|
Cash |
| 4,229 |
|
Accounts receivable |
| 6,553 |
|
Materials & supplies |
| 6,533 |
|
Other current assets |
| 1,927 |
|
Property, plant and equipment |
| 108,284 |
|
Telecommunication licenses |
| 7,623 |
|
Goodwill |
| 20,586 |
|
Intangible assets |
| 7,800 |
|
Other assets |
| 4,394 |
|
Accounts payable and accrued liabilities |
| (15,971) |
|
Advance payments and deposits |
| (7,793) |
|
Deferred tax liability |
| (2,935) |
|
Pension and other postretirement benefit liabilities |
| (29,149) |
|
Net assets acquired | $ | 112,081 |
|
The acquired property, plant and equipment is comprised of telecommunication equipment located in the U.S Virgin Islands, British Virgin Islands and St. Maarten (subsequently disposed, see below). The property, plant and
F-29
equipment was valued using the income and cost approaches. Cash flows were discounted between 14% and 25% based on the risk associated with the cash flows to determine fair value under the income approach. The property, plant and equipment have useful lives ranging from 1 to 18 years and the customer relationships acquired have useful lives ranging from 7 to 13 years. The fair value of the non-controlling interest was determined using the income approach with discount rates ranging from 15% to 25%. The acquired receivables consist of trade receivables incurred in the ordinary course of business. The Company has collected full amount of the receivables. The Company recorded a liability equal to the funded status of the plans in its purchase price allocation. Discount rates between 3.6% and 3.9% were used to determine the pension and postretirement benefit obligations.
The goodwill generated from the Viya Transaction is primarily related to value placed on the acquired employee workforces, service offerings, and capabilities of the acquired businesses as well as expected synergies from future combined operations. The goodwill is not deductible for income tax purposes.
The Company’s income statement for the year ended December 31, 2016 includes $53.0 million of revenue and $1.5 million of income before taxes attributable to the Viya Acquisition. The Company incurred $4.1 million of transaction related charges pertaining to legal, accounting and consulting services associated with the transaction, of which $2.2 million was incurred during the year ended December 31, 2016 and $1.9 million was incurred during the year ended December 31, 2015.
Disposition
On August 18, 2017, the Company completed the sale of the Viya cable operations located in the British Virgin Islands. The company did not recognize a gain or loss on the transaction.
On January 3, 2017, the Company completed the sale of the Viya cable operations located in St. Maarten for $4.8 million and recognized a gain of $0.1 million on the transaction.
On December 15, 2016, the Company transferred control of its subsidiary in Aruba to another stockholder in a nonreciprocal transfer. Subsequent to that date, it no longer consolidated the results of the operations of the Aruba business. The Company did not recognize a gain or loss on the transaction.
The results of the British Virgin Islands, St. Maarten, and Aruba operations are not material to the Company’s historical results of operations. Since the dispositions do not relate to a strategic shift in its operations, the historical results and financial position of the operations are presented within continuing operations.
U.S. Telecom
Acquisition
In July 2016, the Company acquired certain telecommunications fixed assets and the associated operations located in the western United States. The acquisition qualified as a business combination for accounting purposes. The Company transferred $9.1 million of cash consideration in the acquisition. The consideration transferred was allocated to $10.2 million of acquired fixed assets, $3.5 million of deferred tax liabilities, and $0.7 million to other net liabilities, and the resulting $3.1 million in goodwill which is not deductible for income tax purposes. Results of operations for the business are included in the U.S. Telecom segment and are not material to the Company’s historical results of operations.
Disposition
On March 8, 2017, the Company completed the sale of its integrated voice and data communications and wholesale transport businesses in New England and New York for consideration of $25.9 million (the “Sovernet Transaction”). The consideration included $2.0 million of contingent consideration which represented the fair value of payments related to certain operational milestones of the disposed assets. The value of the contingent consideration was
F-30
up to $4.0 million based on whether or not the operational milestones are achieved by December 31, 2017. The table below identifies the assets and liabilities transferred (amounts in thousands):
|
|
|
|
Consideration Received | $ | 25,926 |
|
Assets and liabilities disposed |
|
|
|
Cash |
| 1,821 |
|
Accounts receivable |
| 1,696 |
|
Inventory |
| 639 |
|
Prepayments and other current assets |
| 1,034 |
|
Property, plant and equipment |
| 25,294 |
|
Other assets |
| 288 |
|
Accounts payable and accrued liabilities |
| (1,718) |
|
Advance payments and deposits |
| (1,897) |
|
Net assets disposed |
| 27,157 |
|
|
|
|
|
Consideration less net assets disposed |
| (1,231) |
|
|
|
|
|
Transaction costs |
| (1,156) |
|
|
|
|
|
Loss | $ | (2,387) |
|
Prior to the closing of the transaction, the Company repurchased non-controlling interests from minority shareholders in a Sovernet subsidiary for $0.7 million. The non-controlling interest had a book value of zero. Additionally, the Company recorded a loss on deconsolidation of $0.5 million.
The Company incurred $1.2 million of transaction related charges pertaining to legal, accounting and consulting services associated with the transaction, of which $0.6 million were incurred during the year ended December 31, 2017 and $0.6 million were incurred during the year ended December 31, 2016. Since the Sovernet disposition does not relate to a strategic shift in its operations, the historic results and financial position of the operations are presented within continuing operations.
Subsequent to close of the Sovernet Transaction, management continually monitored and assessed the probability of earning the contingent consideration. In September 2017, based on progress toward achieving the operational milestones, and the December 31, 2017 deadline under which to do so, management determined that earning the contingent consideration was unlikely. As a result, the fair value of the contingent consideration was reduced to zero. The amount was recorded as a loss on disposition of assets within operating income during the year ended December 31, 2017. The disposed assets did not achieve the operational milestones by the December 31 deadline.
Prior to the Sovernet Transaction, in the second quarter of 2016, the Company recorded an impairment loss of $11.1 million on assets related to Sovernet. The impairment consisted of a $3.6 million impairment of property, plant and equipment and $7.5 million impairment of goodwill.
Renewable Energy
Acquisition
On April 7, 2016, the Company completed its acquisition of a solar power development portfolio in India (the “Vibrant Energy Acquisition”). The business operates under the name Vibrant Energy. The projects to be developed initially are located in the states of Andhra Pradesh and Telangana and are based on a commercial and industrial business model, similar to the Company’s existing renewable energy operations in the United States. As of April 7, 2016, the
F-31
Company began consolidating the results of Vibrant Energy in its financial statements within its Renewable Energy segment.
The Vibrant Energy Acquisition was accounted for as a business combination in accordance with ASC 805. The total purchase consideration of $6.2 million was allocated to the assets acquired and liabilities assumed at their estimated fair values as of the date of the acquisition. The table below represents the allocation of the consideration transferred to the net assets of Vibrant Energy based on their acquisition date fair values (in thousands):
|
|
|
Consideration Transferred | $ | 6,193 |
Purchase price allocation: |
|
|
Cash |
| 136 |
Prepayments and other assets |
| 636 |
Property, plant and equipment |
| 7,321 |
Goodwill |
| 3,279 |
Accounts payable and accrued liabilities |
| (5,179) |
Net assets acquired | $ | 6,193 |
The consideration transferred included $3.5 million paid at close of the transaction and $2.7 million of contingent consideration payable subsequent to that time, which was contingent upon the passage of time and achievement of production milestones that were considered probable. As of December 31, 2018, $1.4 million of the contingent consideration was paid, $0.2 million remains payable, and $1.1 million was not paid as the operational milestones were not achieved. The acquired property, plant and equipment is comprised of solar equipment and the accounts payable and accrued liabilities consists mainly of amounts payable for certain asset purchases. The fair value of the property, plant, and equipment was based on recent acquisition costs for the assets, given their recent purchase dates from third parties. The goodwill is not deductible for income tax purposes and primarily relates to the assembled workforce of the business acquired.
The Company incurred $11.4 million of transaction related charges pertaining to legal, accounting and consulting services associated with the transaction, of which $10.1 million was incurred during the year ended December 31, 2016 and $1.3 million was incurred during the year ended December 31, 2015.
Disposition
On November 6, 2018, the Company completed the sale of its U.S.US solar business that ownsowned and managesmanaged distributed generation solar power projects operated under the Ahana name in Massachusetts, California and New Jersey (the “U.S.“US Solar Operations”) to CleanCapital Holdco 4, LLC. The transaction hashad a total value of approximately $122.6 million, which includes a cash purchase price of $65.3 million and the assumption of approximately $57.3 $57.3million in debt and is subject to certain other post-closing adjustments (the “U.S.“US Solar Transaction”). The Company is finalizing working capital adjustments. Approximately $6.5$6.5 million of the purchase price will bewas held in escrow for a period of
F-32
twelve months after the closing to secure certain indemnification obligations. The Company received the Company’s indemnification obligation.escrow in November 2019. The table below identifies the assets and liabilities transferred (amounts in thousands):
|
|
|
| |||
| | | | |||
Consideration Received | $ | 65,286 |
| $ | 65,286 | |
Assets and liabilities disposed |
|
|
| | | |
Cash |
| 3,049 |
| | 3,049 | |
Accounts receivable |
| 1,248 |
| | 1,248 | |
Prepayments and other current assets |
| 801 |
| | 801 | |
Property, plant and equipment |
| 94,678 |
| | 94,678 | |
Restricted cash |
| 8,407 |
| | 8,407 | |
Other assets |
| 38 |
| | 38 | |
Current portion of long-term debt |
| (6,992) |
| | (6,992) | |
Accounts payable and accrued liabilities |
| (938) |
| | (938) | |
Accrued taxes |
| 586 |
| | 586 | |
Long-term debt, excluding current portion |
| (48,038) |
| | (48,038) | |
Net assets disposed |
| 52,839 |
| | 52,839 | |
|
|
|
| |||
| | | | |||
Consideration less net assets disposed |
| 12,447 |
| | 12,447 | |
|
|
|
| |||
| | | | |||
Transaction costs |
| (2,133) |
| | (2,133) | |
|
|
|
| |||
| | | | |||
Gain | $ | 10,314 |
| $ | 10,314 | |
The Company allocated $1.1 million of the gain to non-controlling interests within the consolidated income statement. During the year ended December 31, 2018, the Company incurred $2.1$2.1 million of transaction related charges pertaining to legal, accounting and consulting services associated with the transaction. The U.S.US Solar Operations dodid not qualify as a discontinued operation because the disposition doesdid not represent a strategic shift that hashad a major effect on the Company’s operations and financial results. As a result, the historical results are included in continuing operations.
Pro forma Results
F-31
Disposition of International Solar Business
The following table reflects unaudited pro forma operating resultsOn November 19, 2020, the Company entered into a Sale and Purchase Agreement (the “Vibrant Sale Agreement”) pursuant to which the Company, through its subsidiaries, has agreed to sell 67% of the outstanding equity interests of Vibrant Energy Holdings Pte. Ltd. (“Vibrant”) for consideration of approximately $21 million at closing and the potential for up to $6.3 million of additional “earn out” consideration upon the satisfaction of certain conditions (the “Vibrant Transaction”). The Company will retain a 33% ownership interest in Vibrant. The Vibrant Sale Agreement contains representations, warranties and covenants of the parties that are customary for the years endedtransactions of this type. The Company reported Vibrant’s $34.7 million of assets and $0.7 million of liabilities as held for sale in its December 31, 2016 and December 31, 2015 as if the One Communications and Viya Transactions occurred on January 1, 2015. Other acquisitions are not included in the pro forma amounts since the results are immaterial.2020 balance sheet. The pro forma amounts adjust One Communications’ and Viya’s results to reflect the depreciation and amortization that would have been recorded assuming the fair value adjustments toassets held for sale include $30.2 million of property, plant and equipment, and intangible assets had been applied from January 1, 2015. Also, the pro forma results were adjusted to reflect changes to the acquired entities’ capital structure related to the transaction. One Communications’ results reflect the retirement of $24.7$3.8 million of debt. Viya’s results reflect the retirement of $185.8current assets, and $0.7 million of debt and the addition of $60other assets. The liabilities held for sale includes $0.7 million of purchase price debt. Finally,current liabilities. The Company reported a loss of $21.5 million on the Company’s results were adjusted to reflect the Company’s incremental ownership in BDC.
F-33
The pro forma resultsheld for sale transaction during the year ended December 31, 2016 include $5.4 million2020.
In January 2021, the Company completed the sale of impairment charges recorded by One Communications and Viya prior to the Company’s acquisition67% of the businessesoutstanding equity in its business that owns and were recorded prior to ATN’s acquisition ofoperates distributed generation solar power projects operated under the entities.Vibrant name in India. The pro forma results for the year ended December 31, 2015 include $168.7 million of impairment charges, $85.6 million recorded by One Communications and $83.1 million recorded by Viya. Both the 2016 and 2015 impairment charges were recorded prior to ATN’s acquisition of the entities. Amounts are presented in thousands, except per share data.
|
|
|
|
|
|
|
|
|
|
| Year ended December 31, | ||||||
(unaudited) |
| 2016 |
| 2015 | ||||
|
| As |
| Pro- |
| As |
| Pro- |
|
| Reported |
| Forma |
| Reported |
| Forma |
Revenue | $ | 457,003 | $ | 535,628 | $ | 355,369 | $ | 546,589 |
Net income (loss) attributable to ATN International, Inc. Stockholders |
| 12,101 |
| 14,660 |
| 16,940 |
| (97,102) |
Earnings per share: |
|
|
|
|
|
|
|
|
Basic |
| 0.75 |
| 0.91 |
| 1.06 |
| (6.06) |
Diluted |
| 0.75 |
| 0.90 |
| 1.05 |
| (6.02) |
The unaudited pro forma data is presented for illustrative purposes only and is not necessarily indicative of the operating resulted that would have occurred if the acquisitions had been consummated on these dates or of future operatingpost-sale results of the combinedCompany’s ownership interest in Vibrant will be recorded through the equity method of accounting within the Corporate and Other operating segment. As such, the Company’s consolidated financial statements will not include revenue and operating expenses from Vibrant, but instead, “other income (expense)” within the Corporate and Other operating segment will include its 33% share of Vibrant’s profits or losses. The Company will continue to present the historical results of its Renewable Energy segment for comparative purposes.
The Vibrant Transaction does not qualify as discontinued operations because the dispositions was not a strategic shift which will have a major effect on the Company’s operations, the historical results and financial position of the operations are presented within continuing operations.
US Telecom
Platform Investments
During the second quarter of 2018, the Company invested in a new platform, based inthe United States, to develop private network technology to service enterprise customers, municipalities, and other service providers. Also during the second quarter of 2018, the Company provided funding for another new platform, based in the United States, seeking to “build to suit” large scale fiber networks to serve the telecommunications and content provider industries in need of lower latency long haul fiber transit services.
On December 31, 2020, the Company announced that it entered into an Agreement and Plan of Merger (the “Alaska Merger Agreement”) with Freedom 3 Capital, LLC (“Freedom3”) to acquire all of the shares of Alaska Communications Systems Group, Inc. (“Alaska Communications”), a publicly listed company following this transaction. (Nasdaq:ALSK) for approximately $340 million, including the assumption of debt (the “Alaska Transaction”). Following the closing of the Alaska Transaction, the Company will, through its subsidiaries, own and control approximately 51% of Alaska Communications and Freedom3, through its affiliates, will own the remaining 49%. In February 2021, the required waiting period under the Hart Scott Rodino Antitrust Improvements Act of 1976 expired, however the Alaska Transaction remains subject to customary closing terms and conditions including (i) the approval of Alaska Communications’ stockholders, (ii) the absence of certain legal impediments, and (iii) obtaining the necessary consents from the Federal Communications Commissions and the Regulatory Commission of Alaska.
F-32
6. ACCOUNTS RECEIVABLE:Table of Contents
7. FIXED ASSETS:
As of December 31, 20182020 and 2017, accounts receivable consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
| 2018 |
| 2017 |
| ||
Retail |
| $ | 13,785 |
| $ | 19,530 |
|
Wholesale |
|
| 40,982 |
|
| 39,022 |
|
Accounts receivable |
|
| 54,767 |
|
| 58,552 |
|
Less: allowance for doubtful accounts |
|
| (16,462) |
|
| (15,023) |
|
Total accounts receivable, net |
| $ | 38,305 |
| $ | 43,529 |
|
F-34
7. FIXED ASSETS:
As of December 31, 2018 and 2017,2019, property, plant and equipment consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| Useful Life |
|
|
|
|
|
|
| |||||||||||
|
| (in Years) |
| 2018 |
| 2017 |
| |||||||||||||
| | | | | | | | | | |||||||||||
| | Useful Life | | | | | | | | |||||||||||
|
| (in Years) |
| 2020 |
| 2019 |
| |||||||||||||
Telecommunications equipment and towers |
| 5 -15 |
|
| $ | 914,276 |
| $ | 774,548 |
|
| 5 -15 | | $ | 1,012,457 | | $ | 979,028 | | |
Solar assets |
| 20-23 |
|
|
| 57 |
|
| 113,218 |
| | 20-23 | | | - | | | 40,043 | | |
Office and computer equipment |
| 3 -10 |
|
|
| 77,085 |
|
| 76,706 |
|
| 3 -10 | |
| 87,427 | |
| 82,630 | | |
Buildings |
| 15-39 |
|
|
| 48,900 |
|
| 48,058 |
|
| 15-39 | |
| 52,048 | |
| 48,565 | | |
Transportation vehicles |
| 3 -10 |
|
|
| 15,039 |
|
| 12,221 |
|
| 3 -10 | |
| 13,730 | |
| 13,424 | | |
Leasehold improvements |
| Shorter of useful |
|
|
| 2,033 |
|
| 2,864 |
|
| Shorter of useful | |
| 16,709 | |
| 2,316 | | |
Land |
| — |
|
|
| 14,728 |
|
| 12,516 |
|
| — | |
| 8,180 | |
| 15,503 | | |
Furniture and fixtures |
| 5 -10 |
|
|
| 9,200 |
|
| 6,674 |
|
| 5 -10 | |
| 11,320 | |
| 8,866 | | |
Total property, plant and equipment |
|
|
|
|
| 1,081,318 |
|
| 1,046,805 |
| | | |
| 1,201,871 | |
| 1,190,375 | | |
Construction in progress |
|
|
|
|
| 107,598 |
|
| 123,001 |
| | | |
| 50,909 | |
| 47,180 | | |
Total property, plant and equipment |
|
|
|
|
| 1,188,916 |
|
| 1,169,806 |
| | | |
| 1,252,780 | |
| 1,237,555 | | |
Less: Accumulated depreciation |
|
|
|
|
| (562,064) |
|
| (526,660) |
| | | |
| (716,318) | |
| (631,974) | | |
Net fixed assets |
|
|
|
| $ | 626,852 |
| $ | 643,146 |
| | | | $ | 536,462 | | $ | 605,581 | | |
Depreciation and amortization of fixed assets, using the straight‑linestraight-line method over the assets’ estimated useful life, for the years ended December 31, 2020, 2019 and 2018 2017 and 2016 was $83.0$86.5 million, $83.3$86.9 million and $73.3$83.0 million, respectively. Included within telecommunication equipment and towers are certain right to use assets under capital lease with a cost of $27.7$25.4 million and $30.0$25.9 million and net book value of and $20.2$15.9 million and $24.4$16.5 million, as of December 31, 20182020 and 2017,2019, respectively. Remaining amounts due under the Indefeasible Rights of Use (“IRUs”) are $1.3 million and $0.6 million as of December 31, 2018 and 2017, respectively.
For the years ended December 31, 20172020 and 2016, amounts of2019, the Company received capital expenditures were offset byexpenditure grants of $1.5$16.3 million and $2.3$3.1 million, respectively. There was no such offset for
The Company had $5.6 million and $3.6 million of capitalized implementation costs at December 31, 2020 and 2019, respectively. The Company amortized $0.7 and $0.2 million of implementation costs during the year ended December 31, 2018.2020 and 2019, respectively.
In 2018, the U.S. Telecom segment sold approximately 100 cell sites for $24.0 million. The disposed assets had a book value of $8.8 million and the Company recorded a gain of $15.2 million on the transaction.
8. GOODWILL AND INTANGIBLE ASSETS
Goodwill
The Company tests goodwill for impairment at each of its reporting units on an annual basis, which has been determined to be as of December 31st of each fiscal year.October 1st. The Company’s reporting units are one level below its operating segments. The Company also tests goodwill between annual tests if an event occurs or circumstances change that indicate that the fair value of a reporting unit may be below its carrying value.
The Company’s qualitative goodwill impairment test includes, but is not limited to, assessing macroeconomic conditions, industry and market considerations, technological changes and trends, and overall financial performance of the reporting unit. The CompanyCompany’s quantitative test for goodwill impairment involves a comparison of the estimated fair value of a reporting unit to its carrying amount, including goodwill. The Company determines the fair value of a reporting unit using either a market or income approach. The market approach uses prices generated by market transactions involving comparable businesses. The income approach is based on a discounted cash flow (“DCF”) analysis. Determining fair valuemodel. The DCF model requires the exercise of significant judgment, including judgments and assumptions about appropriate discount rates perpetual growth rates, and the amount and timing of expected future cash flows.revenue growth. Discount rates are based on a weighted‑averageweighted-average cost of capital (“WACC”), which represents the average rate a business must pay its providers of debt and equity. The revenue growth and cash flows employed in the DCF analysismodel were derived from internal earnings and forecasts and external market forecasts.
F-35F-33
During 2018 and 2017, the Company performed qualitative assessments for allFor its annual impairment analysis, as of its reporting units except for the 2017 trigger based impairment review in its International Telecom segment discussed below. During 2016,October 1, 2020, the Company performed a qualitative assessment for one reporting unit in its International Telecom segment and one reporting unit in its Renewable Energy segment and determined there was no impairment. Also in 2016, the company performed a quantitative assessment for one reporting unit in its International Telecom segment and one reporting unit in its US Telecom segment concluding no impairment was present.
The Company’s annual impairment assessment of its goodwillanalysis for all reporting units as of December 31, 2018other than its Viya reporting unit. The qualitative analysis was completed after the 2019 quantitative analysis using a DCF model determined that no impairment relating to its goodwill existed during the year ended December 31, 2018.
In the third quarter of 2017, the Company determined that the damage caused by the Hurricanes caused a triggering event requiring it to assess the related reporting unit’s goodwill for impairment. After consideration of the disposals of fixed assets within the reporting unit, the impairment test for goodwill was performed by comparing the fair value of theeach reporting unit tosignificantly exceeded its carrying amount.value, including goodwill. The qualitative analysis concluded that 0 impairment was necessary in 2020. For the Company’s Viya reporting unit, its 2019 impairment analysis determined that its fair value exceeded its carrying value, including goodwill, by 12%. As a result the Company calculatedperformed a quantitative analysis using a DCF model for this reporting unit during 2020. Based on the results of this test for Viya, the fair value of thethis reporting unit exceeded its carrying value by utilizing an income approach, with Level 3 valuation inputs,approximately 9%, and accordingly a relatively small change in the underlying assumptions, including a cash flowthe revenue growth and the discount rate, would likely cause a change in the results of 14.5%. Determining fair value requires the exerciseimpairment assessment and, as such, could result in an impairment of significant judgment, including judgments about appropriate discount rates, perpetual growth rates, and the goodwill related to Viya, for which the carrying amount and timingis $20.6 million.
During 2019, the Company recorded a goodwill impairment of expected future cash flows.$3.3 million in the Renewable Energy segment. The discount rateimpairment assessment was based on a weighted‑average cost of capital, which represents the average rate the business would pay its providers of debt and equity.market approach. The cash flows employed in the discounted cash flow analysis were derived from internal and external forecasts. The impairment assessmentCompany concluded that no impairment was required for the goodwill because the fair value of the reporting unit exceeded its carrying amount.
During June 2016, as a resultamount by an amount in excess of recent industry consolidation activities and a review of strategic alternatives for the Company’s U.S. Wireline business in the Northeast, the Company identified factors indicating the carrying amount of certain assets may not be recoverable. More specifically, the factors included the competitive environment, recent industry consolidation, and the Company’s view of future opportunities in the market which began to evolve in the second quarter of 2016. On August 4, 2016, the Company entered into a stock purchase agreement to sell the majority of its U.S. Wireline business. The transaction was completed in March 2017.
reporting unit’s goodwill. As a result, a goodwill impairment was recorded to reduce the value of this transaction and market developments, the Company determined it was appropriategoodwill to assess the reporting unit’s0. The assets for impairment. Thein this reporting unit holds three types of assetswere reported as held for purposes of impairment testing: i) other assets such as accounts receivable and inventory, ii) long lived assets such as property plant and equipment, and iii) goodwill. Management first assessed the other assets for impairment and determined no impairment was appropriate. Second, the property, plant and equipment was assessed for impairment. The impairment test compared the undiscounted cash flows from the use and eventual disposition of the asset group to its carrying amount and determined the carrying amount was not recoverable. The impairment loss of $3.6 million was equal to the amount by which the carrying amount exceeded the fair value. Third management assessed goodwill for impairment and recorded an impairment of $7.5 million. The Company utilized the income approach, with Level 3 valuation inputs, which considered both the purchase agreement and cash flows discountedsale at a rate of 14% in its fair value calculations. In total, the Company recorded an impairment charge of $11.1 million. The impairment charge is included in income from operations for the year ended December 31, 2016.2020. Refer to Note 6.
The Company’s impairment testing for 2018 concluded that 0 impairments were necessary for any reporting units.
F-36
The table below discloseddiscloses goodwill recorded in each of the Company’s segments and accumulated impairment changes (in thousands)thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
| U.S. |
| International |
| Renewable |
|
|
|
| ||||||||||||||||
|
| Telecom |
| Telecom |
| Energy |
| Consolidated |
| |||||||||||||||||
Balance at December 31, 2016 |
| $ | 35,268 |
| $ | 24,326 |
| $ | 3,279 |
| $ | 62,873 |
| |||||||||||||
Acquisitions |
|
| — |
|
| 1,097 |
|
| — |
|
| 1,097 |
| |||||||||||||
Balance at December 31, 2017 |
|
| 35,268 |
|
| 25,423 |
|
| 3,279 |
|
| 63,970 |
| |||||||||||||
Acquisitions |
|
| — |
|
| — |
|
| — |
|
| — |
| |||||||||||||
| | | | | | | | | | | | | | |||||||||||||
|
| International |
| US |
| Renewable |
| | | | ||||||||||||||||
| | Telecom | | Telecom | | Energy | | Consolidated | | |||||||||||||||||
Balance at December 31, 2018 |
| $ | 35,268 |
| $ | 25,423 |
| $ | 3,279 |
| $ | 63,970 |
| | $ | 24,326 | | $ | 35,268 | | $ | 3,279 | | $ | 63,970 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
| U.S. |
| International |
| Renewable |
|
|
|
| ||||||||||||||||
|
| Telecom |
| Telecom |
| Energy |
| Consolidated |
| |||||||||||||||||
Balance at December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Impairment | | | 0 | | | 0 | | | (3,279) | | | (3,279) | | |||||||||||||
Balance at December 31, 2019 | | | 24,326 | | | 35,268 | | | 0 | | | 60,691 | | |||||||||||||
Impairment | | | 0 | | | 0 | | | 0 | | | 0 | | |||||||||||||
Balance at December 31, 2020 | | $ | 24,326 | | $ | 35,268 | | $ | 0 | | $ | 60,691 | | |||||||||||||
| | | | | | | | | | | | | | |||||||||||||
| | International | | US | | Renewable | |
| | | ||||||||||||||||
| | Telecom | | Telecom | | Energy | | Consolidated | | |||||||||||||||||
Balance at December 31, 2019 | | | | | | | | | | | | | | |||||||||||||
Gross |
| $ | 35,268 |
| $ | 25,423 |
| $ | 3,279 |
| $ | 63,970 |
| | $ | 24,326 | | $ | 35,268 | | $ | 3,279 | | $ | 63,970 | |
Accumulated Impairment |
|
| — |
|
| — |
|
| — |
|
| — |
| |
| 0 | |
| 0 | |
| (3,279) | |
| (3,279) | |
Net |
|
| 35,268 |
|
| 25,423 |
|
| 3,279 |
|
| 63,970 |
| |
| 24,326 | |
| 35,268 | |
| 0 | |
| 60,691 | |
Balance at December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Balance at December 31, 2020 | | | | | | | | | | | | | | |||||||||||||
Gross |
|
| 35,268 |
|
| 25,423 |
|
| 3,279 |
|
| 63,970 |
| | | 24,326 | | | 35,268 | | | 0 | | | 60,691 | |
Accumulated Impairment |
|
| — |
|
| — |
|
| — |
|
| — |
| | | 0 | |
| 0 | | | 0 | | | 0 | |
Net |
| $ | 35,268 |
| $ | 25,423 |
| $ | 3,279 |
| $ | 63,970 |
| | $ | 24,326 | | $ | 35,268 | | $ | 0 | | $ | 60,691 | |
Telecommunications Licenses
The Company tests those telecommunications licenses that are indefinite lived for impairment on an annual basis, which has been determined to be as of December 31 of each fiscal year.October 1st. The Company also tests telecommunication licenses that are indefinite lived between annual tests if an event occurs or circumstances change that indicate that the fair value of a reporting unit may be below its carrying value.
The Company’s qualitative impairment test includes, but is not limited to, assessing macroeconomic conditions, industry and market considerations, technological changes and trends, overall financial performance, and
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legal and regulatory changes. The Company’s quantitative test for impairment involves a comparison of the estimated fair value of an asset to its carrying amount. The Company determines the fair value using either a market or income approach. The market approach uses prices generated by market transactions involving comparable assets. The income approach uses a DCF model. The DCF requires the exercise of a reporting unit using a discounted cash flow analysis withsignificant judgement including Level 3 valuation inputs.
The Company performed qualitative assessments for its annual impairment assessment of its indefinite lived telecommunications licenses as of December 31, 2018for 2020 and determined that there were no indications of potential impairments. The Company performed quantitativeCompany’s impairment testing for 2019 and qualitative assessments for its annual impairment assessments of its indefinite lived telecommunications licenses as of December 31, 2017 and 2016 and2018 also determined that there no0 impairments were required.
In the third quarter of 2017, the Company determined that the damage caused by the Hurricanes caused a triggering event requiring us to assess the related reporting unit’s indefinite lived telecommunications licenses for impairment. After consideration of the write-downs of fixed assets within the reporting unit, the impairment test for telecommunications licenses was performed by comparing the fair value of the asset to its carrying amount. The Company performed a qualitative and quantitative analysis. The Company calculated the fair value by utilizing an income approach, with Level 3 valuation inputs, including a cash flow discount rate of 14.5%. Determining fair value requires the exercise of significant judgment, including judgments about appropriate discount rates, perpetual growth rates, and the amount and timing of expected future cash flows. The discount rate was based on a weighted‑average cost of capital, which represents the average rate the business would pay its providers of debt and equity. The cash flows
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employed in the discounted cash flow analysis were derived from internal and external forecasts. The impairment assessment concluded that no impairment was required for the indefinite livedany telecommunication licenses because the fair value exceeded its carrying amount.
licenses.
The changes in the carrying amount of the Company’s telecommunications licenses, by operating segment, for the three years ended December 31, 2018 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| U.S. |
| Int'l |
|
|
|
| ||||||||||||
|
| Telecom |
| Telecom |
| Consolidated |
| |||||||||||||
Balance at December 31, 2016 |
| $ | 24,944 |
| $ | 23,347 |
| $ | 48,291 |
| ||||||||||
| | | | | | | | | | | ||||||||||
|
| International |
| US |
| | | | ||||||||||||
| | Telecom | | Telecom | | Consolidated |
| |||||||||||||
Balance at December 31, 2018 | | $ | 23,347 | | $ | 70,339 | | $ | 93,686 | | ||||||||||
Acquired licenses |
|
| 47,692 |
|
| — |
|
| 47,692 |
| |
| 0 | |
| 0 | | | 0 | |
Dispositions |
|
| (31) |
|
| — |
|
| (31) |
| |
| 0 | |
| 0 | | | 0 | |
Balance at December 31, 2017 |
| $ | 72,605 |
| $ | 23,347 |
| $ | 95,952 |
| ||||||||||
Balance at December 31, 2019 | | $ | 23,347 | | $ | 70,339 | | $ | 93,686 | | ||||||||||
Acquired licenses |
|
| 485 |
|
| — |
|
| 485 |
| |
| 200 | |
| 20,197 | | | 20,397 | |
Dispositions |
|
| (2,750) |
|
| — |
|
| (2,750) |
| | | 0 | | | 0 | | | 0 | |
Balance at December 31, 2018 |
| $ | 70,340 |
| $ | 23,347 |
| $ | 93,687 |
| ||||||||||
Transfers | |
| 11,251 | |
| (11,251) | | | 0 | | ||||||||||
Balance at December 31, 2020 | | $ | 34,798 | | $ | 79,285 | | $ | 114,083 | | ||||||||||
The licenses acquired during 20182020 and 20172019 are expected to be available for use into perpetuity.
Customer Relationships
The customer relationships, all of which are included in the International Telecom segment, are being amortized on an accelerated basis, over the expected period during which their economic benefits are to be realized. The Company recorded $2.4$1.5 million, $3.2$1.8 million, and $2.0$2.4 million of amortization related to customer relationships during year ended December 31, 2020, 2019, and 2018, 2017, and 2016, respectfully.respectively.
Future amortization of customer relationships, in its International Telecom segment, is as follows (in thousands):
|
|
|
|
| ||||
|
| Future Amortization |
| |||||
2019 |
| $ | 1,897 |
| ||||
2020 |
|
| 1,528 |
| ||||
| | | | | ||||
|
| Future Amortization |
| |||||
2021 |
|
| 1,300 |
|
| $ | 1,300 | |
2022 |
|
| 1,143 |
|
| | 1,143 | |
2023 |
|
| 828 |
|
| | 827 | |
2024 |
| | 576 | | ||||
2025 |
| | 576 | | ||||
Thereafter |
|
| 2,627 |
| | | 1,491 | |
Total |
| $ | 9,323 |
| | $ | 5,913 | |
Other Intangible Assets
The Company has other intangible assets of $4.5$3.0 million consisting of $3.0 million of franchise rights and $1.5 $1.1 million of tradenames in its International Telecom segment. These assets are recorded in other assets on the Company’s balance sheet as of December 31, 2018. In 2016,2020 and 2019, respectively.
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9. LONG-TERM DEBT
On April 10, 2019, the Company assessedentered into the value of a tradename and concluded that its book value exceeded its fair value. As a result, the Company recorded a non-cash impairment charge of $0.3 million during the year ended December 31, 2016.
9. LONG‑TERM DEBT
The Company has a credit facility2019 Credit Facility, with CoBank, ACB and a syndicate of other lenders to providelenders. The 2019 Credit Facility provides for a $225$200 million revolving credit facility (the “Credit Facility”) that includes (i) up to $10$75 million under the Credit Facility for standby or trade letters of credit (ii) up to $25 million under the Credit Facility for letters of credit that are necessary or desirable to qualify for disbursements from the FCC’s mobility fund and (iii)(ii) up to $10 million under a Swinglineswingline sub-facility. The Credit Facility has a maturity dateApproximately $16.0 million of performance letters of credit have been issued and remain outstanding and undrawn as of December 31, 2020. The 2019 and the Company currently expects to enter into a new agreement before the maturity date. The Credit Facility also provides for the incurrence by the Company of
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incremental term loan facilities, when combined with increases to revolving loan commitments, in an aggregate amount not exceed $200 million (the “Accordion”).matures on April 10, 2024.
Amounts the Company may borrowborrowed under the 2019 Credit Facility bear interest at a rate equal to, at the Company’s option, either (i) the London Interbank Offered Rate (LIBOR)(“LIBOR”) plus an applicable margin ranging between 1.50%1.25% to 1.75%2.25% or (ii) a base rate plus an applicable margin ranging from 0.50%0.25% to 0.75%1.25%. Swingline Loans willloans bear interest at the base rate plus the applicable margin for base rate loans. The base rate is equal to the higher of (i) 1.00% plus the higher of (x) the one-week LIBOR for an interest period of one month and (y) the one-month LIBOR;LIBOR for an interest period of one week; (ii) the federal funds effective rateFederal Funds Effective Rate (as defined in the 2019 Credit Facility) plus 0.50% per annum; and (iii) the prime ratePrime Rate (as defined in the 2019 Credit Facility). The applicable margin is determined based on the ratioTotal Net Leverage Ratio (as further defined in the 2019 Credit Facility) of the Company’s indebtedness to EBITDA.. Under the terms of the 2019 Credit Facility, the Company must also pay a fee ranging from 0.175%0.150% to 0.250%0.375% of the average daily unused portion of the 2019 Credit Facility over each calendar quarter.
The 2019 Credit Facility contains customary representations, warranties and covenants, including a financial covenant that imposes a maximum ratio of indebtedness to EBITDA as well as covenants limiting additional indebtedness, liens, guaranties, mergers and consolidations, substantial asset sales, investments and loans, sale and leasebacks, transactions with affiliates and fundamental changes. The Company’s investmentinvestments in “unrestricted” subsidiaries is limited to $400 Million less the aggregate amount ofand certain dividend payments to its stockholders.the Company’s stockholders are not limited unless the Total Net Leverage Ratio is equal to or greater than 1.75 to 1.0. The Total Net Leverage Ratio is measured each fiscal quarter and is required to be less than or equal to 2.75 to 1.0. In the event of a Qualifying Acquisition (as defined in the 2019 Credit Facility), the Total Net Leverage Ratio increases to 3.25 to 1.0 for the subsequent three fiscal quarters.
The 2019 Credit Facility also provides for the incurrence by the Company of incremental term loan facilities, when combined with increases to revolving loan commitments, in an aggregate amount not to exceed $200 million (the “Accordion”). Amounts borrowed under the Accordion are also subject to proforma compliance with a net leverage ratio financial covenant.
As of December 31, 2018,2020, the Company was in compliance with all of the financial covenantscovenants, had 0 outstanding borrowings and, net of the $16.0 million of outstanding performance letters of credit, had $184.0 million of availability under the 2019 Credit Facility.
AsFirstNet Receivables Credit Facility
On March 26, 2020, Commnet Finance, a wholly owned subsidiary of December 31, 2018,Commnet Wireless, entered into receivables credit facility with the Company, had no borrowings under theCommnet Wireless, and CoBank, ACB (the “Receivables Credit Facility.
Ahana Debt
On December 24, 2014, in connection with the Ahana Acquisition, the Company assumed $38.9 million in long-term debt (the “Original Ahana Debt”Facility”). The Original Ahana Debt included multiple loan agreements with banks that bore interest at rates between 4.5% and 6.0%, matured at various times between 2018 and 2023 and were secured by certain solar facilities. Repayment of the Original Ahana Debt was being made in cash on a monthly basis until maturity.
The Original Ahana Debt also includedReceivables Credit Facility provides for a senior secured delayed draw term loan from Public Service Electric & Gas (the “PSE&G Loan”). The PSE&G Loan bore interest at 11.3%, matured in 2027, and was secured by certain solar facilities. Repayment of the Original Ahana Debt with PSE&G were able to be made in either cash or SRECs, at the Company’s discretion, with the value of the SRECs being fixed at the time of the loan’s closing. Historically, the Company had made all repayments of the PSE&G Loan using SRECs.
On December 19, 2016, Ahana’s wholly owned subsidiary, Ahana Operations, issued $20.6 million inan aggregate principal amount of 4.427% senior notes due 2029 (the “Series A Notes”) and $45.2up to $75 million in aggregate principal amount of 5.327% senior notes due 2031 (the “Series B Notes” and collectively with the Series A Notes and the PSE&G Loan,proceeds may be used to acquire certain receivables from Commnet Wireless. The receivables to be financed and sold under the “Ahana Debt”). Interest and principal were payable semi-annually, untilReceivables Credit Facility, which provide the respective maturity datesloan security, relate to the obligations of March 31, 2029 (forAT&T under the Series A Notes) andFirstNet Agreement. The delayed draw period will expire on December 31, 2031 (for2021.
The maturity date for each loan will be set by CoBank and will match the Series B Notes). Cash flows generated by the solar projects that secured the Series A Notes and Series B Notes were only available for payment of such debt and were not available to pay other obligations or the claimsweighted average maturity of the creditors of Ahanacertain receivables financed.
Interest on the loans accrues at a rate based on (i) LIBOR plus 2.50%, (ii) a base rate plus 1.50% or its subsidiaries. However, subject(iii) a fixed annual interest rate to certain restrictions, Ahana Operations held the right to the excess cash flows not needed to pay the Series A Notes and Series B Notes and other obligations arising out of the securitizations. The Series A Notes and Series B Notes were securedbe quoted by certain assets of Ahana and were guaranteed by certain of its subsidiaries.CoBank
A portion of the proceeds from the issuances of the Series A Notes and Series B Notes was used to repay the Original Ahana Debt in full except for the PSE&G Loan which remained outstanding after the refinancing.
The Company capitalized $2.8 millionReceivables Credit Facility contains customary events of fees associated with the Series A Notestermination, representations and Series B Notes which were recorded as a reduction to the debt carrying amount and was being amortized over the life of the notes.
F-39
On November 6, 2018, the Company consummated the U.S. Solar Transaction, which included the transfer of the Original Ahana Debt, the Series A Notes and Series B Notes to the purchaser.
One Communications Debt
In connection with the One Communications Acquisition on May 3, 2016, the Company assumed $35.4 million in debt (the “One Communications Debt”) in the form of a loan from HSBC Bank Bermuda Limited. The One Communications Debt was scheduled to mature in 2021, was bearing interest at the three-month LIBOR rate plus a margin of 3.25%, and was repaid quarterly. The One Communications Debt contained customary representations, warranties, and affirmative and negative covenants (including limitations on additional debt, guaranties, saleand events of assets and liens) and a financial covenant that limited the maximum ratiodefault customary for facilities of indebtedness less cash to annual operating cash flow.this type.
F-36
On May 22, 2017, the Company amended and restated the One Communications Debt to increase the original facility by $8.6 million to $37.5 million. The amended and restated debt is scheduled to mature on May 22, 2022 and bears interest at the three month LIBOR rate plus an applicable margin rate ranging between 2.5% to 2.75% paid quarterly. The amended and restated One Communications Debt contains customary representations, warranties and affirmative and negative covenants (including limitations on additional debt, guaranties, saleTable of assets and liens) and financial covenants that limit the ratio of tangible net worth to long term debt and total net debt to EBITDA and require a minimum debt service coverage ratio (net cash generated from operating activities plus interest expense less net capital expenditures to debt repayments plus interest expense). The Company was in compliance with its covenants as of December 31, 2018.Contents
As a condition of the amendment of the One Communications Debt, within 90 days of the refinance date the Company was required to enter into a hedging arrangement with a notional amount equal to at least 30% of the outstanding loan balance and a term corresponding to the maturity of the One Communications Debt. In July 2017, the Company entered into an amortizing interest rate swap. This swap has been designated as a cash flow hedge, had an original notional amount of $11.0 million, has an interest rate of 1.874%, and expires in March 2022. As of December 31, 2018, the swap has an unamortized balance of $9.6 million.
In connection with the amendment of the One Communications Debt, the Company increased the limit of its overdraft facility from $5.0 million to $10.0 million. This facility has an interest rate of three month LIBOR plus 1.75%.
The Company capitalized $0.3 million of fees in 2017 associated with the One Communications Debt, which is recorded as a reduction to the debt carrying amount and will be amortized over the life of the debt.
As of December 31, 2018, $31.9 million of2020, the One Communications Debt wasCompany had 0 outstanding there were no borrowings under the overdraft facility, and $0.2 million of the capitalized fees remain unamortized.Receivables Credit Facility.
As of December 31, 2018, One Communications was in compliance with its financial covenants.
Viya Debt(formerly Innovative Debt)
On July 1, 2016, theThe Company, and certain of its subsidiaries, have entered into a $60.0 million loan agreement (the “Viya Debt”) with Rural Telephone Finance Cooperative (“RTFC”). The Viya Debt agreement contains customary representations, warranties and affirmative and negative covenants (including limitations on additional debt, guaranties, sale of assets and liens) and a financial covenant that limits the maximum ratio of indebtedness to annual operating cash flow to 3.5 to 1.0 (the “Net Leverage Ratio”). This covenant is tested on an annual basis at the end of each fiscal year. Interest is paid quarterly at a fixed rate of 4.0% and principal repayment is not required until maturity on July 1, 2026. Prepayment of the Viya Debt may be subject to a fee under certain circumstances. The debt is secured by certain assets of the Company’s Viya subsidiaries and is guaranteed by the Company. Earlier in 2018,With RTFC’s consent, the Company began fundingfunded the restoration of Viya’s network, following the Hurricanes in 2017, through an intercompany loan arrangement which exceeded certain limitations on Viya incurring additional debt. RTFC consented to these intercompany advances and increased the intercompany debt limit to $50.0 million. Subsequent to the end of the second quarter end, RTFC increased the limit to $75.0with a $75.0 million at the Company’s request due to an increase in the on-going restoration and
F-40
resiliency costs.limit. The Company was not in compliance with the Net Leverage Ratio covenant of the Viya Debt agreement for the year ending December 31, 20182020 and received a waiver from the RTFC on February 25, 20192021.
The Company paid a fee of $0.9 million in 2016 to lock the interest rate at 4% per annum over the term of the Viya debt.Debt. The fee was recorded as a reduction to the Viya debtDebt carrying amount and will beis being amortized over the life of the loan.
As of December 31, 2018,2020, $60.0 million of the Viya Debt remained outstanding and $0.7$0.5 million of the rate lock fee was unamortized.
One Communications Debt
The Company has an outstanding loan from HSBC Bank Bermuda Limited (the “One Communications Debt”) which is scheduled to mature on May 22, 2022 and bears interest at the one-month LIBOR plus a margin ranging between 2.5% to 2.75%, paid quarterly.
The One Communications Debt contains customary representations, warranties and affirmative and negative covenants (including limitations on additional debt, guaranties, sale of assets and liens) and financial covenants, tested annually as of and for the twelve months ended December 31st, that limit the ratio of tangible net worth to long term debt and total net debt to EBITDA and require a minimum debt service coverage ratio (as defined in the One Communications Debt agreement). The Company was in compliance with its covenants as of December 31, 2020.
As a condition of the One Communications Debt, the Company was required to enter into a hedging arrangement with a notional amount equal to at least 30% of the outstanding loan balance and a term corresponding to the term of the One Communications Debt. As such, the Company entered into an amortizing interest rate swap that has been designated as a cash flow hedge, which had an original notional amount of $11.0 million, has an interest rate of 1.874%, and expires in March 2022. As of December 31, 2020, the swap had an unamortized notional amount of $7.3 million.
The Company capitalized $0.3 million of fees associated with the One Communications Debt which are being amortized over the life of the debt and are recorded as a reduction to the debt carrying amount.
As of December 31, 2020, $13.4 million of the One Communications Debt was outstanding and $0.1 million of the capitalized fees remained unamortized.
10. GOVERNMENT GRANTS
Universal Service Fund
The Federal Universal Service Fund (‘USF’)USF is a subsidy program managed by the FCC. USF funds are disbursed to telecommunication providers through four4 programs: the High Cost Program; Low Income Program;Program (“Lifeline Program”); Schools and Libraries
F-37
Program (“E-Rate”E-Rate Program”); and Rural Health Care Support Program. The Company participates in the High Cost Program, Low IncomeLifeline Program, Schools and Libraries Programs,E-Rate Program, and Rural Health Care Support programsProgram as further described below. All of thethese funding programs are subject to certain operational and reporting compliance requirements. The Company believes it is in compliance willwith all applicable requirements.
The FCC’s Mobility Funds and Connect America Funds are administered through the High Cost Program. The High-Cost Support program subsidizes telecommunications services in rural and remote areas. The FCC created the Phase I Mobility Fund (“Phase I Mobility Fund”), a one-time award meant to support wireless coverage in underserved geographic areas in the United States.
The Company received $21.1 million of Phase I Mobility Fund support to its wholesale wireless business (the “Mobility Funds”) to be used to expand voice and broadband networks in certain geographic areas in order to offer either 3G or 4G service. Of these funds, $7.2 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. The remaining $13.9 million received offset operating expenses from inception of the program through part of the third quarter of 2018. The Mobility Funds projects and their operating results are included within the Company’s U.S. Telecom segment. As part of the receipt of the Mobility Funds, the Company committed to comply with certain additional FCC construction and other requirements. If the requirements are not met the funds may be subject to claw back provisions. The Company currently expects to comply with all applicable requirements related to these funds.
During the years ended December 31, 2018, 20172020, 2019 and 2016,2018, the Company recorded $16.5$16.4 million, $16.5$16.4 million, and $8.2$16.5 million, respectively, of revenue from High Cost Support in its International Telecom segment for its U.S.US Virgin Islands operations. operations under the “Viya” name. In addition, the Company recorded revenue of $15.5 million during the year ended December 31, 2018, from additional funding authorized by the FCC following the Hurricanes. In 2018, the FCC initiated a proceeding to reform the High Cost Program in the US Virgin Islands and Puerto Rico in which it proposed to allocate USF funding of up to $18.7 million per year (inclusive of the $16.4 million per year currently allocated to Viya) for 10 years to supplant the $16.4 million that Viya currently receives per year. While Viya applied for Connect USVI Fund support allocated for the US Virgin Islands, on November 16, 2020, the FCC announced that Viya was not the recipient of the provisional award and that the FCC had provisionally accepted a bid of approximately $8.6 million per year for a term of 10 years. Viya has challenged this decision and its challenge remains pending before the FCC. If Viya’s challenge is not granted, pursuant to the terms of the program, Viya’s USF support will be reduced, to two-thirds of the legacy total amount, or $10.9 million, during the first year following the finalization of the award and to one-third of the legacy total amount, or $5.5 million, during the second year. Thereafter, Viya will not receive high-cost USF support.
Also, during each year ended December 31, 2018, 20172020, 2019 and 2016,2018, the Company recorded $1.2 million of High Cost Support revenue in its US Telecom segment. The Company is subject to certain operational, reporting and construction requirements as a result of this funding and the Company believes that it is in compliance with all of these requirements. In addition, the Company recorded revenue of $15.5 million during the year ended December 31, 2018, from additional funding authorized by the FCC following the Hurricanes.
In August 2018, the Company was awarded $79.9 million over 10 years under the Connect America Fund Phase II Auction. The funding requires the Company is required to provide fixed broadband and voice services to certain eligible areas in the United States. The Company is subject to operational and reporting requirements under the program.program and the Company expects to incur additional capital expenditures to comply with these requirements. The Company determined the award is a revenue grant, and as a result the Company will record the funding as revenue upon receipt. The Company expects to begin receiving funds underrecorded $7.6 million and $5.3 million of revenue in the years ended December 31, 2020 and December 31, 2019, respectively, from the Connect America Fund Phase II program during mid-2019. program.
The E-Rate program provides discounted telecommunication access to eligible schools and libraries. The E-Rate program awards (i) specialCompany also receives construction fundinggrants to build network connectivity for eligible participants, and (ii) pays for discounted recurring charges for eligible broadband services.communities. The special construction funding is used to reimburse construction costs and is distributed upon completion of a project. As of December 31, 2018,2019, the Company was awarded
F-41
approximately $15.4 $15.8 million of E-Rategrants. The Company was awarded $1.0 million of construction grants in 2020. As of December 31, 2020, the Company has completed its construction obligations on $10.2 million of these projects and $6.6 million of such construction obligations remain with construction completion obligations between June 2019 and June 2020. deadlines beginning in September 2021. Once these projects are constructed, the Company is obligated to provide service to the E-Rate program participants. The Company is in various stagesreceives funds upon construction completion. During 2020, the Company received $2.9 million, which was used to offset operating activities. During 2019, the Company received $5.4 million, of constructing the networkswhich $3.1 million was a reimbursement of capital expenditures and has not received any of the funds.$2.3 million offset operating activities. The Company expects to meet all requirements associated with these grants.
The Company also receives funding to provide discounted telecommunication services to eligible customers under the E-Rate, Lifeline, and Rural Health Care Support Programs. During the years ended December 31, 2018, 2017,2020, 2019, and 20162018 the Company recorded revenue of $8.2$10.0 million, $10.2$6.1 million, and $11.0$8.2 million, respectively, in the aggregate from these programs. The Company is subject to certain operational and reporting requirements under the above mentioned programs and it believes that it is in compliance with all of these requirements.
CARES Act
During the fourth quarter of 2020, the Company received $16.3 million of funding under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The funding was utilized to construct network infrastructure in the
F-38
Company’s US Telecom segment. The construction was complete in the fourth quarter of 2020 and the funding was recorded as a reduction to property, plant and equipment and subsequent reduction to depreciation expense.
Tribal Bidding Credit
As part of the broadcast television spectrum incentive auction, the FCC implemented a tribal lands bidding credit to encourage deployment of wireless services utilizing 600 MHz spectrum on the lands of federally recognized tribes. The Company received a bidding credit of $7.4 million under this program in 2018. A portion of these funds will be used to offset network capital costs and a portion will be used to offset the costs of supporting the networks. The Company’s current estimate is that it will use $5.4$5.8 million to offset capital costs, and, consequently reducereducing future depreciation expense and $2.0$1.6 million to offset the cost of supporting the network which will reduce future operating expense. Through December 31, 2020, the Company has spent $5.8 million on capital expenditures and has recorded $0.2 million in offsets to the cost of supporting the network. The credits are subject to certain requirements, including deploying service by January 2021 and meeting minimum coverage metrics. If the requirements are not met the funds may be subject to claw back provisions. The Company currently expects to comply with all applicable requirements related to these funds.
CBRS Auction
During the third quarter of 2020, the Company participated in the FCC’s Citizens Broadband Radio Service (CBRS) auction for Priority Access Licenses (PALs) in the 3.5 GHz spectrum band. These PALs are licensed on a county-by-county basis and are awarded for a 10-year renewable term. The Company was a winning bidder for PALs located strategically throughout the United States at a total cost of approximately $20.4 million. In connection with the awarded licenses, the Company will have to achieve certain CBRS spectrum build out obligations. The Company currently expects to comply with all applicable requirements related to these licenses.
RDOF
In the 2020 Rural Digital Opportunity Fund Phase I Auction (“RDOF”), pending the FCC’s conclusion of the award process, the Company expects to receive approximately $20.1 million over 10 years to provide broadband coverage to over 10,000 households. Once confirmed, the Company will be obligated to provide broadband and voice services to certain eligible areas in the United States.
11. EQUITY
Common Stock
The Company has paid quarterly dividends on its common stockCommon Stock since January 1999.
Treasury Stock
In September 2004, the Company’s Board of Directors approved a $5.0 million stock buyback plan (the “2004 Repurchase Plan”). Through September 19, 2016, the Company repurchased $4.1 million of its common stock, under the 2004 Repurchase Plan.
On September 19, 2016, the Company’s Board of Directors authorized the repurchase of up to $50.0 million of its common stock,Common Stock, from time to time, on the open market or in privately negotiated transactions (the “2016 Repurchase Plan”). The 2016 Repurchase Plan replaces the 2004 Repurchase Plan. As of December 31, 2018,2020, the Company has $37.730.9 million available to be repurchased under the 2016 Repurchase Plan.
F-39
During the years ended December 31, 2018, 20172020, 2019 and 2016,2018, the Company repurchased the following shares under the 2004 Repurchase Plan and the 2016 Repurchase Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
| Aggregate |
|
|
|
| |
|
| Shares |
| Cost |
| Average |
| ||
Year ended December 31, |
| Repurchased |
| (in thousands) |
| Repurchase Price |
| ||
2018 |
| 30,427 |
| $ | 1,577 |
| $ | 51.82 |
|
2017 |
| 201,932 |
|
| 10,636 |
|
| 52.67 |
|
2016 |
| 32,407 |
|
| 2,195 |
|
| 64.72 |
|
| | | | | | | | | |
| | | | | | | | | |
| | Shares | | Aggregate Cost | | Average | | ||
Year ended December 31, |
| Repurchased |
| (in thousands) |
| Repurchase Price |
| ||
2020 |
| 129,273 | | $ | 6,589 | | $ | 50.97 | |
2019 |
| 3,104 | | | 162 | | | 52.37 | |
2018 |
| 30,427 | | | 1,576 | | | 51.82 | |
F-42
During the years ended December 31, 2018, 20172020, 2019 and 2016,2018, the Company repurchased the following shares from employees to satisfy tax withholding and stock options exercise obligations incurred in connection with the vesting of restricted stock awards and the exercise of stock options:
|
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|
|
|
|
|
|
|
|
|
|
|
| Aggregate |
|
|
|
| |
|
| Shares |
| Cost |
| Average |
| ||
Year ended December 31, |
| Repurchased |
| (in thousands) |
| Repurchase Price |
| ||
2018 |
| 141,180 |
| $ | 10,859 |
| $ | 76.76 |
|
2017 |
| 32,814 |
|
| 2,348 |
|
| 71.54 |
|
2016 |
| 38,279 |
|
| 2,775 |
|
| 72.50 |
|
| | | | | | | | | |
| | | | Aggregate | | | | | |
| | Shares | | Cost | | Average | | ||
Year ended December 31, |
| Repurchased |
| (in thousands) |
| Repurchase Price | | ||
2020 |
| 32,227 | | $ | 1,733 | | $ | 53.78 | |
2019 |
| 42,703 | | | 2,419 | | | 56.65 | |
2018 |
| 141,180 | | | 10,859 | | | 76.76 | |
Stock‑BasedStock-Based Compensation
The Company reserved 2,000,000 shares for the grant of stock options, restricted stock awards, restricted stock units, stock equivalents and awards of shares of common stockCommon Stock that are not subject to restrictions or forfeiture. As of December 31, 2018,2020, the Company has approximately 801,000610,000 shares available for grants.
Stock Options
Stock options have a term of ten10 years and vest annually and ratably over a period of four years.
The following table summarizes stock option activity for the years ended December 31, 20182020 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, 2018 |
| ||||||||
|
|
|
|
|
|
| Weighted Average |
|
|
|
|
|
|
|
| Weighted Avg. |
| Remaining |
|
|
|
| |
|
| Number of |
| Exercise |
| Contractual |
| Aggregate |
| ||
|
| Options |
| Price |
| Term (Years) |
| Intrinsic Value |
| ||
Outstanding at January 1, 2018 |
| 200,021 |
| $ | 41.76 |
|
|
|
|
|
|
Granted |
| — |
|
| — |
|
|
|
|
|
|
Exercised |
| (158,021) |
|
| 39.95 |
|
|
|
|
|
|
Outstanding at December 31, 2018 |
| 42,000 |
|
| 48.61 |
| 4.1 |
| $ | 823,515 |
|
Vested and expected to vest at December 31, 2018 |
| 42,000 |
|
| 48.61 |
| 4.1 |
| $ | 962,840 |
|
Exercisable at December 31, 2018 |
| 33,250 |
|
| 46.76 |
| 3.0 |
| $ | 823,515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, 2017 |
| ||||||||
|
|
|
|
|
|
| Weighted Average |
|
|
|
|
|
|
|
|
|
|
| Remaining |
|
|
|
|
|
| Number of |
| Weighted Avg. |
| Contractual |
| Aggregate |
| ||
|
| Options |
| Exercise Price |
| Term (Years) |
| Intrinsic Value |
| ||
Outstanding at January 1, 2017 |
| 225,822 |
| $ | 39.77 |
|
|
|
|
|
|
Granted |
| 10,000 |
|
| 52.97 |
|
|
|
|
|
|
Exercised |
| (35,801) |
|
| 32.29 |
|
|
|
|
|
|
Outstanding at December 31, 2017 |
| 200,021 |
|
| 41.76 |
| 3.6 |
| $ | 2,780,253 |
|
Vested and expected to vest at December 31, 2017 |
| 200,021 |
|
| 41.76 |
| 3.6 |
| $ | 2,780,253 |
|
Exercisable at December 31, 2017 |
| 187,521 |
|
| 40.77 |
| 3.6 |
| $ | 2,757,353 |
|
2019:
The unvested options as of December 31, 2018 represent $0.1 million in unamortized stock‑based compensation which will be recognized over a weighted average term of 2.3 years.
| | | | | | | | | | | |
| | Year Ended December 31, 2020 | | ||||||||
| | | | | | | Weighted Average | | | | |
| | | | | | | Remaining | | | | |
| | Number of | | Weighted Avg. | | Contractual | | Aggregate | | ||
|
| Options |
| Exercise Price |
| Term (Years) |
| Intrinsic Value |
| ||
Outstanding at January 1, 2019 |
| 15,000 | | $ | 49.34 | | | | | | |
Granted | | 0 | | | — | | | | | | |
Forfeited |
| — | |
| — | | | | | | |
Expired |
| — | |
| — | | | | | | |
Exercised |
| — | |
| — | | | | | | |
Outstanding at December 31, 2020 |
| 15,000 | | | 49.34 | | 2.2 | | $ | 34,600 | |
Vested and expected to vest at December 31, 2020 |
| 15,000 | | | 49.34 | | 2.2 | | $ | 34,600 | |
Exercisable at December 31, 2020 |
| 15,000 | | | 49.34 | | 2.2 | | $ | 34,600 | |
F-43F-40
| | | | | | | | | | | |
| | Year Ended December 31, 2019 | | ||||||||
| | | | | | | Weighted Average | | | | |
| | | | | | | Remaining | | | | |
| | Number of | | Weighted Avg. | | Contractual | | Aggregate | | ||
|
| Options |
| Exercise Price |
| Term (Years) |
| Intrinsic Value |
| ||
Outstanding at January 1, 2018 |
| 42,000 | | $ | 48.61 | | | | | | |
Granted | | 0 | | | — | | | | | | |
Forfeited |
| (7,500) | |
| 52.97 | | | | | | |
Expired |
| (2,500) | |
| 52.97 | | | | | | |
Exercised |
| (17,000) | |
| 45.39 | | | | | | |
Outstanding at December 31, 2019 |
| 15,000 | | | 49.34 | | 3.2 | | $ | 170,900 | |
Vested and expected to vest at December 31, 2019 |
| 15,000 | | | 49.34 | | 3.2 | | $ | 170,900 | |
The following table summarizes information relating to options granted and exercised during the years ended December 31, 2018, 20172020, 2019 and 20162018 (in thousands, except fair value of options granted data):
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| 2018 |
| 2017 |
| 2016 |
| |||||||||||||
Weighted-average fair value of options granted |
| $ | — |
| $ | 13.77 |
| $ | — |
| ||||||||||
| | | | | | | | | | | ||||||||||
|
| 2020 |
| 2019 |
| 2018 |
| |||||||||||||
Aggregate intrinsic value of options exercised |
|
| 5,927 |
|
| 936 |
|
| 1,591 |
| | $ | — | | $ | 229 | | $ | 5,927 | |
Cash proceeds received upon exercise of options |
|
| 72 |
|
| 1,030 |
|
| 649 |
| |
| — | |
| — | |
| 72 | |
Excess tax benefits from share-based compensation |
|
| — |
|
| — |
|
| 591 |
| ||||||||||
The aggregate intrinsic value represents the total pre‑taxpre-tax intrinsic value (the difference between the Company’s closing common stockCommon Stock price on December 31st and the exercise price, multiplied by the number of the in‑the‑moneyin-the-money stock options) that would have been received by the stock option holders had all stock options holders exercised their stock options on December 31st. The amount of aggregate intrinsic value will change based on the fair market value of the Company’s common stock.
The estimated fair value of the options granted during the year ended December 31, 2017 was determined using a Black Scholes option pricing model, based on the following weighted average assumptions:
| ||
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock.
The Company didhas not grant granted any options during the years ended December 31, 2018 or 2016.since 2017. The Company did not recognize any compensation expense in 2020 or 2019 related to granted options and recognized $0.1 million, $0.1 million and $0.1 million, respectively, of stock compensation expense relating to the granted options during 2018, 2017, and 2016, respectively.2018.
Restricted Stock
Restricted stock issued under the 2008 Equity Investment Plan vest ratablyvests over four years.
The following table summarizes restricted stock activity during the year ended December 31, 2018:2020:
|
|
|
|
|
|
| ||||||
|
|
|
| Weighted Avg. |
| |||||||
|
| Shares |
| Fair Value |
| |||||||
Unvested as of January 1, 2018 |
| 214,938 |
| $ | 68.62 |
| ||||||
| | | | | | | ||||||
|
| | | Weighted Avg. | | |||||||
|
| Shares |
| Fair Value |
| |||||||
Unvested as of January 1, 2020 |
| 204,146 | | $ | 60.13 | | ||||||
Granted |
| 111,474 |
|
| 59.52 |
|
| 116,404 | | | 50.45 | |
Forfeited |
| (31,327) |
|
| 66.53 |
|
| (3,323) | | | 59.99 | |
Vested and issued |
| (94,432) |
|
| 66.27 |
|
| (93,604) | | | 61.75 | |
Unvested as of December 31, 2018 |
| 200,653 |
| $ | 65.21 |
| ||||||
Unvested as of December 31, 2020 |
| 223,623 | | $ | 54.42 | | ||||||
The following table summarizes restricted stock activity during the year ended December 31, 2017:2019:
|
|
|
|
|
|
| ||||||
|
|
|
| Weighted Avg. |
| |||||||
|
| Shares |
| Fair Value |
| |||||||
Unvested as of January 1, 2017 |
| 229,040 |
| $ | 67.13 |
| ||||||
| | | | | | | ||||||
|
| | | Weighted Avg. | | |||||||
|
| Shares |
| Fair Value |
| |||||||
Unvested as of January 1, 2019 |
| 200,653 | | $ | 65.21 | | ||||||
Granted |
| 95,095 |
|
| 68.09 |
|
| 108,278 | |
| 54.68 | |
Forfeited |
| (12,074) |
|
| 69.71 |
|
| (18,579) | |
| 57.04 | |
Vested and issued |
| (97,123) |
|
| 64.01 |
|
| (86,206) | |
| 65.77 | |
Unvested as of December 31, 2017 |
| 214,938 |
| $ | 68.62 |
| ||||||
Unvested as of December 31, 2019 |
| 204,146 | | $ | 60.13 | | ||||||
F-44F-41
In connection with the grant of restricted shares, the Company recognized $6.1$5.6 million, $6.6$6.4 million and $6.2 $6.1 million of compensation expense within its income statements for the years ended December 31, 2020, 2019, and 2018, 2017, and 2016, respectively. In addition, theThe Company recognized $0.2$0.3 million, $0.3$0.5 million, and $0.1$0.2 million of compensation expense within its income statement for the year ended December 31, 2018, 20172020, 2019, and 2016,2018, respectively, for shares of the Company’s subsidiaries granted to the management team of those subsidiaries.
The unvested shares as of December 31, 20182020 represent $9.0$8.3 million in unamortized stock based compensation which will be recognized over a weighted average period of 2.52.4 years.
F-42
12. INCOME TAXES
Tax Reform
The Tax Cuts and Jobs Act of 2017 (“2017 Tax Act” also commonly referred to as U.S. tax reform), which was signed into law on December 22, 2017, has resulted in significant changes to the U.S. corporate income tax system and the U.S. Virgin Islands mirror code which replaces “United States” with “U.S. Virgin Islands” throughout the Internal Revenue Code. These changes include a U.S. federal statutory rate reduction from 35% to 21%, which results in a U.S. Virgin Islands rate change of 38.5% to 23.1% under the mirror tax code which allows for a 10% surcharge on the U.S. federal tax rate, 100% expensing of certain qualified capital investments, the elimination or reduction of the alternative minimum tax regime, certain domestic deductions and credits and limitations on the deductibility of interest expense and executive compensation.
The Tax Act also transitions international taxation from a worldwide system to a modified territorial system and includes two base erosion prevention measures on non-U.S. earnings, which has the effect of subjecting certain earnings of the Company’s foreign subsidiaries to U.S. taxation as global intangible low taxed income (“GILTI”) and eliminates the deduction of certain payments made to related foreign corporations, and imposes a minimum tax if greater than regular tax under the base-erosion and anti-abuse tax (“BEAT”). These changes became effective beginning in 2018. The Tax Act also includes a one-time mandatory deemed repatriation tax on accumulated foreign subsidiaries' previously untaxed foreign earnings (“the Transition Toll Tax”).
Transition Toll Tax
The Tax Act eliminates the deferral of U.S. income tax on the historical unrepatriated earnings by imposing the Transition Toll Tax, which is a one-time mandatory deemed repatriation tax on undistributed foreign earnings. The Transition Toll Tax is assessed on the U.S. shareholder's share of the foreign corporation's accumulated foreign earnings that have not previously been taxed. Earnings in the form of cash and cash equivalents will be taxed at a rate of 15.5% and all other earnings will be taxed at a rate of 8.0%.
Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act, the Company made reasonable estimates of the effects and recorded provisional amounts in its consolidated financial statements as of December 31, 2017. During 2018, the Company made adjustments to the provisional amounts, including a $3.2 million provision on the deemed repatriation of undistributed foreign earnings in addition to the $7.4 million provision recorded at year-end. The Company has completed its determination of the accounting implications for charges related to the Transition Toll Tax.
At December 31, 2018, the Company continues to assert its earnings are permanently reinvested outside the U.S.. Cash dividends from Guyana was made in 2018, however these distributions are not subject to Guyanese withholding tax and the U.S. state tax impact is minimal.
Effect on Deferred Tax Assets and Liabilities and other Adjustments
The Company’s deferred tax assets and liabilities are measured at the enacted tax rate expected to apply when these temporary differences are expected to be realized or settled. As the Company’s deferred tax liabilities exceed the balance of its deferred tax assets at the date of enactment, the Company recorded a tax benefit of $18.0 million in 2017,
F-45
reflecting the decrease in the U.S. and U.S. Virgin Islands corporate income tax rates, including the state impact, net of federal benefit. An additional adjustment of $0.4 million was recorded in the three-month period ending September 30, 2018 for temporary differences finalized with the filing of the 2017 tax return. The Company has completed its accounting for the measurement of deferred taxes.
The BEAT provisions in the Tax Act eliminate the deduction of certain base-erosion payments made to related foreign corporations, and impose a minimum tax if greater than regular tax. The Company does not expect it will be subject to this tax and therefore have not included any tax impacts of BEAT in its consolidated financial statements for the year ended December 31, 2018. Based on the Company’s calculation under the GILTI rules, it does not have an inclusion as of December 31, 2018.
Status of the Company’s Assessment
In accordance with SAB 118, the Company has completed its determination of the accounting implications of the Tax Act as of December 22, 2018.
The components of income before income taxes for the years ended December 31, 2018, 20172020, 2019 and 20162018 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| 2018 |
| 2017 |
| 2016 |
| |||||||||||||
| | | | | | | | | | | ||||||||||
|
| 2020 |
| 2019 |
| 2018 |
| |||||||||||||
Domestic |
| $ | 28,917 |
| $ | 25,232 |
| $ | 28,047 |
| | $ | (17,689) | | $ | (15,661) | | $ | 28,917 | |
Foreign |
|
| 24,825 |
|
| 22,321 |
|
| 17,327 |
| |
| 17,782 | |
| 21,733 | |
| 24,825 | |
Total |
| $ | 53,742 |
| $ | 47,553 |
| $ | 45,374 |
| | $ | 93 | | $ | 6,072 | | $ | 53,742 | |
The following is a reconciliation from the tax computed at statutory income tax rates to the Company’s income tax expense for the years ended December 31, 2018, 2017,2020, 2019, and 20162018 (in thousands):
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| 2018 |
| 2017 |
| 2016 |
| |||||||||||||
Tax computed at statutory U.S. federal income tax rates |
| $ | 11,286 |
| $ | 16,644 |
| $ | 15,782 |
| ||||||||||
| | | | | | | | | | | ||||||||||
|
| 2020 |
| 2019 |
| 2018 |
| |||||||||||||
Tax computed at statutory US federal income tax rates | | $ | 20 | | $ | 1,275 | | $ | 11,286 | | ||||||||||
Non-controlling interest |
|
| (1,114) |
|
| (2,887) |
|
| (2,893) |
| | | (851) | | | (648) | | | (1,114) | |
Foreign tax rate differential |
|
| (2,716) |
|
| (6,621) |
|
| (3,074) |
| | | 1,866 | | | (1,769) | | | (2,662) | |
Over (under) provided in prior periods |
|
| (4,683) |
|
| (18) |
|
| 1,069 |
| |
| (520) | |
| (244) | |
| (4,683) | |
Nondeductible expenses |
|
| 1,610 |
|
| 929 |
|
| 1,134 |
| |
| 1,504 | |
| 3,781 | |
| 1,610 | |
Goodwill Impairment |
|
| — |
|
| — |
|
| 2,622 |
| ||||||||||
Benefit Attributable CARES Act | |
| (3,064) | |
| — | |
| — | | ||||||||||
Capitalized transactions costs |
|
| 62 |
|
| 53 |
|
| 3,138 |
| |
| — | |
| 19 | |
| 62 | |
Change in tax reserves |
|
| 10,657 |
|
| 4,433 |
|
| 2,561 |
| | | 2,148 | | | 3,883 | | | 10,657 | |
State Taxes, net of federal benefit |
|
| 1,674 |
|
| 1,075 |
|
| 1,853 |
| |
| (409) | |
| (429) | |
| 1,674 | |
Change in valuation allowance |
|
| 1,539 |
|
| 6,137 |
|
| (7,292) |
| |
| 33 | |
| (35) | |
| 1,539 | |
Foreign tax credit expiration |
|
| — |
|
| — |
|
| 4,179 |
| ||||||||||
Investment Tax Credit | | | 84 | | | (1,215) | | | — | | ||||||||||
Refund Claim for Domestic Production Deduction |
|
| 235 |
|
| (3,382) |
|
| — |
| | | — | | | — | | | 235 | |
Tax Cuts and Jobs Act of 2017 |
|
| (148) |
|
| (10,639) |
|
| — |
| | | — | | | — | | | (148) | |
Capital loss |
|
| 15 |
|
| (6,990) |
|
| — |
| | | — | | | — | | | 15 | |
Deferred income tax revaluation | | | (10) | | | (513) | | | — | | ||||||||||
Other, net |
|
| 453 |
|
| (75) |
|
| 2,081 |
| | | — | | | — | | | 399 | |
Total Income Tax Expense |
| $ | 18,870 |
| $ | (1,341) |
| $ | 21,160 |
| | $ | 801 | | $ | 4,105 | | $ | 18,870 | |
F-46
The components of income tax expense (benefit) for the years ended December 31, 2018, 20172020, 2019 and 20162018 are as follows (in thousands):
\ | | | | | | | | | | |
|
| 2020 |
| 2019 |
| 2018 | | |||
Current: | | | | | | | | | | |
United States—Federal | | $ | 504 | | $ | (1,559) | | $ | 24,546 | |
United States—State | |
| 3 | |
| (336) | |
| 4,506 | |
Foreign | |
| 7,611 | |
| 8,192 | |
| 13,060 | |
Total current income tax expense | | $ | 8,118 | | $ | 6,297 | | $ | 42,112 | |
Deferred: | | | | | | | | | | |
United States—Federal | | $ | (6,527) | | $ | (1,805) | | $ | (17,947) | |
United States—State | |
| (413) | |
| (93) | |
| (2,832) | |
Foreign | |
| (377) | |
| (294) | |
| (2,463) | |
Total deferred income tax expense (benefit) | | $ | (7,317) | | $ | (2,192) | | $ | (23,242) | |
Consolidated: | | | | | | | | | | |
United States—Federal | | $ | (6,023) | | $ | (3,364) | | $ | 6,599 | |
United States—State | |
| (410) | |
| (429) | |
| 1,674 | |
Foreign | |
| 7,234 | |
| 7,898 | |
| 10,597 | |
Total income tax expense (benefit) | | $ | 801 | | $ | 4,105 | | $ | 18,870 | |
\ |
|
|
|
|
|
|
|
|
|
|
|
| 2018 |
| 2017 |
| 2016 |
| |||
Current: |
|
|
|
|
|
|
|
|
|
|
United States—Federal |
| $ | 24,546 |
| $ | 375 |
| $ | 15,763 |
|
United States—State |
|
| 4,506 |
|
| 500 |
|
| 505 |
|
Foreign |
|
| 13,060 |
|
| 11,289 |
|
| 10,528 |
|
Total current income tax expense |
| $ | 42,112 |
| $ | 12,164 |
| $ | 26,796 |
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
United States—Federal |
| $ | (17,947) |
| $ | (10,892) |
| $ | (1,880) |
|
United States—State |
|
| (2,832) |
|
| 950 |
|
| (291) |
|
Foreign |
|
| (2,463) |
|
| (3,563) |
|
| (3,465) |
|
Total deferred income tax expense (benefit) |
| $ | (23,242) |
| $ | (13,505) |
| $ | (5,636) |
|
Consolidated: |
|
|
|
|
|
|
|
|
|
|
United States—Federal |
| $ | 6,599 |
| $ | (10,517) |
| $ | 13,883 |
|
United States—State |
|
| 1,674 |
|
| 1,450 |
|
| 214 |
|
Foreign |
|
| 10,597 |
|
| 7,726 |
|
| 7,063 |
|
Total income tax expense (benefit) |
| $ | 18,870 |
| $ | (1,341) |
| $ | 21,160 |
|
F-43
The significant components of deferred tax assets and liabilities are as follows as of December 31, 20182020 and 20172019 (in thousands):
|
|
|
|
|
|
|
| |||||||
|
| 2018 |
| 2017 |
| |||||||||
| | | | | | | | |||||||
|
| 2020 |
| 2019 |
| |||||||||
Deferred tax assets: |
|
|
|
|
|
|
| | | | | | | |
Receivables reserve |
| $ | 3,087 |
| $ | 1,524 |
| |||||||
Temporary differences not currently deductible for tax |
|
| 9,035 |
|
| 7,869 |
| |||||||
Deferred compensation |
|
| 784 |
|
| 1,446 |
| |||||||
Pension |
|
| 635 |
|
| 245 |
| |||||||
Accounts receivable and inventory allowances | | $ | 1,972 | | $ | 1,603 | | |||||||
Basis in investments | |
| 7,512 | |
| 6,937 | | |||||||
Accrued expenses | |
| 4,701 | |
| 5,923 | | |||||||
Deferred revenue | |
| 3,141 | |
| 2,864 | | |||||||
Employee benefits | |
| 4,363 | |
| 3,559 | | |||||||
Other, net | |
| 744 | |
| — | | |||||||
Net operating losses |
|
| 29,496 |
|
| 26,685 |
| | | 26,582 | | | 40,491 | |
Tax Credits |
|
| 645 |
|
| 8,969 |
| | | 1,997 | | | 2,726 | |
Operating lease liability | | | 14,648 | | | 15,869 | | |||||||
Total deferred tax asset |
|
| 43,682 |
|
| 46,738 |
| |
| 65,660 | |
| 79,972 | |
| | | | | | | | |||||||
Deferred tax liabilities: |
|
|
|
|
|
|
| | | | | | | |
Property, plant and equipment, net |
|
| 14,608 |
|
| 35,630 |
| |||||||
Intangible assets, net |
|
| 5,959 |
|
| 5,817 |
| |||||||
Acquired intangible assets, property and equipment | | | 26,736 | | | 30,419 | | |||||||
Right-of-use asset | | | 14,594 | | | 15,869 | | |||||||
Prepaid expense | |
| 209 | |
| 181 | | |||||||
Other, net | |
| — | |
| 195 | | |||||||
Total deferred tax liabilities |
|
| 20,567 |
|
| 41,447 |
| |
| 41,539 | |
| 46,664 | |
|
|
|
|
|
|
|
| |||||||
| | | | | | | | |||||||
Valuation allowance |
|
| (31,442) |
|
| (35,829) |
| |
| (31,014) | |
| (39,406) | |
|
|
|
|
|
|
|
| |||||||
| | | | | | | | |||||||
Net deferred tax liabilities |
| $ | (8,327) |
| $ | (30,538) |
| | $ | (6,893) | | $ | (6,098) | |
F-47
Deferred tax assets and liabilities are reflected in the accompanying consolidated balance sheets as follows (in thousands):
|
|
|
|
|
|
|
| |||||||
|
| 2018 |
| 2017 |
| |||||||||
| | | | | | | | |||||||
|
| 2020 |
| 2019 |
| |||||||||
Deferred tax assets: |
|
|
|
|
|
|
| | | | | | | |
Current |
| $ | — |
| $ | — |
| |||||||
Long term |
|
| 1,949 |
|
| 1,194 |
| | $ | 3,782 | | $ | 2,582 | |
Total deferred tax asset |
| $ | 1,949 |
| $ | 1,194 |
| | $ | 3,782 | | $ | 2,582 | |
Deferred tax liabilities: |
|
|
|
|
|
|
| | | | | | | |
Current |
| $ | — |
| $ | — |
| |||||||
Long term |
|
| (10,276) |
|
| (31,732) |
| | $ | (10,675) | | $ | (8,680) | |
Total deferred tax liabilities |
| $ | (10,276) |
| $ | (31,732) |
| | $ | (10,675) | | $ | (8,680) | |
Net deferred tax liabilities |
| $ | (8,327) |
| $ | (30,538) |
| | $ | (6,893) | | $ | (6,098) | |
The Company'sCompany’s effective tax rate for the yearyears ended December 31, 20182020 and 20172019 was 35.1%858.3% and (2.8)%67.6%, respectively. On March 27, 2020, the U.S. federal government enacted the CARES Act. The CARES Act, among other things, allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The effective tax rate for the year ended December 31, 20182020 was primarily impacted by the following items: (i) a $10.6$3.1 million net benefit attributable to the remeasurement of domestic losses at a higher tax rate due to carryback provisions as provided by the CARES Act, (ii) a $2.1 million net increase of unrecognized tax positions, (ii)(iii) a $4.7 $1.5 million net benefit to record a return to accrual adjustment, (iii) a $1.2 million benefit to recognize a capital loss carryover due to capital gains on sales of wireless licenses,increase for permanently non-deductible expenses, (iv) a $1.4 $21.5 million net benefit to record a valuation allowance releaseloss on an indefinite lived intangible asset, (v) a $1.7 million provision associated with the intercompany sale of assets from the U.S. to the U.S. Virgin Islands,Vibrant with no tax benefit, and (vi)(v) the mix of income generated among the jurisdictions in which the Company operates along with the exclusion of losses in jurisdictions where the Company cannot benefit from those losses as required by ASC 740-270-30-36(a), primarily in the U.S.US Virgin Islands and India. Islands.
The effective tax rate for the year ended December 31, 20172019 was primarily impacted by the following items: (i) a $10.6$3.9 million benefitnet increase of unrecognized tax positions, (ii) a $3.8 million net increase for the net impactpermanently non-deductible
F-44
expenses, (iii) a $1.2 million benefit from the remeasurement of the deferred tax assets and liabilities, which was partially offset by a provision of $7.4 million on the deemed repatriation of undistributed foreign earnings (ii) a $3.9 million benefit for the net capital transactions related to the Company’s businesses in New England, New York, the British Virgin Islands,an investment tax credit, and St. Maarten, (iii) a $3.4 million benefit for an amended return refund claim filed for tax year 2013, (iv) a $4.4 million increase (net) in unrecognized tax benefits related to current year and prior year positions, (v) a $6.1 million provision (net) to record the change in valuation allowance and, (vi) the mix of income generated among the jurisdictions in which we operate along with the Company operates. exclusion of losses in jurisdictions where we cannot benefit from those losses as required by ASC 740-270-30-36(a), primarily in the US Virgin Islands and India.
As of December 31, 2018,2020, the Company estimated that it had gross federal, state and foreign net operating loss (“NOL”) carryforwards of $1.2$1.1 million, $18.9 million and $115.8$110.9 million respectively. Of these, $64.0$57.3 million will expire between 20242031 and 20372041 and $53.1$73.6 million may be carried forward indefinitely.
The Company assesses available positive and negative evidence to estimate if sufficient future taxable income will be generated to realize the existing deferred tax assets. A significant piece of negative evidence evaluated is cumulative losses incurred in certain reporting jurisdictions over the three-year period ended December 31, 2018.2020. Other negative evidence examined includes, but is not limited to, losses expected in early future years, a history of tax benefits expiring unused, uncertainties whose unfavorable resolution would adversely affect future results, and brief carryback, carry forward periods. On the basis of this evaluation, the Company believed it was more likely than not that the benefit from some of these federal, state, and foreign deferred taxes would not be realized.
In recognition of this risk at December 31, 20182020 the Company has provided a valuation allowance against certain domestic and foreign deferred tax assets of $31.4$31.0 million. The foreign valuation allowance primarily relates to foreign net operating losses, of $29.1 million, whilewith the remaining $2.3 million is onamount applicable to other net foreign deferred tax assets which the Company does not expect to be able to realize. At December 31, 2017, the Company’s federal and foreign NOL carryforward valuation allowances were $1.9 million and $24.3 million, respectively. The federal foreign tax credit valuation allowance was $8.2 million and the remaining valuation allowance of $1.4 million was applied to the other foreign deferred taxes for entities with a full valuation allowance at December 31, 2017.
F-48
As of December 31, 2018,2020, the Company has approximately $119.7had an estimated $145.1 million of undistributed earnings of itsattributable to foreign subsidiaries for which no provision for state income taxes or foreign withholding taxes have been made because it is expected that such earnings will be reinvested outside the U.S. indefinitely unless repatriation can be done substantially tax-free. The Company will generally be free of additional U.S. federal tax consequences on distributed foreign subsidiary earnings due to a dividends received deduction implemented as part of the Tax Act for earnings distributed after January 1, 2018. Additionally, due to the one-time transition tax on the deemed repatriation of post-1986 undistributed foreign subsidiary earnings, the majority of previously unremitted earnings have already been subjected to U.S. federal income tax. The Company continues to assert indefinite reinvestment on outside basis differences in its non-U.S. subsidiaries, with the exception of the Vibrant entities, which are considered to be indefinitely reinvested. As such,held for sale as of December 31, 2020. Additionally any determination of the Company has not providedamount of the unrecognized deferred tax liability on those earnings. The Company received $51.6 millionoutside basis differences is not practicable because of cash distributions from GTT in 2018 but does not anticipate dividends in the future. complexity of laws and regulations, the varying tax treatment of alternative repatriation scenarios and the variation due to multiple potential assumptions relating to the timing of any future repatriation.
The Company had unrecognized tax benefits (including interest and penalty) of $40.8 million as of December 31, 2020, $38.6 million as of December 31, 2019 and $34.7 million as of December 31, 2018, $24.1 million as of December 31, 2017 and, $20.0 million as of December 31, 2016.2018. The net increase of the reserve during the year ended December 31, 20182020 was attributable to an increase in tax positions for prior periods of $8.8$2.1 million, a net increase in tax positions for the current period of $3.4$3.0 million and partially offset by a lapse in statute of a prior year position of $1.6$2.9 million.
F-45
The following shows the activity related to unrecognized tax benefits (not including interest and penalty) during the three years ended December 31, 20182020 (in thousands):
|
|
|
|
| |||
Gross unrecognized tax benefits at December 31, 2015 |
| $ | 17,216 |
| |||
Increase in unrecognized tax benefits taken during a prior period |
|
| 561 |
| |||
Increase in unrecognized tax benefits taken during the current period |
|
| 2,321 |
| |||
Lapse in statute of limitations |
|
| (1,673) |
| |||
Settlements |
|
| (521) |
| |||
Gross unrecognized uncertain tax benefits at December 31, 2016 |
|
| 17,904 |
| |||
Increase in unrecognized tax benefits taken during a prior period |
|
| — |
| |||
Increase in unrecognized tax benefits taken during the current period |
|
| 3,394 |
| |||
Lapse in statute of limitations |
|
| (2) |
| |||
Settlements |
|
| (335) |
| |||
| | | | ||||
Gross unrecognized uncertain tax benefits at December 31, 2017 |
|
| 20,961 |
|
| | 20,961 |
Increase in unrecognized tax benefits taken during a prior period |
|
| 7,293 |
| | | 7,293 |
Increase in unrecognized tax benefits taken during the current period |
|
| 3,408 |
|
| | 3,408 |
Lapse in statute of limitations |
|
| (1,430) |
|
| | (1,430) |
Settlements |
|
| — |
| | | — |
Gross unrecognized uncertain tax benefits at December 31, 2018 |
| $ | 30,232 |
| | | 30,232 |
Increase in unrecognized tax benefits taken during a prior period | | | — | ||||
Increase in unrecognized tax benefits taken during the current period |
| | 3,383 | ||||
Lapse in statute of limitations |
| | (933) | ||||
Settlements | | | — | ||||
Gross unrecognized uncertain tax benefits at December 31, 2019 | | $ | 32,682 | ||||
Increase in unrecognized tax benefits taken during a prior period | | | — | ||||
Increase in unrecognized tax benefits taken during the current period | | | 2,964 | ||||
Lapse in statute of limitations | | | (1,768) | ||||
Settlements | | | — | ||||
Gross unrecognized uncertain tax benefits at December 31, 2020 | | $ | 33,878 | ||||
The Company’s accounting policy is to classify interest and penalties related to income tax matters as part of income tax expense. The accrued amounts for interest and penalties are $6.9 million as of December 31, 2020, $5.9 million as of December 31, 2019, and $4.5 million as of December 31, 2018, and $3.1 million as of December 31, 2017, and $2.1 million as of December 31, 2016.2018.
All $34.7$40.7 million of gross unrecognized uncertain tax benefits (including interest and penalty) would impact the effective tax rate if recognized.
The Company and its subsidiaries file income tax returns in the U.S.US and in various, state and local and foreign jurisdictions. The statute of limitations related to the consolidated U.S.US federal income tax return is closed for all tax years up to and including 2012. The federal tax audits are closed through 2014. There are no tax audits currently in progress.2013. The expiration of the statute of limitations related to the various state and foreign income tax returns that the Company and subsidiaries file varies by jurisdiction.
13. RETIREMENT PLANS
The Company has noncontributory defined benefit pension plans for eligible employees of its GTT and Viya subsidiaries who meet certain age and employment criteria. The Company also has aas well as noncontributory postretirement benefit plans offering defined medical, dental, vision, and life benefit planbenefits for eligiblecertain employees of its Viya subsidiary who meet certain ageInternational Telecom segment. The Company’s pension and employment criteria. Theother postretirement benefit plans are closed to new participants and only grandfathered participants continue to accrue additional benefits. Also, in 2020 the Company acquiredbegan the Viya plans as a resultprocess of the July 2016 Viya Acquisition.winding up one of its benefit plans. The Company reviews the funded status of its pension plans and makes contributions based on that analysis. The benefits are based on the
F-49
participants’ compensation during their employment and the credited service years earned by participants. The Company funds the other postretirement benefit plans as benefits are paid.
F-46
The weighted‑averageweighted-average rates assumed in the actuarial calculations for the pension and other postretirement benefit plans are as follows as of December 31, 2018, 20172020, 2019 and 2016:2018:
|
|
|
|
|
|
|
|
|
| 2018 |
| 2017 |
| 2016 |
|
Discount Rate – Pension Benefit Obligation |
| 4.7 | % | 4.2 | % | 4.6 | % |
Discount Rate – Pension Benefit Cost |
| 4.3 | % | 4.6 | % | 4.3 | % |
Discount Rate – Postretirement Benefit Obligation |
| 4.5 | % | 3.9 | % | 4.3 | % |
Discount Rate – Postretirement Benefit Cost |
| 3.9 | % | 4.3 | % | 3.9 | % |
Annual salary increase |
| 6.5 | % | 6.5 | % | 6.5 | % |
Expected long-term return on plan assets |
| 6.1 | % | 6.1 | % | 6.3 | % |
| | | | | | | |
|
| 2020 |
| 2019 |
| 2018 | |
Discount Rate – Pension Benefit Obligation |
| 2.6 | % | 4.2 | % | 4.7 | % |
Discount Rate – Pension Benefit Cost | | 3.5 | % | 4.5 | % | 4.3 | % |
Discount Rate – Postretirement Benefit Obligation | | 2.5 | % | 3.5 | % | 4.5 | % |
Discount Rate – Postretirement Benefit Cost | | 3.5 | % | 4.5 | % | 3.9 | % |
Annual salary increase |
| n/a | | 6.5 | % | 6.5 | % |
Expected long-term return on plan assets |
| 5.1 | % | 6.1 | % | 6.1 | % |
The expected long‑termlong-term rate of return on plan assets was determined based on several factors including input from pension investment consultants, projected long‑termlong-term returns of equity and bond indices, and historical returns over the life of the related obligations of the fund. The Company, in conjunction with its pension investment consultants, reviews its asset allocation periodically and rebalances its investments when appropriate in an effort to earn the expected long‑termlong-term returns. The Company will continue to evaluate its long‑termlong-term rate of return assumptions at least annually and will adjust them as necessary.
The annual salary increase assumption reflects the Company’s estimated long term average rate of salary increases. The assumption is notno longer applicable to the Viya pension and other postretirement plans as the obligations associated with these plans are not dependent on participant’s salaries.plan participants no longer accrue additional service.
The discount rate was determined based on a review of market data including yields on high quality corporate bonds with maturities approximating the remaining life of the project benefit obligations.
The other postretirement benefit plans healthcare cost trend assumptions is based on health care trend rates. The 20192020 assumed medical health care cost trend rate is 6% trending to an ultimate rate of 4% in 2073.2074. The 20192020 and ultimate assumed dental care cost trend rate is 4%. The effect of a one-percentage-point increase in the assumed health care cost trend rates for each future year on the accumulated postretirement benefit obligation for health care benefits and the aggregate of the service and interest cost components of net periodic postretirement health care benefit cost is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2018 |
| 2017 |
| ||||||||
|
| Accumulated postretirement benefit obligation |
| Service cost plus interest cost |
| Accumulated postretirement benefit obligation |
| Service cost plus interest cost |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At trend |
|
| 4,013 |
|
| 308 |
|
| 5,308 |
|
| 389 |
|
At trend + 1% |
|
| 4,305 |
|
| 338 |
|
| 5,723 |
|
| 429 |
|
Dollar Impact |
|
| 292 |
|
| 30 |
|
| 415 |
|
| 40 |
|
Percentage Impact |
|
| 7.3 | % |
| 9.7 | % |
| 7.8 | % |
| 10.3 | % |
At trend – 1% |
|
| 3,755 |
|
| 282 |
|
| 4,944 |
|
| 355 |
|
Dollar Impact |
|
| (258) |
|
| (26) |
|
| (364) |
|
| (34) |
|
Percentage Impact |
|
| (6.4) | % |
| (8.4) | % |
| (6.9) | % |
| (8.7) | % |
F-50
Changes during the year in the projected benefit obligations and in the fair value of plan assets are as follows for 20182020 and 20172019 (in thousands):
| | | | | | | | | | | | | |
|
| 2020 |
| 2019 | | ||||||||
| | | | | | | | | | | | | |
| | Pension Benefits | | Postretirement Benefits | | Pension Benefits | | Postretirement Benefits | | ||||
Projected benefit obligations: | | | | | | | | | | | | | |
Balance at beginning of year: | | $ | 81,977 | | $ | 4,899 | | $ | 76,900 | | $ | 4,012 | |
Service cost | |
| 439 | |
| 139 | |
| 1,709 | |
| 126 | |
Interest cost | |
| 2,585 | | | 163 | |
| 3,472 | | | 182 | |
Benefits and settlements paid | |
| (4,791) | |
| (450) | |
| (5,738) | |
| (354) | |
Actuarial (gain) loss | |
| 8,651 | |
| 759 | |
| 5,739 | |
| 933 | |
Settlement | |
| (89) | |
| — | |
| (105) | |
| — | |
Balance at end of year | | $ | 88,772 | | $ | 5,510 | | $ | 81,977 | | $ | 4,899 | |
Plan net assets: | | | | | | | | | | | | | |
Balance at beginning of year: | | $ | 83,350 | | $ | — | | $ | 77,530 | | $ | — | |
Actual return on plan assets | | | 10,398 | |
| — | | | 10,678 | |
| — | |
Company contributions | |
| 958 | |
| 450 | |
| 838 | |
| 354 | |
Benefits and settlements paid | |
| (5,354) | |
| (450) | |
| (5,696) | |
| (354) | |
Balance at end of year | | $ | 89,352 | | $ | — | | $ | 83,350 | | $ | — | |
Over/ (Under) funded status of plan | | $ | 580 | | $ | (5,510) | | $ | 1,373 | | $ | (4,899) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2018 |
| 2017 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Pension Benefits |
| Postretirement Benefits |
| Pension Benefits |
| Postretirement Benefits |
| ||||
Projected benefit obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year: |
| $ | 80,355 |
| $ | 5,307 |
| $ | 76,119 |
| $ | 5,108 |
|
Service cost |
|
| 1,794 |
|
| 147 |
|
| 1,676 |
|
| 183 |
|
Interest cost |
|
| 3,279 |
|
| 161 |
|
| 3,388 |
|
| 206 |
|
Benefits and settlements paid |
|
| (4,524) |
|
| (360) |
|
| (3,942) |
|
| (367) |
|
Actuarial (gain) loss |
|
| (4,295) |
|
| (272) |
|
| 3,114 |
|
| 177 |
|
Experience (gain) loss |
|
| 291 |
|
| (971) |
|
| — |
|
| — |
|
Balance at end of year |
| $ | 76,900 |
| $ | 4,012 |
| $ | 80,355 |
| $ | 5,307 |
|
Plan net assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year: |
| $ | 80,892 |
| $ | — |
| $ | 75,331 |
| $ | — |
|
Actual return on plan assets |
|
| (730) |
|
| — |
|
| 8,789 |
|
| — |
|
Company contributions |
|
| 1,830 |
|
| 360 |
|
| 842 |
|
| 367 |
|
Benefits and settlements paid |
|
| (4,462) |
|
| (360) |
|
| (4,070) |
|
| (367) |
|
Balance at end of year |
| $ | 77,530 |
| $ | — |
| $ | 80,892 |
| $ | — |
|
Over/ (Under) funded status of plan |
| $ | 630 |
| $ | (4,012) |
| $ | 537 |
| $ | (5,307) |
|
F-47
The Company reports an asset or liability on its balance sheet equal to the funded status of its pension and other postretirement benefit plans. Plans in an overfunded status are aggregated and recorded as a net pension benefit asset in other assets. Plans in an underfunded status are aggregated and recorded as a net postretirement benefit liability in other liabilities. The funded status of the Company’s pension and other retirement benefit plans is below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
|
| 2018 |
| 2017 |
| |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
|
| GTT Pension Benefit |
| Viya Pension Benefit |
| Postretirement Benefits |
| GTT Pension Benefit |
| Viya Pension Benefit |
| Postretirement Benefits |
| |||||||||||||||||||||||||
|
|
|
|
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| |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
|
| 2020 |
| 2019 | | |||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
| | GTT Pension Benefit | | Viya Pension Benefit | | Postretirement Benefits | | GTT Pension Benefit | | Viya Pension Benefit | | Postretirement Benefits | | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
Projected benefit obligation |
| $ | 14,712 |
| $ | 62,188 |
| $ | 4,012 |
| $ | 13,205 |
| $ | 67,150 |
| $ | 5,307 |
| | $ | 15,609 | | $ | 73,163 | | $ | 5,510 | | $ | 15,594 | | $ | 66,383 | | $ | 4,899 | |
Plan Net Assets |
|
| 14,105 |
|
| 63,425 |
|
| — |
|
| 10,307 |
|
| 70,585 |
|
| — |
| | | 15,609 | | | 73,743 | | | — | | | 15,054 | | | 68,296 | | | — | |
Over/ (Under) funded status of plan |
| $ | (607) |
| $ | 1,237 |
| $ | (4,012) |
| $ | (2,898) |
| $ | 3,435 |
| $ | (5,307) |
| | $ | — | | $ | 580 | | $ | (5,510) | | $ | (540) | | $ | 1,913 | | $ | (4,899) | |
The Company’s investment policy for its pension assets is to have a reasonably balanced investment approach, with a long‑termlong-term bias toward debt investments. The Company’s strategy allocates plan assets among equity, debt and other assets to achieve long‑termlong-term returns without significant risk to principal. The GTT pension fund has limitations from investing in the equity, debt or other securities of the employer, its subsidiaries or associates of the employer or any company of which the employer is a subsidiary or an associate. Furthermore, the GTT plan must invest between 70% - 80% of its total plan assets within Guyana.
F-51
The fair values for the pension plan’s net assets, by asset category, at December 31, 20182020 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||
Asset Category |
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
|
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
| ||||||||
Cash, cash equivalents, money markets and other |
| $ | 5,173 |
| $ | 5,173 |
| $ | — |
| $ | — |
| | $ | 5,037 | | $ | 5,037 | | $ | — | | $ | — | |
Common stock |
| 23,052 |
| 18,760 |
| 4,292 |
| — |
| | | 27,785 | | | 24,781 | | | 3,004 | | | — | | ||||
Mutual funds - fixed income |
| 16,444 |
| — |
| 16,444 |
| — |
| | | 9,494 | | | 9,494 | | | — | | | — | | ||||
Mutual funds - equities |
| 13,099 |
| 4,748 |
| 8,351 |
| — |
| | | 8,278 | | | 8,278 | | | — | | | — | | ||||
Fixed income securities |
| 18,095 |
| — |
| 18,095 |
| — |
| | | 37,225 | | | — | | | 37,225 | | | — | | ||||
Other |
|
| 1,667 |
|
| 1,177 |
|
| — |
|
| 490 |
| | | 1,533 | | | 1,533 | | | — | | | — | |
Total |
| $ | 77,530 |
| $ | 29,858 |
| $ | 47,182 |
| $ | 490 |
| | $ | 89,352 | | $ | 49,123 | | $ | 40,229 | | $ | — | |
The fair values for the pension plan’s net assets, by asset category, at December 31, 20172019 are as follows (in thousands):
| | | | | | | | | | | | | |
Asset Category |
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
| ||||
Cash, cash equivalents, money markets and other | | $ | 4,982 | | $ | 4,982 | | $ | — | | $ | — | |
Common stock | | | 26,702 | | | 22,451 | | | 4,251 | | | — | |
Mutual funds - fixed income | | | 12,970 | | | 12,970 | | | — | | | — | |
Mutual funds - equities | | | 10,921 | | | 10,921 | | | — | | | — | |
Fixed income securities | | | 26,307 | | | 1,178 | | | 25,129 | | | — | |
Other | | | 1,468 | | | 1,031 | | | — | | | 437 | |
Total | | $ | 83,350 | | $ | 53,533 | | $ | 29,380 | | $ | 437 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Category |
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
| ||||
Cash, cash equivalents, money markets and other |
| $ | 6,363 |
| $ | 6,363 |
| $ | — |
| $ | — |
|
Common stock |
|
| 28,467 |
|
| 25,312 |
|
| 3,155 |
|
| — |
|
Mutual funds - equities |
|
| 9,248 |
|
| 9,248 |
|
| — |
|
| — |
|
Exchange traded funds - equities |
|
| 904 |
|
| 904 |
|
| — |
|
| — |
|
Fixed income securities |
|
| 35,414 |
|
| — |
|
| 35,414 |
|
| — |
|
Annuities |
|
| 496 |
|
| — |
|
| — |
|
| 496 |
|
Total |
| $ | 80,892 |
| $ | 41,827 |
| $ | 38,569 |
| $ | 496 |
|
F-48
The plan’s weighted‑averageweighted-average asset allocations at December 31, 20182020 and 2017,2019, by asset category are as follows:
|
|
|
|
|
|
|
| 2018 |
| 2017 |
|
Cash, cash equivalents, money markets and other |
| 7 | % | 8 | % |
Common stock |
| 30 |
| 35 |
|
Mutual funds - fixed income |
| 21 |
| — |
|
Mutual funds - equities |
| 17 |
| 11 |
|
Fixed income securities |
| 23 |
| 44 |
|
Other |
| 2 |
| 2 |
|
Total |
| 100 | % | 100 | % |
| | | | | |
|
| 2020 |
| 2019 | |
Cash, cash equivalents, money markets and other |
| 6 | % | 6 | % |
Common stock | | 31 | | 32 | |
Mutual funds - fixed income | | 11 | | 16 | |
Mutual funds - equities | | 9 | | 13 | |
Fixed income securities | | 41 | | 32 | |
Other | | 2 | | 1 | |
Total |
| 100 | % | 100 | % |
Amounts recognized on the Company’s consolidated balance sheets consist of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
| As of December 31, |
| |||||||||||||||||||||||
|
| 2018 |
| 2017 |
| |||||||||||||||||||||
|
| Pension benefits |
| Postretirement benefits |
| Pension benefits |
| Postretirement benefits |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
| | | | | | | | | | | | | | |||||||||||||
| | As of December 31, | | |||||||||||||||||||||||
|
| 2020 |
| 2019 | | |||||||||||||||||||||
| | Pension benefits | | Postretirement benefits | | Pension benefits | | Postretirement benefits | | |||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||
Accrued and current liabilities |
| $ | — |
| $ | 271 |
| $ | — |
| $ | 392 |
| | $ | — | | $ | 381 | | $ | — | | $ | 340 | |
Other Liabilities |
|
| 744 |
|
| 3,742 |
|
| 2,898 |
|
| 4,915 |
| | | — | | | 5,129 | | | 540 | | | 4,559 | |
Other Assets |
|
| 1,375 |
|
| — |
|
| 3,435 |
|
| — |
| |
| 580 | |
| — | |
| 1,913 | |
| — | |
Accumulated other comprehensive income, net of tax |
|
| 938 |
|
| 1,350 |
|
| 2,953 |
|
| 174 |
| | | (158) | | | (411) | | | 1,484 | | | 359 | |
F-52
Amounts recognized in accumulated other comprehensive lossincome consist of (in thousands):
| | | | | | | | | | | | | |
| | As of December 31, | | ||||||||||
|
| 2020 |
| 2019 | | ||||||||
| | Pension benefits | | Postretirement benefits | | Pension benefits | | Postretirement benefits | | ||||
| | | | | | | | | | | | | |
Unrecognized net actuarial gain (loss) | | $ | (1,159) | | $ | (411) | | $ | 540 | | $ | 359 | |
Accumulated other comprehensive income, pre-tax | | | (1,159) | | | (411) | | | 540 | | | 359 | |
Accumulated other comprehensive income (loss), net of tax | |
| (158) | |
| (411) | |
| 1,484 | |
| 359 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of December 31, |
| ||||||||||
|
| 2018 |
| 2017 |
| ||||||||
|
| Pension benefits |
| Postretirement benefits |
| Pension benefits |
| Postretirement benefits |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial gain |
| $ | 30 |
| $ | 1,350 |
| $ | 1,408 |
| $ | 174 |
|
Accumulated other comprehensive income, pre-tax |
|
| 30 |
|
| 1,350 |
|
| 1,408 |
|
| 174 |
|
Accumulated other comprehensive income, net of tax |
|
| 938 |
|
| 1,350 |
|
| 2,953 |
|
| 174 |
|
F-49
Components of the plan’s net periodic pension cost are as follows for the years ended December 31, 2018, 20172020, 2019 and 20162018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
|
| 2018 |
| 2017 |
| 2016 |
| |||||||||||||||||||||||||||||||
|
| Pension benefits |
| Postretirement benefits |
| Pension benefits |
| Postretirement benefits |
| Pension benefits |
| Postretirement benefits |
| |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
|
| 2020 |
| 2019 | | 2018 | | |||||||||||||||||||||||||||||||
| | Pension benefits | | Postretirement benefits | | Pension benefits | | Postretirement benefits | | Pension benefits | | Postretirement benefits | | |||||||||||||||||||||||||
Operating expense | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
Service cost |
| $ | 1,794 |
| $ | 147 |
| $ | 1,676 |
| $ | 183 |
| $ | 1,308 |
| $ | 97 |
| | $ | 439 | | $ | 139 | | $ | 1,709 | | $ | 126 | | $ | 1,794 | | $ | 147 | |
Non-operating expense | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
Interest cost |
|
| 3,279 |
|
| 161 |
|
| 3,388 |
|
| 206 |
|
| 2,002 |
|
| 97 |
| |
| 2,585 | |
| 163 | |
| 3,472 | |
| 182 | |
| 3,279 | |
| 161 | |
Expected return on plan assets |
|
| (4,835) |
|
| — |
|
| (4,470) |
|
| — |
|
| (2,024) |
|
| — |
| |
| (3,060) | |
| — | |
| (4,571) | |
| — | |
| (4,835) | |
| — | |
Amortization of actuarial (gain) loss |
|
| 121 |
|
| (67) |
|
| 716 |
|
| — |
|
| 1,271 |
|
| — |
| |
| — | |
| (11) | |
| 29 | |
| (58) | |
| 121 | |
| (67) | |
Curtailment |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 128 |
|
| — |
| |||||||||||||||||||
Settlement | |
| 89 | |
| — | |
| (35) | |
| — | |
| — | |
| — | | |||||||||||||||||||
Net periodic pension cost |
| $ | 359 |
| $ | 241 |
| $ | 1,310 |
| $ | 389 |
| $ | 2,685 |
| $ | 194 |
| | $ | 53 | | $ | 291 | | $ | 604 | | $ | 250 | | $ | 359 | | $ | 241 | |
The Company does not plan tois currently evaluating whether it will make any contributions to its pension and postretirement benefit plans during the year ending December 31, 2019.2021.
The following estimated benefits, which reflect expected future service, as appropriate, are expected to be paid over the next ten10 years as indicated below (in thousands):
|
|
|
|
|
|
| ||||||
|
| Pension |
| Postretirement | ||||||||
| | | | | | | ||||||
|
| Pension | | Postretirement | ||||||||
Fiscal Year |
| Benefits |
| Benefits | | Benefits |
| Benefits | ||||
2019 |
| $ | 5,022 |
| $ | 277 | ||||||
2020 |
|
| 4,292 |
|
| 255 | ||||||
2021 |
|
| 4,452 |
|
| 237 | | $ | 19,691 | | $ | 386 |
2022 |
|
| 5,079 |
|
| 261 | |
| 3,730 | | | 359 |
2023 |
|
| 4,355 |
|
| 236 | |
| 3,703 | | | 276 |
2024-2028 |
|
| 23,534 |
|
| 1,535 | ||||||
|
| $ | 46,734 |
| $ | 2,801 | ||||||
2024 | |
| 4,048 | | | 319 | ||||||
2025 | |
| 3,706 | | | 356 | ||||||
2026-2030 | |
| 19,058 | | | 1,679 | ||||||
Total | | $ | 53,936 | | $ | 3,375 | ||||||
14. COMMITMENTS AND CONTINGENCIES
Regulatory and Litigation Matters
The Company and its subsidiaries are subject to certain regulatory and legal proceedings and other claims arising in the ordinary course of business, some of which involve claims for damages and taxes that are substantial in amount. The Company believes that, except for the items discussed below, for which the Company is currently unable to
F-53
predict the final outcome, the disposition of proceedings currently pending will not have a material adverse effect on the Company’s financial position or results of operations.
TheIn 1990, the Company’s Guyana subsidiary, GTT, holdswas awarded a license to provide domestic fixed services and international voice and data services in Guyana on an exclusive basis until December 2030. Since 2001, the Government of Guyana has stated its intention to introduce additional competition into Guyana’s telecommunications sector. In connection therewith, the Company and GTT have met on several occasions with officials of the Government of Guyana to discuss potential modifications of GTT’s exclusivity and other rights under the existing agreement and license. On July 18, 2016,October 5, 2020, the Prime Minister of Guyana formally implemented telecommunications legislation previously passed by the Guyana Parliament passed telecommunications legislation, and on August 5,in 2016 the legislation was signed into law that introduces material changes to many features of Guyana’s existing telecommunications regulatory regime with the intention of creating a more competitive market. The legislation does not haveAt that time, the effectCompany was issued a new license to provide domestic and international voice as well as data services and mobile services in Guyana. NaN of terminating the Company’s exclusive license. Insteadcompetitors were issued service licenses as well. While the legislation as passed requires the MinisterCompany has requested details of Telecommunications to conduct further proceedings and issue implementing orders to enact the various provisionsits
F-50
competitors’ licenses, such information has not been made public by the Minister of Telecommunications. Guyana Telecommunications Agency, and the Company is not yet able to ascertain whether the licenses issued to its competitors permit any competitors to provide services that have been subject to GTT’s exclusive rights contained in its 1990 license.
In January 2018On October 23, 2020, the Government of Guyana andalso brought into effect new telecommunications regulations called for by the Company met to discuss modifications oftelecommunications legislation. The regulations include new requirements for the market as a whole, which impact the Company’s exclusivity rightsoperations, administrative reporting and other rights under its existing agreement and license. Those discussions are on-going, however, thereservices. There can be no assurance that those discussionsthese regulations will be concluded before the Government issues new licenses contemplated by the legislation or at all,effectively implemented, or that such discussionsthey will satisfactorily address the Company’s contractual exclusivity rights. Although the Company believes that it would be entitled to damages or other compensation for any involuntary termination of its contractual exclusivity rights, it cannot guarantee that the Company would prevailadministered in a proceeding to enforce its rights or that its actions would effectively halt any unilateral action by the Government.fair and transparent manner.
Historically, GTT has been subject to other long-standing litigation proceedings and disputes in Guyana that while not conclusively resolved, to the Company’s knowledge have not yet been the subject of discussions or other significant activity in the last five years. It is possible, but the Company believes unlikely, that these disputes, as discussed below, may be revived.resolved. The Company believes that none of these additional proceedings would, in the event of an adverse outcome, have a material impact on the Company’s consolidated financial position, results of operationoperations or liquidity.
In a letter dated September 8, 2006, the National Frequency Management Unit (“NFMU”) agreed that total spectrum fees in Guyana should not increase for the years 2006 and 2007. However, that letter implied that spectrum fees in 2008 and onward may be increased beyond the amount GTT agreed to with the Government.Government of Guyana. GTT has objected to the NFMU’s proposed action and reiterated its position that an increase in fees prior to development of an acceptable methodology would violate the Government’s prior agreement. In 2011, GTT paid the NFMU $2.6 million representing payments in full for 2008, 2009 and 2010. However, by letter dated November 23, 2011, the NFMU stated that it did not concur with GTT’s inference that the amount was payment in full for the specified years as it was NFMU’s continued opinion that the final calculation for spectrum fees was not agreed upon and was still an outstanding issue. By further letter dated November 24, 2011, the NFMU further rejected a proposal that was previously submitted jointly by GTT and another communications provider that outlined a recommended methodology for the calculation of these fees. The NFMU stated that it would prepare its own recommendation for consideration by the Minister of Telecommunications, who would decide the matter. GTT has paid undisputed spectrum fees according to the methodology used for its 2011 payments, and has reserved amounts payable according to this methodology. There have been limited further discussions on this subject and GTT has not had the opportunity to review any recommendation made by the NFMU to the Minister.
In November 2007, Caribbean Telecommunications Limited (“CTL”) filed a complaint in the U.S. District Court for the District of New Jersey against GTT and ATN claiming breach of an interconnection agreement for domestic cellular services in Guyana and related claims. CTL asserted over $200 million in damages. GTT and ATN moved to dismiss the complaint on procedural and jurisdictional grounds. On January 26, 2009, the court granted the motions to dismiss the complaint on the grounds asserted. In November 2009 and again in April 2013, CTL filed and then abandoned a similar claim against GTT and the Public Utility Commission in the High Court of Guyana. CTL once more filed a similar claim against the Company in December 2017, seeking damages of $25 million; however, this matter was dismissed in May 2018. CTL made an untimely filing for an appeal thereafter, which the court subsequently denied. The Company continues to believe this claim is without merit and intends to vigorously defend against it.
F-54
On May 8, 2009, a GTT competitor, Digicel, filed a lawsuit in Guyana challenging the legality of GTT’s exclusive license rights under Guyana’s constitution. Digicel initially filed this lawsuit against the Attorney General of Guyana. On May 13, 2009,constitution and GTT petitioned to interveneintervened in the suit in order to oppose Digicel’s claims and GTT’s petition was granted on May 18, 2009. GTT filed an answer to the charge on June 22, 2009.claims. The case remains pending. The Company believes that any legal challenge to GTT’s exclusive license rights granted in 1990 is without merit and the Company intends to defend vigorously against such legal challenge.
GTT has filed several lawsuits in the High Court of Guyana asserting that, despite its denials, Digicel is engaged in international bypass in violation of GTT’s exclusive license rights, the interconnection agreement between the parties, and the laws of Guyana. GTT is seeking injunctive relief to stop the illegal bypass activity and moneymonetary damages. Digicel filed counterclaims alleging that GTT has violated the terms of the interconnection agreement and Guyana laws. These suits, filed in 2010 and 2012, have been consolidated with Digicel’s constitutional challenge described aboveabove. Prior to the declaration of COVID-19 related travel and isbusiness restrictions in Guyana, the consolidated cases were scheduled to proceed to trial in 2020. GTT expects to resume the second quarterlitigation following the lifting of 2019. GTTCOVID-19 related restrictions and intends to prosecute these matters vigorously.vigorously; however, the Company cannot accurately predict at this time when the consolidated suit will go to trial.
GTT is also involved in several legal claims regarding its tax filings with the Guyana Revenue Authority dating back to 1991 regarding the deductibility of intercompany advisory fees as well as other tax assessments. The Company maintains that any liability GTT might be found to have with respect to the disputed tax assessments, totaling $44.1 million, would be offset in part by the amounts necessary to ensure that GTT’s return on investment was no less than 15% per annum for the relevant periods. The Company believes that some adverse outcome is probable and has accordingly accrued $5.0 million as of December 31, 20182020 for these matters.
Lease Commitments and
F-51
Other Obligations
The Company leases approximately 2.5 million square feethas obligations under non-cancellable contracts for its operations centers, administrative officesnetwork facilities and retail storestransport services, agreements for software licensing, as well as certain tower sites under non‑cancelable operating leases. The Company’s obligations foragreements to purchase goods or services. Future minimum payments required under these leasescommitments are as follows at December 31, 20182020 (in thousands):
|
|
|
|
|
2019 |
| $ | 21,941 |
|
2020 |
|
| 18,813 |
|
2021 |
|
| 12,406 |
|
2022 |
|
| 8,466 |
|
2023 |
|
| 4,142 |
|
Thereafter |
|
| 5,991 |
|
Total obligations under operating leases |
| $ | 71,759 |
|
Rent expense for the years ended
| | | | |
2021 |
| $ | 22,771 | |
2022 |
| | 16,065 | |
2023 |
| | 11,463 | |
2024 |
| | 10,416 | |
2025 | | | 1,143 | |
Thereafter |
| | 1,838 | |
Total obligations | | $ | 63,696 | |
F-52
15. SEGMENT REPORTING
Through December 31, 2018, 2017 and 2016 was $21.1 million, $20.9 million and $19.8 million, respectively.
15. RELATED‑PARTY TRANSACTIONS
In October 2014,2020, the Company’s U.S. Virgin Islands business, Choice Communications, LLC (“Choice”), entered into a tower lease with Tropical Tower Ltd (“Tropical Tower”), an entity 90% owned by Cornelius B. Prior, Jr., the former Chairman of the Company’s Board of Directors. When aggregated with amounts that Choice currently pays to Tropical Tower for an existing tower lease entered into in April 2012, Choice will pay approximately $117,000 per year in rental payments to Tropical Tower. Each tower lease has an initial term of five years, with two additional five-year renewal periods and has provisions for an increase in rent by 5% each year. The Company’s Audit Committee reviewed the specific structure and terms of the October 2014 lease, as negotiated by Choice management, and unanimously approved the arrangement described above in accordance with the terms of the Company’s Related Person Transaction Policy.
F-55
16. SEGMENT REPORTING
The Company has the following three3 reportable and operating segments: i) U.S.US Telecom, ii) International Telecom, and iii) Renewable Energy.
The following tables provide information for each operating segment (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
For the Year Ended December 31, 2018 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
| U.S. |
| International |
| Renewable |
| Corporate and |
|
|
| |||||||||||||||||||
|
| Telecom |
| Telecom |
| Energy |
| Other (1) |
| Consolidated | ||||||||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||
For the Year Ended December 31, 2020 | For the Year Ended December 31, 2020 | |||||||||||||||||||||||||||||
|
| | |
| |
| | |
| | |
| | | ||||||||||||||||
| | International | | US | | Renewable | | Corporate and | | | | |||||||||||||||||||
| | Telecom | | Telecom | | Energy | | Other (1) | | Consolidated | ||||||||||||||||||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | |
Wireless |
| $ | 108,878 |
| $ | 89,946 |
| $ | — |
| $ | — |
| $ | 198,824 | |||||||||||||||
Wireline |
|
| 6,602 |
|
| 223,623 |
|
| — |
|
| — |
|
| 230,225 | |||||||||||||||
Communication Services | | | | | | | | | | | | | | | | |||||||||||||||
Mobility | | $ | 83,136 | | $ | 9,626 | | $ | — | | $ | — | | $ | 92,762 | |||||||||||||||
Fixed | | | 230,375 | |
| 22,269 | |
| — | |
| — | |
| 252,644 | |||||||||||||||
Carrier Services | | | 7,120 | | | 79,448 | | | — | | | — | | | 86,568 | |||||||||||||||
Other | |
| 1,535 | | | — | | | — | | | — | | | 1,535 | |||||||||||||||
Total Communication Services Revenue | |
| 322,166 | | | 111,343 | | | — | | | — | | | 433,509 | |||||||||||||||
Other | | | | | | | | | | | | | | | | |||||||||||||||
Renewable Energy |
|
| — |
|
| — |
|
| 22,158 |
|
| — |
|
| 22,158 | | | — | | | — | | | 4,555 | | | — | | | 4,555 |
Managed Services | | | 6,467 | | | — | | | — | | | — | | | 6,467 | |||||||||||||||
Construction | |
| — | | | 10,913 | | | — | | | — | | | 10,913 | |||||||||||||||
Total Other Revenue | | | 6,467 | | | 10,913 | | | 4,555 | | | — | | | 21,935 | |||||||||||||||
Total Revenue |
|
| 115,480 |
|
| 313,569 |
|
| 22,158 |
|
| — |
|
| 451,207 | | | 328,633 | | | 122,256 | | | 4,555 | | | — | | | 455,444 |
Depreciation and amortization |
|
| 24,615 |
|
| 48,889 |
|
| 6,589 |
|
| 5,626 |
|
| 85,719 | |
| 56,284 | | | 23,325 | | | 2,216 | | | 6,486 | |
| 88,311 |
Non-cash stock-based compensation |
|
| — |
|
| 88 |
|
| 105 |
|
| 6,227 |
|
| 6,420 | |
| 49 | | | 15 | | | 262 | | | 5,586 | |
| 5,912 |
Operating income (loss) |
|
| 36,813 |
|
| 45,022 |
|
| 13,440 |
|
| (34,252) |
|
| 61,023 | |
| 58,064 | | | 7,388 | | | (23,749) | ��� | | (32,523) | |
| 9,180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2017 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| U.S. |
| International |
| Renewable |
| Corporate and |
|
|
| ||||
|
| Telecom |
| Telecom |
| Energy |
| Other (1) |
| Consolidated | |||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wireless |
| $ | 143,028 |
| $ | 89,473 |
| $ | — |
| $ | — |
| $ | 232,501 |
Wireline |
|
| 12,695 |
|
| 215,132 |
|
| — |
|
| — |
|
| 227,827 |
Renewable Energy |
|
| — |
|
| — |
|
| 20,865 |
|
| — |
|
| 20,865 |
Total Revenue |
|
| 155,723 |
|
| 304,605 |
|
| 20,865 |
|
| — |
|
| 481,193 |
Depreciation and amortization |
|
| 25,601 |
|
| 50,007 |
|
| 6,668 |
|
| 4,658 |
|
| 86,934 |
Non-cash stock-based compensation |
|
| — |
|
| 188 |
|
| 114 |
|
| 6,675 |
|
| 6,977 |
Operating income (loss) |
|
| 55,317 |
|
| 28,308 |
|
| 5,179 |
|
| (33,496) |
|
| 55,308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2016 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| U.S. |
| International |
| Renewable |
| Corporate and |
|
|
| ||||
|
| Telecom |
| Telecom |
| Energy |
| Other (1) |
| Consolidated | |||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wireless |
| $ | 150,044 |
| $ | 94,360 |
| $ | — |
| $ | — |
| $ | 244,404 |
Wireline |
|
| 26,683 |
|
| 163,915 |
|
| — |
|
| — |
|
| 190,598 |
Renewable Energy |
|
| — |
|
| — |
|
| 22,001 |
|
| — |
|
| 22,001 |
Total Revenue |
|
| 176,727 |
|
| 258,275 |
|
| 22,001 |
|
| — |
|
| 457,003 |
Depreciation and amortization |
|
| 24,470 |
|
| 40,493 |
|
| 4,987 |
|
| 6,030 |
|
| 75,980 |
Non-cash stock-based compensation |
|
| — |
|
| 22 |
|
| 114 |
|
| 6,274 |
|
| 6,410 |
Operating income (loss) |
|
| 49,078 |
|
| 36,910 |
|
| (246) |
|
| (34,472) |
|
| 51,270 |
| | | | | | | | | | | | | | | |
For the Year Ended December 31, 2019 | |||||||||||||||
|
| | |
| |
| | |
| | | | | | |
| | International | | US | | Renewable | | Corporate and | | | | ||||
| | Telecom | | Telecom | | Energy | | Other (1) | | Consolidated | |||||
Revenue | | | | | | | | | | | | | | | |
Communication Services | | | | | | | | | | | | | | | |
Mobility | | $ | 84,560 | | $ | 10,532 | | $ | — | | $ | — | | $ | 95,092 |
Fixed | | | 224,534 | |
| 14,211 | |
| — | |
| — | |
| 238,745 |
Carrier Services | | | 9,070 | | | 83,906 | | | — | | | — | | | 92,976 |
Other | |
| 1,295 | | | — | | | — | | | — | | | 1,295 |
Total Communication Services Revenue | |
| 319,459 | | | 108,649 | | | — | | | — | | | 428,108 |
Other | | | | | | | | | | | | | | | |
Renewable Energy | | | — | | | — | | | 5,534 | | | — | | | 5,534 |
Managed Services | | | 5,080 | | | — | | | — | | | | | | 5,080 |
Total Other Revenue | | | 5,080 | | | — | | | 5,534 | | | — | | | 10,614 |
Total Revenue | | | 324,539 | | | 108,649 | | | 5,534 | | | — | | | 438,722 |
Depreciation and amortization | |
| 55,993 | | | 23,119 | | | 3,305 | | | 6,708 | |
| 89,125 |
Non-cash stock-based compensation | |
| 405 | | | — | | | 87 | | | 5,892 | |
| 6,384 |
Operating income (loss) | |
| 46,921 | | | 8,064 | | | (7,243) | | | (34,365) | |
| 13,377 |
F-56F-53
| | | | | | | | | | | | | | | |
For the Year Ended December 31, 2018 | |||||||||||||||
|
| | |
| |
| | |
| | |
| | | |
| | International | | US | | Renewable | | Corporate and | | | | ||||
| | Telecom | | Telecom | | Energy | | Other (1) | | Consolidated | |||||
Revenue | | | | | | | | | | | | | | | |
Communication Services | | | | | | | | | | | | | | | |
Mobility | | $ | 85,152 | | $ | 11,759 | | $ | — | | $ | — | | $ | 96,911 |
Fixed | | | 213,765 | |
| 7,860 | |
| — | |
| — | |
| 221,625 |
Carrier Services | | | 8,846 | | | 95,861 | | | — | | | — | | | 104,707 |
Other | |
| 2,080 | | | — | | | — | | | — | | | 2,080 |
Total Communication Services Revenue | |
| 309,843 | | | 115,480 | | | — | | | — | | | 425,323 |
Other | | | | | | | | | | | | | | | |
Renewable Energy | | | — | | | — | | | 22,158 | | | — | | | 22,158 |
Managed Services | | | 3,726 | | | — | | | — | | | — | | | 3,726 |
Total Other Revenue | | | 3,726 | | | — | | | 22,158 | | | — | | | 25,884 |
Total Revenue | | | 313,569 | | | 115,480 | | | 22,158 | | | — | | | 451,207 |
Depreciation and amortization | |
| 48,889 | | | 24,615 | | | 6,589 | | | 5,626 | |
| 85,719 |
Non-cash stock-based compensation | |
| 88 | | | — | | | 105 | | | 6,227 | |
| 6,420 |
Operating income (loss) | |
| 45,022 | | | 36,813 | | | 13,440 | | | (34,252) | |
| 61,023 |
| | | | | | | | | | | | | | | |
|
| | |
| |
| | |
| |
|
| | | |
| | International | | US | | Renewable | | Corporate and | | | | ||||
| | Telecom | | Telecom | | Energy | | Other (1) | | Consolidated | |||||
December 31, 2020 | | | | | | | | | | | | | | | |
Cash, Cash equivalents, and Investments | | $ | 45,848 | | $ | 26,921 | | $ | 4,311 | | $ | 26,845 | | $ | 103,925 |
Total current assets | | | 107,315 | | | 65,806 | | | 39,057 | | | 27,887 | | | 240,065 |
Fixed assets, net | | | 449,888 | | | 73,717 | | | — | | | 12,857 | | | 536,462 |
Goodwill | |
| 25,421 | |
| 35,270 | |
| — | |
| — | | | 60,691 |
Total assets | |
| 642,834 | |
| 265,797 | |
| 39,045 | |
| 136,035 | | | 1,083,711 |
Total current liabilities | | | 80,875 | | | 43,200 | | | 1,038 | | | 22,815 | | | 147,928 |
Total debt | | | 72,823 | | | — | | | — | | | — | | | 72,823 |
December 31, 2019 | | | | | | | | | | | | | | | |
Cash, Cash equivalents, and Investments | | $ | 43,125 | | $ | 38,240 | | $ | 25,054 | | $ | 55,284 | | $ | 161,703 |
Total current assets | | | 91,497 | | | 54,207 | | | 27,534 | | | 55,485 | | | 228,723 |
Fixed assets, net | | | 466,523 | | | 69,184 | | | 48,421 | | | 21,453 | | | 605,581 |
Goodwill | |
| 25,421 | |
| 35,270 | |
| — | |
| — | | | 60,691 |
Total assets | |
| 647,228 | |
| 222,356 | |
| 76,723 | |
| 184,419 | | | 1,130,726 |
Total current liabilities | | | 77,644 | | | 24,905 | | | 2,745 | | | 14,375 | | | 119,669 |
Total debt | | | 86,426 | | | — | | | — | | | — | | | 86,426 |
F-54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| U.S. |
| International |
| Renewable |
| Corporate and |
|
|
| ||||
|
| Telecom |
| Telecom |
| Energy |
| Other (1) |
| Consolidated | |||||
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, Cash equivalents, and Investments |
| $ | 19,118 |
| $ | 32,390 |
| $ | 62,678 |
| $ | 78,043 |
| $ | 192,229 |
Total current assets |
|
| 36,801 |
|
| 75,304 |
|
| 80,553 |
|
| 83,107 |
|
| 275,765 |
Fixed assets, net |
|
| 78,102 |
|
| 482,770 |
|
| 45,599 |
|
| 20,381 |
|
| 626,852 |
Goodwill |
|
| 35,269 |
|
| 25,421 |
|
| 3,280 |
|
| — |
|
| 63,970 |
Total assets |
|
| 172,634 |
|
| 622,454 |
|
| 130,427 |
|
| 181,789 |
|
| 1,107,304 |
Total current liabilities |
|
| 15,783 |
|
| 82,575 |
|
| 3,465 |
|
| 38,827 |
|
| 140,650 |
Total debt |
|
| — |
|
| 90,970 |
|
| 12 |
|
| — |
|
| 90,982 |
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, Cash equivalents, and Investments |
| $ | 19,585 |
| $ | 110,700 |
| $ | 8,120 |
| $ | 76,627 |
| $ | 215,032 |
Total current assets |
|
| 40,975 |
|
| 190,396 |
|
| 18,060 |
|
| 93,497 |
|
| 342,928 |
Fixed assets, net |
|
| 99,462 |
|
| 367,485 |
|
| 158,447 |
|
| 17,752 |
|
| 643,146 |
Goodwill |
|
| 35,269 |
|
| 25,421 |
|
| 3,280 |
|
| — |
|
| 63,970 |
Total assets |
|
| 200,142 |
|
| 629,007 |
|
| 192,406 |
|
| 184,050 |
|
| 1,205,605 |
Total current liabilities |
|
| 41,248 |
|
| 91,887 |
|
| 14,754 |
|
| 13,816 |
|
| 161,705 |
Total debt |
|
| — |
|
| 94,577 |
|
| 61,215 |
|
| — |
|
| 155,792 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Capital Expenditures |
| |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| U.S. |
|
| International |
|
| Renewable |
|
| Corporate and |
|
|
|
|
|
Year ended December 31, |
|
| Telecom |
|
| Telecom |
|
| Energy |
|
| Other (1) |
|
| Consolidated |
|
|
2018 |
| $ | 13,389 |
| $ | 160,013 | (2) | $ | 4,515 |
| $ | 8,004 |
| $ | 185,921 |
|
|
2017 |
|
| 22,230 |
|
| 80,912 |
|
| 32,738 |
|
| 6,491 |
|
| 142,371 |
|
|
| | | | | | | | | | | | | | | |
| | Capital Expenditures | |||||||||||||
| |
| | |
| | |
| | |
| | |
| |
| | | International | | | US | | | Renewable | | | Corporate and | | | |
Year ended December 31, | | | Telecom | | | Telecom | | | Energy | | | Other (1) | | | Consolidated |
2020 | | $ | 38,895 | | $ | 29,883 | | $ | 2,932 | | $ | 3,613 | | $ | 75,323 |
2019 | | | 42,029 | | | 17,490 | | | 6,448 | | | 6,758 | | | 72,725 |
| (1) |
| Reconciling items refer to corporate overhead expenses and consolidating adjustments. |
|
|
The table below identifies the Company’s revenues and long-lived assets by geographic location. The Company attributes revenue to geographic location based on location of the customer (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
|
| 2018 |
| 2017 |
| 2016 |
| |||||||||||||||||||||||||||||||
|
|
|
| Long-Lived |
|
|
| Long-Lived |
|
|
| Long-Lived |
| |||||||||||||||||||||||||
|
| Revenues |
| Assets |
| Revenues |
| Assets |
| Revenues |
| Assets |
| |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
U.S. |
| $ | 132,288 |
| $ | 234,514 |
| $ | 173,632 |
| $ | 358,032 |
| $ | 198,300 |
| $ | 265,528 |
| |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
| | 2020 | | 2019 | | 2018 | | |||||||||||||||||||||||||||||||
| | | | Long-Lived | | | | Long-Lived | | | | Long-Lived | | |||||||||||||||||||||||||
| | Revenues | | Assets | | Revenues | | Assets | | Revenues | | Assets | | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
US | | $ | 122,256 | | $ | 308,138 | | $ | 123,508 | | $ | 297,084 | | $ | 132,288 | | $ | 234,514 | | |||||||||||||||||||
Guyana |
|
| 102,056 |
|
| 151,084 |
|
| 93,524 |
|
| 129,909 |
|
| 91,653 |
|
| 132,609 |
| |
| 103,071 | |
| 141,487 | |
| 105,290 | |
| 145,079 | |
| 102,056 | |
| 151,084 | |
U.S Virgin Islands |
|
| 79,785 |
|
| 216,173 |
|
| 83,194 |
|
| 137,018 |
|
| 58,431 |
|
| 110,773 |
| |||||||||||||||||||
US Virgin Islands | | | 90,368 | | | 230,630 | | | 83,795 | | | 235,384 | | | 79,785 | | | 216,173 | | |||||||||||||||||||
Bermuda |
|
| 103,281 |
|
| 137,992 |
|
| 127,244 |
|
| 165,243 |
|
| 83,006 |
|
| 94,976 |
| |
| 103,471 | |
| 116,346 | |
| 104,760 | |
| 128,208 | |
| 103,281 | |
| 137,992 | |
Other Foreign Countries |
|
| 33,797 |
|
| 91,774 |
|
| 3,599 |
|
| 71,282 |
|
| 25,613 |
|
| 76,575 |
| | | 36,278 | | | 47,045 | | | 21,369 | | | 96,247 | | | 33,797 | | | 91,775 | |
|
| $ | 451,207 |
| $ | 831,538 |
| $ | 481,193 |
| $ | 861,484 |
| $ | 457,003 |
| $ | 680,461 |
| |||||||||||||||||||
| | $ | 455,444 | | $ | 843,647 | | $ | 438,722 | | $ | 902,002 | | $ | 451,207 | | $ | 831,538 | | |||||||||||||||||||
F-57
17.16. QUARTERLY FINANCIAL DATA (UNAUDITED)
Following is a summary of the Company’s quarterly results of operations for the years ended December 31, 20182020 and 20172019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
| 2018 Consolidated for the Three Months Ended |
| |||||||||||||||||||||||
|
| March 31 |
| June 30 |
| September 30 |
| December 31 |
| |||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||
| | 2020 Consolidated for the Three Months Ended | | |||||||||||||||||||||||
|
| March 31 |
| June 30 |
| September 30 |
| December 31 |
| |||||||||||||||||
Total revenue |
| $ | 104,475 |
| $ | 117,788 |
| $ | 121,138 |
| $ | 107,806 |
| | $ | 110,905 | | $ | 109,098 | | $ | 111,739 |
| $ | 123,702 | |
Operating expenses |
|
| 100,266 |
|
| 102,035 |
|
| 90,395 |
|
| 97,488 |
| |
| 103,606 | |
| 102,074 | |
| 102,182 |
|
| 138,402 | |
Income from operations |
|
| 4,209 |
|
| 15,753 |
|
| 30,743 |
|
| 10,318 |
| |||||||||||||
Income (loss) from operations | |
| 7,299 | |
| 7,024 | |
| 9,557 |
|
| (14,700) | | |||||||||||||
Other income (expense), net |
|
| (2,591) |
|
| (2,885) |
|
| (2,823) |
|
| 1,018 |
| |
| (3,814) | | | (918) | | | (3,274) | | | (1,081) | |
Income from continuing operations before income taxes |
|
| 1,618 |
|
| 12,868 |
|
| 27,920 |
|
| 11,336 |
| |||||||||||||
Income (loss) from continuing operations before income taxes | |
| 3,485 | |
| 6,106 | |
| 6,283 |
|
| (15,781) | | |||||||||||||
Income taxes |
|
| 3,921 |
|
| 2,088 |
|
| 7,010 |
|
| 5,851 |
| |
| 1,109 | | | (2,258) | | | 92 | | | 1,858 | |
Net income (loss) |
|
| (2,303) |
|
| 10,780 |
|
| 20,910 |
|
| 5,485 |
| |
| 2,376 | | | 8,364 | | | 6,191 |
|
| (17,639) | |
Net income attributable to non-controlling interests, net of tax |
|
| (3,252) |
|
| (3,564) |
|
| (3,887) |
|
| (4,354) |
| |
| (3,390) | | | (3,618) | | | (3,530) | | | (2,876) | |
Net income (loss) attributable to ATN International, Inc. stockholders |
| $ | (5,555) |
| $ | 7,216 |
| $ | 17,023 |
| $ | 1,131 |
| | $ | (1,014) | | $ | 4,746 | | $ | 2,661 |
| $ | (20,515) | |
Net income (loss) per weighted average basic share attributable to ATN International, Inc. stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total |
|
| (0.35) |
|
| 0.45 |
|
| 1.07 |
|
| 0.07 |
| |||||||||||||
Net income (loss) per weighted average diluted share attributable to ATN International, Inc. stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total |
|
| (0.35) |
|
| 0.45 |
|
| 1.07 |
|
| 0.07 |
| |||||||||||||
Net income (loss) per weighted average share attributable to ATN International, Inc. stockholders | | | | | | | | | | | | | | |||||||||||||
Basic | | $ | (0.06) | | $ | 0.30 | | $ | 0.17 |
| $ | (1.30) | | |||||||||||||
Diluted | | $ | (0.06) | | $ | 0.30 | | $ | 0.17 |
| $ | (1.30) | | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2017 Consolidated for the Three Months Ended | ||||||||||
|
| March 31 |
| June 30 |
| September 30 |
| December 31 | ||||
Total revenue |
| $ | 128,115 |
| $ | 123,245 |
| $ | 122,132 |
| $ | 107,701 |
Operating expenses |
|
| 110,359 |
|
| 107,442 |
|
| 141,697 |
|
| 66,387 |
Income from operations |
|
| 17,756 |
|
| 15,803 |
|
| (19,565) |
|
| 41,314 |
Other income (expense), net |
|
| (3,044) |
|
| (2,298) |
|
| (2,295) |
|
| (118) |
Income (loss) from continuing operations before income taxes |
|
| 14,712 |
|
| 13,505 |
|
| (21,860) |
|
| 41,196 |
Income taxes |
|
| 3,128 |
|
| 2,596 |
|
| (884) |
|
| (6,181) |
Net income (loss) |
|
| 11,584 |
|
| 10,909 |
|
| (20,976) |
|
| 47,377 |
Net income attributable to non-controlling interests, net of tax |
|
| (4,725) |
|
| (5,026) |
|
| (3,784) |
|
| (3,871) |
Net income (loss) attributable to ATN International, Inc. stockholders |
| $ | 6,859 |
| $ | 5,883 |
| $ | (24,760) |
| $ | 43,506 |
Net income (loss) per weighted average basic share attributable to ATN International, Inc. stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
| 0.42 |
|
| 0.36 |
|
| (1.53) |
|
| 2.71 |
Net income (loss) per weighted average diluted share attributable to ATN International, Inc. stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
| 0.42 |
|
| 0.36 |
|
| (1.53) |
|
| 2.71 |
F-58F-55
| | | | | | | | | | | | |
| | 2019 Consolidated for the Three Months Ended | ||||||||||
|
| March 31 |
| June 30 |
| September 30 |
| December 31 | ||||
Total revenue | | $ | 103,300 | | $ | 107,721 | | $ | 115,616 |
| $ | 112,085 |
Operating expenses | |
| 101,186 | |
| 104,967 | |
| 105,368 |
|
| 113,824 |
Income from operations | |
| 2,114 | |
| 2,754 | |
| 10,248 |
|
| (1,739) |
Other income (expense), net | |
| (166) | |
| (1,001) | |
| (3,570) |
|
| (2,568) |
Income from continuing operations before income taxes | |
| 1,948 | |
| 1,753 | |
| 6,678 |
|
| (4,307) |
Income taxes | |
| 1,213 | |
| (274) | |
| 1,834 |
|
| 1,332 |
Net income (loss) | |
| 735 | | | 2,027 | | | 4,844 |
|
| (5,639) |
Net income attributable to non-controlling interests, net of tax | |
| (2,316) | | | (2,883) | | | (3,459) |
|
| (4,115) |
Net income (loss) attributable to ATN International, Inc. stockholders | | $ | (1,581) | | $ | (856) | | $ | 1,385 |
| $ | (9,754) |
Net income (loss) per weighted average share attributable to ATN International, Inc. stockholders | | | | | | | | | | | | |
Basic | | $ | (0.10) | | $ | (0.05) | | $ | 0.09 |
| $ | (0.62) |
Diluted | | $ | (0.10) | | $ | (0.05) | | $ | 0.09 |
| $ | (0.62) |
F-56
SCHEDULE II
ATN INTERNATIONAL, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(Amounts in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
| Balance at |
| Purchase |
| Charged to |
|
|
|
| Balance |
| ||||||||||||||||||||
|
| Beginning |
| Price |
| Costs and |
|
|
|
| at End |
| ||||||||||||||||||||
|
| of Year |
| Accounting |
| Expenses |
| Deductions |
| of Year |
| |||||||||||||||||||||
YEAR ENDED, December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Description: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Valuation allowance on foreign tax credit carryforwards |
| $ | 4,180 |
| $ | — |
| $ |
|
| $ | 4,180 |
| $ | — |
| ||||||||||||||||
Valuation allowance on foreign net operating losses and other deferred taxes |
|
| 1,672 |
|
| 41,941 |
|
| 217 |
|
| 1,922 |
|
| 41,908 |
| ||||||||||||||||
Valuation allowance on state net operating losses |
|
| 1,962 |
|
| — |
|
| — |
|
| 1,409 |
|
| 553 |
| ||||||||||||||||
Allowance for doubtful accounts |
|
| 9,294 |
|
| — |
|
| 5,095 |
|
| 1,240 |
|
| 13,149 |
| ||||||||||||||||
|
| $ | 17,108 |
| $ | 41,941 |
| $ | 5,312 |
| $ | 8,751 |
| $ | 55,610 |
| ||||||||||||||||
YEAR ENDED, December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Description: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Valuation allowance on foreign tax credit carryforwards |
| $ | — |
| $ | — |
| $ | 8,226 |
| $ | — |
| $ | 8,226 |
| ||||||||||||||||
Valuation allowance on capital loss carryforwards |
|
| — |
|
| — |
|
| 1,881 |
|
| — |
|
| 1,881 |
| ||||||||||||||||
Valuation allowance on foreign net operating losses and other deferred taxes |
|
| 41,908 |
|
| — |
|
| 839 |
|
| 17,025 |
|
| 25,722 |
| ||||||||||||||||
Valuation allowance on state net operating losses |
|
| 553 |
|
| — |
|
| — |
|
| 553 |
|
| — |
| ||||||||||||||||
Allowance for doubtful accounts |
|
| 13,149 |
|
| — |
|
| 3,993 |
|
| 2,119 |
|
| 15,023 |
| ||||||||||||||||
|
| $ | 55,610 |
| $ | — |
| $ | 14,939 |
| $ | 19,697 |
| $ | 50,852 |
| ||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
|
| Balance at |
| Purchase |
| Charged to |
| | |
| Balance |
| ||||||||||||||||||||
| | Beginning | | Price | | Costs and | | | | | at End | | ||||||||||||||||||||
| | of Year | | Accounting | | Expenses | | Deductions | | of Year | | |||||||||||||||||||||
YEAR ENDED, December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | |
Description: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | |
Valuation allowance on foreign tax credit carryforwards |
| $ | 8,226 |
| $ | — |
| $ | (8,226) |
| $ | — |
| $ | — |
| | $ | 8,226 | | $ | — | | $ | (8,226) | | $ | — | | $ | — | |
Valuation allowance on capital loss carryforwards |
|
| 1,881 |
|
| — |
|
| (1,881) |
|
| — |
|
| — |
| | | 1,881 | |
| — | |
| (1,881) | |
| — | |
| — | |
Valuation allowance on foreign net operating losses and other deferred taxes |
|
| 25,722 |
|
| — |
|
| 5,877 |
|
| 157 |
|
| 31,442 |
| |
| 25,722 | |
| — | |
| 5,877 | |
| 157 | |
| 31,442 | |
Allowance for doubtful accounts |
|
| 15,023 |
|
| — |
|
| 5,134 |
|
| 3,695 |
|
| 16,462 |
| ||||||||||||||||
|
| $ | 50,852 |
| $ | — |
| $ | 904 |
| $ | 3,852 |
| $ | 47,904 |
| ||||||||||||||||
Allowance for credit losses | |
| 15,023 | |
| — | |
| 5,134 | |
| 3,695 | |
| 16,462 | | ||||||||||||||||
| | $ | 50,852 | | $ | — | | $ | 904 | | $ | 3,852 | | $ | 47,904 | | ||||||||||||||||
YEAR ENDED, December 31, 2019 | | | | | | | | | | | | | | | | | ||||||||||||||||
Description: | | | | | | | | | | | | | | | | | ||||||||||||||||
Valuation allowance on foreign tax credit carryforwards | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | ||||||||||||||||
Valuation allowance on capital loss carryforwards | | | — | |
| — | |
| — | |
| — | |
| — | | ||||||||||||||||
Valuation allowance on foreign net operating losses and other deferred taxes | |
| 31,442 | |
| — | |
| 10,811 | |
| 2,847 | |
| 39,406 | | ||||||||||||||||
Allowance for credit losses | |
| 16,462 | |
| — | |
| 5,816 | |
| 9,554 | |
| 12,724 | | ||||||||||||||||
| | $ | 47,904 | | $ | — | | $ | 16,627 | | $ | 12,401 | | $ | 52,130 | | ||||||||||||||||
YEAR ENDED, December 31, 2020 | | | | | | | | | | | | | | | | | ||||||||||||||||
Description: | | | | | | | | | | | | | | | | | ||||||||||||||||
Valuation allowance on foreign tax credit carryforwards | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | ||||||||||||||||
Valuation allowance on capital loss carryforwards | | | — | |
| — | |
| — | |
| — | |
| — | | ||||||||||||||||
Valuation allowance on foreign net operating losses and other deferred taxes | |
| 39,406 | |
| — | |
| 775 | |
| 9,167 | |
| 31,014 | | ||||||||||||||||
Allowance for credit losses | |
| 12,724 | |
| — | |
| 5,010 | |
| 5,613 | |
| 12,121 | | ||||||||||||||||
| | $ | 52,130 | | $ | — | | $ | 5,785 | | $ | 14,780 | | $ | 43,135 | | ||||||||||||||||
F-59F-57