UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
For the quarterly period ended June 30, 20182019
OR
| |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 001-12593
ATN INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware |
| |
| 47-0728886 | |
500 Cummings Center, Suite 2450 | 01915 |
500 Cummings Center
Beverly, MA 01915
(Address of principal executive offices, including zip code)
(978) 978) 619-1300
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, par value $.01 per share | ATNI | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒⌧ No ☐
◻
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒⌧ No ☐
◻
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | |
Large accelerated filer | | Accelerated filer |
| | |
Non-accelerated filer | | Smaller reporting company ☐ |
| | Emerging growth company ☐ |
IfIf an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☒⌧
As of August 8, 2018,7, 2019, the registrant had outstanding 15,957,35416,004,810 shares of its common stock ($.01 par value).
1
FORM 10-Q
Quarter Ended June 30, 20182019
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| Condensed Consolidated Balance Sheets at June 30, | |||
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| Condensed Consolidated Statements of Equity for the Six Months Ended June 30, 2019 and 2018 | 7 | ||
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| Notes to Unaudited Condensed Consolidated Financial Statements | 9 | ||
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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CERTIFICATIONS | |
2
Cautionary Statement Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q (or the “Report”) contains forward-looking statements relating to, among other matters, our future financial performance and results of operations; the estimated timeline for the rebuilding of our operations andincrease in revenues from our customers in the U.S.US Virgin Islands following the hurricanes; our estimates of total losses due to the hurricanesHurricanes Irma and our estimated costs of restoring hurricane-damaged services; our ability to receive financial support from the government for our rebuild in the U.S. Virgin Islands and the timing of such support;Maria (the “Hurricanes”); the competitive environment in our key markets, demand for our services and industry trends; the pace of expansion and improvement of our telecommunications network and renewable energy operations including our level of estimated future capital expenditures and our realization of the benefits of these investments;investments and their impact on our customers; the anticipated timing of our build schedule and energy production of our India renewable energy projectsprojects; our pipeline of additional solar capacity; expectations regarding our revenue, expenses and financial performance; our compliance with requirements for certain grants and programs and the anticipated timing of the receipt of funds under such grants and programs; the impact of new accounting pronouncements; our satisfaction of performance obligations; the impact of litigation; the sufficiency of our cash and our expectations regarding capital expenditures; and management’s plans and strategy for the future. These forward-looking statements are based on estimates, projections, beliefs, and assumptions and are not guarantees of future events or results. Actual future events and results could differ materially from the events and results indicated in these statements as a result of many factors, including, among others, (1) our ability to restore our networks and services to our customers in the U.S. Virgin Islands in an efficient and timely manner and to obtain governmental or other support necessary to fully restore services in the U.S. Virgin Islands; (2) our ability to execute planned network expansions and upgrades in our various markets; (3) the general performance of our operations, including operating margins, revenues, capital expenditures, and the future growth and retention of our major customers and subscriber base and consumercommercial and industrial demand for solar power; (4) government regulation of our businesses, which may impact our Federal Communications Commission and other telecommunications licenses or our renewables business; (5) economic, political and other risks facing our operations; (6)(2) our ability to maintain favorable roaming arrangements and satisfy the needs and demands of our major wireless customers; (7)(3) our ability to efficiently and cost-effectively upgrade our networks and IT platforms to address rapid and significant technological changes and cyber security concerns in the telecommunications industry; (4) government regulation of our businesses, which may impact our Federal Communications Commission (“FCC”) and other telecommunications licenses or our renewables business; (5) our reliance on a limited number of key suppliers and vendors for timely supply of equipment and services relating to our network infrastructure; (6) our ability to receive financial support from the government for our rebuild in the US Virgin Islands and the timing of such support; (7) economic, political and other risks facing our operations; (8) the loss of or an inability to recruit skilled personnel in our various jurisdictions, including key members of management; (9) our ability to find investment or acquisition or disposition opportunities that fit the strategic goals of the Company; (10) the occurrence of weather events and natural catastrophes; (11) increased competition; (11) our ability to expand our renewable energy business; (12) our reliance on a limited number of key suppliers and vendors for timely supply of equipment and services relating to our network infrastructure; (13) the adequacy and expansion capabilities of our network capacity and customer service system to support our customer growth; (14) the occurrence of weather events and natural catastrophes; (15)(13) our continued access to capital and credit markets; (16)and (14) the risk of currency fluctuation for those markets in which we operate; and (17) our ability to realize the value that we believe exists in our businesses.operate. These and other additional factors that may cause actual future events and results to differ materially from the events and results indicated in the forward-looking statements above are set forth more fully under Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2017,2018, filed with the SEC on March 1, 2018February 28, 2019 as may be updated by our Quarterly Reports on Form 10-Q and the other reports we file from time to time with the SEC. Except as required by law, the Company undertakes no obligation and has no intention to update these forward-looking statements to reflect actual results, changes in assumptions or changes in other factors that may affect such forward-looking statements.
In this Report, the words “the Company”, “we,” “our,” “ours,” “us” and “ATN” refer to ATN International, Inc. and its subsidiaries. This Report contains trademarks, service marks and trade names that are the property of, or licensed by, ATN and its subsidiaries.
Reference to dollars ($) refer to U.S.US dollars unless otherwise specifically indicated.
3
PART I—FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements
ATN INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
|
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|
|
|
|
| June 30, |
| December 31, |
|
| ||
|
| 2018 |
| 2017 |
|
| ||
ASSETS |
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 167,107 |
| $ | 207,956 |
|
|
Restricted cash |
|
| 1,071 |
|
| 833 |
|
|
Short-term investments |
|
| 1,595 |
|
| 7,076 |
|
|
Accounts receivable, net of allowances of $15.1 million and $15.0 million, respectively |
|
| 51,365 |
|
| 43,529 |
|
|
Inventory, materials and supplies |
|
| 7,789 |
|
| 15,398 |
|
|
Prepayments and other current assets |
|
| 35,386 |
|
| 68,136 |
|
|
Total current assets |
|
| 264,313 |
|
| 342,928 |
|
|
Fixed Assets: |
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
| 1,255,975 |
|
| 1,169,806 |
|
|
Less accumulated depreciation |
|
| (553,007) |
|
| (526,660) |
|
|
Net fixed assets |
|
| 702,968 |
|
| 643,146 |
|
|
Telecommunication licenses, net |
|
| 95,952 |
|
| 95,952 |
|
|
Goodwill |
|
| 63,970 |
|
| 63,970 |
|
|
Customer relationships, net |
|
| 10,403 |
|
| 11,734 |
|
|
Restricted cash |
|
| 11,949 |
|
| 11,101 |
|
|
Other assets |
|
| 39,444 |
|
| 36,774 |
|
|
Total assets |
| $ | 1,188,999 |
| $ | 1,205,605 |
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Current portion of long-term debt |
| $ | 11,268 |
| $ | 10,919 |
|
|
Accounts payable and accrued liabilities |
|
| 115,445 |
|
| 116,133 |
|
|
Dividends payable |
|
| 2,712 |
|
| 2,724 |
|
|
Accrued taxes |
|
| 10,238 |
|
| 6,751 |
|
|
Advance payments and deposits |
|
| 17,727 |
|
| 25,178 |
|
|
Total current liabilities |
|
| 157,390 |
|
| 161,705 |
|
|
Deferred income taxes |
|
| 30,755 |
|
| 31,732 |
|
|
Other liabilities |
|
| 41,612 |
|
| 37,072 |
|
|
Long-term debt, excluding current portion |
|
| 139,733 |
|
| 144,873 |
|
|
Total liabilities |
|
| 369,490 |
|
| 375,382 |
|
|
Commitments and contingencies (Note 13) |
|
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|
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|
ATN International, Inc. Stockholders’ Equity: |
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|
|
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; 17,128,694 and 17,102,530 shares issued, respectively, 15,957,537 and 16,025,745 shares outstanding respectively |
|
| 170 |
|
| 170 |
|
|
Treasury stock, at cost; 1,171,157 and 1,076,785 shares, respectively |
|
| (40,268) |
|
| (36,110) |
|
|
Additional paid-in capital |
|
| 172,170 |
|
| 167,973 |
|
|
Retained earnings |
|
| 550,872 |
|
| 552,948 |
|
|
Accumulated other comprehensive income |
|
| 141 |
|
| 3,746 |
|
|
Total ATN International, Inc. stockholders’ equity |
|
| 683,085 |
|
| 688,727 |
|
|
Non-controlling interests |
|
| 136,424 |
|
| 141,496 |
|
|
Total equity |
|
| 819,509 |
|
| 830,223 |
|
|
Total liabilities and equity |
| $ | 1,188,999 |
| $ | 1,205,605 |
|
|
| | | | | | |
| | June 30, | | December 31, | ||
|
| 2019 |
| 2018 | ||
ASSETS | | | | | | |
Current Assets: | | | | | | |
Cash and cash equivalents | | $ | 145,611 | | $ | 191,836 |
Restricted cash | |
| 1,071 | |
| 1,071 |
Short-term investments | |
| 5,281 | |
| 393 |
Accounts receivable, net of allowances of $17.3 million and $16.5 million, respectively | |
| 50,524 | |
| 38,305 |
Inventory, materials and supplies | |
| 6,714 | |
| 6,305 |
Prepayments and other current assets | |
| 41,028 | |
| 37,855 |
Total current assets | |
| 250,229 | |
| 275,765 |
Fixed Assets: | | | | | | |
Property, plant and equipment | |
| 1,215,826 | |
| 1,188,916 |
Less accumulated depreciation | |
| (602,123) | |
| (562,064) |
Net fixed assets | |
| 613,703 | |
| 626,852 |
Telecommunication licenses, net | |
| 93,686 | |
| 93,686 |
Goodwill | |
| 63,970 | |
| 63,970 |
Customer relationships, net | |
| 8,277 | |
| 9,323 |
Operating lease right-of-use assets | |
| 68,587 | |
| — |
Other assets | |
| 48,524 | |
| 37,708 |
Total assets | | $ | 1,146,976 | | $ | 1,107,304 |
LIABILITIES AND EQUITY | | | | | | |
Current Liabilities: | | | | | | |
Current portion of long-term debt | | $ | 4,688 | | $ | 4,688 |
Accounts payable and accrued liabilities | |
| 83,068 | |
| 80,873 |
Dividends payable | |
| 2,721 | |
| 2,720 |
Accrued taxes | |
| 8,342 | |
| 31,795 |
Current portion of operating lease liabilities | | | 10,021 | | | — |
Advance payments and deposits | |
| 21,461 | |
| 20,574 |
Total current liabilities | |
| 130,301 | |
| 140,650 |
Deferred income taxes | |
| 5,702 | |
| 10,276 |
Operating lease liabilities, excluding current portion | | | 58,748 | | | — |
Other liabilities | |
| 49,206 | |
| 46,760 |
Long-term debt, excluding current portion | |
| 84,478 | |
| 86,294 |
Total liabilities | |
| 328,435 | |
| 283,980 |
Commitments and contingencies (Note 15) | | | | | | |
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; 17,306,504 and 17,274,215 shares issued, respectively, 16,005,046 and 16,002,699 shares outstanding respectively | |
| 172 | |
| 172 |
Treasury stock, at cost; 1,301,458 and 1,271,516 shares, respectively | |
| (50,125) | |
| (48,547) |
Additional paid-in capital | |
| 185,112 | |
| 181,778 |
Retained earnings | |
| 555,806 | |
| 563,593 |
Accumulated other comprehensive income | |
| (1,282) | |
| (1,609) |
Total ATN International, Inc. stockholders’ equity | |
| 689,683 | |
| 695,387 |
Non-controlling interests | |
| 128,858 | |
| 127,937 |
Total equity | |
| 818,541 | |
| 823,324 |
Total liabilities and equity | | $ | 1,146,976 | | $ | 1,107,304 |
The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
4
ATN INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 20182019 AND 20172018
(Unaudited)
(In thousands, except per share amounts)Except Per Share Data)
| | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, | ||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
REVENUE: | | | | | | | | | | | | |
Wireless | | $ | 46,996 | | $ | 50,496 | | $ | 88,608 | | $ | 101,043 |
Wireline | |
| 59,276 | |
| 61,269 | |
| 119,473 | |
| 109,365 |
Renewable energy | |
| 1,449 | |
| 6,023 | |
| 2,939 | |
| 11,855 |
Total revenue | |
| 107,721 | |
| 117,788 | |
| 211,020 | |
| 222,263 |
OPERATING EXPENSES (excluding depreciation and amortization unless otherwise indicated): | | | | | | | | | | | | |
Termination and access fees | |
| 27,930 | |
| 28,257 | |
| 55,818 | |
| 54,171 |
Engineering and operations | |
| 19,107 | |
| 18,409 | |
| 38,139 | |
| 36,561 |
Sales, marketing and customer service | |
| 9,874 | |
| 8,413 | |
| 19,264 | |
| 16,974 |
General and administrative | |
| 26,590 | |
| 26,754 | |
| 50,405 | |
| 52,296 |
Transaction-related charges | |
| 28 | |
| 438 | |
| 68 | |
| 465 |
Depreciation and amortization | |
| 21,549 | |
| 21,913 | |
| 42,267 | |
| 43,217 |
(Gain) Loss on disposition of long-lived assets | | | (111) | | | (2,333) | | | 191 | | | (2,049) |
Loss on damaged assets and other hurricane related charges, net of insurance recovery | |
| — | |
| 184 | |
| — | | | 666 |
Total operating expenses | |
| 104,967 | |
| 102,035 | |
| 206,152 | |
| 202,301 |
Income from operations | |
| 2,754 | |
| 15,753 | |
| 4,868 | |
| 19,962 |
OTHER INCOME (EXPENSE) | | | | | | | | | | | | |
Interest income | | | 517 | | | 487 | | | 1,445 | | | 853 |
Interest expense | |
| (1,263) | |
| (2,327) | |
| (2,544) | | | (4,532) |
Other expenses | |
| (255) | |
| (1,045) | |
| (68) | | | (1,798) |
Other expense, net | |
| (1,001) | |
| (2,885) | |
| (1,167) | |
| (5,477) |
INCOME BEFORE INCOME TAXES | |
| 1,753 | |
| 12,868 | |
| 3,701 | |
| 14,485 |
Income tax (benefit) provisions | |
| (274) | |
| 2,088 | |
| 939 | |
| 6,008 |
NET INCOME | |
| 2,027 | |
| 10,780 | |
| 2,762 | |
| 8,477 |
Net income attributable to non-controlling interests, net of tax expense of $0.3 million, $0.3 million, $0.7 million and $0.6 million, respectively. | |
| (2,883) | |
| (3,564) | |
| (5,198) | |
| (6,816) |
NET INCOME (LOSS) ATTRIBUTABLE TO ATN INTERNATIONAL, INC. STOCKHOLDERS | | $ | (856) | | $ | 7,216 | | $ | (2,436) | | $ | 1,661 |
NET INCOME (LOSS) PER WEIGHTED AVERAGE SHARE ATTRIBUTABLE TO ATN INTERNATIONAL, INC. STOCKHOLDERS: | | | | | | | | | | | | |
Basic | | $ | (0.05) | | $ | 0.45 | | $ | (0.15) | | $ | 0.10 |
Diluted | | $ | (0.05) | | $ | 0.45 | | $ | (0.15) | | $ | 0.10 |
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | | | | | | | | | | | | |
Basic | |
| 15,997 | |
| 15,962 | |
| 15,986 | |
| 15,996 |
Diluted | |
| 15,997 | |
| 16,010 | |
| 15,986 | |
| 16,046 |
DIVIDENDS PER SHARE APPLICABLE TO COMMON STOCK | | $ | 0.17 | | $ | 0.17 | | $ | 0.34 | | $ | 0.34 |
The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
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|
|
| Three months ended June 30, |
| Six months ended June 30, |
| ||||||||
|
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| ||||
REVENUE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Wireless |
| $ | 50,496 |
| $ | 56,546 |
| $ | 101,043 |
| $ | 115,471 |
|
Wireline |
|
| 61,269 |
|
| 61,802 |
|
| 109,365 |
|
| 125,960 |
|
Renewable energy |
|
| 6,023 |
|
| 4,897 |
|
| 11,855 |
|
| 9,929 |
|
Total revenue |
|
| 117,788 |
|
| 123,245 |
|
| 222,263 |
|
| 251,360 |
|
OPERATING EXPENSES (excluding depreciation and amortization unless otherwise indicated): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination and access fees |
|
| 28,257 |
|
| 30,922 |
|
| 54,171 |
|
| 63,924 |
|
Engineering and operations |
|
| 18,409 |
|
| 19,378 |
|
| 36,561 |
|
| 39,061 |
|
Sales, marketing and customer service |
|
| 8,413 |
|
| 8,729 |
|
| 16,974 |
|
| 17,765 |
|
General and administrative |
|
| 26,754 |
|
| 26,011 |
|
| 52,296 |
|
| 50,370 |
|
Transaction-related charges |
|
| 438 |
|
| 148 |
|
| 465 |
|
| 826 |
|
Depreciation and amortization |
|
| 21,913 |
|
| 22,254 |
|
| 43,217 |
|
| 44,747 |
|
(Gain) loss on disposition of long-lived assets |
|
| (2,333) |
|
| — |
|
| (2,049) |
|
| 1,111 |
|
Loss on damaged assets and other hurricane related charges, net of insurance recovery |
|
| 184 |
|
| — |
|
| 666 |
|
| — |
|
Total operating expenses |
|
| 102,035 |
|
| 107,442 |
|
| 202,301 |
|
| 217,804 |
|
Income from operations |
|
| 15,753 |
|
| 15,803 |
|
| 19,962 |
|
| 33,556 |
|
OTHER INCOME (EXPENSE) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
| 487 |
|
| 347 |
|
| 853 |
|
| 633 |
|
Interest expense |
|
| (2,327) |
|
| (2,153) |
|
| (4,532) |
|
| (4,469) |
|
Loss on deconsolidation of subsidiary |
|
| — |
|
| — |
|
| — |
|
| (529) |
|
Other expenses |
|
| (1,045) |
|
| (492) |
|
| (1,798) |
|
| (973) |
|
Other expense, net |
|
| (2,885) |
|
| (2,298) |
|
| (5,477) |
|
| (5,338) |
|
INCOME BEFORE INCOME TAXES |
|
| 12,868 |
|
| 13,505 |
|
| 14,485 |
|
| 28,218 |
|
Income tax provisions |
|
| 2,088 |
|
| 2,596 |
|
| 6,008 |
|
| 5,724 |
|
NET INCOME |
|
| 10,780 |
|
| 10,909 |
|
| 8,477 |
|
| 22,494 |
|
Net income attributable to non-controlling interests, net of tax expense of $0.3 million, $0.1 million, $0.6 million, and $0.4 million, respectively. |
|
| (3,564) |
|
| (5,026) |
|
| (6,816) |
|
| (9,751) |
|
NET INCOME ATTRIBUTABLE TO ATN INTERNATIONAL, INC. STOCKHOLDERS |
| $ | 7,216 |
| $ | 5,883 |
| $ | 1,661 |
| $ | 12,743 |
|
NET INCOME PER WEIGHTED AVERAGE SHARE ATTRIBUTABLE TO ATN INTERNATIONAL, INC. STOCKHOLDERS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.45 |
| $ | 0.36 |
| $ | 0.10 |
| $ | 0.79 |
|
Diluted |
| $ | 0.45 |
| $ | 0.36 |
| $ | 0.10 |
| $ | 0.78 |
|
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 15,962 |
|
| 16,195 |
|
| 15,996 |
|
| 16,176 |
|
Diluted |
|
| 16,010 |
|
| 16,274 |
|
| 16,046 |
|
| 16,263 |
|
DIVIDENDS PER SHARE APPLICABLE TO COMMON STOCK |
| $ | 0.17 |
| $ | 0.34 |
| $ | 0.34 |
| $ | 0.68 |
|
5
ATN INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018
(Unaudited)
(In thousands)
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||
|
| 2019 |
| 2018 | | 2019 |
| 2018 | ||||
Net income | | $ | 2,027 | | $ | 10,780 | | $ | 2,762 | | $ | 8,477 |
Other comprehensive income (loss): | | | | | | | | | | | | |
Foreign currency translation adjustment | |
| 263 | |
| (2,551) | |
| 500 | |
| (3,583) |
Unrealized gain (loss) on derivatives | | | (112) | | | 42 | | | (173) | | | 181 |
Other comprehensive income (loss), net of tax | |
| 151 | |
| (2,509) | |
| 327 | |
| (3,402) |
Comprehensive income | |
| 2,178 | |
| 8,271 | |
| 3,089 | |
| 5,075 |
Less: Comprehensive income attributable to non-controlling interests | |
| (2,883) | |
| (3,564) | |
| (5,198) | |
| (6,816) |
Comprehensive income (loss) attributable to ATN International, Inc. | | $ | (705) | | $ | 4,707 | | $ | (2,109) | | $ | (1,741) |
The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
6
ATN INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2019 AND 2018
(In Thousands, Except Per 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, 2018 | | $ | 172 | | $ | (48,547) | | $ | 181,778 | | $ | 563,593 | | $ | (1,609) | | $ | 695,387 | | $ | 127,937 | | $ | 823,324 | |
Purchase of 28,393 shares of common stock | |
| — | | | (1,578) | | | — | | | — | | | — | | | (1,578) | | | — | | | (1,578) | |
Stock-based compensation | |
| — | | | — | | | 3,334 | | | — | | | — | | | 3,334 | | | — | | | 3,334 | |
Dividends declared on common stock ($0.34 per common share) | |
| — | | | — | | | — | | | (5,351) | | | — | | | (5,351) | | | (3,901) | | | (9,252) | |
Repurchase of non-controlling interests | | | — | | | — | | | — | | | — | | | — | | | — | | | (864) | | | (864) | |
Investments made by minority shareholders in consolidated affiliates | | | — | | | — | | | — | | | — | | | — | | | — | | | 488 | | | 488 | |
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | |
| — | | | — | | | — | | | (2,436) | | | — | | | (2,436) | | | 5,198 | | | 2,762 | |
Other comprehensive income | |
| — | | | — | | | — | | | — | | | 327 | | | 327 | | | — | | | 327 | |
Total comprehensive income (loss) | | | — | | | — | | | — | | | — | | | — | |
| (2,109) | |
| 5,198 | |
| 3,089 | |
Balance, June 30, 2019 | | $ | 172 | | $ | (50,125) | | $ | 185,112 | | $ | 555,806 | | $ | (1,282) | | $ | 689,683 | | $ | 128,858 | | $ | 818,541 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2017 | | $ | 170 | | $ | (36,110) | | $ | 167,973 | | $ | 552,948 | | $ | 3,746 | | $ | 688,727 | | $ | 141,496 | | $ | 830,223 | |
Issuance of 12,500 shares of common stock upon exercise of stock options | |
| — | | | — | | | 518 | | | — | | | — | | | 518 | | | — | | | 518 | |
Purchase of 72,922 shares of common stock | |
| — | | | (4,158) | | | — | | | — | | | — | | | (4,158) | | | — | | | (4,158) | |
Stock-based compensation | |
| — | | | — | | | 3,679 | | | — | | | — | | | 3,679 | | | — | | | 3,679 | |
Dividends declared on common stock ($0.34 per common share) | |
| — | | | — | | | — | | | (5,428) | | | — | | | (5,428) | | | (12,974) | | | (18,402) | |
Repurchase of non-controlling interests | | | — | | | — | | | — | | | — | | | — | | | — | | | (62) | | | (62) | |
Cumulative effect adjustment due to adoption of new accounting pronouncements | | | — | | | — | | | — | | | 1,691 | | | (203) | | | 1,488 | | | 1,148 | | | 2,636 | |
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | |
| — | | | — | | | — | | | 1,661 | | | — | | | 1,661 | | | 6,816 | | | 8,477 | |
Other comprehensive loss | |
| — | | | — | | | — | | | — | | | (3,402) | | | (3,402) | | | — | | | (3,402) | |
Total comprehensive income (loss) | | | — | | | — | | | — | | | — | | | — | |
| (1,741) | |
| 6,816 | |
| 5,075 | |
Balance, June 30, 2018 | | $ | 170 | | $ | (40,268) | | $ | 172,170 | | $ | 550,872 | | $ | 141 | | $ | 683,085 | | $ | 136,424 | | $ | 819,509 | |
The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
57
ATN INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2018 AND 2017 (Unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended June 30, |
| Six Months Ended June 30, | ||||||||
|
| 2018 |
| 2017 |
| 2018 |
| 2017 | ||||
Net income |
| $ | 10,780 |
| $ | 10,909 |
| $ | 8,477 |
| $ | 22,494 |
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
| (2,551) |
|
| 302 |
|
| (3,583) |
|
| 2,232 |
Reclassifications of gains on sale of marketable securities to net income |
|
| — |
|
| (755) |
|
| — |
|
| (1,044) |
Unrealized gain (loss) on securities |
|
| 42 |
|
| (90) |
|
| 181 |
|
| (130) |
Projected pension benefit obligation, net of tax of $0.0 million, $0.0 million, $0.0 million, and $0.4 million, respectively |
|
| — |
|
| — |
|
| — |
|
| 513 |
Other comprehensive income (loss), net of tax |
|
| (2,509) |
|
| (543) |
|
| (3,402) |
|
| 1,571 |
Comprehensive income |
|
| 8,271 |
|
| 10,366 |
|
| 5,075 |
|
| 24,065 |
Less: Comprehensive income attributable to non-controlling interests |
|
| (3,564) |
|
| (5,026) |
|
| (6,816) |
|
| (9,751) |
Comprehensive income (loss) attributable to ATN International, Inc. |
| $ | 4,707 |
| $ | 5,340 |
| $ | (1,741) |
| $ | 14,314 |
The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
6
ATN INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 31,30, 2019 AND 2018 AND 2017
(Unaudited)
(In thousands)
| | | | | |
| Six Months Ended June 30, | ||||
| 2019 |
| 2018 | ||
Cash flows from operating activities: | | | | | |
Net income | $ | 2,762 | | $ | 8,477 |
Adjustments to reconcile net income to net cash flows provided by operating activities: | | | | | |
Depreciation and amortization | | 42,267 | |
| 43,217 |
Provision for doubtful accounts | | 2,736 | |
| 2,249 |
Amortization of debt discount and debt issuance costs | | 290 | |
| 393 |
Stock-based compensation | | 3,334 | |
| 3,679 |
Deferred income taxes | | (4,574) | |
| (1,279) |
(Gain) loss on disposition of long-lived assets | | 191 | | | (2,049) |
Unrealized (gain) loss on foreign currency | | (160) | | | 1,066 |
Other non-cash activity | | 11 | | | 177 |
Changes in operating assets and liabilities, excluding the effects of acquisitions and dispositions: | | | | | |
Accounts receivable | | (14,886) | |
| (10,605) |
Materials and supplies, prepayments, and other current assets | | (9,130) | |
| 1,254 |
Prepaid income taxes | | 5,158 | |
| — |
Accounts payable and accrued liabilities, advance payments and deposits and other current liabilities | | 10,570 | |
| (2,137) |
Accrued taxes | | (22,011) | |
| 1,249 |
Other assets | | 251 | | | (1,208) |
Other liabilities | | 1,713 | |
| 1,554 |
Net cash provided by operating activities |
| 18,522 | |
| 46,037 |
Cash flows from investing activities: | | | | | |
Capital expenditures |
| (35,273) | |
| (40,594) |
Hurricane rebuild capital expenditures | | (123) | | | (66,654) |
Hurricane insurance proceeds | | — | | | 34,606 |
Receipt of government grants | | — | | | 5,400 |
Divestiture of businesses, net of transferred cash of $0.0 and $0.3 million, respectively |
| — | |
| 926 |
Purchase of other investments | | (10,000) | | | (2,000) |
Proceeds from sale of assets | | — | | | 4,130 |
Purchase of short-term investments | | (5,028) | | | — |
Proceeds from sale of investments | | 141 | | | 5,348 |
Net cash used in investing activities |
| (50,283) | |
| (58,838) |
Cash flows from financing activities: | | | | | |
Dividends paid on common stock |
| (5,439) | |
| (5,441) |
Distribution to non-controlling interests |
| (3,878) | |
| (12,836) |
Payment of debt issuance costs |
| (1,340) | |
| — |
Principal repayments of term loan |
| (1,887) | |
| (4,786) |
Share repurchases | | — | | | (1,576) |
Stock-based compensation share repurchases |
| (1,578) | |
| (2,084) |
Repurchases of non-controlling interests | | (861) | | | (61) |
Investments made by minority shareholders in consolidated affiliates |
| 488 | |
| — |
Net cash used in financing activities |
| (14,495) | |
| (26,784) |
Effect of foreign currency exchange rates on cash and cash equivalents |
| 31 | |
| (178) |
Net change in cash, cash equivalents, and restricted cash |
| (46,225) | |
| (39,763) |
Total cash, cash equivalents, and restricted cash, beginning of period |
| 192,907 | |
| 219,890 |
Total cash, cash equivalents, and restricted cash, end of period | $ | 146,682 | | $ | 180,127 |
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 | $ | 6,356 | | $ | 13,266 |
|
|
|
|
|
|
| Six Months Ended June 30, | ||||
| 2018 |
| 2017 | ||
Cash flows from operating activities: |
|
|
|
|
|
Net income | $ | 8,477 |
| $ | 22,494 |
Adjustments to reconcile net income to net cash flows provided by operating activities: |
|
|
|
|
|
Depreciation and amortization |
| 43,217 |
|
| 44,747 |
Provision for doubtful accounts |
| 2,249 |
|
| 1,906 |
Amortization and write off of debt discount and debt issuance costs |
| 393 |
|
| 279 |
Stock-based compensation |
| 3,679 |
|
| 3,786 |
Unrealized loss on foreign currency |
| 1,066 |
|
| — |
Deferred income taxes |
| (1,279) |
|
| 2,379 |
Loss on equity method investments |
| — |
|
| 2,033 |
(Gain) Loss on disposition of long-lived assets |
| (2,049) |
|
| 1,111 |
Gain on sale of investments |
| — |
|
| (1,055) |
Loss on deconsolidation of subsidiary |
| — |
|
| 529 |
Other non-cash activity |
| 177 |
|
| 509 |
Changes in operating assets and liabilities, excluding the effects of acquisitions and dispositions: |
|
|
|
|
|
Accounts receivable |
| (10,605) |
|
| (6,062) |
Materials and supplies, prepayments, and other current assets |
| 1,254 |
|
| (6,586) |
Prepaid income taxes |
| — |
|
| 995 |
Accounts payable and accrued liabilities, advance payments and deposits and other current liabilities |
| (2,137) |
|
| (3,331) |
Accrued taxes |
| 1,249 |
|
| (7,876) |
Other assets |
| (1,208) |
|
| 2,887 |
Other liabilities |
| 1,554 |
|
| 6,722 |
Net cash provided by operating activities |
| 46,037 |
|
| 65,467 |
Cash flows from investing activities: |
|
|
|
|
|
Capital expenditures |
| (40,594) |
|
| (78,559) |
Hurricane rebuild capital expenditures |
| (66,654) |
|
| — |
Hurricane insurance proceeds |
| 34,606 |
|
| — |
Receipt of government grants |
| 5,400 |
|
| — |
Purchase of strategic investments |
| (2,000) |
|
| — |
Divestiture of businesses, net of transferred cash of $0.0 million and $2.1 million, respectively |
| 926 |
|
| 22,597 |
Purchases of spectrum licenses and other intangible assets, including deposits |
| — |
|
| (36,832) |
Proceeds from sale of investments |
| 5,348 |
|
| 2,761 |
Proceeds from sale of assets |
| 4,130 |
|
| — |
Net cash used in investing activities |
| (58,838) |
|
| (90,033) |
Cash flows from financing activities: |
|
|
|
|
|
Dividends paid on common stock |
| (5,441) |
|
| (10,992) |
Proceeds from new borrowings |
| — |
|
| 8,571 |
Distribution to non-controlling interests |
| (12,836) |
|
| (3,373) |
Payment of debt issuance costs |
| — |
|
| (326) |
Proceeds from stock option exercises |
| — |
|
| 274 |
Principal repayments of term loan |
| (4,786) |
|
| (5,447) |
Repurchase of common stock |
| (3,660) |
|
| (2,186) |
Acquisition of businesses, net of acquired cash of $0.0 million |
| — |
|
| (1,178) |
Repurchases of non-controlling interests |
| (61) |
|
| (953) |
Investments made by minority shareholders in consolidated affiliates |
| — |
|
| 122 |
Net cash used in provided by financing activities |
| (26,784) |
|
| (15,488) |
Effect of foreign currency exchange rates on cash and cash equivalents |
| (178) |
|
| 207 |
Net change in cash, cash equivalents, and restricted cash |
| (39,763) |
|
| (39,847) |
Total cash, cash equivalents, and restricted cash, beginning of period |
| 219,890 |
|
| 288,358 |
Total cash, cash equivalents, and restricted cash, end of period | $ | 180,127 |
| $ | 248,511 |
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 | $ | 13,266 |
| $ | 13,107 |
The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
78
ATN INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.ORGANIZATION AND BUSINESS OPERATIONS
The Company is a holding company that, directly and through its operating subsidiaries, (i) provides wirelessowns and wirelineoperates telecommunications servicesbusinesses in North America, Bermuda, and the Caribbean, (ii) develops, owns and operates commercial distributed generation solar power systemsa renewable energy business in the United States and India, and (iii) owns and operates terrestrial and submarine fiber optic transport systems in the United States and in the Caribbean.India. The Company was incorporated in Delaware in 1987, and began trading publicly in 1991.1991 and spun off more than a half of its operations to stockholders in 1998. Since that time, the Company has engaged in many strategic acquisitions and investments to help grow its operations.operations, using the cash generated from its established operating units to re-invest in its existing businesses and to make strategic investments in earlier stage businesses. The Company actively evaluateslooks for businesses that offer growth opportunities or potential strategic benefits, but that require additional domesticcapital investment in order to execute on their business plans. The Company holds controlling positions with respect to some of its investments and international acquisition, divestiture,minority positions in others. These strategic investments frequently offer a product and investment opportunities and other strategic transactionsservice development component in addition to the telecommunications, energy-related and other industries that meetprospects of generating returns on its return-on-investment and other acquisition criteria.invested capital.
The Company offers the following principal services:has identified three operating segments to manage and review its operations, and to facilitate investor presentations of its results, as follows:
|
|
● | International Telecom. The Company’s international wireless services include voice and data services to retail |
|
|
| Renewable Energy.In |
The following chart summarizes the operating activities of the Company’s principal subsidiaries, the segments in which the Company reports its revenue and the markets it served as of June 30, 2018:2019:
| | | | | | | |
Segment | Services | Markets | Tradenames | ||||
|
|
|
| ||||
|
| Wireless |
| United States (rural markets) |
|
| |
|
| Wireline |
| United States |
| Essextel, Deploycom | |
International Telecom |
| Wireline |
| Bermuda, Cayman Islands, Guyana, |
|
| |
|
| Wireless |
| Bermuda, Guyana, |
|
| |
| | Video Services | | Bermuda, | | Logic, One, Viya | |
RenewableEnergy | | Solar | |
| |
| |
89
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. 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 respective revenue. Management fees from subsidiaries arerevenues, which is eliminated in consolidation. For further information about the Company’s financial segments and geographical information about its operating revenues and assets, see Note 14 to the Consolidated Financial Statements included in this Report.
2. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The financial information included herein is unaudited; however, the Company believes such information and the disclosures herein are adequate to make the information presented not misleading and reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair statement of the Company’s financial position and results of operations for such periods. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. Results of interim periods may not be indicative of results for the full year. These condensed consolidated financial statements and related notes should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2017,2018, filed with the SEC on March 1, 2018.February 28, 2019.
The condensed 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.
The Company’s effective tax rate for the three months ended June 30, 2018 and 2017 was 16.2% and 19.2%, respectively. The effective tax rate for the three months ended June 30, 2018 was primarily impacted by the following items: (i) a $0.5 million benefit for the release of a capital loss valuation allowance due to a capital gain on a sale of a wireless license, and (ii) the mix of income generated among the jurisdictions in which the Company operates along with the exclusion of losses in jurisdictions where it 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 three months ended June 30, 2017 was impacted by the following items: (i) a benefit for the net capital loss due to the stock sales of our businesses in New England, New York and St. Maarten, and (ii) the mix of income generated among the jurisdictions in which it operates. The Company’s effective tax rate for the six months ended June 30, 2018 and 2017 was 41.5% and 20.3%, respectively. The effective tax rate for the six months ended June 30, 2018 was primarily impacted by the following items: (i) a $0.7 million provision for the intercompany sale of assets from the U.S. to the U.S. Virgin Islands, (ii) a $0.5 million increase (net) in unrecognized tax benefits recognized discretely, (iii) a $0.5 million benefit for the release of a capital loss valuation allowance due to a capital gain on a sale of a wireless license, and (iv) the mix of income generated among the jurisdictions in which it 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. Virgin Islands and India. The effective tax rate for the six months ended June 30, 2017 was impacted by the following items: (i) a benefit for the net capital loss due to the stock sales of our businesses in New England, New York and St. Maarten, and (ii) the mix of income generated among the jurisdictions in which the Company operates. The Company’s 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. The Company’s 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 it operates. The effective tax rate in 2018 could be affected by adjustments to the provisional amounts recorded under the guidance of SAB 118 for the one-time transition tax and the revaluation of deferred tax assets and liabilities due to the U.S. statutory rate change in 2017 however no change has been recorded as of June 30, 2018. While the Company believes it has 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, the Company could record additional provisions or benefits for U.S. federal, state, and foreign tax matters in future periods as new information becomes available.
9
Recent Accounting Pronouncements
In May 2014, the FinancialFASB issued Accounting Standards BoardUpdate (“FASB”ASU”) issued ASU 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”), and subsequently issued related updates, (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 3.3 to the Consolidated Financial Statements in this Report.
In January 2016, the FASB issued ASU 2016-01, “Financial��“Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”), which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The Company adopted this standard on January 1, 2018. Upon adoption, the Company held $20.1 million of equity investments that dodid 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 performs a qualitative impairment assessment of these investments quarterly by reviewing available information. 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 is in the process of implementing new systems, processes and controls to implement the guidance. The Company will adopt the standardadopted ASC 2016-02 on January 1, 2019 by applying
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utilizing the new lease requirements atoptional transition method with a cumulative adjustment on the effective date and 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 adoption will result in rightRefer to use asset and liabilities being recorded on the Company’s balance sheet. The Company is in the process of determining quantitative information related to the impactNote 4 of the guidance.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” (“ASU 2016-09”). 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,” which provides further clarification on eight cash flow 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 statement of cash flows reports the cash effects during a period of an entity’s operations, its investing transactions, and its financing transactions. The statement of cash flows explains the change during the period in the total cash which includes cash equivalents as well as restricted cash. The Company applies the predominance
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principle to classify separately identifiable cash flows based on the nature of the underlying cash flows. Debt prepayment or extinguishment costs are classified as cash outflows from financing activities. Contingent consideration payments made three months or less after a business combination are classified as investing activities and those made after that time are classified as financing activities. Proceeds from the settlement of insurance claims are classified on the basis of the nature of the loss. Prior to January 1, 2018, the Company classified all payments made in a business combination as investing activities and did not include restricted cash in total cash. This change impacted the Company’s cash flows for the six months ended June 30, 2017 as indicated below (amounts in thousands):
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Statement of Cash flows - Six months ended June 30, 2017 | ||||||
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| Reported |
| Change |
| Under previous guidance |
Net cash provided by operating activities | $ | 65,467 | $ | — | $ | 65,467 |
Net cash used in investing activities |
| (90,033) |
| 588 |
| (89,445) |
Net cash used in financing activities |
| (15,488) |
| 1,178 |
| (14,310) |
Effect of foreign currency exchange rates on total cash |
| 207 |
| — |
| 207 |
Net change in total cash | $ | (39,847) | $ | 1,766 | $ | (38,081) |
Total cash, beginning of period |
| 288,358 |
| (18,637) |
| 269,721 |
Total cash, end of period | $ | 248,511 | $ | (16,871) | $ | 231,640 |
In October 2016 the FASB issued ASU 2016-16, “Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than 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 statementsConsolidated Financial Statements upon adoption.
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”. 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.
The Company sponsors pension and other postretirement benefit plans for employees of certain subsidiaries. Net periodic pension expense consists of service cost, interest cost, expected return on plan assets, and amortization of actuarial gains and losses. Service cost is recognized in operating income and all other components of pension expense are recognized in other income inThere was not a material impact to the Company’s Statement of Operations. The Company recognizes a pension or other postretirement plan’s funded status as either an asset or liability in its consolidated balance sheet. Actuarial gains and losses are reported as a component of other comprehensive income and amortized through other income in subsequent periods. Prior to January 1, 2018, all components of pension expense were recognized in operating income. This changeConsolidated Financial Statements upon adoption.
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impacted the Company’s Statement of Operations for the three and six months ended June 30, 2017 by increasing operating expenses $40 thousand and $80 thousand, respectively and decreasing 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.
In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815) – Targeted Improvements to Accounting for Hedging 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. Early adoption is permitted, including the adoption in an interim period. If an entity early adopts in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The guidance related to cash flow and net investment hedges existing at the date of adoption should be applied by means ofCompany adopted this standard on January 1, 2019. There was not a cumulative-effect adjustmentmaterial impact to the balance sheet as of the beginning of the fiscal year ofCompany’s Consolidated Financial Statements upon adoption. The guidance related to presentation and disclosure should be applied prospectively. The Company is currently assessing the impact of ASU 2017-12 on its consolidated financial statements.
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 December 31, 2017 and recorded its impact in the period of adoption.January 1, 2018. The impact of the adoption resultsresulted in a $0.8 million reclassification from accumulated other comprehensive income to retained earnings which is offset by an equivalent valuation allowance, withallowance. As a result the net impact being of the adoption of this standard was zero.
3. Revenue Recognition
In August 2018, the FASB issued ASU No. 2018-15, 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 Company’s significant accounting policies are detailedguidance may be applied retrospectively or prospectively to
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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 “Note 2 – Summarythe fourth quarter of Significant Accounting Policies” within Item 82018. The Company had $1.2 million and $2.5 million of our Annual Report on Form 10-K for the year endedcapitalized implementation costs at December 31, 2017. The Company’s accounting policies are updated as a result of adopting ASC 606 on January 1, 2018. The adoption of ASC 606 impacted the accounting for contract acquisition costs, multiyear retail wireless contracts with promotional discounts,2018 and deferral of certain activation fees as further described below.
Revenue Recognition – The Company earns revenue from its telecommunicationJune 30, 2019, respectively, and renewable energy operations. The Company recognizes revenue through the following steps:
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Revenue Recognition- Telecommunications
Wireless 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
12
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 into our retail markets. This revenue is recognized over time as the service is rendered. Lastly, wireless revenue includes revenues from equipment sold to customers which is 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.
Wireline revenue is generated from access and usage fees for internet, voice and video services charged to subscribers as well as wholesale long-distance voice services provided to telecommunication carriers at contracted rates. Revenue from these contracts is recognized over time as the service is rendered to the customer.
The Company’s wireless and wireline 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 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 it 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 are not 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 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.
Revenue Recognition-Renewable Energy
Revenue from the Company’s Renewable Energy segment is generated from the sale of electricity through power purchase agreements (“PPA’s”) with various customers that generally range from 10 to 25 years. The Company recognizes revenue at contractual PPA rates over time as electricity is generated and simultaneously consumed by the customer. The Company’s Renewable Energy segment also generates revenue from the sale of Solar Renewable Energy Credits (“SRECs”). Revenue is recognized over time as SRECs are sold through long-term purchase agreements at the contractual rate specified in the agreement.
Disaggregation
The Company's revenue is presented on a disaggregated basis in Note 12 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.
13
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 asset and the noncurrent portion is included in other assets on our 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 our balance sheets. Contract assets and liabilities consisted of the following (amounts in thousands):
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| June 30, 2018 |
| March 31, 2018 |
| $ Change |
| % Change |
Contract asset – current | $ | 1,434 | $ | 1,309 | $ | 125 |
| 10% |
Contract asset – noncurrent |
| 568 |
| 498 |
| 70 |
| 14% |
Contract liabilities |
| (9,552) |
| (9,827) |
| 275 |
| -3% |
Net contract liability | $ | (7,550) | $ | (8,020) | $ | 470 |
| -6% |
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 decrease in our net contract liability was due to the timing of customer prepayments and contract billings. In the second quarter of 2018, we recognized revenue of $8.5 million related to our March 31, 2018 contract liability and amortized $0.5$0.1 million of the March 31, 2018 contract asset into revenue. The Company recognized revenue of $0.6 million in the second quarter of 2018 related to performance obligations thatimplementation costs were satisfied or partially satisfied in previous periods.
14
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. The June 30, 2018 balance sheet includes current contract acquisition costs of $1.3 million in prepayments and other current assets and long term contract acquisition costs of $0.9 million in other assets. Duringamortized during the three and six months ended June 30, 2018 the Company amortized $0.3 million and $0.6 million, respectively, of contract acquisition cost.2019.
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 $10.6 million at June 30, 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.
3. REVENUE RECOGNITION
Impacts 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 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 (in thousands):
| | | | | | | | | | | |
| June 30, 2019 | | December 31, 2018 | | | $ Change | | % Change | |||
Contract asset – current | $ | 2,060 | | $ | 1,900 | | $ | 160 | | 8 | % |
Contract asset – noncurrent | | 710 | | | 802 | | | (92) | | (11) | % |
Contract liabilities | | (15,485) | | | (13,787) | | | (1,698) | | 12 | % |
Net contract liability | $ | (12,715) | | $ | (11,085) | | $ | (1,630) | | 15 | % |
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 six months ended June 30, 2019, the Company recognized revenue of $10.3 million related to its December 31, 2018 contract liability. During the three and six months ended June 30, 2019 the Company amortized $0.4 million and $1.0 million, respectively, of the December 31, 2018 contract asset into revenue. The Company recognized $0.3 million of revenue in the three and six months ended June 30, 2019 related to performance obligations that were satisfied or partially satisfied in previous periods.
Contract Acquisition Costs
The June 30, 2019 balance sheet includes current contract acquisition costs of $1.1 million in prepayments and other current assets and long term contract acquisition costs of $1.4 million in other assets. During the three and six
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months ended June 30, 2019, the Company amortized $0.4 million and $0.9 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 that include a promotional discount. The transaction price allocated to unsatisfied performance obligations was $11.3 million and $12.1 million at June 30, 2019 and December 31, 2018, respectively. 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.
Disaggregation
The Company's revenue is presented on a disaggregated basis in Note 14 based on an evaluation of disclosures outside the financial statements, information regularly reviewed by the chief operating decision makers 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.
4. LEASES
The Company’s significant accounting policies are detailed in “Note 2 – Summary of Significant Accounting Policies” within Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2018. The Company’s accounting policies are updated as a result of adopting ASU 2016-02 “Leases (Topic 842)” (“ASC 842”) on January 1, 2019. The adoption of ASC 842 impacted the accounting for leases as further described below.
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 right-of-use (“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 no 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 determines if an agreement is a lease at inception. Operating leases are included in 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. To date the Company has prepaid its financing leases. As a result, there is no interest cost, lease liability, or discount rate applicable to financing leases.
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 our leases do not contain an implicit rate. The Company utilized 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.
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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.
The Company has operating and financing leases for towers, land, corporate offices, retail facilities, and data transport capacity. The lease terms are generally between three and ten years, some of which include additional renewal options.
Supplemental lease information
The components of lease expense were as follows (in thousands):
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| Three months ended June 30, 2019 | | Six months ended June 30, 2019 | ||
Operating lease cost: | | | | | |
Operating lease cost | $ | 4,151 | | $ | 7,667 |
Short-term lease cost | | 867 | | | 1,578 |
Variable lease cost | | 288 | | | 1,250 |
Total operating lease cost | $ | 5,306 | | $ | 10,495 |
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Finance lease cost: | | | | | |
Amortization of right-of-use asset | $ | 586 | | $ | 1,179 |
Variable costs | | 262 | | | 558 |
Total finance lease cost | $ | 848 | | $ | 1,737 |
During the six months ended June 30, 2019, the Company paid $3.8 million of operating cash flows, which were included in the measurement of lease liabilities. Also during the six months ended June 30, 2019, the Company recorded $3.3 million of lease liabilities arising from right-of-use assets. At June 30, 2019, finance leases with a cost of $26.0 million and accumulated amortization of $8.3 million were included in property, plant and equipment.
The weighted average remaining lease terms and discount rates as of June 30, 2018 and for2019 are noted in the three months then endedtable below:
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Weighted average remaining lease term | | |
Operating leases | | 7.1 years |
Financing leases | | 11.9 years |
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Weighted average discount rate | | |
Operating leases | | 5.1% |
Financing leases | | n/a |
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Maturities of lease liabilities as a result of the adoption of ASC 606June 30, 2019 were as compared to previous revenue guidance (amounts infollows (in thousands):
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| Operating Leases | |
2019 (excluding the six months ended June 30, 2019) | $ | 6,637 |
2020 | | 13,459 |
2021 | | 12,162 |
2022 | | 11,351 |
2023 | | 10,544 |
Thereafter | | 28,236 |
Total lease payments | | 82,389 |
Less imputed interest | | (13,620) |
Total | $ | 68,769 |
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Balance Sheet – June 30, 2018 | ||||||
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| Reported |
| Change |
| Under previous guidance |
Prepayments and other current assets | $ | 35,386 | $ | (2,757) | $ | 32,629 |
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Total current assets | $ | 264,313 | $ | (2,757) | $ | 261,556 |
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Other assets | $ | 39,444 | $ | (1,433) | $ | 38,011 |
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Total assets | $ | 1,188,999 | $ | (4,190) | $ | 1,184,809 |
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Advance payments and deposits | $ | 17,727 | $ | (299) | $ | 17,428 |
Accrued taxes |
| 10,238 |
| (142) |
| 10,096 |
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Total current liabilities | $ | 157,390 | $ | (441) | $ | 156,949 |
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Deferred income taxes | $ | 30,755 | $ | (301) | $ | 30,454 |
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Total liabilities | $ | 369,490 | $ | (742) | $ | 368,748 |
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Retained earnings | $ | 550,872 | $ | (1,967) | $ | 548,905 |
Minority interest | $ | 136,424 | $ | (1,481) | $ | 134,943 |
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Total equity | $ | 819,509 | $ | (3,448) | $ | 816,061 |
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Total liabilities and equity | $ | 1,188,999 | $ | (4,190) | $ | 1,184,809 |
Maturities of lease liabilities as of December 31, 2018 were as follows (in thousands):
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| Three months ended June 30, 2018 |
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| Change |
| Under previous guidance |
Wireless revenue | $ | 50,496 | $ | (204) | $ | 50,292 |
| $ | 101,043 | $ | (337) | $ | 100,706 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue | $ | 117,788 | $ | (204) | $ | 117,584 |
| $ | 222,263 | $ | (337) | $ | 221,926 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales, marketing and customer service | $ | 8,413 | $ | 240 | $ | 8,653 |
| $ | 16,974 | $ | 618 | $ | 17,592 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses | $ | 102,035 | $ | 240 | $ | 102,275 |
| $ | 202,301 | $ | 618 | $ | 202,919 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations | $ | 15,753 | $ | (444) | $ | 15,309 |
| $ | 19,962 | $ | (955) | $ | 19,007 |
Income before taxes |
| 12,868 |
| (444) |
| 12,424 |
|
| 14,485 |
| (955) |
| 13,530 |
Income tax provision |
| 2,088 |
| (49) |
| 2,039 |
|
| 6,008 |
| (142) |
| 5,866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income | $ | 10,780 | $ | (395) | $ | 10,385 |
| $ | 8,477 | $ | (813) | $ | 7,664 |
Net income attributable to non-controlling interests |
| (3,564) |
| 154 |
| (3,410) |
|
| (6,816) |
| 335 |
| (6,481) |
Net income attributable to ATN International, Inc. stockholders | $ | 7,216 | $ | (241) | $ | 6,975 |
| $ | 1,661 | $ | (478) | $ | 1,183 |
| | |
| Operating Leases | |
2019 | $ | 11,801 |
2020 | | 12,650 |
2021 | | 11,491 |
2022 | | 10,713 |
2023 | | 9,990 |
Thereafter | | 27,325 |
Total lease payments | $ | 83,970 |
As of June 30, 2019, the Company did not have any material operating or finance leases that have not yet commenced.
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Statement of Comprehensive Loss | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three months ended June 30, 2018 |
|
| Six months ended June 30, 2018 | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Reported |
| Change |
| Under previous guidance |
|
| Reported |
| Change |
| Under previous guidance |
Net income | $ | 10,780 | $ | (395) | $ | 10,385 |
| $ | 8,477 | $ | (813) | $ | 7,664 |
Other comprehensive loss, net of tax |
| (2,509) |
| - |
| (2,509) |
|
| (3,402) |
| - |
| (3,402) |
Comprehensive loss |
| 8,271 |
| (395) |
| 7,876 |
|
| 5,075 |
| (813) |
| 4,262 |
Less: Comprehensive income attributable to non-controlling interests |
| (3,564) |
| 154 |
| (3,410) |
|
| (6,816) |
| 335 |
| (6,481) |
Comprehensive income (loss) attributable to ATN International, Inc. | $ | 4,707 | $ | (241) | $ | 4,466 |
| $ | (1,741) | $ | (478) | $ | (2,219) |
|
|
|
|
|
|
|
Statement of Cash Flows - Six months ended June 30, 2018 | ||||||
|
|
|
|
|
|
|
|
| Reported |
| Change (1) |
| Under previous guidance |
Net income | $ | 8,477 | $ | (813) | $ | 7,664 |
|
|
|
|
|
|
|
Materials and supplies, prepayments and other current assets | $ | 1,254 | $ | (681) | $ | 573 |
Accrued taxes |
| 1,249 |
| 142 |
| 1,391 |
Accounts payable and accrued liabilities, advance payments and deposits and other current liabilities |
| (2,137) |
| 68 |
| (2,069) |
Other assets | $ | (1,208) | $ | (342) | $ | (1,550) |
|
|
4.5. 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, 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, assessing the impairment of assets, revenue, and income taxes. Actual results could differ significantly from those estimates.
17
5.6. IMPACT OF HURRICANES IRMA AND MARIA
During September 2017, the US Virgin Islands economy, the Company’s operationscustomer base and customersits operations in the U.S.US Virgin Islands were severely impacted by Hurricanes Irma and Maria (collectively, the “Hurricanes”). Both the Company’s wireless and wireline networks and commercial operations were severely damaged by these storms. Asstorms and as a result of the significant damage to the Company’s wireline network and the lack of consistent commercial power in the territory, the Company was unable to provide most of its wireline services, which comprisecomprised the majority of its revenue in this business, sincefrom mid-September 2017 through a majority of 2018. The Company received insurance recoveries of $34.6 million in February 2018 to aid its recovery from the Hurricanes and through muchimpact of the first six months of 2018. Accordingly, revenue generated by the Company’s U.S. Virgin Islands operations decreased by $3.0 million and $16.2 million during the three and six months ended June 30, 2018 as compared to 2017 as a result of the Hurricanes and an additional $1.2 and $2.3 million for the three and six months ended June 30, 2018 as a result of the Company’s August 2017 sale of its operations in the British Virgin Islands. However, the second quarter of 2018 was positively impacted by the recognition of $8.2 million in revenue funded the additional receipt of high-cost Universal Service Funds. Hurricanes.
During the six months ended June 30, 2019 and June 30, 2018, the Company spent $0.1 million and $66.7 million, restoringrespectively, for network restoration and adding resiliency to its network whichenhancements that allowed it to reconnect roughly two-thirdsthe reconnection of thea significant majority of affected households and three-quarters of businesses as of the period end. The Company expects that the work it will do to restore its wireline network restoration work will beis substantially complete, by the end of the third quarter of 2018. However,however, returning the Company’s revenue to pre-Hurricane levels
15
may take significant time as a result of population movements, the negative economic impact the Hurricanes had on the market,local economy, and it’sthe Company’s subscriber base’s future appetite for continued wireline services.
7. DISPOSITIONS, PLATFORM AND MINORITY INVESTMENTS
6. DISPOSITIONS
Dispositions
International Telecom
Renewable Energy
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.
The results of the British Virgin Islands and St. Maarten 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
Disposition
On March 8, 2017,November 6, 2018, the Company completed the sale of its integrated voiceUS solar business that owned and data communications and wholesale transport businessesmanaged distributed generation solar power projects operated under the Ahana name in New EnglandMassachusetts, California and New York for considerationJersey (the “US Solar Operations”) to CleanCapital Holdco 4, LLC. The transaction had a total value of $25.9approximately $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 “Sovernet“US Solar Transaction”). The consideration included $20.9Company is finalizing working capital adjustments. Approximately $6.5 million of cash, $3.0 million of receivables, and $2.0 million of contingent consideration. The $3.0 million of receivables arethe purchase price is being held in escrow to satisfy working capital adjustments in favorfor a period of twelve months after the acquirer, to fund certain capital expenditure projects related to the assets sold andclosing to secure the Company’s indemnification obligations. The contingent consideration represents the fair value of future 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 the operational milestones were achieved by December 31, 2017.obligation. The table below identifies the assets and liabilities transferred (amounts in(in thousands):
| | | |
Consideration Received | $ | 65,286 | |
Assets and liabilities disposed | | | |
Cash | | 3,049 | |
Accounts receivable | | 1,248 | |
Prepayments and other current assets | | 801 | |
Property, plant and equipment | | 94,678 | |
Restricted cash | | 8,407 | |
Other assets | | 38 | |
Current portion of long-term debt | | (6,992) | |
Accounts payable and accrued liabilities | | (938) | |
Accrued taxes | | 586 | |
Long-term debt, excluding current portion | | (48,038) | |
Net assets disposed | | 52,839 | |
| | | |
Consideration less net assets disposed | | 12,447 | |
| | | |
Transaction costs | | (2,133) | |
| | | |
Gain | $ | 10,314 | |
18
|
|
|
|
Consideration Received | $ | 25,926 |
|
|
|
|
|
Assets and liabilities disposed |
|
|
|
Cash |
| 1,821 |
|
Accounts receivable |
| 1,696 |
|
Inventory |
| 639 |
|
Prepaid |
| 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 closingThe Company allocated $1.1 million of the Sovernet Transaction,gain to non-controlling interests within the consolidated income statement. During the year ended December 31, 2018, 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$2.1 million of transaction related charges pertaining to legal, accounting and consulting services associated with the Sovernet Transaction, of which $0.6 million were incurred duringtransaction. The US Solar Operations do not qualify as a discontinued operation because the year ended December 31, 2017. Since the Sovernet Transaction doesdisposition did not relate torepresent a strategic shift in ourthat would have a major effect on the Company’s 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.results. As a result, the fair valuehistorical results are included in continuing operations.
16
Platform Investments
US Telecom
During the second quarter of 2018, the contingent consideration was reducedCompany invested in a new platform, based inthe United States, to zero. The amount was recorded as a lossdevelop in-building wireless network technology that enables building owners to capitalize on disposition of assets within operating incomethe growing demand for better indoor wireless solutions. Also during the year ended December 31, 2017. The disposed assets did not achievesecond quarter of 2018, the operational milestones byCompany provided funding for another new platform, based in the December 31, 2017 deadline. 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. Both of these investments are consolidated in the Company’s results.
7.8. FAIR VALUE MEASUREMENTS
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.
19
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. |
2017
Assets and liabilities of the Company measured at fair value on a recurring basis as of June 30, 20182019 and December 31, 20172018 are summarized as follows (in thousands):
| | | | | | | | | | | | |
| | | | | June 30, 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 | | | 2,335 | | | — | | | — | | | 2,335 |
Short term investments | | | 5,280 | | | — | | | — | | | 5,280 |
Other investments | | | — | | | — | | | 10,000 | | | 10,000 |
Interest rate swap | | | — | | | (43) | | | — | | | (43) |
Total assets and liabilities measured at fair value | | $ | 7,615 | | $ | 337 | | $ | 10,000 | | $ | 17,952 |
|
|
|
|
|
|
|
| ||||||||||||
|
|
|
|
| June 30, 2018 |
|
|
|
| ||||||||||
|
|
|
|
| Significant Other |
|
|
|
| ||||||||||
|
| Quoted Prices in |
| Observable |
|
|
| ||||||||||||
|
| Active Markets |
| Inputs |
|
|
| ||||||||||||
| | | | | | | | | | ||||||||||
| | December 31, 2018 | |||||||||||||||||
|
| | |
| Significant Other |
| | | |||||||||||
| | Quoted Prices in | | Observable | | | | ||||||||||||
| | Active Markets | | Inputs | | | | ||||||||||||
Description |
| (Level 1) |
| (Level 2) |
| Total |
| | (Level 1) | | (Level 2) | | Total | ||||||
Certificates of deposit |
| $ | — |
| $ | 380 |
| $ | 380 |
| | $ | — | | $ | 380 | | $ | 380 |
Money market funds |
| 23,440 |
| — |
|
| 23,440 |
| | | 2,266 | | | — | | | 2,266 | ||
Short term investments |
| 382 |
| 1,213 |
|
| 1,595 |
| | | 393 | | | — | | | 393 | ||
Commercial paper |
| — |
| 11,997 |
|
| 11,997 |
| | | — | | | 13,972 | | | 13,972 | ||
Interest rate swap |
|
| — |
|
| 237 |
|
| 237 |
| | | — | | | 140 | | | 140 |
Total assets and liabilities measured at fair value |
| $ | 23,822 |
| $ | 13,827 |
| $ | 37,649 |
| | $ | 2,659 | | $ | 14,492 | | $ | 17,151 |
|
|
|
|
|
|
|
|
|
|
|
|
| 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 |
|
Certificate of Deposit
As of June 30, 20182019 and December 31, 2017,2018, 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 June 30, 20182019 and December 31, 2017,2018, 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 June 30, 20182019 and December 31, 2017,2018, 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 $0.4$0.2 million at June 30, 2018 and net income2019, unchanged from December 31, 2018.
Other Investments
In the first quarter of 2019, the Company made an investment in an early-stage venture through the acquisition of a convertible debt instrument for $10 million. The Company elected to fair value the three months then ended included $0.1 millioninvestment upon acquisition. There was no change in the fair value of losses on these securities. the investment at June 30, 2019.
18
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. During the six months ended June 30, 2019, there were no changes in fair value of the investment.
21
At June 30, 2018,2019, the Company holds $22.1$23.1 million of 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 $22.1 million and $20.1$23.1 million at June 30, 2018 and December 31, 2017, respectively.2018. As of June 30, 20182019 no impairments or price adjustments were recorded on the investments. StrategicThese investments are included with other assets on the consolidated balance sheets.
The fair value of long-term debt is estimated using Level 2 inputs. At June 30, 2019, the fair value of long-term debt, including the current portion, was $89.7 million and its book value was $90.0 million. At December 31, 2018, the fair value of long-term debt, including the current portion, was $154.2 $91.6 million and its book value was $151.0 $91.0 million. At December 31, 2017,
9. LONG-TERM DEBT
On April 10, 2019, the fair value of long-term debt, including the current portion, was $159.2 millionCompany entered into a Third Amendment and its book value was $155.8 million.
8. LONG-TERM DEBT
The Company has a credit facilityConfirmation Agreement (the “2019 Credit Facility”), with CoBank, ACB and athe same syndicate of other lenders to provideas the 2014 Credit Facility, as defined below. 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 and (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. Upon the closing of the 2019 Credit Facility, approximately $8.0 million of performance letters of credit were issued and remain outstanding and undrawn as of June 30, 2019. The 2019 Credit Facility matures on April 10, 2024.
Amounts the Company may borrowborrowed under the 2019 Credit Facility bear interest at a rate equal to, at itsthe Company’s option, either (i) the London Interbank Offered Rate (LIBOR)LIBOR (as defined in the 2019 Credit Facility) 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 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 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.
On January 11, 2016, the Company amended the Credit Facility to increase the amount the Company is permitted to invest in “unrestricted” subsidiaries of the Company, which are not subject to the covenants of the Credit Facility, from $275.0 million to $400.0 million (as such increased amount shall be reduced from time to time by the aggregate amount of certain dividend payments to the Company’s stockholders).The Amendment also provides for the incurrence by the Company of incremental term loan facilities, when combined with increases to revolving loan commitments under the Credit Facility, in an aggregate amount not to exceed $200.0 million, which facilities shall be subject to certain conditions, including pro forma compliance with the total net leverage ratio financial covenant under the Credit Facility.
The2019 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 investments in “unrestricted” subsidiaries and certain dividend payments to 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 addition, 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 containsalso 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 that imposes a maximum ratio of indebtedness to EBITDA. covenant.
19
As of June 30, 2018,2019, the Company was in compliance with all of the financial covenants, had no outstanding borrowings and, net of the $8.0 million of outstanding performance letters of credit, and had $192.0 million of availability under the 2019 Credit Facility.
As of June 30, 2018,Prior to entering into the 2019 Credit Facility, the Company had no borrowingsa $225 million revolving credit facility (the “2014 Credit Facility) with CoBank, ACB and a syndicate of other lenders that provided for (i) up to $10 million for standby or trade letters of credit, (ii) up to $25 million for letters of credit that were 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 2014 Credit Facility had a maturity date of December 31, 2019. The 2014 Credit Facility also provided 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.
Amounts borrowed under the 2014 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”). The Original Ahana Debt included multiple loan agreements with banks thatFacility bore interest at ratesa rate equal to, at the Company’s option, either (i) the LIBOR plus an applicable margin ranging between 4.5%1.50% to 1.75% or (ii) a base rate plus an applicable margin ranging from 0.50% to 0.75%. Swingline loans bore interest at the base rate plus the applicable margin for base rate loans. The base rate was equal to the higher of (i) 1.00% plus the higher of (x) the one-week LIBOR and 6.0%, matured at various times between 2018(y) the one-month LIBOR; (ii) the federal funds effective rate (as defined in the 2014 Credit Facility) plus 0.50% per annum; and 2023 and were secured by
22
certain solar facilities. Repayment(iii) the prime rate (as defined in the 2014 Credit Facility). The applicable margin was determined based on the ratio (as further defined in the 2014 Credit Facility) of the Original Ahana Debt was being made in cash onCompany’s indebtedness to EBITDA. Under the terms of the 2014 Credit Facility, the Company also paid a monthly basis until maturity.fee ranging from 0.175% to 0.250% of the average daily unused portion of the 2014 Credit Facility over each calendar quarter.
The Original Ahana Debt also included a loan from Public Service Electric & Gas (the “PSE&G Loan”). The PSE&G Loan bears interest at 11.3%, matures in 2027, and is secured by certain solar facilities. Repayment of the Original Ahana Debt with PSE&G can 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 has 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 are payable semi-annually, until the respective maturity dates of March 31, 2029 (for the Series A Notes) and September 30, 2031 (for the Series B Notes). Cash flows generated by the solar projects that secure the Series A Notes and Series B Notes are only available for payment of such debt and are not available to pay other obligations or the claims of the creditors of Ahana or its subsidiaries. However, subject to certain restrictions, Ahana Operations holds 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 are secured by certain assets of Ahana and are 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.
The Series A Notes and the Series B Notes contain2014 Credit Facility contained customary representations, warranties and certain affirmative and negative covenants, which limitincluding a financial covenant that imposed 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 Series A Notes and Series B Notes areCompany’s investment in “unrestricted” subsidiaries plus the aggregate amount of certain dividend payments to the Company’s stockholders was limited to $400 million. Amounts borrowed under the Accordion were also subject to financial covenants that impose 1) a maximum debt service coverage ratio and 2) a maximum ratio of the present value of Ahana’s future cash flow to the aggregate principal amounts of all outstanding obligations. These financial covenants are tested semi-annually for Ahana Operations on a consolidated basis and on an individual basis for certain subsidiaries. Both the Series A Notes and Series B Notes may be redeemed at any time, in whole or part, subject to a make-whole premium. As of June 30, 2018, the Company was inpro-forma compliance with all of thea net leverage ratio financial covenants of the Series A Notes and the Series B Notes.covenant.
The Company capitalized $2.8 million of fees associated with the Series A Notes and Series B Notes which is recorded as a reduction to the debt carrying amount and will be amortized over the life of the notes. Viya Debt
As of June 30, 2018, $2.1 million of the Original Ahana Debt and $58.6 million of the Series A Notes and Series B Notes remained outstanding, and $2.6 million of the capitalized fees remain unamortized.
One Communications Debt
In connection with the acquisition of One Communications 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 had repayment being made 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, the Company amended and restated the One Communications Debt to increase the original facility 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, sale of assets and liens) and financial covenants
23
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 June 30, 2018
As a condition of the amendment and restatement of the One Communications Debt agreement, within 90 days of the refinance date the Company is 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, we entered into an amortizing interest rate swap. This swap has been designated as a cash flow hedge, has an original notional amount of $11.0 million, has an interest rate of 1.874%, and expires in March 2022.
In connection with the amendment and restatement of the One Communications Debt agreement, 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 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 June 30, 2018, $33.8 million of the One Communications Debt was outstanding, there were no borrowings under the overdraft facility, and $0.3 million of the capitalized fees remain unamortized.
Viya Debt (formerly Innovative Debt)
On July 1, 2016, the Company, and certain of its subsidiaries, have entered into a $60.0 million loan agreement (the “Viya Debt”) with Rural Telephone Finance Cooperative (“RFTC”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, through an intercompany loan arrangement which exceeded certain limitationswith a $75.0 million limit. The Company was not in compliance with the Net Leverage Ratio covenant for the year ending December 31, 2018 and received a waiver from the RTFC 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 the Company’s request due to an increase in the on-going restoration and resiliency costs.February 25, 2019.
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. The fee was recorded as a reduction to the Viya Debt carrying amount and will beis being amortized over the life of the loan.
As of June 30, 2018,2019, $60.0 million of the Viya Debt remained outstanding and $0.7$0.6 million of the rate lock fee was unamortized.
20
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 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 June 30, 2019.
9. GOVERNMENT GRANTSAs 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 June 30, 2019, the swap has an unamortized notional amount of $8.7 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 June 30, 2019, $30.0 million of the One Communications Debt was outstanding, there were no borrowings under an overdraft facility, and $0.2 million of the capitalized fees remained unamortized.
Ahana Debt
On November 6, 2018, the Company consummated the US Solar Transaction which included the transfer of the Ahana Debt to the purchaser. Prior to the US Solar Transaction, the Company’s 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 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 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 has made all repayments of the PSE&G Loan using SRECs.
The Company 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.
10. GOVERNMENT GRANTS
Universal Service Fund
The Universal Service Fund (“USF”) is a system of subsidies and feessubsidy program managed by the Federal Communications Commission’s (“FCC”).FCC. USF funds are disbursed to telecommunication providers through four programs: the Connect America Fund; Lifeline;High Cost Program; Low Income Program; Schools and Libraries Program (“E-Rate”); and Rural Health Care Support. We participateProgram. The Company participates in each of these programs as further described below. All of the Connect America Fund; Lifeline, E-Ratefunding programs are subject to certain operational and Rural Health Care Support programs. reporting compliance requirements. The Company believes it is in compliance with all applicable requirements.
21
The FCC’s Mobility Funds and High Cost Support programsConnect America Funds are administered through the Connect America Fund.FCC’s USF High Cost Program. The High-Cost SupportHigh Cost program subsidizes telecommunications services in rural and remote areas.
The FCC
24
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 ourits wholesale wireless business (the “Mobility Funds”) by expandingto 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$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$13.9 million received offsetsoffset operating expenses from inception of which $13.4 million has been recorded to date and $0.5 million is recorded within current liabilities in our consolidated balance sheet asthe program through part of June 30,the third quarter of 2018. The Mobility Funds projects and their operating results are included within our U.S.the Company’s US Telecom segment. As part of the receipt of the Mobility Funds, the Company committed to comply with certain additional FCC construction and other requirements. The balance sheet presentation is based onIf the timing of the expected usage ofrequirements are not met, the funds which will reduce future operations expenses through the expiration of the arrangement in July 2018. may be subject to claw back provisions. The Company currently expects to comply with all applicable requirements related to these funds.
During the three and six month periods ended June 30, 2019, the Company recorded $4.1 million and $8.2 million, respectively, of revenue from the High Cost Program in its International Telecom segment. During the three and six months periods ended June 30, 2018, the Company recorded $4.1$4.1 million and $8.3$8.2 million, respectively, of revenue from the High Cost SupportProgram in its International Telecom segment for U.S. Virgin Islands operations.segment. Also, during the three and six month periods ended June 30, 2019, the Company recorded $0.3 million and $0.6 million of High Cost Program revenue in its US Telecom segment. During the three and six months periods ended June 30, 2018, the Company recorded $0.3 million$0.3 and $0.6 million, respectively, of revenue from the High Cost Support revenueProgram in its US Telecom segment. The Company is subject to certain operational, reporting and construction requirements as a result of this funding and we believethe Company believes that we areit is in compliance with all of these requirements. In addition, the Company receivedrecorded revenue of $8.2 million ofduring the three and six months ended June 30, 2018, from additional funding authorized by the FCC for network restoration 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 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. The Company determined the award is a revenue grant, and as a result will record the funding as revenue upon receipt. The Company recorded $1.5 million of revenue in the three and six months ended June 30, 2019 from the Connect America Fund Phase II program.
The E-Rate program provides discounted telecommunication access to eligible schools and libraries. The E-Rate program (i) awards providers grantsspecial construction funding to build network connectivity for eligible participants, and (ii) pays for discounted recurring charges for eligible broadband services. The grants arespecial construction funding is used to reimburse construction costs and is distributed upon completion of a project. As of June 30, 2018,2019, the Company was awarded approximately $15.4 million of E-Rate grants with construction completion obligations between June 2019 and June 2020. Once these projects are constructed the Company is obligated to provide service to the E-Rate program participants. The Company is in various stages of constructing the networks and has not received any of the funds. 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 three and six months ended June 30, 20182019, the companyCompany recorded revenue of $2.1$1.6 million, and $3.2 million, respectively, in the aggregate from these programs. During the three and six months ended June 30, 2018, the Company recorded revenue of $2.1 million, and $4.3 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.
22
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 MhzMHz spectrum on the lands of federally recognized tribes. The Company received a bidding credit of $7.4 million under this program in the first quarter of 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 million to offset capital costs and, consequently, a reduction inreduce 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. The Company currently expects to comply with all applicable requirements related to these funds.
11. RETIREMENT PLANS
The Company has noncontributory defined benefit pension plans for eligible employees in its International Telecom segment who meet certain eligibility criteria. The Company also has a noncontributory defined medical, dental, vision, and life benefit plan for eligible employees in its International Telecom segment who meet certain eligibility criteria. The Company recorded the net periodic benefit cost identified below (in thousands):
| | | | | | | | | | | | | |
| | Three months ended | | ||||||||||
|
| June 30, 2019 |
| June 30, 2018 | | ||||||||
| | Pension benefits | | Postretirement benefits | | Pension benefits | | Postretirement benefits | | ||||
Operating expense | | | | | | | | | | | | | |
Service cost | | $ | 447 | | $ | 37 | | $ | 448 | | $ | 37 | |
Non-operating expense | | | | | | | | | | | | | |
Interest cost | | | 841 | | | 40 | | | 819 | | | 40 | |
Expected return on plan assets | |
| (1,263) | |
| — | |
| (1,208) | |
| — | |
Actuarial gain/ loss | | | 7 | | | (17) | | | 30 | | | (17) | |
Net periodic pension expense | | $ | 32 | | $ | 60 | | $ | 89 | | $ | 60 | |
| | | | | | | | | | | | | |
| | Six months ended | | ||||||||||
| | June 30, 2019 |
| June 30, 2018 | | ||||||||
| | Pension benefits | | Postretirement benefits | | Pension benefits | | Postretirement benefits | | ||||
Operating expense | | | | | | | | | | | | | |
Service cost | | $ | 895 | | $ | 74 | | $ | 897 | | $ | 74 | |
Non-operating expense | | | | | | | | | | | | | |
Interest cost | | | 1,682 | | | 80 | | | 1,639 | | | 80 | |
Expected return on plan assets | |
| (2,527) | |
| — | |
| (2,418) | |
| — | |
Actuarial gain/ loss | | | 15 | | | (34) | | | 61 | | | (34) | |
Net periodic pension expense | | $ | 65 | | $ | 120 | | $ | 179 | | $ | 120 | |
The Company is not required to make contributions to its pension and postretirement benefit plans. However, the Company periodically evaluates whether to make discretionary contributions. No contributions were made during the six months ended June 30, 2019 and 2018.
2523
12. INCOME TAXES
10. EQUITY
The Company’s effective tax rate for the three months ended June 30, 2019 and 2018 was (15.6%) and 16.2%, respectively. The effective tax rate for the three months ended June 30, 2019 was primarily impacted by the mix of income generated among the jurisdictions in which the Company operates along with the exclusion of losses in the U.S. Virgin Islands and India where the Company cannot benefit from those losses as required by ASC 740-270-30-36(a), in addition to the following discrete items: (i) $1.1 million benefit from the reversal of unrecognized tax positions due to statute expiration, net interest expense on unrecognized tax positions and , (ii) $0.5 million benefit from the reversal of a deferred tax liability due to an intercompany debt restructure.
Stockholders’ equity
The Company’s effective tax rate for the three months ended June 30, 2018 was primarily impacted by the mix of income generated among the jurisdictions in which the Company operates along with the exclusion of losses in the U.S. Virgin Islands and India where the Company cannot benefit from those losses as follows (in thousands):required by ASC 740-270-30-36(a), in addition to a $0.5 million discrete benefit for the release of a capital loss valuation allowance due to a capital gain on a sale of a wireless license.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six months ended June 30, |
| ||||||||||||||||
|
| 2018 |
| 2017 |
| ||||||||||||||
|
| ATN |
| Non-Controlling |
|
|
|
| ATN |
| Non-Controlling |
| Total |
| |||||
|
| International, Inc. |
| Interests |
| Total Equity |
| International, Inc. |
| Interests |
| Equity |
| ||||||
Equity, beginning of period |
| $ | 688,727 |
| $ | 141,496 |
| $ | 830,223 |
| $ | 677,055 |
| $ | 132,114 |
| $ | 809,169 |
|
Stock-based compensation |
|
| 3,679 |
|
| — |
|
| 3,679 |
|
| 3,764 |
|
| — |
|
| 3,764 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 0 |
|
|
|
|
Net income |
|
| 1,660 |
|
| 6,817 |
|
| 8,477 |
|
| 12,743 |
|
| 9,751 |
|
| 22,494 |
|
Projected pension benefit obligation |
|
| — |
|
| — |
|
| — |
|
| 513 |
|
| — |
|
| 513 |
|
Unrealized (gain) loss on securities |
|
| 181 |
|
| — |
|
| 181 |
|
| (130) |
|
| — |
|
| (130) |
|
Reclassifications of gains on sale of marketable securities to net income |
|
| — |
|
| — |
|
| — |
|
| (1,044) |
|
| — |
|
| (1,044) |
|
Foreign Currency translation adjustment |
|
| (3,583) |
|
| — |
|
| (3,583) |
|
| 2,232 |
|
| — |
|
| 2,232 |
|
Total comprehensive income (loss) |
|
| (1,742) |
|
| 6,817 |
|
| 5,075 |
|
| 14,314 |
|
| 9,751 |
|
| 24,065 |
|
Issuance of common stock upon exercise of stock options |
|
| 498 |
|
| — |
|
| 498 |
|
| 401 |
|
| — |
|
| 401 |
|
Dividends declared on common stock |
|
| (5,407) |
|
| — |
|
| (5,407) |
|
| (10,951) |
|
| — |
|
| (10,951) |
|
Distributions to non-controlling interests |
|
| — |
|
| (12,975) |
|
| (12,975) |
|
| — |
|
| (3,491) |
|
| (3,491) |
|
Investments made by non-controlling interests |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 123 |
|
| 123 |
|
Loss on deconsolidation of subsidiary |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 529 |
|
| 529 |
|
Change in accounting method- adoption of ASU 2016-09 |
|
| — |
|
| — |
|
| — |
|
| 110 |
|
| — |
|
| 110 |
|
Change in accounting method- adoption of ASU 2014-09 |
|
| 1,488 |
|
| 1,147 |
|
| 2,635 |
|
| — |
|
| — |
|
| — |
|
Repurchase of non-controlling interests |
|
| — |
|
| (61) |
|
| (61) |
|
| (670) |
|
| (285) |
|
| (955) |
|
Purchase of treasury stock |
|
| (4,158) |
|
| — |
|
| (4,158) |
|
| (2,314) |
|
| — |
|
| (2,314) |
|
Equity, end of period |
| $ | 683,085 |
| $ | 136,424 |
| $ | 819,509 |
| $ | 681,709 |
| $ | 138,741 |
| $ | 820,450 |
|
The Company’s effective tax rate for the six months ended June 30, 2019 and 2018 was 25.4% and 41.5%, respectively. The effective tax rate for the six months ended June 30, 2019 was primarily impacted by the mix of income generated among the jurisdictions in which the Company operates along with the exclusion of losses in the U.S. Virgin Islands and India where the Company cannot benefit from those losses as required by ASC 740-270-30-36(a), in addition to the following discrete items: (i) $0.6 million benefit from the reversal of unrecognized tax positions due to statute expiration, net interest expense on unrecognized tax positions and , (ii) $0.5 million benefit from the reversal of a deferred tax liability due to an intercompany debt restructure.
The effective tax rate for the six months ended June 30, 2018 was primarily impacted by the mix of income generated among the jurisdictions in which the Company operates along with the exclusion of losses in the U.S. Virgin Islands and India where the Company cannot benefit from those losses as required by ASC 740-270-30-36(a), in addition to the following discrete items: (i) $0.5 million interest expense on unrecognized tax benefits, (ii) $0.7 million provision for the intercompany sale of assets from the U.S. to the U.S. Virgin Islands, and (iii) $0.5 million benefit for the release of a capital loss valuation allowance due to a capital gain on a sale of a wireless license.
26
11.The Company’s 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. The Company’s 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 the Company operates. While the Company believes it has adequately provided for all tax positions, amounts asserted by taxing authorities could materially differ from the Company’s 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, the Company could record additional provisions or benefits for US federal, state, and foreign tax matters in future periods as new information becomes available.
13. NET INCOME (LOSS) PER SHARE
For the three and six months ended June 30, 2019 and 2018, and 2017, outstanding stock options were the only potentially dilutive securities. The reconciliation fromcalculation of basic toand diluted weighted average shares of common stock outstanding isdoes not include 48,000 shares and 50,000 shares, respectively, relating to stock options as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
| Three months ended June 30, |
| Six months ended June 30, |
| ||||
|
| 2018 |
| 2017 |
| 2018 |
| 2017 |
|
Basic weighted-average shares of common stock outstanding |
| 15,962 |
| 16,195 |
| 15,996 |
| 16,176 |
|
Stock options |
| 48 |
| 79 |
| 50 |
| 87 |
|
Diluted weighted-average shares of common stock outstanding |
| 16,010 |
| 16,274 |
| 16,046 |
| 16,263 |
|
the effects of those options were anti-dilutive.
24
12.14. SEGMENT REPORTING
The Company has the following three 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):
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|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
For the Three Months Ended June 30, 2018 | ||||||||||||||||||||||||||||||
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| U.S. |
| International |
| Renewable |
| Corporate and |
|
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| |||||||||||||||||||
|
| Telecom |
| Telecom |
| Energy |
| Other (1) |
| Consolidated | ||||||||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||
For the Three Months Ended June 30, 2019 | For the Three Months Ended June 30, 2019 | |||||||||||||||||||||||||||||
|
| | |
| |
| | |
| | | | | | ||||||||||||||||
| | US | | International | | Renewable | | Corporate and | | | | |||||||||||||||||||
| | Telecom | | Telecom | | Energy | | Other (1) | | Consolidated | ||||||||||||||||||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | |
Wireless |
| $ | 28,582 |
| $ | 21,914 |
| $ | — |
| $ | — |
| $ | 50,496 | | $ | 25,656 | | $ | 21,340 | | $ | — | | $ | — | | $ | 46,996 |
Wireline |
|
| 1,702 |
|
| 59,567 |
|
| — |
|
| — |
|
| 61,269 | |
| 757 | |
| 58,519 | |
| — | |
| — | |
| 59,276 |
Renewable Energy |
|
| — |
|
| — |
|
| 6,023 |
|
| — |
|
| 6,023 | | | — | | | — | | | 1,449 | | | — | | | 1,449 |
Total Revenue |
|
| 30,284 |
|
| 81,481 |
|
| 6,023 |
|
| — |
|
| 117,788 | |
| 26,413 | |
| 79,859 | |
| 1,449 | |
| — | |
| 107,721 |
Depreciation and amortization |
|
| 6,835 |
|
| 11,794 |
|
| 1,899 |
|
| 1,385 |
|
| 21,913 | |
| 5,551 | |
| 13,606 | |
| 638 | |
| 1,754 | |
| 21,549 |
Non-cash stock-based compensation |
|
| — |
|
| 20 |
|
| 29 |
|
| 2,054 |
|
| 2,103 | |
| — | |
| 11 | |
| — | |
| 2,017 | |
| 2,028 |
Operating income (loss) |
|
| 7,841 |
|
| 15,571 |
|
| 1,927 |
|
| (9,586) |
|
| 15,753 | |
| 1,521 | |
| 11,057 | |
| 167 | |
| (9,991) | |
| 2,754 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
For the Three Months Ended June 30, 2017 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
| U.S. |
| International |
| Renewable |
| Corporate and |
|
|
| |||||||||||||||||||
|
| Telecom |
| Telecom |
| Energy |
| Other (1) |
| Consolidated | ||||||||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||
For the Three Months Ended June 30, 2018 | For the Three Months Ended June 30, 2018 | |||||||||||||||||||||||||||||
|
| | |
|
|
| | |
| | |
| | | ||||||||||||||||
| | US | | International | | Renewable | | Corporate and | | | | |||||||||||||||||||
| | Telecom | | Telecom | | Energy | | Other (1) | | Consolidated | ||||||||||||||||||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | |
Wireless |
| $ | 34,921 |
| $ | 21,625 |
| $ | — |
| $ | — |
| $ | 56,546 | | $ | 28,582 | | $ | 21,914 | | $ | — | | $ | — | | $ | 50,496 |
Wireline |
|
| 2,057 |
|
| 59,745 |
|
| — |
|
| — |
|
| 61,802 | |
| 1,702 | |
| 59,567 | |
| — | |
| — | |
| 61,269 |
Renewable Energy |
|
| — |
|
| — |
|
| 4,897 |
|
| — |
|
| 4,897 | |
| — | |
| — | |
| 6,023 | |
| — | |
| 6,023 |
Total Revenue |
|
| 36,978 |
|
| 81,370 |
|
| 4,897 |
|
| — |
|
| 123,245 | |
| 30,284 | |
| 81,481 | |
| 6,023 | |
| — | |
| 117,788 |
Depreciation and amortization |
|
| 6,246 |
|
| 13,134 |
|
| 1,830 |
|
| 1,044 |
|
| 22,254 | |
| 6,835 | |
| 11,794 | |
| 1,899 | |
| 1,385 | |
| 21,913 |
Non-cash stock-based compensation |
|
| — |
|
| 8 |
|
| 29 |
|
| 2,061 |
|
| 2,098 | |
| — | |
| 20 | |
| 29 | |
| 2,054 | |
| 2,103 |
Operating income (loss) |
|
| 13,147 |
|
| 10,765 |
|
| 846 |
|
| (8,955) |
|
| 15,803 | |
| 7,841 | |
| 15,571 | |
| 1,927 | |
| (9,586) | |
| 15,753 |
| | | | | | | | | | | | | | | |
For the Six Months Ended June 30, 2019 | |||||||||||||||
|
| | |
| |
| | |
| | |
| | | |
| | US | | International | | Renewable | | Corporate and | | | | ||||
| | Telecom | | Telecom | | Energy | | Other (1) | | Consolidated | |||||
Revenue | | | | | | | | | | | | | | | |
Wireless | | $ | 46,093 | | $ | 42,515 | | $ | — | | $ | — | | $ | 88,608 |
Wireline | |
| 1,813 | |
| 117,660 | |
| — | |
| — | |
| 119,473 |
Renewable Energy | | | — | | | — | | | 2,939 | | | — | | | 2,939 |
Total Revenue | |
| 47,906 | |
| 160,175 | |
| 2,939 | |
| — | |
| 211,020 |
Depreciation and amortization | |
| 11,149 | |
| 26,621 | |
| 1,253 | |
| 3,244 | |
| 42,267 |
Non-cash stock-based compensation | |
| — | |
| 21 | |
| — | |
| 3,313 | |
| 3,334 |
Operating income (loss) | |
| (2,006) | |
| 24,935 | |
| (16) | |
| (18,045) | |
| 4,868 |
2725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2018 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| U.S. |
| International |
| Renewable |
| Corporate and |
|
|
| ||||
|
| Telecom |
| Telecom |
| Energy |
| Other (1) |
| Consolidated | |||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wireless |
| $ | 55,983 |
| $ | 45,060 |
| $ | — |
| $ | — |
| $ | 101,043 |
Wireline |
|
| 2,800 |
|
| 106,565 |
|
| — |
|
| — |
|
| 109,365 |
Renewable Energy |
|
| — |
|
| — |
|
| 11,855 |
|
| — |
|
| 11,855 |
Total Revenue |
|
| 58,783 |
|
| 151,625 |
|
| 11,855 |
|
| — |
|
| 222,263 |
Depreciation and amortization |
|
| 13,348 |
|
| 23,465 |
|
| 3,673 |
|
| 2,731 |
|
| 43,217 |
Non-cash stock-based compensation |
|
| — |
|
| 48 |
|
| 57 |
|
| 3,574 |
|
| 3,679 |
Operating income (loss) |
|
| 13,065 |
|
| 21,211 |
|
| 3,863 |
|
| (18,177) |
|
| 19,962 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
For the Six Months Ended June 30, 2017 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
| U.S. |
| International |
| Renewable |
| Corporate and |
|
|
| |||||||||||||||||||
|
| Telecom |
| Telecom |
| Energy |
| Other (1) |
| Consolidated | ||||||||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||
For the Six Months Ended June 30, 2018 | For the Six Months Ended June 30, 2018 | |||||||||||||||||||||||||||||
|
| | |
| |
| | |
| | | | | | ||||||||||||||||
| | US | | International | | Renewable | | Corporate and | | | | |||||||||||||||||||
| | Telecom | | Telecom | | Energy | | Other (1) | | Consolidated | ||||||||||||||||||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | |
Wireless |
| $ | 72,623 |
| $ | 42,848 |
| $ | — |
| $ | — |
| $ | 115,471 | | $ | 55,983 | | $ | 45,060 | | $ | — | | $ | — | | $ | 101,043 |
Wireline |
|
| 8,148 |
|
| 117,812 |
|
| — |
|
| — |
|
| 125,960 | |
| 2,800 | |
| 106,565 | |
| — | |
| — | |
| 109,365 |
Renewable Energy |
|
| — |
|
| — |
|
| 9,929 |
|
| — |
|
| 9,929 | | | — | | | — | | | 11,855 | | | — | | | 11,855 |
Total Revenue |
|
| 80,771 |
|
| 160,660 |
|
| 9,929 |
|
| — |
|
| 251,360 | |
| 58,783 | |
| 151,625 | |
| 11,855 | |
| — | |
| 222,263 |
Depreciation and amortization |
|
| 12,797 |
|
| 26,250 |
|
| 3,284 |
|
| 2,416 |
|
| 44,747 | |
| 13,348 | |
| 23,465 | |
| 3,673 | |
| 2,731 | |
| 43,217 |
Non-cash stock-based compensation |
|
| — |
|
| 138 |
|
| 57 |
|
| 3,591 |
|
| 3,786 | |
| — | |
| 48 | |
| 57 | |
| 3,574 | |
| 3,679 |
Operating income (loss) |
|
| 28,533 |
|
| 20,691 |
|
| 2,287 |
|
| (17,955) |
|
| 33,556 | |
| 13,065 | |
| 21,211 | |
| 3,863 | |
| (18,177) | |
| 19,962 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Corporate and Other items refer to corporate overhead costs and consolidating adjustments |
Selected balance sheet data for each of ourthe Company’s segments as of June 30, 20182019 and December 31, 20172018 consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| U.S. |
| International |
| Renewable |
| Corporate and |
|
|
| ||||
|
| Telecom |
| Telecom |
| Energy |
| Other (1) |
| Consolidated | |||||
June 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, Cash equivalents, and Investments |
| $ | 16,241 |
| $ | 49,882 |
| $ | 12,403 |
| $ | 90,176 |
| $ | 168,702 |
Total current assets |
|
| 43,413 |
|
| 97,603 |
|
| 18,077 |
|
| 105,220 |
|
| 264,313 |
Fixed assets, net |
|
| 92,435 |
|
| 442,854 |
|
| 150,022 |
|
| 17,657 |
|
| 702,968 |
Goodwill |
|
| 35,269 |
|
| 25,421 |
|
| 3,280 |
|
| — |
|
| 63,970 |
Total assets |
|
| 195,587 |
|
| 611,654 |
|
| 184,255 |
|
| 197,503 |
|
| 1,188,999 |
Total current liabilities |
|
| 44,618 |
|
| 79,484 |
|
| 12,378 |
|
| 20,910 |
|
| 157,390 |
Total debt |
|
| — |
|
| 92,774 |
|
| 58,227 |
|
| — |
|
| 151,001 |
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 |
| | | | | | | | | | | | | | | |
|
| | |
| |
| | |
| |
|
| | | |
| | US | | International | | Renewable | | Corporate and | | | | ||||
| | Telecom | | Telecom | | Energy | | Other (1) | | Consolidated | |||||
June 30, 2019 | | | | | | | | | | | | | | | |
Cash, Cash equivalents, and Investments | | $ | 22,925 | | $ | 38,403 | | $ | 22,522 | | $ | 67,042 | | $ | 150,892 |
Total current assets | | | 52,278 | | | 95,437 | | | 40,129 | | | 62,385 | | | 250,229 |
Fixed assets, net | | | 72,501 | | | 474,185 | | | 44,309 | | | 22,708 | | | 613,703 |
Goodwill | |
| 35,269 | |
| 25,421 | |
| 3,280 | |
| — | | | 63,970 |
Total assets | |
| 222,110 | |
| 657,062 | |
| 88,683 | |
| 179,121 | | | 1,146,976 |
Total current liabilities | | | 34,464 | | | 73,671 | | | 1,465 | | | 20,701 | | | 130,301 |
Total debt | | | — | | | 89,166 | | | — | | | — | | | 89,166 |
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 |
| | | | | | | | | | | | | | | |
| | Capital Expenditures | |||||||||||||
| |
| | |
| | |
| | |
| | |
| |
| | | US | | | International | | | Renewable | | | Corporate and | | | |
Six months ended June 30, | | | Telecom | | | Telecom (2) | | | Energy | | | Other (1) | | | Consolidated |
2019 | | $ | 6,368 | | $ | 23,692 | | $ | 817 | | $ | 4,519 | | $ | 35,396 |
2018 | | | 7,266 | | | 95,520 | | | 1,388 | | | 3,074 | | | 107,248 |
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Capital Expenditures |
| |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| U.S. |
|
| International |
|
| Renewable |
|
| Corporate and |
|
|
|
|
|
Six months ended June 30, |
|
| Telecom |
|
| Telecom |
|
| Energy |
|
| Other (1) |
|
| Consolidated |
|
|
2018 |
| $ | 7,266 |
| $ | 95,520 | (2) | $ | 1,388 |
| $ | 3,074 |
| $ | 107,248 |
|
|
2017 |
|
| 12,602 |
|
| 37,129 |
|
| 25,535 |
|
| 3,293 |
|
| 78,559 |
|
|
(1) | Corporate and other items refer to corporate overhead costs and consolidating adjustments |
(2) | Includes $0.1 million and $66.7 million of expenditures during the six months of 2019 and 2018, respectively, used to rebuild the Company’s damaged networks in the |
26
13.15. 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 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.
The Company’s Guyana subsidiary, GT&T,GTT, holds 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 GT&TGTT have met on several occasions with officials of the Government of Guyana to discuss potential modifications of GT&T’sGTT’s exclusivity and other rights under the existing agreement and license. On July 18, 2016, the Guyana Parliament passed telecommunications legislation, and on August 5, 2016, the legislation was signed into law andthat 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 have the effect of terminating the Company’s exclusive 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, including the issuance of competing licenses. The Company cannot predict the manner in which or when the legislation will be implemented by the Minister of Telecommunications.
In January 2018 the Government of Guyana and the Company met to discuss modifications of the Company’s exclusivity rights and other rights under its existing agreement and license. Those discussions are on-going, however, there can be no assurance that those discussions will be concluded before the Government issues new licenses contemplated by the legislation or at all, or that such discussions 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 prevail in a proceeding to enforce its rights or that its actions would effectively halt any unilateral action by the Government.
Historically, GT&TGTT has been subject to other litigation proceedings and disputes in Guyana that, while not conclusively resolved, to the Company’s knowledge have not 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
29
revived. 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 operation 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 GT&TGTT agreed to with the Government. GT&TGTT 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, GT&TGTT 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 GT&T’sGTT’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 GT&TGTT 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. GT&TGTT 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 GT&TGTT has not had the opportunity to reviewhave significant discussions with the NFMU on the matter and is not aware whether the NFMU has made 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 GT&T and ATN claiming breach of an interconnection agreement for domestic cellular services in Guyana and related claims. CTL asserted over $200 million in damages. GT&T 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 GT&T 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 has not yet ruled on.
27
On May 8, 2009, a GT&TGTT competitor, Digicel, filed a lawsuit in Guyana challenging the legality of GT&T’sGTT’s exclusive license rights under Guyana’s constitution. Digicel initially filed this lawsuit against the Attorney General of Guyana onGuyana. On May 13, 2009, GT&TGTT petitioned to intervene in the suit in order to oppose Digicel’s claims and GT&T’sGTT’s petition was granted on May 18, 2009. GT&TGTT filed an answer to the charge on June 22, 2009. The case remains pending. The Company believes that any legal challenge to GT&T’sGTT’s exclusive license rights granted in 1990 is without merit and the Company intends to defend vigorously against such legal challenge.
GT&T
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 GT&T’sGTT’s exclusive license rights, the interconnection agreement between the parties, and the laws of Guyana. GT&TGTT is seeking injunctive relief to stop the illegal bypass activity and money damages. Digicel filed counterclaims alleging that GT&TGTT has violated the terms of the interconnection agreement and Guyana laws. These suits, filed in 2010 and 2012, have yetbeen consolidated with Digicel’s constitutional challenge described above which is expected to proceed to trial and it remains uncertain as to when a trial date may be set. GT&Tin the second half of 2019. GTT intends to prosecute these matters vigorously.
GT&TGTT 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 GT&TGTT 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 GT&T’sGTT’s return on investment was no less than 15%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 June 30, 20182019 for these matters.
30
14. PLATFORM INVESTMENTS
During the third quarter of 2017, the Company completed its investment in a managed services and technology business based in Bermuda.
During the second quarter of 2018, the Company established a new platform, based in the United States, to develop in-building wireless network technology which enables building owners to capitalize on the growing demand for better indoor wireless solutions. Also during the second quarter of 2018, the Company established a new platform, based in the United States, to further develop large scale fiber networks to serve the telecommunications and content provider industries with network infrastructure to develop network solutions.
15. SUBSEQUENT EVENTS
In July 2018, the Company completed the previously disclosed sale of approximately 100 cell sites. The Company received no additional cash proceeds at closing from the sale and expects to record a gain on the sale of approximately $15 million in the third quarter of 2018.
On August 1, 2018 the IRS issued proposed regulations under Sec. 965 relating to the one time transition tax imposed as of December 31, 2017. The Company is still analyzing the regulations to determine what if any impact they may have on amounts it recorded in the 2017 financial statements.
On August 7, 2018, the FCC authorized, approximately, an additional $7.3 million in funding to the Company for network restoration and hardening following the Hurricanes.
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion and analysis of our financial condition and results of operations that follows are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities at the date of our financial statements. Actual results may differ significantly from these estimates under different assumptions or conditions. This discussion should be read in conjunction with our condensed consolidated financial statements herein and the accompanying notes thereto, and our Annual Report on Form 10-K for the year ended December 31, 20172018 (our “2017“2018 Annual Report on Form 10-K”), and in particular, the information set forth therein under Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.
Overview
We are a holding company that, directly and through our operatingits subsidiaries, (i) provides wirelessowns and wirelineoperates telecommunications servicesbusinesses in North America, Bermuda, and the Caribbean, (ii) develops, owns and operates commercial distributed generation solar power systemsa renewable energy business in the United States and India, and (iii) owns and operates terrestrial and submarine fiber optic transport systems in the United States and in the Caribbean.India. 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.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 actively evaluatelook for businesses that offer growth opportunities or potential strategic benefits, but that require additional domesticcapital investment in order to execute on their business plans. We hold controlling positions with respect to some of our investments and international acquisition, divestiture,minority positions in others. These strategic investments frequently offer a product and investment opportunities and other strategic transactionsservice development component in addition to the telecommunications, energy-related and other industries that meetprospect of generating returns on our return-on-investment and other acquisition criteria.invested capital. For a discussion of the risks involved in our investment strategy, and risks involved, see “Risk Factors—We are actively evaluating investment, acquisition and other strategic opportunities, which may affect our long-term growth prospects.prospects.” in our 20172018 Annual Report on Form 10-K.
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We offer the following principal services:have identified three operating segments to manage and review our operations, and to facilitate investor presentations of our results, as follows:
|
|
● | International Telecom. Our international wireless services include voice and data services to retail |
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|
| Renewable Energy. In |
The following chart summarizes the operating activities of our principal subsidiaries, the segments in which we report our revenue and the markets we served as of June 30, 2018:2019:
| | | | | | | |
Segment | Services | Markets | Tradenames | ||||
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|
|
| ||||
|
| Wireless |
| United States (rural markets) |
|
| |
|
| Wireline |
| United States |
| Essextel, Deploycom | |
International Telecom |
| Wireline |
| Bermuda, Cayman Islands, Guyana, |
|
| |
|
| Wireless |
| Bermuda, Guyana, |
|
| |
| | Video Services | | Bermuda, | | Logic, One, Viya | |
RenewableEnergy | | Solar | |
| |
| |
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-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 further information about our financial segments and geographical information about our operating revenues and assets see Note 12Notes 1 and 14 to the Unaudited Condensed Consolidated Financial Statements included in this Report.
Dispositions
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Impact of Hurricanes Irma and MariaRenewable Energy (US Operations)
During September 2017, our operations and customers 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 revenue in this business, since the Hurricanes and through much of the first six months of 2018. Accordingly, revenue generated by our U.S. Virgin Islands operations decreased by $3.0 million and $16.2 million during the three and six months ended June 30, 2018 as compared to 2017 as a result of the Hurricanes and an additional $1.2 and $2.3 million for the three and six months ended June 30, 2018 as a result of our August 2017 sale of our operations in the British Virgin Islands. However, the second quarter of 2018 was positively impacted by the recognition of $8.2 million in revenue funded by the additional receipt of high-cost Universal Service Funds.
During the six months ended June 30, 2018, we spent $66.7 million restoring and adding resiliency to our network which allowed us to reconnect roughly two-thirds of the households and three-quarters of businesses as of the period end. We expect that our network restoration work will be substantially complete by the end of the third quarter of 2018. 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.
Dispositions
International Telecom
On August 18, 2017, we completed the sale of the Viya cable operations located in the British Virgin Islands. We did not recognize a gain or loss on the transaction.
On January 3, 2017, we 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.
The results of the British Virgin Islands and St. Maarten operations are not material to our historical results of operations. Since the dispositions do not relate to a strategic shift in our operations, the historical results and financial position of the operations are presented within continuing operations.
U.S. Wireline Business
On March 8, 2017,November 6, 2018, we completed the sale of our integrated voiceUS Solar Operations business that owned and data communications and wholesale transport businessesmanaged distributed generation solar power projects operated under the Ahana name in New EnglandMassachusetts, California and New York for consideration of $25.9 million (the “SovernetJersey
29
(the “US Solar Transaction”). The considerationUS Solar Transaction had a total value of approximately $122.6 million, which included $20.9a 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 cash, $3.0 million of receivables, and $2.0 million of contingent consideration. The $3.0 million of receivables arethe purchase price will be held in escrow to satisfy working capital adjustments in favorfor a period of twelve months after the acquirer, to fund certain capital expenditure projects related to the assets sold andclosing to secure our indemnification obligations.
The contingent consideration representsoperations sold in connection with the fair valueUS Solar Transaction do not qualify as discontinued operations because the disposition does not represent a strategic shift that has a major effect on our operations and financial results.
Platform Investments
During the second quarter of future payments related2018, 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. 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. Both of these investments are consolidated in our results in our US Telecom segment.
Strategic Transactions
In July 2019, we 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 its current operating area in the Southwestern United States (the “FirstNet Transaction”). Pursuant to the FirstNet Agreement and subject to certain operational milestoneslimitations contained therein, all cell sites must be completed and accepted within a specified period of time. We expect to recognize construction revenue of approximately $75.0-80.0 million over the disposed assets. The valuenext two years that will be mainly offset by construction cost as sites are completed. Revenues from construction are expected to have minimal impact on operating income.
Following acceptance of a cell site, AT&T will own the contingent consideration was upcell site and we will assign to $4.0 million basedAT&T any third-party tower lease applicable to such cell site. If the cell site is located on whether or nota communications tower we own, AT&T will pay us pursuant to a separate lease agreement for an initial term of eight years. In addition to building the operational milestones were achieved by December 31, 2017. In September 2017, based on progress toward achievingnetwork, we will provide ongoing equipment and site maintenance and high capacity transport to and from these cell sites for an initial term ending 2029.
AT&T will continue to use our wholesale domestic wireless network for roaming services at a fixed rate per site during the operational milestones,construction period until such time as the cell site is transferred to AT&T. Thereafter, revenue from the maintenance, leasing and the December 31, 2017 deadline under whichtransport services provided to do so, management determined that earning the contingent consideration was unlikely. As a result the fair value of the contingent consideration was reducedAT&T is expected to zero. The amount was recorded as a loss on disposition of assets withinoffset revenue from wholesale wireless roaming services. We expect overall operating income duringcontributions from the year ended December 31, 2017.FirstNet Transaction to benefit second half of 2019 results and to have a relatively steady impact from 2020 onwards.
Universal Service Fund
The Universal Service Fund (“USF”) is a system of subsidies and feessubsidy program managed by the Federal Communications Commission’s (“FCC”).FCC. USF funds are disbursed to telecommunication providers through four
33
programs: the Connect America Fund; Lifeline; Schools and Libraries Program (“E-Rate”);High Cost Program; Low Income Program; E-Rate; and Rural Health Care Support.Program. We participate in each of these programs as further described below. All of the Connect America Fund; Lifeline, E-Rate,funding programs are subject to certain operational and Rural Health Care Support programs. reporting compliance requirements and if the requirements are not met, the funds may be subject to claw back provisions. We believe we are in compliance will all applicable requirements.
The FCC’s Mobility Funds and High Cost Support programsConnect America Funds are administered through the Connect America Fund.FCC’s USF High Cost Program. The High-Cost Support programProgram subsidizes telecommunications services in rural and remote areas. The FCC createdareas and the Phase I Mobility Fund (“Phase I Mobility Fund”),is a one-time award meant to support wireless coverage in underserved geographic areas in the United States. The Connect America Fund Phase II Auction is a program that requires us to provide fixed broadband and voice services to certain eligible areas in the United States.
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During the three and six month periods ended June 30, 2019, we recorded $4.1 million and $8.2 million, respectively, of revenue from the High Cost Program in our International Telecom segment. During the three and six months periods ended June 30, 2018, we recorded $4.1 million and $8.2 million, respectively, of revenue from the High Cost Program in our International Telecom segment. Also, during the three and six month periods ended June 30, 2019, we recorded $0.3 million and $0.6 million of High Cost Program revenue in our US Telecom segment. During the three and six months periods ended June 30, 2018, we recorded $0.3 million and $0.6 million, respectively, of revenue from the High Cost Program in our US Telecom segment. In addition, we recorded revenue of $8.2 million during the three and six months ended June 30, 2018, from additional USF funding authorized by the FCC following the Hurricanes.
We have received $21.1 million of Phase I Mobility Fund support to our wholesale wireless business (the “Mobility Funds”) by expandingto 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 offsetsoffset operating expenses from inception of which $13.4 million has been recorded to date and $0.5 million is recorded within current liabilities in our consolidated balance sheet asthe program through part of June 30,the third quarter of 2018. The Mobility Funds projects and theirrelated operating results are included within our U.S.US Telecom segment. As part
In August 2018, we were awarded $79.9 million over 10 years under the Connect America Fund Phase II Auction, to be used to provide fixed broadband and voice services to certain eligible areas in the United States. We recorded $1.5 million of the receipt of the Mobility Funds, we committed to comply with certain additional FCC construction and other requirements. The balance sheet presentation is based on the timing of the expected usage of the funds which will reduce future operations expenses through the expiration of the arrangementrevenue in July 2018.
During the three and six months ended June 30, 2018, we recorded $4.1 million and $8.3 million, respectively, of revenue2019 from High Cost Support in its International Telecom segment for U.S. Virgin Islands operations. Also, during the three and six months ended June 30, 2018, we recorded $0.3 million and $0.6 million, respectively, of High Cost Support revenue in its 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 received $8.2 million of additional funding authorized by the FCC for network restoration following the Hurricanes.Connect America Fund Phase II program.
The E-Rate program provides discounted telecommunication access to eligible schools and libraries. The E-Rate program (i) awards providers grantsspecial construction funding to build network connectivity tofor eligible participants, and (ii) pays for discounted recurring charges for eligible broadband services. The grants arespecial construction funding is used to reimburse construction costs and is distributed upon completion of a project. As of June 30, 2018,2019, 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 three and six months ended June 30, 2019, we recorded revenue of $1.6 million, and $3.2 million, respectively, in the aggregate from these programs. During the three and six months ended June 30, 2018, the companywe recorded revenue of $2.1 million, and $4.3 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.
On August 7, 2018, the FCC authorized, approximately, an additional $7.3 million in funding to us for network restoration and hardening following the Hurricanes. In addition, in a July 6, 2018 Notice of Proposed Rulemaking, the FCC has proposed to adopt a new, long-term high-cost support mechanism in the U.S. Virgin Islands through a program called the Connect USVI Fund. Through the Connect USVI Fund, the FCC proposed to distribute over a period of years in the U.S. Virgin Islands $186.5 million of fixed-network support and $4.4 million of mobile-network support. The FCC’s proposed Connect USVI Fund effectively would replace the current Mobility Fund and High-Cost Support funding in the U.S. Virgin Islands. The FCC has sought comment on how to distribute the Connect USVI Fund support, and we, through our U.S. Virgin Islands affiliates, have proposed that the fixed-network support and a portion of the mobile-network support be allocated to our U.S. Virgin Islands affiliates. The outcome of this proceeding, however, is unclear at this time, and it is possible that the total amount of High-Cost Support and/or Mobility Fund support received by our U.S. Virgin Islands affiliates may be increased, reduced or unchanged.
34
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 MhzMHz spectrum on the lands of federally recognized tribes. We received a bidding credit of $7.4 million under this program in the first quarter of 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 weit will use $5.4 million to offset capital costs and, consequently, a reduction inreduce 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.
Platform InvestmentsImpact 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”). Both our wireless and wireline networks and commercial operations were 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 wireline
31
services, which comprise the majority of our revenue in this business, from mid-September 2017 and through a majority of 2018. We received insurance recoveries of $34.6 million in February 2018 to aid our recovery from the impact of the Hurricanes.
During the third quarter of 2017, we completed our investment in a managed servicessix months ended June 30, 2019 and technology business based in Bermuda.
During the second quarter ofJune 30, 2018, we establishedspent $0.1 million and $66.7 million, respectively, for network restoration and resiliency enhancements that allowed the reconnection of a new platform, based insignificant majority of affected households and businesses. We expect that our wireline network restoration work is complete, however, returning our revenue to pre-Hurricane levels may take significant time as a result of population movements, the United States, to develop in-building wireless network technology which enables building owners to capitalizeeconomic impact the Hurricanes had on the growing demandmarket, and our subscriber base’s future appetite for better indoor wireless solutions. Also during the second quarter of 2018, we established a new platform, based in the United States, to further develop large scale fiber networks to serve the telecommunications and content provider industries with network infrastructure to develop network solutions.continued wireline services.
35
Selected Segment Financial Information
The following represents selected segment information for the quartersthree months ended June 30, 20182019 and 20172018 (in thousands):
| | | | | | | | | | | | | | | |
For the Three Months Ended June 30, 2019 | |||||||||||||||
|
| | |
| |
| | |
| | |
| | | |
| | US | | International | | Renewable | | Corporate and | | | | ||||
| | Telecom | | Telecom | | Energy | | Other (1) | | Consolidated | |||||
Revenue | | | | | | | | | | | | | | | |
Wireless | | $ | 25,656 | | $ | 21,340 | | $ | — | | $ | — | | $ | 46,996 |
Wireline | |
| 757 | |
| 58,519 | |
| — | |
| — | |
| 59,276 |
Renewable Energy | | | — | | | — | | | 1,449 | | | — | | | 1,449 |
Total Revenue | |
| 26,413 | |
| 79,859 | |
| 1,449 | |
| — | |
| 107,721 |
| | | | | | | | | | | | | | | |
Operating income (loss) | |
| 1,521 | |
| 11,057 | |
| 167 | |
| (9,991) | |
| 2,754 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||
For the Three Months Ended June 30, 2018 | For the Three Months Ended June 30, 2018 | For the Three Months Ended June 30, 2018 | ||||||||||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
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| ||||||||||||||||
|
| U.S. |
| International |
| Renewable |
| Corporate and |
|
|
| |||||||||||||||||||
|
| Telecom |
| Telecom |
| Energy |
| Other (1) |
| Consolidated | ||||||||||||||||||||
|
| | |
| |
| | |
| | |
| | | ||||||||||||||||
| | US | | International | | Renewable | | Corporate and | | | | |||||||||||||||||||
| | Telecom | | Telecom | | Energy | | Other (1) | | Consolidated | ||||||||||||||||||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | |
Wireless |
| $ | 28,582 |
| $ | 21,914 |
| $ | — |
| $ | — |
| $ | 50,496 | | $ | 28,582 | | $ | 21,914 | | $ | — | | $ | — | | $ | 50,496 |
Wireline |
|
| 1,702 |
|
| 59,567 |
|
| — |
|
| — |
|
| 61,269 | |
| 1,702 | |
| 59,567 | |
| — | |
| — | |
| 61,269 |
Renewable Energy |
|
| — |
|
| — |
|
| 6,023 |
|
| — |
|
| 6,023 | | | — | | | — | | | 6,023 | | | — | | | 6,023 |
Total Revenue |
|
| 30,284 |
|
| 81,481 |
|
| 6,023 |
|
| — |
|
| 117,788 | |
| 30,284 | |
| 81,481 | |
| 6,023 | |
| — | |
| 117,788 |
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| |||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||
Operating income (loss) |
|
| 7,841 |
|
| 15,571 |
|
| 1,927 |
|
| (9,586) |
|
| 15,753 | |
| 7,841 | |
| 15,571 | |
| 1,927 | |
| (9,586) | |
| 15,753 |
|
|
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|
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|
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|
|
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For the Three Months Ended June 30, 2017 | |||||||||||||||
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| |
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| U.S. |
| International |
| Renewable |
| Corporate and |
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| Telecom |
| Telecom |
| Energy |
| Other (1) |
| Consolidated | |||||
Revenue |
|
| �� |
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|
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Wireless |
| $ | 34,921 |
| $ | 21,625 |
| $ | — |
| $ | — |
| $ | 56,546 |
Wireline |
|
| 2,057 |
|
| 59,745 |
|
| — |
|
| — |
|
| 61,802 |
Renewable Energy |
|
| — |
|
| — |
|
| 4,897 |
|
| — |
|
| 4,897 |
Total Revenue |
|
| 36,978 |
|
| 81,370 |
|
| 4,897 |
|
| — |
|
| 123,245 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Operating income (loss) |
|
| 13,147 |
|
| 10,765 |
|
| 846 |
|
| (8,955) |
|
| 15,803 |
(1) Reconciling items refer to corporate overhead costs and consolidating adjustments
A quarter over quarter summary of our segment results is as follows:
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Operating expensesUS Telecom. Revenue within our U.S.US Telecom segment decreased $1.4by $3.9 million, or 5.9%12.9%, to $22.5$26.4 million from $23.9$30.3 million for the three months ended June 30, 2019 and 2018, and 2017, respectively. This decrease in operating expenses was primarily related to certain cost reduction measures throughout the segment’s operations.
As a result of the above,Revenue within our U.S. Telecom segment’s operating incomewireless operations decreased $5.3by $2.9 million, or 40.5%10.1%, to $7.8$25.7 million from $13.1$28.6 million for the three months ended June 30, 2019 and 2018, respectively. This decrease was attributable to a decline in revenues in our wholesale wireless operations with $1.8 million of this decrease relating to the July 2018 sale of 100 cell sites and 2017, respectively.$2.6 million resulting from a reduction in wholesale traffic. These decreases were partially offset by the recognition of an additional $1.5 million in revenue from the Connect America Fund II award which began this quarter. Revenue from our retail wireless operations remained unchanged at $4.6 million for the three months ended June 30, 2019 and 2018.
Revenue within our wireline operations decreased by $0.9 million, or 52.9%, to $0.8 million from $1.7 million for the three months ended June 30, 2019 and 2018, respectively, as a result of a decrease in traffic volumes within our wholesale long-distance services. |
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Operating expenses within our US Telecom segment increased $2.4 million, or 10.7%, to $24.9 million from $22.5 million for the three months ended June 30, 2019 and 2018, respectively. This increase in operating expenses was primarily related to the completion of the Phase I Mobility Fund support in 2018 which was recorded as a $1.5 million offset to expenses during the three months ended June 30, 2018, and the addition of our new in-building wireless network and large-scale fiber network business.
As a result of the above, our US Telecom segment’s operating income decreased $6.3 million, or 80.8%, to $1.5 million from $7.8 million for the three months ended June 30, 2019 and 2018, respectively.
International Telecom. Revenues within our International Telecom segment decreased $1.6 million, or 2.0%, to $79.9 million from $81.5 million for the three months ended June 30, 2019 and 2018, respectively, as our second quarter 2018 revenues included $8.2 million of additional non-recurring USF funding to help support our US Virgin Island operations, which were partially offset by an increase in broadband revenues in many of our international telecom businesses, including our operations in the US Virgin Islands as their operations became more normalized following the impact of the Hurricanes.
Operating expenses within our International Telecom segment decreasedincreased by $4.7$2.9 million, or 6.7%4.4%, to $65.9$68.8 million from $70.6$65.9 million for the three months ended June 30, 2019 and 2018, and 2017, respectively. This decreaseThe increase was primarily the result of a $6.4 million decreaseincreased expenses in expenses within our U.S.the US Virgin Islands as their operations as we continue to restore services and operations impacted bybecome more normalized following the Hurricanes as well asimpact of the sale of our operations in the British Virgin Islands. We expect operating expenses in our International Telecom segment to increase to 2017 levels as we are able to restore service to our U.S. Virgin Islands operations.Hurricanes.
As a result, our International Telecom segment’s operating income increased $4.8decreased $4.5 million, or 44.4%28.8%, to $15.6$11.1 million from $10.8$15.6 million for the three months ended June 30, 2019 and 2018, respectively.
Renewable Energy. Revenue within our Renewable Energy segment decreased $4.6 million, or 76.7%, to $1.4 million from $6.0 million for the three months ended June 30, 2019 and 2017, respectively.2018, respectively, primarily as a result the US Solar Transaction.
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Operating expenses within our Renewable Energy segment remained consistent atdecreased by $2.9 million, or 70.7%, to $1.2 million from $4.1 million for the three months ended June 30, 2019 and 2018, and 2017.respectively, primarily related to the US Solar Transaction.
As a result of the above, our Renewable Energy segment’s operating income increaseddecreased by $1.1$1.7 million, or 137.5%89.5%, to $1.9$0.2 million from $0.8income of $1.9 million for the three months ended June 30, 20182019 and 2017,2018, respectively.
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The following represents a quarter over quarterquarter-over-quarter discussion and analysis of our results of operations for the quartersthree months ended June 30, 20182019 and 20172018 (in thousands):
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| | June 30, | | Increase | | Increase |
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| | 2019 | | 2018 | | (Decrease) | | (Decrease) |
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REVENUE: |
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|
|
|
|
| |
|
| |
|
| |
|
|
| |
Wireless |
| $ | 50,496 |
| $ | 56,546 |
| $ | (6,050) |
| (10.7) | % | | $ | 46,996 | | $ | 50,496 | | $ | (3,500) |
| (6.9) | % |
Wireline |
|
| 61,269 |
|
| 61,802 |
|
| (533) |
| (0.9) |
| |
| 59,276 | |
| 61,269 | |
| (1,993) |
| (3.3) | |
Renewable Energy |
|
| 6,023 |
|
| 4,897 |
|
| 1,126 |
| 23.0 |
| |
| 1,449 | |
| 6,023 | |
| (4,574) |
| (75.9) | |
Total revenue |
|
| 117,788 |
|
| 123,245 |
|
| (5,457) |
| (4.4) |
| |
| 107,721 | |
| 117,788 | |
| (10,067) |
| (8.5) | |
OPERATING EXPENSES (excluding depreciation and amortization unless otherwise indicated): |
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | |
Termination and access fees |
|
| 28,257 |
|
| 30,922 |
|
| (2,665) |
| (8.6) |
| |
| 27,930 | |
| 28,257 | |
| (327) |
| (1.2) | |
Engineering and operations |
|
| 18,409 |
|
| 19,378 |
|
| (969) |
| (5.0) |
| |
| 19,107 | |
| 18,409 | |
| 698 |
| 3.8 | |
Sales, marketing and customer services |
|
| 8,413 |
|
| 8,729 |
|
| (316) |
| (3.6) |
| |
| 9,874 | |
| 8,413 | |
| 1,461 |
| 17.4 | |
General and administrative |
|
| 26,754 |
|
| 26,011 |
|
| 743 |
| 2.9 |
| |
| 26,590 | |
| 26,754 | |
| (164) |
| (0.6) | |
Transaction-related charges |
|
| 438 |
|
| 148 |
|
| 290 |
| 195.9 |
| |
| 28 | |
| 438 | |
| (410) |
| (93.6) | |
Depreciation and amortization |
|
| 21,913 |
|
| 22,254 |
|
| (341) |
| (1.5) |
| |
| 21,549 | |
| 21,913 | |
| (364) |
| (1.7) | |
(Gain) loss on disposition of long-lived assets |
|
| (2,333) |
|
| — |
|
| (2,333) |
| (100.0) |
| | | (111) | | | (2,333) | | | 2,222 |
| 95.2 | |
Loss on damaged assets and other hurricane related charges |
|
| 184 |
|
| — |
|
| 184 |
| 100.0 |
| | | — | | | 184 | | | (184) |
| 100.0 | |
Total operating expenses |
|
| 102,035 |
|
| 107,442 |
|
| (5,407) |
| (5.0) |
| |
| 104,967 | |
| 102,035 | |
| 2,932 |
| 2.9 | |
Income from operations |
|
| 15,753 |
|
| 15,803 |
|
| (50) |
| (0.3) |
| |
| 2,754 | |
| 15,753 | |
| (12,999) |
| (82.5) | |
OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | |
Interest income |
|
| 487 |
|
| 347 |
|
| 140 |
| 40.3 |
| |
| 517 | |
| 487 | |
| 30 |
| 6.2 | |
Interest expense |
|
| (2,327) |
|
| (2,153) |
|
| (174) |
| 8.1 |
| | | (1,263) | | | (2,327) | | | 1,064 |
| 45.7 | |
Other income (expense) |
|
| (1,045) |
|
| (492) |
|
| (553) |
| 112.4 |
| ||||||||||||
Other expense | |
| (255) | |
| (1,045) | |
| 790 |
| 75.6 | | ||||||||||||
Other expense, net |
|
| (2,885) |
|
| (2,298) |
|
| (587) |
| 25.5 |
| |
| (1,001) | |
| (2,885) | |
| 1,884 |
| 65.3 | |
INCOME BEFORE INCOME TAXES |
|
| 12,868 |
|
| 13,505 |
|
| (637) |
| (4.7) |
| |
| 1,753 | |
| 12,868 | |
| (11,115) |
| (86.4) | |
Income tax expense |
|
| 2,088 |
|
| 2,596 |
|
| (508) |
| (19.6) |
| ||||||||||||
Income tax expense (benefit) | |
| (274) | |
| 2,088 | |
| (2,362) |
| (113.1) | | ||||||||||||
NET INCOME |
|
| 10,780 |
|
| 10,909 |
|
| (129) |
| (1.2) |
| |
| 2,027 | |
| 10,780 | |
| (8,753) |
| (81.2) | |
Net income attributable to non-controlling interests, net of tax: |
|
| (3,564) |
|
| (5,026) |
|
| 1,462 |
| (29.1) |
| |
| (2,883) | |
| (3,564) | |
| 681 |
| 19.1 | |
NET INCOME ATTRIBUTABLE TO ATN INTERNATIONAL, INC. STOCKHOLDERS |
| $ | 7,216 |
| $ | 5,883 |
| $ | 1,333 |
| 22.7 | % | ||||||||||||
NET INCOME (LOSS) ATTRIBUTABLE TO ATN INTERNATIONAL, INC. STOCKHOLDERS | | $ | (856) | | $ | 7,216 | | $ | (8,072) |
| (111.9) | % |
Wireless revenue.Our wireless revenue consists of wholesale revenue generated within our U.S.US Telecom segment and retail revenue generated within both our U.S.US Telecom and International Telecom segments. Within our International Telecom segment, wireless revenue is generated in Bermuda and the Caribbean (including the U.S.US Virgin Islands).
Wholesale wireless revenue. Our U.S.US 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 andas well as tower rental income. Beginning in the third quarter of 2019, wholesale wireless revenue in our US Telecom segment will also include revenues received pursuant to our FirstNet Transaction with AT&T.
The most significant competitive factor we face in our U.S.US 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 market, reducing or eliminating their need for our services in those markets. Occasionally,In the past, 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
34
specific pricing and terms. Historically, these arrangements have differed from our FirstNet Transaction and have 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
38
exercised. DuringIn July 2018, we completed the previously disclosed sale of approximately 100 cell sites which, generated approximately $1.9 million of revenue during the second quarter of 2018, under one of these arrangements.arrangements, generated approximately $1.8 million of wholesale wireless revenue during the three months ended June 30, 2018. We received no additional cash proceeds at closing as the cash proceeds were previously received and deferred under our revenue arrangement. We expect to record a gain on the sale of approximately $15 million in the third quarter of 2018.
Retail wireless revenue. Both our U.S.US 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 $6.0$3.5 million, or 10.7%6.9%, to $47.0 million for the three months ended June 30, 2019 from $50.5 million for the three months ended June 30, 2018 from $56.5 million for the three months ended June 30, 2017.2018. The decreases in wireless revenue, within our segments, consisted of the following:
|
|
| International Telecom. Within our International Telecom segment, wireless revenue |
We expect wholesalethat wireless revenuesrevenue within our U.S.US Telecom segment to continue to decline and margins to contractwill increase in the near term as a result of previously disclosed contracts that significantly reduce ratesrevenues from the FirstNet transaction and impose revenue caps as well as the July 2018 sale of 100 cell sites which generated $1.9 million of revenue during the three months ended June 30, 2018. While we expect that wholesale data volumes will continue to increase due to increased demand combined with our increased capacity, we do not expect to significantly expand our footprint and expect that our reduced rates and revenue caps will mostly prevent us from realizing any revenue increase resulting from increased data volumes or additional base stations. As such, we expect that capital expenditures in this segment will be significantly less going forward. While we are facing lower revenue as a result of the renegotiated roaming arrangements, weConnect America Fund II award. We believe that maintaining roaming and other strategic arrangements favorable to our carrier customers allows us to preserve wholesale revenue for a longer period of time while creating potential for a long‑livedlong-lived shared infrastructure solution for carriers in areas they may consider to be non-strategic. As such, we expect that capital expenditures in this segment related to our traditional wholesale wireless business model will be significantly lower going forward.
We expect wireless revenues within our International Telecom segment to increaseremain consistent as we invest in upgrading our networks and service offerings. Growth in revenue from anticipated subscriber growth in certain markets, however, 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.US Telecom and International Telecom segments. Within our U.S.US 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.US Virgin Islands) and includes internet, voice, and video service revenues as well as revenues from our new managed services and technology business.
39
Wireline revenue decreased by $0.5$2.0 million, or 0.9%3.3%, to $61.3$59.3 million from $61.8$61.3 million for the three months ended June 30, 20182019 and 2017,2018, respectively. The decreaseschanges in wireline revenue, within our segments, consisted of the following:
|
|
35
million from |
| International Telecom. Within our International Telecom segment, wireline |
Within our International Telecom segment, we anticipate that wireline revenue may continue to show decreasesincrease in the near-term,next few quarters as compared to 2017, due toour operations within the continuedUS Virgin Islands become more normalized following the impact of the Hurricanes. 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 US Virgin Islands and the time necessary to rebuild our wireline network to service our customerscustomer base in the U.S. Virgin Islands.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‑distancelong-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‑distancelong-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 databroadband services to consumers and enterprises in Guyana or an increase in regulated local calling rates in Guyana, an increase in wholesale transport services and large enterprise and agency sales in the United States.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 1315 to the Unaudited Condensed Consolidated Financial Statements included in this Report.
Renewable energy revenue. In the United States, renewable energy revenue represents revenue from the sale of electricity through domestic long-term (10 to 25 year) power purchase agreements (“PPAs”), the sale of SRECs which have a contract term of up to ten years. Internationally, For 2019, renewable energy revenue includes the generation of power through PPA’sPower Purchase Agreements (“PPAs”) from our solar plants in India and consulting fees.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 contract. As such, our PPAscontract, provide us with high-quality contracted cash flows which will continue over their average remaining life.flows. In the United States, and 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 three months ended June 30, 2018, our renewable energy operations within the United States generated $4.5 million of revenue.
Renewable energy revenue increased $1.1decreased by $4.6 million, or 23.0%75.9%, to $6.0$1.4 million from $4.9$6.0 million for the three months ended June 30, 20182019 and 2017,2018, respectively, primarily as a result of a $1.5 million increase in revenue from our newly completed solar power plants in India partially offset by a $0.4 millionthe impact of the US Solar Transaction.
We expect that renewable energy will decrease in our U.S. operationsfuture periods as compared to 2018 as a result of the expiration of certain performance-based incentive credits from the state of California.
We expect thatUS Solar Transaction. However, our renewable energy revenue withinin India may have moderate growth in 2019 as additional solar plants in India became operational at the United States will remain fairly consistent in the near term but will continue to decline in the longer term as the SRECs continue to expire. Internationally, we expect that renewable energy will remain fairly consistent through the remainderend of 2018.
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, 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.
40
Termination and access fees decreased by $2.7$0.4 million, or 8.6%1.4%, to $28.3$27.9 million from $30.9$28.3 million for the three months ended June 30, 2019 and 2018, and 2017, respectively. DecreasesNet decreases in termination and access fees, within our segments, consisted of the following:
|
|
36
| sites during July 2018 partially offset by the completion of the Phase I Mobility Fund support in 2018 which recorded $1.5 million as an offset to expenses during the three months ended June 30, 2018. |
● | International Telecom. Within our International Telecom segment, termination and access fees decreased by |
● | Renewable Energy. During the |
|
|
WeIn our International Telecom and Renewable Energy segments, we expect that termination and access fee expenses will remain fairly consistent as a percentage of revenues in future periods.periods, however, the FirstNet Transaction is expected to increase such expenses in our US Telecom segment.
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 decreasedincreased by $1.0$0.7 million, or 5.0%3.8%, to $18.4$19.1 million from $19.4$18.4 million for the three months ended June 30, 20182019 and 2017,2018, respectively. The net decreaseincrease in engineering and operations, within our segments, consisted of the following:
|
|
| International Telecom. Within our International Telecom segment, engineering and operations expenses |
● | Corporate Overhead. Engineering expenses within our |
Upon the completion of the restoration ofIn our network in the U.S. Virgin Islands,International Telecom and Renewable Energy segments, we expect that engineering and operations expenses will increase and then remain fairly consistent as a percentage of revenues.revenues; however we expect such expenses to increase in our US Telecom segment during the build period of the FirstNet Transaction.
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 decreasedincreased by $0.3$1.5 million, or 3.6%17.4%, to $8.4$9.9 million from $8.7$8.4 million for the three months ended June 30, 20182019 and 2017,2018, respectively. The net decreaseincrease in sales and marketing expenses, within our segments, consisted of the following:
|
|
37
100.0%, to |
41
| International Telecom. Within our International Telecom segment, our sales and marketing expenses increased by |
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 increaseddecreased by $0.8$0.2 million, or 3.1%0.6%, to $26.8$26.6 million from $26.0$26.8 million for the three months ended June 30, 20182019 and 2017,2018, respectively. Net increasesdecreases 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 $0.5 million, or |
|
|
| Renewable Energy. General and administrative expenses within our Renewable Energy segment |
| Corporate Overhead. General and administrative expenses |
We expect general and administrative expenses to increase over the next several quarters to help supportas our operations within the repair and restorationUS Virgin Islands become more normalized following the impact of our networks in our International Telecom segment which were impacted by the Hurricanes. We also expect to incur additional general and administrative expenses to support our new managed services and technology business, our new in-building telecomwireless network operations and our new large scalelarge-scale fiber network business.platform as well as to further enhance our cyber network security.
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 $0.4 million and $0.1 milliona nominal amount of transaction‑relatedtransaction-related charges during the three months ended June 30, 2019 and approximately $0.4 million during the three months ended June 30, 2018 and 2017, respectively. The 2018 transaction-related charges relaterelated to our 2018 investments in our newly establishednew in-building wireless network and large scalelarge-scale fiber network platforms.
38
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.
42
Depreciation and amortization expenses decreased by $0.3$0.4 million, or 1.5%1.8%, to $21.9$21.5 million from $22.3$21.9 million for the three months ended June 30, 20182019 and 2017,2018, respectively. Net decreases in depreciation and amortization expenses, within our segments, consisted primarily of the following:
| US Telecom. Depreciation and amortization expenses decreased within our US Telecom segment by $1.2 million, or 17.6%, to $5.6 million from $6.8 million, for the three months ended June 30, 2019 and 2018, respectively, primarily as a result of the completion of the previously disclosed sale of approximately 100 cell sites within our US wireless operations. |
| International Telecom. Depreciation and amortization expenses increased within our |
|
|
| Renewable Energy. Depreciation and amortization expenses within our Renewable Energy segment |
| Corporate Overhead. Depreciation and amortization expenses increased by $0.4 million or |
We expect depreciation expense to increase as we rebuild our networks in the International Telecom segment which were impacted by the Hurricanes and as we acquire more tangible assets to expand or upgrade our other telecommunications networks andor build or acquire solar power generating facilities.assets.
(Gain) lossGain on disposition of long-lived assets.During the three months ended June 30, 2019, we recorded a gain of $0.1 million on the disposition of miscellaneous long-lived assets within our US wireless operations. During the three months ended June 30, 2018, we recorded a gain on the disposition of long-lived assets of $2.3 million primarily as a result ofon the sale of certain telecommunicationtelecommunications licenses within our U.S.US wireless operations.
Loss on damaged assets and other hurricane related charges, net of insurance recovery. Hurricane-related charges. During September 2017, the economy, our customer base and our operations and customers in the U.S.US Virgin Islands were severely impacted by the Hurricanes. Both our wireless and wireline networks and commercial operations were severely damaged by these storms.
During the three months ended June 30, 2018, we incurred $0.2 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 represents interest earned on our cash, cash equivalents, restricted cash and short term investment balances.
Interest income increased toremained consistent at $0.5 million from $0.3 million for the three months ended June 30, 2019 and 2018 and 2017, respectively. The increase was primarily related to an increaseas the decrease in the return on our cash, cash equivalents and marketable securitiesshort-term investments was offset by higher returns on those balances.
Interest expense. Interest expense decreased by $1.0 million, or 45.7%, to $1.3 million from $2.3 million for the three months ended June 30, 2019 and June 30, 2018, respectively, primarily as compareda result of the US Solar Transaction and the effects of the amendment to our credit facilities which was completed in April 2019.
During the previous year.
Interest expense. We incurthree months ended June 30, 2019, we incurred interest expense on the Viya Debt and the One Communications and Ahana debtDebt as well as commitment fees, letter of credit fees and the amortization of debt issuance costs and interest incurred on
39
our outstanding credit facilities. For information about our Viya, One Communications and Ahana debt, see Note 8 of the Consolidated Financial Statements included in this report.
Interest expense increased by $0.2 million to $2.3 million from $2.2 million forDuring the three months ended June 30, 2018, and 2017, respectively. The increasewe also incurred $0.8 million of interest expense on the Ahana Debt which was primarilyassumed by the resultacquirer in November 2018 as a part of the increase in the One Communications debt which was refinanced in May 2017.US Solar Transaction.
43
Other income (expense), net. Other income (expense), net represents miscellaneous non-operational income we earned and expenses we incurred. For the three months ended June 30, 2019 and 2018, other income (expense) was an expense of $0.3 million and an expense of $1.0 million, respectively, which was primarily related to lossesa net loss on foreign currency transactions. For the three months ended June 30, 2017, other income (expense) was an expense of $0.5 million which was primarily related to the loss on an equity method investment in our Aruba operations of $1.9 million offset by a gain on the sale of marketable securities of $0.8 million and net gains on foreign currency transactions of $0.6 million.
Income taxes.Our effective tax rate for the three months ended June 30, 2019 and 2018 was (15.6%) and 2017 was 16.2% and 19.2%, respectively. The effective tax rate for the three months ended June 30, 2019 was primarily impacted by the mix of income generated among the jurisdictions in which we operate along with the exclusion of losses in the U.S. Virgin Islands and India where we cannot benefit from those losses as required by ASC 740-270-30-36(a), in addition to the following discrete items: (i) $1.1 million benefit from the reversal of unrecognized tax positions due to statute expiration, net interest expense on unrecognized tax positions and (ii) $0.5 million benefit from the reversal of a deferred tax liability due to an intercompany debt restructure.
Our effective tax rate for the three months ended June 30, 2018 was primarily impacted by the following items: (i)mix of income generated among the jurisdictions in which we operate along with the exclusion of losses in the U.S. Virgin Islands and India where we cannot benefit from those losses as required by ASC 740-270-30-36(a), and a $0.5 million discrete benefit for the release of a capital loss valuation allowance due to a capital gain on a sale of a wireless license, and (ii) 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 three months ended June 30, 2017 was impacted by the following items: (i) a benefit for the net capital loss due to the stock sales of our businesses in New England, New York and St. Maarten, and (ii) the mix of income generated among the jurisdictions in which we operate. license.
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. The effective tax rate in 2018 could be affected by adjustments to the provisional amounts recorded under the guidance of SAB 118 for the one-time transition tax and the revaluation of deferred tax assets and liabilities due to the U.S. statutory rate change in 2017 however no change has been recorded as of June 30, 2018. 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.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 reflected an allocation of $3.6$2.9 million and $5.0$3.6 million of income generated by our less than wholly-owned subsidiaries for the three months ended June 30, 20182019 and 2017,2018, respectively, a decrease of $1.5$0.7 million, or 29.1%19.1%. ChangesNet decreases 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 |
| Renewable Energy. As a result of the US Solar Transaction, no allocation of income or losses, relating to our US operations, was recorded to non-controlling interests during the three months ended June 30, 2019. Net income attributable to non-controlling interests, net of tax |
Net income (loss) attributable to ATN International, Inc. stockholders. Net income (loss) attributable to ATN International, Inc. stockholders was $7.2a loss of $0.9 million and $5.9income of $7.2 million for the three months ended June 30, 2019 and 2018, and 2017, respectively.
40
On a per diluted share basis, net income (loss) per diluted share was $0.45a loss of $0.05 and $0.36income of $0.45 per diluted share for the three months ended June 30, 20182019 and 2017,2018, respectively.
44
Selected Segment Financial Information
The following represents selected segment information for the six months ended June 30, 20182019 and 20172018 (in thousands):
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Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | |
Wireless |
| $ | 55,983 |
| $ | 45,060 |
| $ | — |
| $ | — |
| $ | 101,043 | | $ | 46,093 | | $ | 42,515 | | $ | — | | $ | — | | $ | 88,608 |
Wireline |
|
| 2,800 |
|
| 106,565 |
|
| — |
|
| — |
|
| 109,365 | |
| 1,813 | |
| 117,660 | |
| — | |
| — | |
| 119,473 |
Renewable Energy |
|
| — |
|
| — |
|
| 11,855 |
|
| — |
|
| 11,855 | | | — | | | — | | | 2,939 | | | — | | | 2,939 |
Total Revenue |
|
| 58,783 |
|
| 151,625 |
|
| 11,855 |
|
| — |
|
| 222,263 | |
| 47,906 | |
| 160,175 | |
| 2,939 | |
| — | |
| 211,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||
Operating income (loss) |
|
| 13,065 |
|
| 21,211 |
|
| 3,863 |
|
| (18,177) |
|
| 19,962 | |
| (2,006) | |
| 24,935 | |
| (16) | |
| (18,045) | |
| 4,868 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
For the Six Months Ended June 30, 2017 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
| U.S. |
| International |
| Renewable |
| Corporate and |
|
|
| |||||||||||||||||||
|
| Telecom |
| Telecom |
| Energy |
| Other (1) |
| Consolidated | ||||||||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||
For the Six Months Ended June 30, 2018 | For the Six Months Ended June 30, 2018 | |||||||||||||||||||||||||||||
|
| | |
| |
| | |
| | |
| | | ||||||||||||||||
| | US | | International | | Renewable | | Corporate and | | | | |||||||||||||||||||
| | Telecom | | Telecom | | Energy | | Other (1) | | Consolidated | ||||||||||||||||||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | |
Wireless |
| $ | 72,623 |
| $ | 42,848 |
| $ | — |
| $ | — |
| $ | 115,471 | | $ | 55,983 | | $ | 45,060 | | $ | — | | $ | — | | $ | 101,043 |
Wireline |
|
| 8,148 |
|
| 117,812 |
|
| — |
|
| — |
|
| 125,960 | |
| 2,800 | |
| 106,565 | |
| — | |
| — | |
| 109,365 |
Renewable Energy |
|
| — |
|
| — |
|
| 9,929 |
|
| — |
|
| 9,929 | | | — | | | — | | | 11,855 | | | — | | | 11,855 |
Total Revenue |
|
| 80,771 |
|
| 160,660 |
|
| 9,929 |
|
| — |
|
| 251,360 | |
| 58,783 | |
| 151,625 | |
| 11,855 | |
| — | |
| 222,263 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||
Operating income (loss) |
|
| 28,533 |
|
| 20,691 |
|
| 2,287 |
|
| (17,955) |
|
| 33,556 | |
| 13,065 | |
| 21,211 | |
| 3,863 | |
| (18,177) | |
| 19,962 |
(1) Reconciling items refer to corporate overhead costs and consolidating adjustments
A yearUS Telecom. Revenue within our US Telecom segment decreased by $10.9 million, or 18.5%, to date comparison$47.9 million from $58.8 million for the six months ended June 30, 2019 and 2018, respectively.
Revenue within our segment results iswireless operations decreased by $9.9 million, or 17.7%, to $46.1 million from $56.0 million for the six months ended June 30, 2019 and 2018, respectively. This decrease was attributable to a decline in revenues in our wholesale wireless operations, with $4.2 million of this decrease relating to the July 2018 sale of 100 cell sites, and $7.2 million of this decrease resulting from a reduction in wholesale traffic. These decreases were partially offset by the recognition of $1.5 million in revenue from the Connect America Fund II award which began in 2019. Revenue from our retail wireless operations remained unchanged at $8.9 million for the six months ended June 30, 2019 and 2018.
Revenue within our wireline operations decreased $1.0 million, or 35.7%, to $1.8 million from $2.8 million for the six months ended June 30, 2019 and 2018, respectively, as follows:a result of a decrease in traffic volumes within our wholesale long-distance services.
|
|
Operating expenses within our U.S.US Telecom segment decreased $6.6increased $2.1 million, or 12.6%,4.6 %, to $47.8 million from $45.7 million from $52.3million for the six months ended June 30, 2019 and 2018, respectively. This increase in operating expenses was primarily related to the completion of the Phase I Mobility Fund support in 2018 which was recorded as a $3.0 million
41
offset to expenses during the six months ended June 30, 2018 and 2017, respectively. This decrease in operating expenses was primarily related to the impactaddition of the Sovernet Transaction.our new in-building wireless and large-scale fiber network business.
As a result of the above, our U.S.US Telecom segment’s operating income decreased $15.4$15.1 million, or 54.0%115.3%, to $13.1a loss of $2.0 million from $28.5income of $13.1 million for the six months ended June 30, 20182019 and 2017,2018, respectively.
|
|
International Telecom. Revenues within our International Telecom segment increased $8.6 million, or 5.7%, to $160.2 million from $151.6 million for the six months ended June 30, 2019 and 2018, respectively, as a result of an increase in broadband revenues in many of our international telecom markets partially offset by the previously received $8.2 million of additional non-recurring funding from the Universal Service Fund during the six months ended June 30, 2018, to help support our US Virgin Island operations recover from the impact of the Hurricanes.
45
|
Operating expenses within our International Telecom segment decreasedincreased by $9.5$4.8 million, or 6.8%3.7%, to $130.4$135.2 million from $139.9$130.4 million for the six months ended June 30, 2019 and 2018, and 2017, respectively. This decreaseThe increase was primarily the result of a $13.7 million decreaseincreased expenses in expenses within our U.S.the US Virgin Islands as their operations as we continue to restore service impacted bybecome more normalized following the Hurricanes as well asimpact of the sale of our operations in the British Virgin Islands.Hurricanes.
As a result, our International Telecom segment’s operating income increased $0.5$3.8 million, or 2.4%17.9%, to $21.2$25.0 million from $20.7$21.2 million for the six months ended June 30, 2019 and 2018, and 2017, respectively.
|
|
As a result,
Renewable Energy. Revenue within our Renewable Energy segment’s operating income increased by $1.6segment decreased $9.0 million or 69.6%, to $3.9$2.9 million from $2.3$11.9 million for the six months ended June 30, 2019 and 2018, respectively, primarily as a result the US Solar Transaction.
Operating expenses within our Renewable Energy segment decreased by $2.8 million, or 35.0%, to $5.2 million from $8.0 million for the six months ended June 30, 2019 and 2017, respectively.2018, respectively, primarily related to the US Solar Transaction.
As a result of the above, our Renewable Energy segment’s operating income decreased by $3.9 million to a nominal loss compared to income of $3.9 million for the six months ended June 30, 2018.
4642
The following represents a year over year discussion and analysis of our results of operations for the six months ended June 30, 20182019 and 20172018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
| Six Months Ended |
| Amount of |
| Percent |
| |||||||||||||||||
|
| June 30, |
| Increase |
| Increase |
| |||||||||||||||||
|
| 2018 |
| 2017 |
| (Decrease) |
| (Decrease) |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
| | | | | | | | | | | | | ||||||||||||
| | Six Months Ended | | Amount of | | Percent |
| |||||||||||||||||
| | June 30, | | Increase | | Increase |
| |||||||||||||||||
| | 2019 | | 2018 | | (Decrease) | | (Decrease) |
| |||||||||||||||
|
| | | | | | | | | | | | ||||||||||||
REVENUE: |
|
|
|
|
|
|
|
|
|
|
|
| | |
|
| |
|
| |
|
|
| |
Wireless |
| $ | 101,043 |
| $ | 115,471 |
| $ | (14,428) |
| (12.5) | % | | $ | 88,608 | | $ | 101,043 | | $ | (12,435) |
| (12.3) | % |
Wireline |
|
| 109,365 |
|
| 125,960 |
|
| (16,595) |
| (13.2) |
| |
| 119,473 | |
| 109,365 | |
| 10,108 |
| 9.2 | |
Renewable Energy |
|
| 11,855 |
|
| 9,929 |
|
| 1,926 |
| 19.4 |
| | | 2,939 | | | 11,855 | | | (8,916) |
| (75.2) | |
Total revenue |
| $ | 222,263 |
| $ | 251,360 |
| $ | (29,097) |
| (11.6) | % | | | 211,020 | | | 222,263 | | | (11,243) |
| (5.1) | |
OPERATING EXPENSES (excluding depreciation and amortization unless otherwise indicated): |
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | |
Termination and access fees |
|
| 54,171 |
|
| 63,924 |
|
| (9,753) |
| (15.3) |
| | | 55,818 | | | 54,171 | | | 1,647 |
| 3.0 | |
Engineering and operations |
|
| 36,561 |
|
| 39,061 |
|
| (2,500) |
| (6.4) |
| | | 38,139 | | | 36,561 | | | 1,578 |
| 4.3 | |
Sales, marketing and customer services |
|
| 16,974 |
|
| 17,765 |
|
| (791) |
| (4.5) |
| | | 19,264 | | | 16,974 | | | 2,290 |
| 13.5 | |
General and administrative |
|
| 52,296 |
|
| 50,370 |
|
| 1,926 |
| 3.8 |
| | | 50,405 | | | 52,296 | | | (1,891) |
| (3.6) | |
Transaction-related charges |
|
| 465 |
|
| 826 |
|
| (361) |
| (43.7) |
| | | 68 | | | 465 | | | (397) |
| (85.4) | |
Depreciation and amortization |
|
| 43,217 |
|
| 44,747 |
|
| (1,530) |
| (3.4) |
| | | 42,267 | | | 43,217 | | | (950) |
| (2.2) | |
(Gain) loss on disposition of long-lived assets |
|
| (2,049) |
|
| 1,111 |
|
| (3,160) |
| (284.4) |
| | | 191 | | | (2,049) | | | 2,240 |
| 109.3 | |
Loss on damaged assets and other hurricane related charges, net of insurance recovery |
|
| 666 |
|
| — |
|
| 666 |
| 100.0 |
| | | — | | | 666 | | | (666) | | 100.0 | |
Total operating expenses |
| $ | 202,301 |
| $ | 217,804 |
| $ | (15,503) |
| (7.1) | % | | | 206,152 | | | 202,301 | | | 3,851 |
| 1.9 | |
Income from operations |
| $ | 19,962 |
| $ | 33,556 |
| $ | (13,594) |
| (40.5) | % | | | 4,868 | | | 19,962 | | | (15,094) |
| (75.6) | |
OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | |
Interest income |
|
| 853 |
|
| 633 |
|
| 220 |
| 34.8 |
| | | 1,445 | | | 853 | | | 592 |
| 69.4 | |
Interest expense |
|
| (4,532) |
|
| (4,469) |
|
| (63) |
| 1.4 |
| | | (2,544) | | | (4,532) | | | 1,988 |
| 43.9 | |
Loss on deconsolidation of subsidiary |
|
| — |
|
| (529) |
|
| 529 |
| (100.0) |
| ||||||||||||
Other expense | | | (68) | | | (1,798) | | | 1,730 |
| 96.2 | | ||||||||||||
Other expense, net |
|
| (1,798) |
|
| (973) |
|
| (825) |
| 84.8 |
| | | (1,167) | | | (5,477) | | | 4,310 |
| 78.7 | |
Other income (expense), net |
| $ | (5,477) |
| $ | (5,338) |
| $ | (139) |
| 2.6 | % | ||||||||||||
INCOME BEFORE INCOME TAXES |
|
| 14,485 |
|
| 28,218 |
|
| (13,733) |
| (48.7) |
| |
| 3,701 | |
| 14,485 | |
| (10,784) |
| (74.4) | |
Income tax expense |
|
| 6,008 |
|
| 5,724 |
|
| 284 |
| 5.0 |
| |
| 939 | |
| 6,008 | |
| (5,069) |
| (84.4) | |
NET INCOME |
|
| 8,477 |
|
| 22,494 |
|
| (14,017) |
| (62.3) |
| |
| 2,762 | |
| 8,477 | |
| (5,715) |
| (67.4) | |
Net income attributable to non-controlling interests, net of tax: |
|
| (6,816) |
|
| (9,751) |
|
| 2,935 |
| (30.1) |
| |
| (5,198) | |
| (6,816) | |
| 1,618 |
| 23.7 | |
NET INCOME ATTRIBUTABLE TO ATN INTERNATIONAL, INC. STOCKHOLDERS |
| $ | 1,661 |
| $ | 12,743 |
| $ | (11,082) |
| (87.0) | % | ||||||||||||
NET INCOME (LOSS) ATTRIBUTABLE TO ATN INTERNATIONAL, INC. STOCKHOLDERS | | $ | (2,436) | | $ | 1,661 | | $ | (4,097) |
| (246.7) | % |
Wireless revenue.Wireless revenue decreased by $14.4$12.4 million, or 12.5%12.3%, to $101.0$88.6 million for the six months ended June 30, 20182019 from $115.5$101.0 million for the six months ended June 30, 2017.2018. The decreases in wireless revenue, within our segments, consisted of the following:
|
|
47
| International Telecom. Within our International Telecom segment, wireless revenue |
43
June 30, |
Wireline revenue. Wireline revenue decreasedincreased by $16.6$10.1 million, or 13.2%9.2%, to $109.4$119.5 million from $126.0$109.4 million for the six months ended June 30, 20182019 and 2017,2018, respectively. The decreasesnet increases in wireline revenue, within our segments, consisted of the following:
|
|
| International Telecom. Within our International Telecom segment, wireline revenue |
Renewable energy revenue.Renewable energy revenue increased $1.9decreased by $9.0 million, or 19.4%75.6%, to $11.9$2.9 million from $9.9$11.9 million for the sixthree months ended June 30, 20182019 and 2017,2018, respectively, primarily as a result of by the increase in revenue from our newly completed solar power plants in India partially offset by a $0.6 million decrease in our U.S. operations as a resultimpact of the expiration of certain incentive energy credits from the state of California and adverse weather conditions in the northeast United States. US Solar Transaction.
Termination and access fee expenses. Termination and access fees decreasedincreased by $9.8$1.6 million, or 15.3%3.0%, to $54.2$55.8 million from $63.9$54.2 million for the six months ended June 30, 2019 and 2018, and 2017, respectively. DecreasesNet increases in termination and access fees, within our segments, consisted of the following:
|
|
| International Telecom. Within our International Telecom segment, termination and access fees |
| Renewable Energy. Termination and access fees within our Renewable Energy |
Engineering and operations expenses. Engineering and operations expenses decreasedincreased by $2.5$1.5 million, or 6.4%4.1%, to $36.6$38.1 million from $39.1$36.6 million for the six months ended June 30, 20182019 and 2017,2018, respectively. The net decreaseincrease in engineering and operations, within our segments, consisted of the following:
|
|
48
respectively, primarily as a result of |
44
| International Telecom. Within our International Telecom segment, engineering and operations expenses |
● | Corporate Overhead. Engineering and operations expenses within our corporate overhead remained consistent at $0.4 million. |
Sales and marketing expenses. Sales and marketing expenses decreasedincreased by $0.8$2.3 million, or 4.5%13.5%, to $17.0$19.3 million from $17.8$17.0 million for the six months ended June 30, 20182019 and 2017,2018, respectively. The net decreaseincreases 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 |
General and administrative expenses. General and administrative expenses increaseddecreased by $1.9 million, or 3.8%, to $52.3$50.4 million from $50.4$52.3 million for the six months ended June 30, 20182019 and 2017,2018, respectively. Net increasesdecreases in general and administrative expenses, within our segments, consisted of the following:
|
|
| International Telecom. General and administrative expenses |
| Renewable Energy. General and administrative expenses within our Renewable Energy segment |
| Corporate Overhead. General and administrative expenses |
Transaction-related charges. We incurred $0.5 million and $0.8 milliona nominal amount of transaction‑relatedtransaction-related charges during the six months ended June 30, 2019 and approximately $0.5 million during the six months ended June 30, 2018 and 2017, respectively. The 2018 transaction-related charges were in connection withprimarily related to our new in-building wireless network technology and large scalelarge-scale fiber network businesses. Substantially all of the 2017 expenses were related to the Sovernet Transaction.platforms..
Depreciation and amortization expenses. Depreciation and amortization expenses decreased by $1.5$1.0 million, or 3.4%2.2%, to $43.2$42.3 million from $44.7$43.2 million for the six months ended June 30, 20182019 and 2017,2018, respectively. Net increases or decreases in depreciation and amortization expenses, within our segments, consisted primarily of the following:
● | US Telecom. Depreciation and amortization expenses decreased within our US Telecom segment by $2.2 |
45
| million, or 16.5%, to $11.1 million from $13.3 million, for the six months ended June 30, 2019 and 2018, respectively, as a result of the completion of the previously disclosed sale of approximately 100 cell sites within our US wireless operations. |
| International Telecom. Depreciation and amortization expenses increased within our |
49
$3.1 million, or |
|
|
| Renewable Energy. Depreciation and amortization expenses within our Renewable Energy segment |
|
|
● | Corporate Overhead. Depreciation and |
(Gain) lossLoss on disposition of long-lived assets. During the six months ended June 30, 2019, we recorded a loss of $0.2 million on the disposition of miscellaneous long-lived assets within our US wireless and renewables operations. During the six months ended June 30, 2018, we recorded a gain on the disposition of long-lived assets of $2.0 million as a result of a $2.4$2.3 million gain on the sale of certain telecommunication licenses within our U.S. wireless operations segment partially offset by the disposal of miscellaneous assets also within our U.S. wireless operations. During the six months ended June 30, 2017, we recorded a loss of $1.1 million in connection with the Sovernet Transaction.
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. Hurricane-related charges. During the six months ended June 30, 2018, we incurred $0.7 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 to $1.4 million from $0.9 million for the six months ended June 30, 2019 and 2018, respectively. The decrease in our cash, cash equivalents and short-term investments was offset by higher returns on those balances.
Interest expense. Interest expense decreased by $2.0 million, or 44.4%, to $2.5 million from $0.6$4.5 million for the three months ended June 30, 2019 and June 30, 2018, respectively, primarily as a result of the US Solar Transaction and the effects of the April 2019 amendment to our credit facilities.
During the six months ended June 30, 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 six months ended June 30, 2018, and 2017, respectively. The increasewe also incurred $1.7 million of interest expense on the Ahana Debt which was primarily related to an increaseassumed by the acquirer in November 2018 as a part of the return on our cash, cash equivalents and marketable securities as compared to the previous year.US Solar Transaction.
Interest expense. Interest expense remained consistent at $4.5 million forOther income (expense), net. For the six months ended June 30, 2018 and 2017 as a result2019, other income (expense) was an expense of a decrease$0.1 million which was primarily related to $0.3 million in the Ahana debt due to the semi-annual repayments of such debtlosses on foreign currency transactions partially offset by the increase$0.2 million of income recognized in the One Communications debt which was refinanced in May 2017.
Loss on deconsolidation of subsidiary. During the six months ended June 30, 2017, we recorded a $0.5 million loss on the deconsolidationconnection with some of our U.S. Wireline operations upon the completion of the Sovernet Transaction.
Other income (expense), net.employee benefit plans. For the six months ended June 30, 2018, other income (expense) was an expense of $1.8 million which was primarily related to lossesa net loss on foreign currency transactions. For the six months ended June 30, 2017, other income (expense) was an expense of $1.1 million which was primarily related to a loss on our equity method investment in our Aruba operations of $1.9 million partially offset by a gain on the sale of marketable securities of $0.8 million.
Income taxes.Our effective tax rate for the six months ended June 30, 2019 and 2018 was 25.4% and 2017 was 41.5% and 20.3%, respectively. The effective tax rate for the six months ended June 30, 2019 was primarily impacted by the mix of income generated among the jurisdictions in which we operate along with the exclusion of losses in the U.S. Virgin Islands and India where we cannot benefit from those losses as required by ASC 740-270-30-36(a), in addition to the following discrete items: (i) $0.6 million benefit from the reversal of unrecognized tax positions due to statute expiration, net interest expense on unrecognized tax positions and (ii) $0.5 million benefit from the reversal of a deferred tax liability due to an intercompany debt restructure.
46
The effective tax rate for the six months ended June 30, 2018 was primarily impacted by the mix of income generated among the jurisdictions in which we operate along with the exclusion of losses in the U.S. Virgin Islands and India where we cannot benefit from those losses as required by ASC 740-270-30-36(a), in addition to the following discrete items: (i) a$0.5 million interest expense on unrecognized tax benefits, (ii) $0.7 million provision for the intercompany sale of assets from the U.S. to the U.S. Virgin Islands, (ii) a $0.5 million increase (net) in unrecognized tax benefits recognized discretely,and (iii) a $0.5 million benefit for the release of a capital loss valuation allowance due to a capital gain on a sale of a wireless license, 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 U.S. Virgin Islands and India. The effectivelicense.
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tax rate for the six months ended June 30, 2017 was impacted by the following items: (i) a benefit for the net capital loss due to the stock sales of our businesses in New England, New York and St. Maarten, and (ii) 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. The effective tax rate in 2018 could be affected by adjustments to the provisional amounts recorded under the guidance of SAB 118 for the one-time transition tax and the revaluation of deferred tax assets and liabilities due to the U.S. statutory rate change in 2017 however no change has been recorded as of June 30, 2018. 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.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 reflected an allocation of $6.8$5.2 million and $9.8$6.8 million of income generated by our less than wholly-owned subsidiaries for the six months ended June 30, 20182019 and 2017,2018, respectively, a decrease of $2.9$1.6 million, or 30.1%23.5%. Changes in net income attributable to non-controlling interests, net of tax, within our segments, consisted of the following:
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● | Renewable Energy. As a result of the US Solar Transaction, no allocation of income or losses was recorded to non-controlling interests during the six months ended June 30, 2019 relating to our US operations. Net income attributable to non-controlling interests, net of tax, was $0.5 million |
Net income (loss) attributable to ATN International, Inc. stockholders. Net income (loss) attributable to ATN International, Inc. stockholders was $1.7a loss of $2.4 million and $12.7income of $1.7 million for the six months ended June 30, 2019 and 2018, and 2017, respectively.
On a per diluted share basis, net income (loss) per diluted share was $0.10a loss of $0.05 and $0.78income of $0.45 per diluted share for the six months ended June 30, 20182019 and 2017,2018, 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 a discussion of ongoing proceedings, see Note 1315 to the Unaudited Condensed Consolidated Financial Statements in this Report.
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Tax Reform
The Tax Cuts and Jobs Act of 2017 (“2017 Tax(the “Tax Act” also commonly referred to as U.S.US tax reform), which was signed into law on December 22, 2017, has resulted in significant changes to the U.S.US corporate income tax system and the U.S.US Virgin Islands mirror code which replaces “United States” with “U.S.“US 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.
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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 2017 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.non-US earnings, which has the effect of subjecting certain earnings of our foreign subsidiaries to U.S.US taxation as global intangible low taxed income (GILTI)(“GILTI”) and eliminates the deduction of certain payments made to related foreign corporations, and imposeimposes a minimum tax if greater than regular tax under the base-erosion and anti-abuse tax (BEAT)(“BEAT”). These changes arebecame effective beginning in 2018. The 2017 Tax Act also includes a one-time mandatory deemed repatriation tax2018 but did not have an impact on accumulated foreign subsidiaries' previously untaxed foreign earnings (the Transition Toll Tax).
Transition Toll Tax
The 2017 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. Earningsus 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%.
As of June 30, 2018,initial year. Based on our forecasted income for 2019 we have not made any adjustments to the Transition Toll Tax estimated at December 31, 2017. The Transition Toll Tax will be paid over an eight-year period, starting in 2018, and will not accrue interest. The first installment was paid in April 2018.
At June 30, 2018, we continue to provisionally assert that our earnings are permanently reinvested outside the U.S.; however the tax impact of subsequent cash distributions from our foreign subsidiaries will be limited to foreign withholding, where applicable, and state taxes. A cash dividend from Guyana was made in 2018, however these distributions are not subject to Guyanese withholding tax and the US 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. Our deferred tax balances at December 31, 2017 were adjusted for the impact of the 2017 Tax Act, no further adjustment has been recorded as of June 30, 2018.
The BEAT provisions in the 2017 Tax Act eliminate the deduction of certain base-erosion payments made to related foreign corporations, and imposecurrently projecting a minimum tax if greater than regular tax.GILTI inclusion. We do not expect we will be subject to this taxBEAT and therefore have not included any tax impacts of BEAT in our consolidated financial statements for the six monthsquarter ended June 30, 2018. Based on our initial calculation under the GILTI rules, we do not have an inclusion as of June 30, 2018. The FASB staff Q&A, Topic 740 No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary differences expected to reverse as GILTI in future years or to recognize the resulting tax on GILTI as a period expense in the period the tax is incurred. Our selection of an accounting policy with respect to the new GILTI tax rules will depend, in part, on analyzing our global income to determine whether we expect to have future U.S. inclusions in taxable income related to GILTI and, if so, what the impact is expected to be. Therefore, we have not made any adjustments related to potential GILTI tax in our financial statements and have not made a policy decision regarding whether to record deferred taxes on GILTI.2019.
Status of our Assessment
Our preliminary estimate of the Transition Toll Tax and the remeasurement of our deferred tax assets and liabilities is subject to the finalization of management’s analysis related to certain matters, such as developing interpretations of the provisions of the 2017 Tax Act, changes to certain estimates and amounts related to the earnings and profits of certain subsidiaries and the filing of our tax returns. U.S. Treasury regulations, administrative
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interpretations or court decisions interpreting the 2017 Tax Act may require further adjustments and changes in our estimates.
The final determination of the Transition Toll Tax and the remeasurement of our deferred assets and liabilities will be completed as additional information becomes available, but no later than one year from the enactment of the 2017 Tax Act. As previously noted, as of June 30, 2018, there have been no adjustments to these estimates.
Liquidity and Capital Resources
Historically, we have met our operational liquidity needs through a combination of cash on handcash-on-hand and internally generated funds and have funded capital expenditures and acquisitions with a combination of internally generated funds, cash on hand,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,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 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 June 30, 2018,2019, we had approximately $180.1$146.7 million in cash, cash equivalents and restricted cash. Of this amount, $49.5$30.7 million was held by our foreign subsidiaries and is provisionally indefinitely invested outside the United States. The amount held by our foreign subsidiaries decreased from the December 31, 2017 balance of $113.9 million primarily as the result of a $52.0 million dividend paid by our Guyana subsidiary during the first quarter of 2018 of which $41.6 million was paid to ATN (and eliminated in consolidation) while the remaining $10.4 million was paid to that subsidiary’s minority shareholder. As the 2017 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 limited to foreign withholding tax, where applicable, and state taxes. In addition, we had approximately $151.0$89.2 million of debt, net of unamortized deferred financing costs, as of June 30, 2018.2019. 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.
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For the six months ended June 30, 20182019 and 2017,2018, we spent approximately $107.2$35.4 million and $78.6$107.2 million, respectively, on capital expenditures. The following notes our capital expenditures, by operating segment, for these periods (in thousands):
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2019 | | $ | 6,368 | | $ | 23,692 | | $ | 817 | | $ | 4,519 | | $ | 35,396 | |||||||||||||||||
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(1) | Corporate and other items refer to corporate overhead costs and consolidating adjustments |
(2) | Includes $0.1 million and $66.7 million for the six months ended June 30, 2019 and 2018, respectively, of expenditures used |
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 20182019 capital expenditures for our domestic and international telecom businessesInternational Telecom segment to be approximately $80$50.0 million to $55.0 million. In our US Telecom segment, we expect capital expenditures to remain consistent with 2018 capital expenditures excluding Hurricane restoration costs inour new initiatives, such as the U.S. Virgin Islands. Hurricane restoration costs, which include network restorationFirstNet Transaction, and resiliency spending in the U.S. Virgin Islands, is expected to be approximately $75 million in 2018.early-stage business spending. To a smaller extent we also continue to invest in expanding our renewable energy assets. We estimate capital expenditures of approximately $5 million to $7 million will be spent during 2018 to finish the initial phase of ourassets in India, renewable energy construction. However,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‑handcash-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 datewhich has been to indefinitely reinvest the undistributed earnings of our foreign subsidiaries. As the 2017 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 limited to foreign withholding tax and foreign exchange gain or loss, where applicable, and state taxes. As we continue to reinvest our remaining foreign earnings, on a provisional basis, outside of a one-time dividend from Guyana made in the first quarter of 2018, 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 sixthree months ended June 30, 2018,2019, our Board declared $5.4$2.7 million of dividends to our stockholders, which includes a $0.17 per share dividend declared on June 14, 201811, 2019 and paid on July 10, 2018.8, 2019. We have declared quarterly dividends for the last 7983 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”). DuringWe did not repurchase any shares of our common stock under the 2016 Repurchase Plan during the six months ended June 30, 2018, we2019 and repurchased $1.6 million of our common stock during the six months ended June 30, 2018. As of June 30, 2019, we have $37.7 million authorized for share repurchases under the 2016 Repurchase Plan and have $37.7 million available to be repurchased under that plan as of June 30, 2018.Plan.
Sources of Cash
Total liquidity. As of June 30, 2018,2019, we had approximately $180.1$146.7 million in cash, cash equivalents and restricted cash which represents a decrease of $39.8$46.2 million from the December 31, 20172018 balance of $219.9$192.9 million. The
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decrease is primarily attributable to cash$35.4 million used for capital expenditures, of $107.2$10.0 million (including $66.7 millionused for certain investments, $5.0 used for the rebuildpurchase of our network in the U.S. Virgin Islands following the Hurricanes), distributions to our minority shareholders of $12.8short-term investments, $5.4 million (which includes a distribution to the minority shareholder of our Guyana subsidiary of $10.4 million),used for dividends paid on our common
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stock, of $5.4$1.6 million used for the repurchase of our common stock of $3.7from employees in order to satisfy their tax obligations, $3.9 million and theused for distributions to our minority shareholders, $1.9 million used to prepay principal repayment ofon our debt of $4.8 million.and $1.3 million used to amend our credit facility. These amounts were partially offset by cash provided by our operations of $46.0 million and the receipt of $34.6 million of insurance proceeds relating to the damages we incurred as a result of the Hurricanes, the net proceeds from the sale of assets and investments of $9.5 million and receipt of government grants of $5.4$18.5 million.
Cash provided by operations. Cash provided by operating activities was $18.5 million for the six months ended June 30, 2019 as compared to $46.0 million for the six months ended June 30, 2018 as compared to $65.5 million for the six months ended June 30, 2017.2018. The decrease of $19.5$27.5 million was primarily related to a decrease of $16.2$7.4 million within our U.S.US Telecom segment which was primarily theas a result of the decrease in revenues due to the reduction in wholesale roaming rates traffic and the impact of contractual revenue caps with certain carrier customers, a decreasethe July 2018 sale of $14.2 million within our International Telecom segment primarily related to the impact of the Hurricanes100 cell sites and a decrease of $2.5$6.2 million within our renewable energy segment.Renewable Energy segment as a result of the US Solar Transaction and a $19.1 million decrease, primarily related to accrued income taxes, within our corporate overhead. These decreases were partially offset by an increase in cash flow from operations of $13.4$5.2 million as a resultwithin our International Telecom segment primarily related to the impact of the timing of payments made for accounts payable and income taxes.Hurricanes.
Cash used in investing activities. Cash used in investing activities was $58.8$50.3 million and $90.0$58.8 million for the six months ended June 30, 20182019 and 2017,2018, respectively. The six months ended June 30, 2018 included $34.6decrease of $8.5 million was primarily related to a $71.9 million reduction in capital expenditures partially offset by an increase in investments of insurance proceeds relating to business interruptions and damages incurred as a result of the Hurricanes, $5.4$8.0 million of cash received for government grants and $9.5 million received for the proceeds on the sale of marketable securities and other investments. The six months ended June 30, 2017 included aggregate proceeds of $22.6 million received from the Sovernet Transaction and the salepurchase of our operationsshort-term investments of $5.0 million. Cash used in St. Maarten. These cash receipts were offset by capital expenditures of $107.2 million (including $66.7 million for the rebuild of our network in the U.S. Virgin Islands which was impacted by the Hurricanes) and $2.0 million used for certain strategic investmentsinvesting activities during the six months ended June 30, 2018 while $78.6also includes the receipt of insurance proceeds of $34.6 million, waswhich were used forto partially fund our capital expenditures during that period, $5.4 million received for certain government grants, proceeds from the six months ended June 30, 2017.sale of assets of $5.0 million and the sale of short-term investments of $5.3 million.
Cash used in financing activities. Cash used in financing activities was $26.8$14.5 million and $15.5$26.8 million during the six months ended June 30, 2019 and 2018, and 2017, respectively. The increasedecrease in cash used for financing activities of $11.3$12.3 million was primarily related to a $5.6$9.0 million reduction in the dividends paid to our shareholders, a $9.5 million increasedecrease in the distributions made to minority shareholders (primarily the minority shareholder of our Guyana subsidiary), a $2.9 million reduction in the repayments of our long-term debt and a $2.1 million reduction in the 2017 refinancingrepurchases of the One Communications debt totaling $8.6 million.
Credit Facilities. We have aour common stock. These decreases were partially offset by $1.3 million used to amend our credit facility in 2019.
Credit facility. On April 10, 2019, we entered into the 2019 Credit Facility, with CoBank, ACB and athe same syndicate of other lenders to provideas the 2014 Credit Facility. 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 swingline sub-facility. Upon the closing of the 2019 Credit Facility, approximately $8.0 million of performance letters of credit were issued and remain outstanding and undrawn as of June 30, 2019. The 2019 Credit Facility matures on April 10, 2024.
Amounts that we may borrowborrowed under the 2019 Credit Facility bear interest at a rate equal to, at our 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 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 (as defined in the 2019 Credit Facility) 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 our indebtedness to EBITDA.. Under the terms of the 2019 Credit Facility, we 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.
On January 11, 2016, we amended the Credit Facility to increase the amount we are permitted to invest in our “unrestricted” subsidiaries, which are not subject to the covenants of the Credit Facility, from $275 million to $400 million (as such increased amount shall be reduced from time to time by the aggregate amount of certain dividend payments to our stockholders). The Amendment also provides for the incurrence by us of incremental term loan
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facilities, when combined with increases to revolving loan commitments under the Credit Facility, in an aggregate amount not to exceed $200 million, which facilities shall be subject to certain conditions, including pro forma compliance with the total net leverage ratio financial covenant under the Credit Facility.
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 addition, 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.
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The 2019 Credit Facility containsalso 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 that imposes a maximum ratio of indebtedness to EBITDA. covenant.
As of June 30, 2018,2019, we were in compliance with all of the financial covenants, had no outstanding borrowings and, net of the $8.0 million of outstanding performance letters of credit, and had $192.0 million of availability under the 2019 Credit Facility.
As of June 30, 2018,Prior to entering into the 2019 Credit Facility, we had no borrowingsa $225 million revolving credit facility (the “2014 Credit Facility) with CoBank, ACB and a syndicate of other lenders that provided for (i) up to $10 million for standby or trade letters of credit, (ii) up to $25 million for letters of credit that were 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 2014 Credit Facility had a maturity date of December 31, 2019. The 2014 Credit Facility also provided 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.
Amounts borrowed under the 2014 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 thatFacility bore interest at ratesa rate equal to, at our option, either (i) the LIBOR plus an applicable margin ranging between 4.5%1.50% to 1.75% or (ii) a base rate plus an applicable margin ranging from 0.50% to 0.75%. Swingline loans bore interest at the base rate plus the applicable margin for base rate loans. The base rate was equal to the higher of (i) 1.00% plus the higher of (x) the one-week LIBOR and 6.0%, matured at various times between 2018(y) the one-month LIBOR; (ii) the federal funds effective rate (as defined in the 2014 Credit Facility) plus 0.50% per annum; and 2023 and were secured by certain solar facilities. Repayment(iii) the prime rate (as defined in the 2014 Credit Facility). The applicable margin was determined based on the ratio (as further defined in the 2014 Credit Facility) of our indebtedness to EBITDA. Under the terms of the Original Ahana Debt was being made in cash on2014 Credit Facility, we also paid a monthly basis until maturity.
The Original Ahana Debt also included a loanfee ranging from Public Service Electric & Gas (the “PSE&G Loan”). The PSE&G Loan bears interest at 11.3%, matures in 2027, and is secured by certain solar facilities. Repayment0.175% to 0.250% of the Original Ahana Debt with PSE&G can 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 have 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 are payable semi-annually, until the respective maturity dates of March 31, 2029 (for the Series A Notes) and September 30, 2031 (for the Series B Notes). Cash flows generated by the solar projects that secure the Series A Notes and Series B Notes are only available for payment of such debt and are not available to pay other obligations or the claims of the creditors of Ahana or its subsidiaries. However, subject to certain restrictions, Ahana Operations holds 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 are secured by certain assets of Ahana and are guaranteed by certain of its subsidiaries.
Aaverage daily unused 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.2014 Credit Facility over each calendar quarter.
The Series A Notes and the Series B Notes contain2014 Credit Facility contained customary representations, warranties and certain affirmative and negative covenants, which limitincluding a financial covenant that imposed 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 Series A Notes and Series B Notes areOur investment in “unrestricted” subsidiaries plus the aggregate amount of certain dividend payments to our stockholders was limited to $400 million. Amounts borrowed under the Accordion were also subject to financial covenants that impose 1) a maximum debt service coverage ratio and 2) a maximum ratio of the present value of Ahana’s future cash flow to the aggregate principal amounts of all outstanding obligations. These financial covenants are tested semi-annually for Ahana Operations on a consolidated basis and on an individual basis for certain subsidiaries. Both the Series A Notes and Series B Notes may be redeemed at any time, in whole or part, subject to a make-whole premium. As of June 30, 2018, we were inpro-forma compliance with all of thea net leverage ratio financial covenants of the Series A Notes and the Series B Notes.covenant.
We capitalized $2.8 million of fees associated with the Series A Notes and Series B Notes which is recorded as a reduction to the debt carrying amount and will be amortized over the life of the notes.
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As of June 30, 2018, $2.1 million of the Original Ahana Debt and $58.6 million of the Series A Notes and Series B Notes remained outstanding, and $2.6 million of the capitalized fees remain unamortized.
One Communications Debt
In connection with the One Communications Transaction 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 had repayment being made quarterly. As of March 31, 2017, $28.9 million of the One Communications Debt was outstanding. 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 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, 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 June 30, 2018.
As a condition of the amendment and restatement agreement, within 90 days of the refinance date 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 maturity 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, has an original notional amount of $11.0 million, has an interest rate of 1.874%, and expires in March 2022.
In connection with the amendment and restated 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%.
We capitalized $0.3 million of fees 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 June 30, 2018, $33.8 million of the One Communications Debt was outstanding, there were no borrowings under the overdraft facility, and $0.3 million of the capitalized fees remain unamortized.
Viya Debt(formerly Innovative Debt)
On July 1, 2016, weWe, and certain of our subsidiaries, have entered into a $60.0 million loan agreement with RTFC (the “Viya Debt”) with Rural Telephone Finance Cooperative (“RFTC”). 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 ourthe Company’s Viya subsidiaries and is guaranteed by us. Earlier in 2018,With RTFC’s consent, we began fundingfunded 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 towith a $75.0 million at our request due to an increaselimit. We were not in compliance with the on-going restorationNet Leverage Ratio covenant for the year ending December 31, 2018 and resiliency costs. 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.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.
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As of June 30, 2018,2019, $60.0 million of the Viya Debt remained outstanding and $0.7$0.6 million of the rate lock fee was unamortized.
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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 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 June 30, 2019.
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 June 30, 2019, the swap has an unamortized notional amount of $8.7 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 June 30, 2019, $30.0 million of the One Communications Debt was outstanding, there were no borrowings under an overdraft facility, and $0.2 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 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 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.
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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 June 30, 2018,2019, 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 Securities and Exchange Commission (“SEC”)the 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
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.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 Incomeaccumulated other comprehensive income on our balance sheet. Income statement accounts are translated using the monthly average exchange rates during the year. During the six months ended June 30, 2019 and 2018, we recorded a$ 0.3 million and $1.9 million, lossrespectively, in losses 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)“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.
Recent Accounting Pronouncements
See Note 2 to the Unaudited Condensed Consolidated Financial Statements included in this Report.
Item 3. 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.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
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in rates are recognized in foreign currency translation adjustment, a component of Accumulated Other Comprehensive Incomeaccumulated 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.
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Employee Benefit Plan. The company sponsorsWe sponsor pension and other postretirement benefit plans for employees of certain subsidiaries. Net periodic pension expense is recognized in the Company’sour income statement. The Company recognizesWe recognize a pension or other postretirement plan’s funded status as either an asset or liability in itsour 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 June 30, 2018,2019, we had $23.6$21.3 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 FacilityFacility.
Item 4. CONTROLS AND PROCEDURES
Management’s 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 June 30, 2018.2019. Disclosure controls and procedures, as defined in Rules 13a‑15(e)13a-15(e) and 15d‑15(e)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 SEC’s 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‑benefitcost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of June 30, 2018,2019, 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.
Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting that occurred during the three months ended June 30, 20182019 that hashave materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
See Note 1315 to the Unaudited Condensed Consolidated Financial Statements included in this Report.
In addition to the other information set forth in this Report, you should carefully consider the factors discussed under Part I, Item 1A “Risk Factors” of our 20172018 Annual Report on Form 10-K. The risks described herein and in our 20172018 Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not
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currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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 $1.6 million of our common stock under the 2016 Repurchase Plan during the six months ended June 30, 2018 and have $37.7 million available to be repurchased under that plan as of June 30, 2018.2019.
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The following table reflects the repurchases by the Companyus of itsour common stock during the quarter ended June 30, 2018:2019:
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| Purchased |
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April 1, 2018 — April 30, 2018 |
| 668 | (1) | $ | 63.67 |
| — |
| $ | 39,266,945 |
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May 1, 2018 — May 31, 2018 |
| 30,427 |
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| 51.82 |
| 30,427 |
| $ | 37,690,086 |
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June 1, 2018 — June 30, 2018 |
| — |
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| $ | 37,690,086 |
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April 1, 2019 — April 30, 2019 |
| 151 | (1) | $ | 59.29 | (1) | — | | $ | 37,690,086 | |
May 1, 2019 — May 31, 2019 |
| — | | | — | | — | | $ | 37,690,086 | |
June 1, 2019 — June 30, 2019 |
| — | | | — | | — | | $ | 37,690,086 | |
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101.SCH* | | Inline XBRL Taxonomy Extension Schema Document | |
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101.CAL* | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
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101.DEF* | | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
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101.LAB* | | Inline XBRL Taxonomy Extension Label Linkbase Document | |
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101.PRE* | | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
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104 | | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, formatted in Inline XBRL |
* Filed or furnished herewith.
** Management or compensatory arrangement, filed herewith.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.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| ATN International, Inc. |
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Date: August | /s/ Michael T. Prior |
| Michael T. Prior |
| President and Chief Executive Officer |
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Date: August | /s/ Justin D. Benincasa |
| Justin D. Benincasa |
| Chief Financial Officer |
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