ATN International, Inc.
ATLANTIC TELE NETWORK INC /DE (Form: 10-Q, Received: 08/09/2013 15:19:35)

Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

Form 10-Q

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2013

 

OR

 

o

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

 


 

Atlantic Tele-Network, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

47-0728886

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification Number)

 

600 Cummings Center

Beverly, MA 01915

(Address of principal executive offices, including zip code)

 

(978) 619-1300

(Registrant’s telephone number, including area code)

 


 

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   x   No   o

 

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   x   No   o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer o

 

Accelerated filer  x

 

 

 

Non-accelerated filer o

 

Smaller reporting company  o

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes   o   No   x

 

As of August 9, 2013, the registrant had outstanding 15,737,924 shares of its common stock ($.01 par value).

 

 

 



Table of Contents

 

ATLANTIC TELE-NETWORK, INC.

 

FORM 10-Q

 

Quarter Ended June 30, 2013

 

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS

3

 

 

 

PART I—FINANCIAL INFORMATION

4

 

 

 

Item 1

Unaudited Condensed Consolidated Financial Statements

4

 

 

 

 

Condensed Consolidated Balance Sheets at December 31, 2012 and June 30, 2013

4

 

 

 

 

Condensed Consolidated Income Statements for the Three and Six Months Ended June 30, 2012 and 2013

5

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the Six Months Ended June 30, 2012 and 2013

6

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2012 and 2013

7

 

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

8-16

 

 

 

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17-28

 

 

 

Item 3

Quantitative and Qualitative Disclosures About Market Risk

28

 

 

 

Item 4

Controls and Procedures

28

 

 

 

PART II—OTHER INFORMATION

29

 

 

 

Item 1

Legal Proceedings

29

 

 

 

Item1A

Risk Factors

29

 

 

 

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

29

 

 

 

Item 6

Exhibits

30

 

 

 

SIGNATURES

31

 

 

 

CERTIFICATIONS

 

 

2



Table of Contents

 

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 competitive environment in our key markets, demand for our services and industry trends; the outcome of litigation and regulatory matters; our continued access to the credit and capital markets; the pace of our network expansion and improvement, including our level of estimated future capital expenditures and our realization of the benefits of these investments; the pending sale of certain assets used in our Alltel business; 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)  the general performance of our operations, including operating margins, wholesale revenues, and the future retention and turnover of our subscriber base; (2) our ability to receive the requisite regulatory consents and approvals and satisfy other conditions needed to complete our proposed sale of Alltel operations; (3) our ability to maintain favorable roaming arrangements; (4) increased competition; (5) economic, political and other risks facing our foreign operations; (6) the loss of certain FCC and other licenses, Universal Service Funds (“USF”)  or other regulatory changes affecting our businesses; (7) rapid and significant technological changes in the telecommunications industry; (8) any loss of any key members of management; (9) our reliance on a limited number of key suppliers and vendors for timely supply of equipment and services relating to our network infrastructure and retail wireless business; (10) the adequacy and expansion capabilities of our network capacity and customer service system to support our customer growth; (11) the occurrence of severe weather and natural catastrophes; (12) our continued access to capital and credit markets; and (13) our ability to realize the value that we believe exists in our businesses. 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 this Report as well as the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, filed with the SEC on March 18, 2013. The Company undertakes no obligation 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 Atlantic Tele-Network, Inc. and its subsidiaries, unless the context indicates otherwise. This Report contains trademarks, service marks and trade names such as “ Alltel ”, “ CellOne ”, “ Cellink ”, “ Islandcom ”, “ Choice ”, “ Sovernet ” and “ ION ” that are the property of, or licensed by, ATN, and its subsidiaries.

 

Reference to dollars ($) refer to U.S. dollars unless otherwise specifically indicated.

 

3



Table of Contents

 

PART I—FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements

 

ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollars in thousands, except per share amounts)

 

 

 

December 31,
2012

 

June 30,
2013

 

ASSETS

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash and cash equivalents

 

$

136,647

 

$

111,438

 

Accounts receivable, net of allowances of $14.6 million and $13.5 million, respectively

 

73,091

 

75,150

 

Materials and supplies

 

27,080

 

29,075

 

Deferred income taxes

 

8,349

 

8,533

 

Prepayments and other current assets

 

10,984

 

17,517

 

Total current assets

 

256,151

 

241,713

 

Property, plant and equipment, net

 

450,547

 

450,832

 

Telecommunications licenses

 

90,458

 

90,054

 

Goodwill

 

45,077

 

45,077

 

Trade name license, net

 

12,534

 

12,295

 

Customer relationships, net

 

32,835

 

29,252

 

Other assets

 

23,273

 

23,289

 

Total assets

 

$

910,875

 

$

892,512

 

LIABILITIES AND EQUITY

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Current portion of long-term debt

 

$

15,680

 

$

19,600

 

Accounts payable and accrued liabilities

 

50,259

 

48,876

 

Dividends payable

 

 

3,943

 

Accrued taxes

 

30,153

 

4,839

 

Advance payments and deposits

 

18,998

 

20,297

 

Other current liabilities

 

44,115

 

38,256

 

Total current liabilities

 

159,205

 

135,811

 

Deferred income taxes

 

84,006

 

86,957

 

Other liabilities

 

22,524

 

15,727

 

Long-term debt, excluding current portion

 

250,900

 

243,632

 

Total liabilities

 

516,635

 

482,127

 

Commitments and contingencies (Note 11)

 

 

 

 

 

Atlantic Tele-Network, Inc.’s 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; 16,090,544 and 16,319,698 shares issued, respectively, and 15,726,255 and 15,721,127 shares outstanding, respectively

 

160

 

162

 

Treasury stock, at cost; 513,823 and 593,443 shares, respectively

 

(5,286

)

(8,923

)

Additional paid-in capital

 

123,253

 

129,255

 

Retained earnings

 

224,316

 

234,084

 

Accumulated other comprehensive loss

 

(8,297

)

(5,032

)

Total Atlantic Tele-Network, Inc.’s stockholders’ equity

 

334,146

 

349,546

 

Non-controlling interests

 

60,094

 

60,839

 

Total equity

 

394,240

 

410,385

 

Total liabilities and equity

 

$

910,875

 

$

892,512

 

 

The accompanying condensed notes are an integral part of these condensed consolidated financial statements.

 

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ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED INCOME STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 and 2013

(Unaudited)

(Dollars in thousands, except per share amounts)

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2012

 

2013

 

2012

 

2013

 

REVENUE:

 

 

 

 

 

 

 

 

 

U.S. wireless:

 

 

 

 

 

 

 

 

 

Retail

 

$

84,002

 

$

80,733

 

$

170,686

 

$

162,015

 

Wholesale

 

51,553

 

42,030

 

98,937

 

82,332

 

International wireless

 

20,271

 

21,837

 

39,171

 

43,267

 

Wireline

 

21,074

 

20,877

 

42,804

 

41,441

 

Equipment and other

 

8,596

 

9,595

 

16,985

 

18,885

 

Total revenue

 

185,496

 

175,072

 

368,583

 

347,940

 

OPERATING EXPENSES ( excluding depreciation and amortization unless otherwise indicated ):

 

 

 

 

 

 

 

 

 

Termination and access fees

 

38,994

 

32,857

 

79,536

 

67,093

 

Engineering and operations

 

22,469

 

21,781

 

44,434

 

43,932

 

Sales and marketing

 

31,026

 

28,612

 

63,031

 

58,114

 

Equipment expense

 

22,393

 

24,384

 

43,085

 

48,941

 

General and administrative

 

20,966

 

21,537

 

43,690

 

40,683

 

Transaction-related charges

 

 

310

 

5

 

1,092

 

Depreciation and amortization

 

26,582

 

25,454

 

53,606

 

51,255

 

Gain on disposition of long lived asset

 

 

 

 

(1,076

)

Total operating expenses

 

162,430

 

154,935

 

327,387

 

310,034

 

Income from operations

 

23,066

 

20,137

 

41,196

 

37,906

 

OTHER INCOME (EXPENSE):

 

 

 

 

 

 

 

 

 

Interest expense

 

(3,998

)

(2,814

)

(7,968

)

(5,174

)

Interest income

 

94

 

85

 

186

 

172

 

Equity in earnings of an unconsolidated affiliate

 

930

 

394

 

2,331

 

976

 

Other income (expense), net

 

(346

)

334

 

(282

)

536

 

Other income (expense), net

 

(3,320

)

(2,001

)

(5,733

)

(3,490

)

INCOME BEFORE INCOME TAXES

 

19,746

 

18,136

 

35,463

 

34,416

 

Income tax expense

 

7,979

 

6,715

 

14,759

 

13,077

 

NET INCOME

 

11,767

 

11,421

 

20,704

 

21,339

 

Net income attributable to non-controlling interests, net of tax of $0.5 million for the three months ended June 30, 2012 and 2013, and $1.1 million and $1.2 million for the six months ended June 30, 2012 and 2013, respectively

 

(1,237

)

(2,564

)

(853

)

(3,706

)

NET INCOME ATTRIBUTABLE TO ATLANTIC TELE-NETWORK, INC. STOCKHOLDERS

 

$

10,530

 

$

8,857

 

$

19,851

 

$

17,633

 

NET INCOME PER WEIGHTED AVERAGE SHARE ATTRIBUTABLE TO ATLANTIC TELE-NETWORK, INC. STOCKHOLDERS

 

 

 

 

 

 

 

 

 

Basic

 

$

0.68

 

$

0.56

 

$

1.28

 

$

1.13

 

Diluted

 

$

0.67

 

$

0.56

 

$

1.27

 

$

1.12

 

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:

 

 

 

 

 

 

 

 

 

Basic

 

15,535

 

15,706

 

15,495

 

15,647

 

Diluted

 

15,609

 

15,821

 

15,581

 

15,756

 

DIVIDENDS PER SHARE APPLICABLE TO COMMON STOCK

 

$

0.23

 

$

0.25

 

$

0.46

 

$

0.50

 

 

The accompanying condensed notes are an integral part of these condensed consolidated financial statements.

 

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ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2013

(Unaudited)

(Dollars in thousands)

 

 

 

Six Months Ended
June 30,

 

 

 

2012

 

2013

 

 

 

 

 

 

 

Net income

 

$

20,704

 

$

21,339

 

Other comprehensive income:

 

 

 

 

 

Unrealized gain on interest rate swap, net of tax of $0.1 million and $2.2 million, respectively

 

149

 

3,265

 

Other comprehensive income, net of tax

 

149

 

3,265

 

Comprehensive income

 

20,853

 

24,604

 

Less: Comprehensive income attributable to non-controlling interests

 

(853

)

(3,706

)

Comprehensive income attributable to Atlantic Tele-Network, Inc.

 

$

20,000

 

$

20,898

 

 

The accompanying condensed notes are an integral part of these condensed consolidated financial statements.

 

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ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2013

(Unaudited)

(Dollars in thousands)

 

 

 

Six Months Ended
June 30,

 

 

 

2012

 

2013

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net income

 

$

20,704

 

$

21,339

 

Adjustments to reconcile net income to net cash flows provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

53,606

 

51,255

 

Provision for doubtful accounts

 

6,325

 

5,110

 

Amortization of debt discount and debt issuance costs

 

1,747

 

631

 

Stock-based compensation

 

1,908

 

2,071

 

Deferred income taxes

 

108

 

 

Equity in earnings of an unconsolidated affiliate

 

(2,331

)

(976

)

Gain on disposition of long-lived assets

 

 

(1,076

)

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(10,225

)

(7,169

)

Materials and supplies, prepayments, and other current assets

 

(3,401

)

(9,124

)

Income tax receivable

 

11,545

 

 

Accounts payable and accrued liabilities, advance payments and deposits and other current liabilities

 

(5,054

)

(1,271

)

Accrued taxes

 

9,156

 

(24,723

)

Other

 

(4,480

)

(632

)

Net cash provided by operating activities

 

79,608

 

35,435

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Capital expenditures

 

(32,272

)

(52,183

)

Proceeds from disposition of long-lived assets

 

 

1,500

 

Net cash used in investing activities

 

(32,272

)

(50,683

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Proceeds from borrowing under term loan

 

275,000

 

 

Proceeds from borrowings under revolver loan

 

46,378

 

 

Principal repayments of term loan

 

(252,953

)

(3,920

)

Principal repayments of revolver loan

 

(74,534

)

 

Proceeds from stock option exercises

 

946

 

1,232

 

Dividends paid on common stock

 

(7,119

)

(3,919

)

Distributions to non-controlling interests

 

(929

)

(2,562

)

Payments of debt issuance costs

 

(3,564

)

(12

)

Repurchase of non-controlling interests

 

(80

)

 

Investments made by non-controlling interests

 

805

 

135

 

Purchase of common stock

 

(184

)

(915

)

Net cash provided by (used in) financing activities

 

(16,234

)

(9,961

)

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

31,102

 

(25,209

)

CASH AND CASH EQUIVALENTS, beginning of the period

 

48,735

 

136,647

 

CASH AND CASH EQUIVALENTS, end of the period

 

$

79,837

 

$

111,438

 

 

The accompanying condensed notes are an integral part of these condensed consolidated financial statements.

 

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ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1. ORGANIZATION AND BUSINESS OPERATIONS

 

The Company provides wireless and wireline telecommunications services in North America, Bermuda and the Caribbean. Through its operating subsidiaries, the Company offers the following principal services:

 

·                   Wireless.   In the United States, the Company offers wireless voice and data services to retail customers under the “Alltel” name in rural markets located principally in the Southeast and Midwest. Additionally, the Company offers wholesale wireless voice and data roaming services to national, regional, local and selected international wireless carriers in rural markets located principally in the Southwest and Midwest United States. The Company also offers wireless voice and data services to retail customers in Bermuda, Guyana, the Caribbean and smaller markets in the United States.

 

·                   Wireline.   The Company’s local telephone and data services include its operations in Guyana and the mainland United States. The Company is the exclusive licensed provider of domestic wireline local and long distance telephone services in Guyana and international voice and data communications into and out of Guyana. The Company also offers facilities-based integrated voice and data communications services to enterprise and residential customers in New England, primarily in Vermont, and wholesale transport services in Vermont and New York State.  In addition, the Company offers wholesale long-distance voice services to telecommunications carriers.

 

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, 2013:

 

Services

 

Segment

 

Markets

 

Tradenames

Wireless

 

U.S. Wireless

 

United States (rural markets)

 

Alltel, Commnet, Choice

 

 

Island Wireless

 

Aruba, Bermuda, Turks and Caicos, U.S. Virgin Islands

 

Mio, CellOne, Islandcom, Choice

 

 

International Integrated Telephony

 

Guyana

 

Cellink

Wireline

 

International Integrated Telephony

 

Guyana

 

GT&T, eMagine

 

 

U.S. Wireline

 

United States (New England and New York State)

 

Sovernet, ION

 

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 consolidated subsidiaries are eliminated in consolidation. For information about the Company’s business segments and geographical information about its revenue, operating income and long-lived assets, see Note 10 to the Condensed Consolidated Financial Statements.

 

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 2012 Annual Report on Form 10-K.

 

Consolidation

 

The consolidated financial statements include the accounts of the Company, its majority-owned subsidiaries and certain entities, which are consolidated in accordance with the provisions of the Financial Accounting Standards Board’s (“FASB”) authoritative guidance on the consolidation of variable interest entities since it is determined that the Company is the primary beneficiary of these entities.

 

Certain revisions to correct profit and loss classifications have been made in the prior period financial statements. The changes match the elimination of income with expenses for inter-company shared services and align subsidiary accounting practices for bad debt expense presentation. The changes were not material to prior periods and did not impact operating income. The aggregate impact of the changes included a $0.2 million and $0.4 million adjustment from wireline revenue to termination and access fees and an increase of engineering and operations expense of $0.8 million and $1.6 million with a corresponding decrease in general and administrative expense for each of the three and six month periods ended June 30, 2012, respectively.

 

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Recent Accounting Pronouncements

 

In February 2013, the FASB issued new guidance which requires companies to present information about reclassification adjustments from accumulated other comprehensive income in their financial statements or footnotes. This new guidance is effective for fiscal periods beginning after December 15, 2012.  The adoption of the new guidance did not have an impact on the Company’s consolidated balance sheet, income statement or cash flows.

 

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

 

3.  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 purchase business combinations, fair value of indefinite-lived intangible assets, goodwill and income taxes. Actual results could differ significantly from those estimates.

 

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4.  PENDING SALE OF U.S. RETAIL WIRELESS BUSINESS

 

On January 21, 2013, the Company and a subsidiary entered into a Purchase Agreement with AT&T Mobility LLC (“AT&T”) to sell certain of the wireless assets used in the Company’s Alltel business (the “Alltel Sale”). Under the terms of the agreement, AT&T will purchase the operations in an all-cash transaction valued at approximately $780 million. For the three and six months ended June 30, 2013, the Alltel business constituted approximately $103.4 million and $211.5 million, respectively, or 59% and 61%, respectively, of the Company’s consolidated revenues and $3.8 million and $9.1 million, respectively, or 19% and 24%, respectively, of the Company’s consolidated operating income. Although the consummation of the Alltel Sale is subject to customary closing conditions, including approval of the Federal Communications Commission, the required waiting period under the Hart Scott Rodino Antitrust Improvements Act of 1976 has expired and the Company anticipates completing the transaction in the second half of 2013. Since the Company’s application for FCC approval is still pending, the Company has reported the Alltel results in continuing operations.

 

5.  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.

 

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 exchange-traded instruments and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data.

 

 

 

 

 

This category generally includes certificates of deposit and non-exchange traded derivative contracts.

 

 

 

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 whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

 

Assets and liabilities of the Company measured at fair value on a recurring basis as of December 31, 2012 and June 30, 2013 are summarized as follows (in thousands):

 

 

 

December 31, 2012

 

Description

 

Quoted Prices in
Active Markets
(Level 1)

 

Significant Other
Observable Inputs
(Level 2)

 

Total

 

Certificates of deposit

 

$

 

$

363

 

$

363

 

Money market funds

 

1,755

 

 

1,755

 

Total assets measured at fair value

 

$

1,755

 

$

363

 

$

2,118

 

Interest rate derivative (Note 7)

 

$

 

$

11,142

 

$

11,142

 

Total liabilities measured at fair value

 

$

 

$

11,142

 

$

11,142

 

 

10



Table of Contents

 

 

 

June 30, 2013

 

Description

 

Quoted Prices in
Active Markets
(Level 1)

 

Significant Other
Observable Inputs
(Level 2)

 

Total

 

Certificates of deposit

 

$

 

$

363

 

$

363

 

Money market funds

 

1,927

 

 

1,927

 

Total assets measured at fair value

 

$

1,927

 

$

363

 

$

2,290

 

Interest rate derivative (Note 7)

 

$

 

$

5,701

 

$

5,701

 

Total liabilities measured at fair value

 

$

 

$

5,701

 

$

5,701

 

 

Certificate of Deposit

 

As of December 31, 2012 and June 30, 2013, this asset class consisted of a time deposit at a financial institution denominated in U.S. dollars. The asset class is classified within Level 2 of the fair value hierarchy because the fair value was based on observable market data.

 

Money Market Funds

 

As of December 31, 2012 and June 30, 2013, this asset class consisted of a money market portfolio that comprises Federal government and U.S. 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.

 

Derivatives

 

The Company is exposed to certain risks arising from both its business operations and economic conditions. When deemed appropriate, the Company manages economic risks related to interest rates primarily by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company entered into derivative financial instruments to manage exposures that arise from business activities that result in the payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of its known or expected cash payments principally related to the Company’s borrowings.

 

We did not have any significant nonfinancial assets or nonfinancial liabilities that would be recognized or disclosed at fair value on a recurring basis as of December 31, 2012 and June 30, 2013.  The Company did not have any transfers of assets or liabilities between levels of the fair value hierarchy during the six months ended June 30, 2013.

 

6.  LONG-TERM DEBT

 

Long-term debt comprises the following (in thousands):

 

 

 

December 31,
2012

 

June 30,
2013

 

Notes payable - Bank

 

 

 

 

 

Term loans

 

$

268,000

 

$

264,500

 

Revolver loan

 

 

 

Note Payable — Other

 

4,072

 

3,716

 

Total outstanding debt

 

272,072

 

268,216

 

Less: current portion

 

(15,680

)

(19,600

)

Total long-term debt

 

256,392

 

248,616

 

Less: debt discount

 

(5,492

)

(4,984

)

Net carrying amount

 

$

250,900

 

$

243,632

 

 

Loan Facilities—Bank

 

On May 18, 2012, the Company amended and restated its existing credit facility with CoBank, ACB (the “Amended Credit Facility”) providing for $275.0 million in two term loans and a revolver loan of up to $100.0 million (which includes a $10.0 million swingline sub-facility) and additional term loans up to an aggregate of $100.0 million, subject to lender approval.

 

On October 29, 2012, the Company further amended its Amended Credit Facility to provide for an additional letter of credit sub-facility to its revolver loan, to be available for issuance in connection with the Company’s Mobility Fund Grant obligations. Under the amendment, the Company has the ability to use up to $55 million of its revolving credit facility for the issuance of letters of credit and currently has approximately $29.9 million of such letters of credit outstanding which will accrue a fee at a rate of 1.75% per annum on the outstanding amounts.  As of June 30, 2013, there were no draw downs against these letters of credit.

 

The term loan A-1 is $125 million and matures on June 30, 2017 (the “Term Loan A-1”). The term loan A-2 is $150 million and matures on June 30, 2019 (the “Term Loan A-2” and collectively with the Term Loan A-1, the “Term Loans”). Each of the Term Loans require certain quarterly repayment obligations. The revolver loan matures on June 30, 2017. The Company may prepay the Amended Credit Facility at any time without premium or penalty, other than customary fees for the breakage of London Interbank Offered Rate (LIBOR) loans.

 

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Amounts borrowed under the Term Loan A-1 and the revolver loan bear interest at a rate equal to, at the Company’s option, either (i) LIBOR plus an applicable margin ranging between 2.00% to 3.50% or (ii) a base rate plus an applicable margin ranging from 1.00% to 2.50% (or, in the case of amounts borrowed under the swingline sub-facility, an applicable margin ranging from 0.50% to 2.00%). Amounts borrowed under the Term Loan A-2 bear interest at a rate equal to, at the Company’s option, either (i) the LIBOR plus an applicable margin ranging between 2.50% to 4.00% or (ii) a base rate plus an applicable margin ranging from 1.50% to 3.00%. The base rate is equal to the higher of (i) 1.50% plus the higher of (x) the one-week LIBOR and (y) the one-month LIBOR; and (ii) the prime rate (as defined in the Amended Credit Facility). The applicable margin is determined based on the ratio of the Company’s indebtedness (as defined in the Amended Credit Facility) to its EBITDA (as defined in the Amended Credit Facility).

 

Certain of the Company’s domestic subsidiaries, including our principal operating subsidiaries, are guarantors of the Company’s obligations under the Credit Agreement. Further, the Company’s obligations are secured by (i) a first priority, perfected lien on substantially all the property and assets of the Company and that of the guarantor subsidiaries, and (ii) a pledge of 100% of the Company’s equity interests in certain domestic subsidiaries and up to 65% of the equity interests outstanding of certain foreign subsidiaries, in each case, including the Company’s principal operating subsidiaries.

 

Borrowings as of June 30, 2013, after considering the effect of the interest rate swap agreements as described in Note 7, bore a weighted-average interest rate of 4.39%.  Availability under the revolver loan, net of outstanding letters of credit of $29.9 million, was $70.1 million as of June, 2013.

 

Under the terms of the Amended Credit Facility, the Company must also pay a fee ranging from 0.25% to 0.50% of the average daily unused portion of the revolver loan over each calendar quarter, in which the fee is payable in arrears on the last day of each calendar quarter.

 

The Amended Credit Facility contains customary representations, warranties and covenants, including covenants by the Company 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 Amended Credit Facility contains financial covenants by the Company that (i) impose a maximum leverage ratio of indebtedness to EBITDA, (ii) require a minimum debt service ratio of EBITDA to principal, interest and taxes payments and (iii) require a minimum ratio of equity to consolidated assets. As of June 30, 2013, the Company was in compliance with all of the financial covenants of the Amended Credit Facility.

 

Note Payable—Other

 

In connection with the CellOne Merger with M3 Wireless, Ltd., the Company assumed a term loan of approximately $7.0 million owed to Keytech Ltd., the former parent company of M3 and current 42% minority shareholder in the Company’s Bermuda operations. The term loan requires quarterly repayments of principal, matures on March 15, 2015 and bears interest at a rate of 7% per annum.  As of June 30, 2013 the balance of the term loan was $3.7 million. This term loan was repaid in full during July 2013.

 

The Company believes that the carrying value of its debt approximates fair value which was based on quoted market prices and falls within Level 2 of the fair value measurement hierarchy. A level 2 hierarchy is applied based on level of trade activity associated with the Company’s debt.

 

7.  DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

 

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

 

The effective portion of changes in the fair value of interest rate swaps designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The Company uses its derivatives to hedge the variable cash flows associated with existing variable-rate debt. The ineffective portion of the change in fair value of the derivative is recognized directly in earnings. No hedge ineffectiveness was recognized during any of the periods presented.

 

The total outstanding notional amount of cash flow hedges was $140.5 million as of June 30, 2013.

 

12



Table of Contents

 

Amounts reported in accumulated other comprehensive income related to the interest rate swaps are reclassified to interest expense as interest payments are accrued on the Company’s variable-rate debt. Through June 30, 2014, the Company estimates that an additional $3.8 million will be reclassified as an increase to interest expense due to the interest rate swaps since the hedge interest rate exceeds the variable interest rate on the debt.

 

The table below presents the fair value of the Company’s derivative financial instruments as well as its classification on the consolidated balance sheet as of December 31, 2012 and June 30, 2013 (in thousands):

 

 

 

Liability Derivatives

 

 

 

 

 

Fair Value as of

 

 

 

Balance Sheet
Location

 

December 31,
2012

 

June 30,
2013

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

Interest Rate Swaps

 

Other liabilities

 

$

11,142

 

$

5,701

 

Total derivatives designated as hedging instruments

 

 

 

$

11,142

 

$

5,701

 

 

The table below presents the effect of the Company’s derivative financial instruments on the consolidated income statements for the three and six months ended June 30, 2012 and 2013 (in thousands):

 

Three Months Ended June 30,

 

Derivative in Cash Flow
Hedging Relationships

 

Amount of Gain or
(Loss) Recognized
in Other
Comprehensive
Income on Derivative
(Effective Portion)

 

Location of Gain or
(Loss) Reclassified
from Accumulated
Other
Comprehensive
Income into Income
(Effective Portion)

 

Amount of Gain or
(Loss) Reclassified
from Accumulated
Other
Comprehensive
Income into Income
(Effective Portion)

 

2012

 

Interest Rate Swap

 

$

(144

)

Interest expense

 

$

1,033

 

2013

 

Interest Rate Swap

 

4,373

 

Interest expense

 

1,039

 

 

Six Months Ended June 30,

 

Derivative in Cash Flow
Hedging Relationships

 

Amount of Gain or
(Loss) Recognized
in Other
Comprehensive
Income on Derivative
(Effective Portion)

 

Location of Gain or
(Loss) Reclassified
from Accumulated
Other
Comprehensive
Income into Income
(Effective Portion)

 

Amount of Gain or
(Loss) Reclassified
from Accumulated
Other
Comprehensive
Income into Income
(Effective Portion)

 

2012

 

Interest Rate Swap

 

$

301

 

Interest expense

 

$

(2,056

)

2013

 

Interest Rate Swap

 

5,441

 

Interest expense

 

(2,072

)

 

Credit-risk-related Contingent Features

 

The Company has agreements with its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations.

 

As of June 30, 2013, the fair value of the interest rate swaps liability position related to these agreements was $5.7 million. As of June 30, 2013, the Company has not posted any collateral related to these agreements. If the Company had breached any of these provisions at June 30, 2013, it would have been required to settle its obligations under these agreements at their termination values of $5.7 million.

 

8.  RECONCILIATION OF TOTAL EQUITY

 

Total equity was as follows (in thousands):

 

13



Table of Contents

 

 

 

Six Months Ended June 30,

 

 

 

2012

 

2013

 

 

 

Atlantic Tele-
Network, Inc.

 

Non-Controlling
Interests

 

Total Equity

 

Atlantic Tele-
Network, Inc.

 

Non-Controlling
Interests

 

Total
Equity

 

Equity, beginning of period

 

$

294,266

 

$

58,264

 

$

352,530

 

$

334,146

 

$

60,094

 

$

394,240

 

Stock-based compensation

 

1,908

 

 

1,908

 

2,071

 

 

2,071

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

19,851

 

853

 

20,704

 

17,633

 

3,706

 

21,339

 

Other comprehensive income(loss)-Gain (loss) on interest rate swap (net of tax)

 

149

 

 

149

 

3,265

 

 

3,265

 

Total comprehensive income

 

20,000

 

853

 

20,853

 

20,898

 

3,706

 

24,604

 

Issuance of common stock upon exercise of stock options

 

946

 

 

946

 

3,955

 

 

3,955

 

Dividends declared on common stock

 

(7,119

)

 

(7,119

)

(7,884

)

 

(7,884

)

Distributions to non-controlling interests

 

 

(929

)

(929

)

 

(3,096

)

(3,096

)

Investments made by minority shareholders

 

 

805

 

805

 

 

135

 

135

 

Repurchase of non-controlling interests

 

 

(80

)

(80

)

 

 

 

Purchase of common shares

 

(184

)

 

(184

)

(3,640

)

 

(3,640

)

Equity, end of period

 

$

309,817

 

$

58,913

 

$

368,730

 

$

349,546

 

$

60,839

 

$

410,385

 

 

Changes in accumulated other comprehensive loss, by component, were as follows (in thousands):

 

 

 

Interest
Rate Swap
Agreements

 

Projected
Pension
Benefit
Obligation

 

Translation
Adjustment

 

Total

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2012

 

$

(6,959

)

$

(1,318

)

$

(20

)

$

(8,297

)

 

 

 

 

 

 

 

 

 

 

Other comprehensive income before reclassifications, net of taxes of $2.2 million (1)

 

3,265

 

 

 

3,265

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2013

 

$

(3,694

)

$

(1,318

)

$

(20

)

$

(5,032

)

 


(1) Includes a reclassification to interest expense of $2.1 million, net of taxes.

 

9.  NET INCOME PER SHARE

 

For the three and six months ended June 30, 2012 and 2013, outstanding stock options were the only potentially dilutive securities. The reconciliation from basic to diluted weighted average common shares outstanding is as follows (in thousands):

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2012

 

2013

 

2012

 

2013

 

Basic weighted-average common shares outstanding

 

15,535

 

15,706

 

15,495

 

15,647

 

Stock options

 

74

 

115

 

86

 

109

 

Diluted weighted-average common shares outstanding

 

15,609

 

15,821

 

15,581

 

15,756

 

 

The above calculations for the three months ended June 30, 2012 and 2013 do not include 381,000 and 60,000 shares, respectively, related to certain stock options because the effects of such were anti-dilutive. For the six months ended June 30, 2012 and 2013, the calculation does not include 353,000 and 153,000 shares, respectively, related to certain stock options because the effect of such options was anti-dilutive.

 

10. SEGMENT REPORTING

 

The Company has four reportable segments for separate disclosure in accordance with the FASB’s authoritative guidance on disclosures about segments of an enterprise. Those four segments are: i) U.S. Wireless, which generates all of its revenues in and has all of its assets located in the United States, ii) International Integrated Telephony, which generates all of its revenues in and has its assets located in Guyana, iii) Island Wireless, which generates a majority of its revenues in and has a majority of its assets located in Bermuda and which also generates revenues in and has assets located in the U.S. Virgin Islands, Aruba and Turks and Caicos and iv) U.S. Wireline, which generates all of its revenues in and has all of its assets located in the United States. The operating segments are managed separately because each offers different services and serves different markets.

 

The following tables provide information for each operating segment (in thousands):

 

14



Table of Contents

 

 

 

For the Three Months Ended June 30, 2012

 

 

 

U.S. Wireless

 

International
Integrated
Telephony

 

Island
Wireless

 

U.S.
Wireline

 

Reconciling
Items

 

Consolidated

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Wireless:

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

$

84,002

 

$

 

$

 

$

 

$

 

$

84,002

 

Wholesale

 

51,553

 

 

 

 

 

51,553

 

International Wireless

 

 

6,705

 

13,566

 

 

 

20,271

 

Wireline

 

154

 

16,212

 

 

4,708

 

 

21,074

 

Equipment and Other

 

6,774

 

524

 

1,245

 

53

 

 

8,596

 

Total Revenue

 

142,483

 

23,441

 

14,811

 

4,761

 

 

185,496

 

Depreciation and amortization

 

18,324

 

4,490

 

2,783

 

693

 

292

 

26,582

 

Non-cash stock-based compensation

 

58

 

 

 

 

755

 

813

 

Operating income (loss)

 

23,978

 

4,141

 

279

 

(666

)

(4,666

)

23,066

 

 

 

 

For the Six Months Ended June 30, 2012

 

 

 

U.S. Wireless

 

International
Integrated
Telephony

 

Island
Wireless

 

U.S.
Wireline

 

Reconciling
Items

 

Consolidated

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Wireless:

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

$

170,686

 

$

 

$

 

$

 

$

 

$

170,686

 

Wholesale

 

98,937

 

 

 

 

 

98,937

 

International Wireless

 

 

13,052

 

26,119

 

 

 

39,171

 

Wireline

 

297

 

33,003

 

 

9,504

 

 

42,804

 

Equipment and Other

 

13,445

 

957

 

2,496

 

87

 

 

16,985

 

Total Revenue

 

283,365

 

47,012

 

28,615

 

9,591

 

 

368,583

 

Depreciation and amortization

 

37,026

 

9,017

 

5,569

 

1,438

 

556

 

53,606

 

Non-cash stock-based compensation

 

116

 

 

 

 

1,792

 

1,908

 

Operating income (loss)

 

42,900

 

10,377

 

(1,362

)

(1,089

)

(9,630

)

41,196

 

 

 

 

For the Three Months Ended June 30, 2013

 

 

 

U.S. Wireless

 

International
Integrated
Telephony

 

Island
Wireless

 

U.S.
Wireline

 

Reconciling
Items

 

Consolidated

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Wireless:

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

$

80,733

 

$

 

$

 

$

 

$

 

$

80,733

 

Wholesale

 

42,030

 

 

 

 

 

42,030

 

International Wireless

 

 

6,530

 

15,307

 

 

 

21,837

 

Wireline

 

152

 

15,170

 

 

6,738

 

(1,183

)

20,877

 

Equipment and Other

 

7,375

 

508

 

1,655

 

57

 

 

9,595

 

Total Revenue

 

130,290

 

22,208

 

16,962

 

6,795

 

(1,183

)

175,072

 

Depreciation and amortization

 

17,170

 

4,535

 

2,560

 

794

 

395

 

25,454

 

Non-cash stock-based compensation

 

60

 

 

 

 

1,166

 

1,226

 

Operating income (loss)

 

17,250

 

6,235

 

2,301

 

(124

)

(5,525

)

20,137

 

 

 

 

For the Six Months Ended June 30, 2013

 

 

 

U.S. Wireless

 

International
Integrated
Telephony

 

Island
Wireless

 

U.S.
Wireline

 

Reconciling
Items

 

Consolidated

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Wireless:

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

$

162,015

 

$

 

$

 

$

 

$

 

$

162,015

 

Wholesale

 

82,332

 

 

 

 

 

82,332

 

International Wireless

 

 

13,284

 

29,983

 

 

 

43,267

 

Wireline

 

304

 

30,853

 

 

13,319

 

(3,035

)

41,441

 

Equipment and Other

 

15,142

 

763

 

2,873

 

107

 

 

18,885

 

Total Revenue

 

259,793

 

44,900

 

32,856

 

13,426

 

(3,035

)

347,940

 

Depreciation and amortization

 

34,985

 

8,925

 

5,155

 

1,436

 

754

 

51,255

 

Non-cash stock-based compensation

 

99

 

 

 

 

1,972

 

2,071

 

Operating income (loss)

 

32,267

 

12,568

 

3,935

 

(532

)

(10,332

)

37,906

 

 

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Table of Contents

 

 

 

Segment Assets

 

 

 

U.S. Wireless

 

International
Integrated
Telephony

 

Island
Wireless

 

U.S.
Wireline

 

Reconciling
Items

 

Consolidated

 

December 31, 2012:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net fixed assets

 

$

262,372

 

$

126,532

 

$

33,745

 

$

17,489

 

$

10,409

 

$

450,547

 

Goodwill

 

32,148

 

 

5,438

 

7,491

 

 

45,077

 

Total assets

 

539,008

 

191,314

 

77,120

 

30,888

 

72,545

 

910,875

 

June 30, 2013:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net fixed assets

 

$

264,787

 

122,200

 

30,624

 

23,331

 

9,890

 

450,832

 

Goodwill

 

32,148

 

 

5,438

 

7,491

 

 

45,077

 

Total assets

 

527,689

 

194,590

 

81,816

 

39,420

 

48,997

 

892,512

 

 

 

 

Capital Expenditures

 

 

 

U.S. Wireless

 

International
Integrated
Telephony

 

Island
Wireless

 

U.S.
Wireline

 

Reconciling
Items

 

Consolidated

 

Six Months Ended June 30,

 

 

 

 

 

 

 

 

 

 

 

 

 

2012

 

$

20,411

 

$

4,131

 

$

2,521

 

$

3,538

 

$

1,671

 

$

32,272

 

2013

 

$

35,844

 

$

6,116

 

$

1,910

 

$

6,689

 

$

1,624

 

$

52,183

 

 

11.  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 and in our Annual Report on Form 10-K for the year ended December 31, 2012, 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.

 

On June 17, 2013, the Company issued approximately $29.8 million in letters of credit to the Universal Service Administrative Company (“USAC”) to secure a portion of the pending awards of approximately $68.8 million of Mobility Fund Grants to certain of its subsidiaries. The Company had previously amended its Amended Credit Facility to provide for an additional $55 million letter of credit sub-facility to its revolver loan to be available for issuance in connection with the Company’s Mobility Fund Grant obligations. The letters of credit accrue a fee at a rate of 1.75% per annum on the outstanding amounts and receipt of the Mobility Fund Grants is still subject to final USAC and FCC approval.  As of June 30, 2013, there were no draw downs against these letters of credit. If the Company fails to comply with certain terms and conditions upon which the Mobility Fund Grants are to be granted, or if it loses eligibility for Mobility Fund support, USAC will be entitled to draw the entire amount of the letter of credit applicable to the affected project including penalties.  The results of the Company’s Mobility Fund projects, once initiated, will be included in the Company’s “U.S. Wireless” segment.

 

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. On April 4, 2013 CTL filed a similar claim against GT&T and the PUC in the High Court of Guyana. The Company believes the claim is without merit and is duplicative of a previous claim filed by CTL in Guyana that was dismissed. There has been no action on this matter since the April 2013 filing.

 

Historically, the Company has been subject to litigation proceedings and other disputes in Guyana that while not conclusively resolved, to its knowledge have not been the subject of other discussions or other significant activity in the last five years. It is possible, but not likely, that these disputes may be revived. The Company believes that none of these additional proceedings would, in the event of an adverse outcome, have a material impact on its consolidated financial position, results of operation or liquidity.  For all of the regulatory, litigation, or related matters listed above and in our Form 10-K for the year ended December 31, 2012, the Company believes some adverse outcome is probable and has accordingly accrued $5.0 million as of June 30, 2013.

 

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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, 2012, in particular, the information set forth therein under Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

 

Overview

 

We provide wireless and wireline telecommunications services in North America, Bermuda and the Caribbean. Through our operating subsidiaries, we offer the following principal services:

 

·                   Wireless.  In the United States, we offer wireless voice and data services to retail customers under the “Alltel” name in rural markets located principally in the Southeast and Midwest. Additionally, we offer wholesale wireless voice and data roaming services to national, regional, local and selected international wireless carriers in rural markets located principally in the Southwest and Midwest United States. We also offer wireless voice and data services to retail customers in Bermuda, Guyana, the Caribbean and smaller markets in the United States.

 

·                   Wireline.  Our local telephone and data services include our operations in Guyana and the mainland United States. We are the exclusive licensed provider of domestic wireline local and long distance telephone services in Guyana and international voice and data communications into and out of Guyana. We also offer facilities-based integrated voice and data communications services to enterprise and residential customers in New England, primarily in Vermont, and wholesale transport services in Vermont and New York State.  In addition, we offer wholesale long-distance voice services to telecommunications carriers.

 

The following chart summarizes the operating activities of our principal subsidiaries, the segments in which we report our revenue and the markets we served as of June 30, 2013:

 

Services

 

Segment

 

Markets

 

Tradenames

Wireless

 

U.S. Wireless

 

United States (rural markets)

 

Alltel, Commnet, Choice

 

 

Island Wireless

 

Aruba, Bermuda, Turks and Caicos, U.S. Virgin Islands

 

Mio, CellOne, Islandcom, Choice

 

 

International Integrated Telephony

 

Guyana

 

Cellink

Wireline

 

International Integrated Telephony

 

Guyana

 

GT&T, eMagine

 

 

U.S. Wireline

 

United States (New England and New York State)

 

Sovernet, ION

 

We provide management, technical, financial, regulatory, and marketing services to our subsidiaries and typically receive a management fee equal to a percentage of their respective revenue. Management fees from consolidated subsidiaries are eliminated in consolidation.

 

We are dependent on our U.S. Wireless segment for the substantial majority of our revenue and profits. For the quarter and six months ended June 30, 2013 and June 30, 2012, our U.S. Wireless segment generated approximately 74% and 77% of our consolidated revenues, respectively.

 

Our U.S. retail wireless revenue is primarily driven by the number of subscribers to our services, their adoption of our enhanced service offerings and their related voice and data usage. The number of subscribers and their usage volumes and patterns also has a major impact on the profitability of our U.S. retail wireless operations. As of June 30, 2013, substantially all of our U.S. retail wireless services were provided to approximately 591,000 customers under the “Alltel” brand name. Our wireless licenses provide mobile data and voice coverage to a network footprint covering a population of approximately four and a half million people as of June 30, 2013. Through the acquisition of a portion of the former Alltel network from Verizon Wireless in April 2010 (the “Alltel Acquisition”) we acquired a regional, non-contiguous wireless network that requires continued network expansion and improvements as well as roaming support to ensure ongoing nationwide coverage.

 

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Our retail wireless business competes with national, regional and local wireless providers offering both prepaid and postpaid services such as our primary competitor, Verizon Wireless.

 

We provide wholesale roaming services in a number of areas in the U.S., including in areas in which we also have retail wireless operations. Our wholesale wireless revenue is an important part of our overall U.S. Wireless segment revenue because this revenue has a higher margin of profitability than our retail revenue. 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 rate we get paid from other carrier customers for serving that traffic.

 

The most significant competitive factor we face in our U.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.

 

Pending Sale of U.S. Retail Wireless Business

 

On January 21, 2013, we entered into a Purchase Agreement with AT&T Mobility LLC (“AT&T”) to sell substantially all of the assets used in our Alltel business (the “Alltel Sale”). Under the terms of the agreement, AT&T will purchase the operations in an all-cash transaction valued at approximately $780 million. For the three and six months ended June 30, 2013, our Alltel business constituted approximately $103.4 million and $211.5 million, respectively, or 59% and 61%, respectively, of our consolidated revenues and $3.8 million and $9.1 million, respectively, or 19% and 24 % respectively, of our consolidated operating income. Although the consummation of the Alltel Sale is subject to customary closing conditions, including approval of the Federal Communications Commission, the required waiting period under the Hart Scott Rodino Antitrust Improvements Act of 1976 has expired and we currently anticipate completing the transaction in the second half of 2013.  Since the Company’s application for FCC approval is still pending, the Company has reported the results of the Alltel business in continuing operations.

 

For the purpose of clarity and consistency, and except where expressly indicated, each of the forward-looking statements made regarding our operations in this Item 2 assumes that the Alltel Sale has not yet been consummated.

 

Stimulus Grants

 

We were awarded several federal stimulus grants in 2009 and 2010 by the U.S. Government under provisions of the American Recovery and Reinvestment Act of 2009 intended to stimulate the deployment of broadband infrastructure and services to rural, unserved and underserved areas. As of June 30, 2013, we have spent (i) $30.6 million in capital expenditures (of which $24.5 million has been or will be funded by the federal stimulus grant) in connection with our ION Upstate New York Rural Broadband Initiative, which involves building ten new segments of fiber-optic, middle-mile broadband infrastructure in upstate New York and parts of Pennsylvania and Vermont; (ii) $7.1 million in capital expenditures (of which $5.0 million has been or will be funded by the federal stimulus grant) in connection with our last-mile broadband infrastructure buildout in the Navajo Nation across Arizona, New Mexico and Utah; and (iii) $34.2 million in capital expenditures (of which $24.0 million has been or will be funded by the federal stimulus grant) in connection with our fiber-optic middle mile network buildout to provide broadband and transport services to over 340 community anchor institutions in Vermont. The results of our New York and Vermont stimulus projects are included in our “U.S. Wireline” segment and the results of our Navajo stimulus project are included in our “U.S. Wireless” segment. We anticipate that the remaining capital expenditures for all three projects are $13.7 million, of which $9.6 million is expected to be funded by the federal stimulus grants.  All of our stimulus projects are anticipated to be completed by the end of 2013.

 

Results of Operations

 

Three Months Ended June 30, 2012 and 2013

 

 

 

Three Months Ended
June 30,

 

Amount of
Increase

 

Percent
Increase

 

 

 

2012

 

2013

 

(Decrease)

 

(Decrease)

 

 

 

(In thousands)

 

REVENUE:

 

 

 

 

 

 

 

 

 

US Wireless:

 

 

 

 

 

 

 

 

 

Retail

 

$

84,002

 

$

80,733

 

$

(3,269

)

(3.9

)%

Wholesale

 

51,553

 

42,030

 

(9,523

)

(18.5

)

International wireless

 

20,271

 

21,837

 

1,566

 

7.7

 

Wireline

 

21,074

 

20,877

 

(197

)

(0.9

)

Equipment and other

 

8,596

 

9,595

 

999

 

11.6

 

Total revenue

 

185,496

 

175,072

 

(10,424

)

(5.6

)

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

Termination and access fees

 

38,994

 

32,857

 

(6,137

)

(15.7

)

Engineering and operations

 

22,469

 

21,781

 

(688

)

(3.1

)

Sales, marketing and customer service

 

31,026

 

28,612

 

(2,414

)

(7.8

)

Equipment expense

 

22,393

 

24,384

 

1,991

 

8.9

 

General and administrative

 

20,966

 

21,537

 

571

 

2.7

 

Transaction-related charges

 

 

310

 

310

 

 

Depreciation and amortization

 

26,582

 

25,454

 

(1,128

)

(4.2

)

Gain on disposition of long-lived assets

 

 

 

 

 

Total operating expenses

 

162,430

 

154,935

 

(7,495

)

(4.6

)

Income from operations

 

23,066

 

20,137

 

(2,929

)

(12.7

)

OTHER INCOME (EXPENSE):

 

 

 

 

 

 

 

 

 

Interest expense

 

(3,998

)

(2,814

)

1,184

 

29.6

 

Interest income

 

94

 

85

 

(9

)

(9.6

)

Equity in earnings of unconsolidated affiliate

 

930

 

394

 

(536

)

(57.6

)

Other income(expense), net

 

(346

)

334

 

680

 

196.5

 

Other income (expense), net

 

(3,320

)

(2,001

)

1,319

 

39.7

 

INCOME BEFORE INCOME TAXES

 

19,746

 

18,136

 

(1,610

)

(8.2

)

Income taxes

 

7,979

 

6,715

 

(1,264

)

(15.8

)

NET INCOME

 

11,767

 

11,421

 

(346

)

(2.9

)

Net income attributable to non-controlling interests

 

(1,237

)

(2,564

)

(1,327

)

(107.3

)

NET INCOME ATTRIBUTABLE TO ATLANTIC TELE-NETWORK, INC. STOCKHOLDERS

 

$

10,530

 

8,857

 

(1,673

)

(15.9

)

 

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U.S. Wireless revenue.   U.S. Wireless revenue includes voice and data services revenue from our prepaid and postpaid retail operations as well as our wholesale roaming operations. Retail revenue is derived from subscriber fees for use of our networks and facilities, including airtime, roaming and long distance as well as enhanced services such as caller identification, call waiting, voicemail and other features. Retail revenue also includes amounts received from the USF. Wholesale revenue is generated from providing mobile voice or data services to the customers of other wireless carriers and also includes revenue from other related wholesale services such as the provision of network switching services and certain wholesale transport services using our wireless networks.

 

Retail revenue

 

The retail portion of our U.S. Wireless revenue was $80.7 million for the three months ended June 30, 2013, as compared to $84.0 million for the three months ended June 30, 2012, a decrease of $3.3 million, or 3.9%.  The decrease in retail U.S. Wireless revenues was primarily the result of a decline in postpaid subscribers which typically generate higher average revenues than prepaid customers.

 

As of June 30 , 2013, we had approximately 591,000 U.S. retail wireless subscribers (including 409,000 postpaid subscribers and 182,000 prepaid subscribers), an increase of 7,000, or 1.2%, from approximately 584,000 subscribers (including 442,000 postpaid subscribers and 142,000 prepaid subscribers) we had as of June 30 , 2012 and an increase of 1,000 from the 590,000 subscribers we had as of March 31, 2013.  Gross additions (New customers) to the U.S. retail wireless subscriber base increased to 71,000 for the three months ended June 30 , 2013, as compared to approximately 55,000 for the three months ended June 30 , 2012.

 

During the quarter ended June 30, 2013, we were in a period of higher than normal postpaid customer contract expirations.  Partially as a result of that, our post-paid customer churn was 2.59% for the three months ended June 30, 2013 compared to a churn rate of 2.18% for the three months ended June 30, 2012. Churn is customers voluntarily or involuntarily (e.g. Non-payment) terminating their service.  Although the ability to now offer iPhone devices, which we launched towards the end of the first quarter of 2013, may improve customer churn, we expect that further declines in postpaid subscribers will result in lower revenues in future periods.

 

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Table of Contents

 

Wholesale revenue

 

The wholesale portion of our U.S. Wireless revenue decreased to $42.0 million for the three months ended June 30, 2013 from $51.6 million for the three months ended June 30, 2012, a reduction of $9.6 million or 18.6%.  The decrease occurred in our Alltel markets as a result of roaming partners moving traffic off of our network.  This decrease was partially offset by an increase in data traffic in our legacy wholesale markets despite the sale of certain spectrum and related cell sites in our Midwest U.S. markets during the fourth quarter of 2012.

 

We expect that data volume may increase in the next several quarters as we continue to expand our coverage areas as well as our network capacity and capabilities.  Data volumes may also increase as customer usage of data and smart phone penetration in future periods continues to grow. Any revenue derived from such increase, however, may be completely offset by a number of factors, including reductions in the roaming rates that we charge, continued declines in overall voice traffic on our networks or decisions by our roaming partners to no longer roam on our networks or to continue to expand their networks in areas where we operate.

 

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

 

International wireless revenue increased by $1.5 million, or 7.4%  to $21.8  million for the three months ended June 30, 2013, from $20.3 million for the three months ended June 30, 2012. International Wireless revenue increased as a result of subscriber and other retail growth and roaming revenues within the Island Wireless segment.  International wireless subscribers rose from 325,000 as of June 30, 2012 to 333,000 as of June 30, 2013 of which 88% were prepaid subscribers.

 

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

 

Wireline revenue.   Wireline revenue is generated by our wireline operations in Guyana, including international telephone calls into and out of that country, our integrated voice and data and wholesale transport operations in New York and New England, as well as our wholesale long-distance voice services operation. This revenue includes basic service fees, measured service revenue, and internet access fees, as well as installation charges for new lines, monthly line rental charges, long distance or toll charges, maintenance and equipment sales.

 

Wireline revenue decreased by $0.2 million, or 0.9%, to $20.9 million for the three months ended June 30, 2013, from $21.1 million in the prior year period. Reductions in revenue from our local calling and international long services businesses in Guyana were partially offset by the growth in data revenue in Guyana and an increase in our wholesale long-distance voice services operation.

 

If we cease to be the exclusive provider of domestic fixed and international long distance services in Guyana, whether by reason of the Government of Guyana enacting legislation to such effect or a modification, revocation or lack of enforcement of our exclusive rights, we anticipate that wireline revenue from our international long distance business in Guyana will be negatively impacted, principally through the loss of market share and rate changes.  We cannot predict when or if the Government of Guyana will enact such legislation or take, or fail to take, any action that would otherwise affect our exclusive rights in Guyana.  Any loss of our exclusive rights will likely cause an immediate reduction in our wireline revenue, however, such pressure on our wireline revenue may be eventually offset by increased revenue from data services to consumers and enterprises in Guyana and wholesale transport services and large enterprise and agency sales in the United States.

 

Revenues from our integrated voice and data and wholesale transport operations in New England were relatively unchanged between the three months ending June 30, 2012 and 2013.  We are in the process of expanding our fiber networks in New York and Vermont and as of June 30, 2013 have received or will receive $24.5 million of the $24.7 million New York-based stimulus grant awarded to us in late 2009 and have received or will receive $24.0 million of the $33.0 million stimulus grant in connection with the expansion of our fiber network in Vermont. We expect to receive the remaining grant funds and complete the construction of these expansions by the end of 2013.

 

Equipment and other revenue.   Equipment and other revenue represent revenue from wireless equipment sales, primarily handsets to retail customers, and other miscellaneous revenue items.

 

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Table of Contents

 

Equipment and other revenue increased by $1.0 million, or 11.6% to $9.6 million for the three months ended June 30, 2013, from $8.6 million for the three months ended June 30, 2012. Equipment revenue increased as the result of an increase in the demand for more expensive smartphone handset devices, including Alltel’s launch of iPhone sales in 2013.

 

We believe that equipment and other revenue will continue to increase in coming quarters. This revenue is primarily driven by the level of gross subscriber additions and device upgrades, and as such will be affected by the success of our sales efforts, including device subsidies, and the number of customers eligible for subsidized device upgrades in the period.

 

Termination and access fee expenses.   Termination and access fee expenses are charges that we pay for voice and data transport circuits (in particular, the circuits between our wireless sites and our switches), internet capacity and other access fees we pay to terminate our calls, as well as customer bad debt expense.

 

Termination and access fees decreased by $6.1 million, or 15.6% from $39.0 million for the three months ended June 30, 2012 to $32.9 million for the three months ended June 30, 2013.  The decrease was primarily the result of a reduction in roaming expenses partially offset by an increase in data usage volume which increases backhaul costs. Termination and access fees may increase in future periods with expected growth in data volume and the expansion of our networks, but we expect these fees to remain fairly proportionate to their related revenue.

 

Engineering and operations expenses.   Engineering and operations expenses include the expenses associated with developing, operating and supporting our expanding networks, including the salaries and benefits paid to employees directly involved in the development and operation of our networks.

 

Engineering and operations expenses decreased by $0.7 million, or 3.1%, from $22.5 million for the three months ended June 30, 2012 to $21.8 million for the three months ended June 30, 2013, primarily as a result of the realization of network cost  synergies following our 2011 merger in Bermuda.

 

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

 

Sales, marketing and customer service expenses.   Sales, marketing and customer service 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, marketing and customer service expenses decreased by $2.4 million, or 7.7% from $31.0 million for the three months ended June 30, 2012 to $28.6 million for the three months ended June 30, 2013 as a result of a reduction, primarily in Guyana, in advertising and promotional costs as well as lower customer care costs as compared to 2012.

 

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

 

Equipment expenses.   Equipment expenses primarily consists of the costs of our handset and customer resale equipment at our retail wireless businesses.

 

Equipment expenses increased by $2.0 million, or 8.9% from $22.4 million for the three months ended June 30, 2012 to $24.4 million for the three months ended June 30, 2013.  The increase in equipment expenses is the result of increased demand for more expensive smartphone handset devices.  The addition of more expensive handsets to our device lineup, such as the iPhone which we began selling at the end of the first quarter of 2013, could cause the equipment expenses to increase significantly in coming quarters.  We may also choose to increase device subsidies to attract and retain customers.

 

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Table of Contents

 

General and administrative expenses.   General and administrative expenses include salaries, benefits and related costs for general corporate functions including executive management, finance and administration, legal and regulatory, facilities, information technology and human resources. General and administrative expenses also include internal costs associated with our performance of due-diligence on our pending or recently completed acquisitions.

 

General and administrative expenses increased by $0.5 million, or 2.4%, from $21.0 million for the three months ended June 30, 2012 to $21.5 million for the three months ended June 30, 2013 primarily as a result of an increase in corporate overhead expenses. We expect that these general and administrative expenses will remain fairly consistent as a percentage of revenues in future periods.

 

Transaction-related charges.   Transaction-related charges include the external costs, such as legal, 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 any transactions or any integration-related costs.

 

For the three months ended June 30, 2012, we did not incur any transaction-related charges and we incurred $0.3 million for the three months ended June 30, 2013. We expect that transaction-related expenses will continue to be incurred as we continue to explore additional acquisition and investment opportunities.

 

Depreciation and amortization expenses.   Depreciation and amortization expenses represent the depreciation and amortization charges we record on our property and equipment and on certain intangible assets.

 

Depreciation and amortization expenses decreased by $1.1 million, or 4.1%, from $26.6 million for the three months ended June 30, 2012 to $25.5 million for the three months ended June 30, 2013. The decrease is primarily due to the sale of certain network assets in our U.S. Wireless segment in late 2012 as well as certain assets in our Island Wireless segment becoming fully depreciated.

 

We expect depreciation expense on our tangible assets to continue to increase as a result of ongoing network investments in our businesses. Such increase, however, will be partially offset by a future decrease in the amortization of our intangible assets, which are being amortized using an accelerated amortization method, as well as certain network assets becoming fully depreciated.

 

Interest expense.   Interest expense represents interest incurred on our outstanding credit facilities including our interest rate swaps.

 

Interest expense decreased from $4.0 million for the three months ended June 30, 2012 to $2.8 million for the three months ended June 30, 2013. The decrease was the result of a reduction in our outstanding debt and a decrease in applicable margins effective with the amendment to our credit facilities on May 18, 2012. As of June 30, 2013, we had $268.2 million in outstanding debt as compared to $279.9 million as of June 30, 2012.

 

Interest income.   Interest income represents interest earned on our cash and cash equivalents.  Interest income was $0.1 million for the three months ended June 30, 2012 and 2013 as interest rates earned on our cash balances remained low.

 

Equity in earnings of an unconsolidated affiliate.   Equity in earnings of an unconsolidated affiliate is related to a minority-owned investment in our U.S. Wireless segment and was $0.9 million for the three months ended June 30, 2012 as compared to $0.4 million for the three months ended June 30, 2013.

 

Other income (expense), net.   Other income (expense), net represents miscellaneous non-operational income we earned or expenses we incurred. Other income (expense), net was an expense of $0.3 million for the three months ended June 30, 2012 and income of $0.3 million for the three months ended June 30, 2013.

 

Income taxes.   Our effective tax rates for the three months ended June 30, 2012 and 2013 were 40% and 37%, respectively. Our effective tax rate declined in 2013 as the result of increased income in lower taxed jurisdictions, such as Bermuda, as compared to 2012.  Our effective tax rate in 2012 was higher than the statutory federal income tax rate of 35% (plus applicable statutory state income tax rates) due primarily to (i) the portion of our earnings that are taxed in Guyana at 45%, and (ii) a portion of our earnings that include losses generated in foreign jurisdictions for which we receive no tax benefit since these are non-tax jurisdictions.  Our consolidated tax rate will continue to be impacted by the mix of income generated among the jurisdictions in which we operate.

 

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Table of Contents

 

Net income attributable to non-controlling interests.  Net income attributable to non-controlling interests reflected an allocation of $1.2 million and $2.6 million of income generated by our less than wholly-owned subsidiaries for the three months ended June 30, 2012 and 2013, respectively

 

Net income attributable to Atlantic Tele-Network, Inc. stockholders.   Net income attributable to Atlantic Tele-Network, Inc. stockholders decreased to $8.9 million for the three months ended June 30, 2013 from $10.5 million for the three months ended June 30, 2012.  On a per share basis, net income decreased to $0.56 per diluted share from $0.67 per diluted share for the three months ended June 30, 2013 and 2012, respectively.

 

Six Months Ended June 30, 2012 and 2013

 

 

 

Six Months Ended
June 30,

 

Amount of
Increase

 

Percent
Increase

 

 

 

2012

 

2013

 

(Decrease)

 

(Decrease)

 

 

 

(In thousands)

 

REVENUE:

 

 

 

 

 

 

 

 

 

US Wireless:

 

 

 

 

 

 

 

 

 

Retail

 

$

170,686

 

$

162,015

 

$

(8,671

)

(5.1

)%

Wholesale

 

98,937

 

82,332

 

(16,605

)

(16.8

)

International Wireless

 

39,171

 

43,267

 

4,096

 

10.5

 

Wireline

 

42,804

 

41,441

 

(1,363

)

(3.2

)

Equipment and Other

 

16,985

 

18,885

 

1,900

 

11.2

 

Total revenue

 

368,583

 

347,940

 

(20,643

)

(5.6

)

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

Termination and access fees

 

79,536

 

67,093

 

(12,443

)

(15.6

)

Engineering and operations

 

44,434

 

43,932

 

(502

)

(1.1

)

Sales, marketing and customer service

 

63,031

 

58,114

 

(4,917

)

(7.8

)

Equipment expense

 

43,085

 

48,941

 

5,856

 

13.6

 

General and administrative

 

43,690

 

40,683

 

(3,007

)

(6.9

)

Transaction-related charges

 

5

 

1,092

 

1,087

 

21,740

 

Depreciation and amortization

 

53,606

 

51,255

 

(2,351

)

(4.4

)

Gain on disposition of long lived assets

 

 

(1,076

)

(1,076

)

 

Total operating expenses

 

327,387

 

310,034

 

(17,353

)

(5.3

)

Income from operations

 

41,196

 

37,906

 

(3,290

)

(8.0

)

OTHER INCOME (EXPENSE):

 

 

 

 

 

 

 

 

 

Interest expense

 

(7,968

)

(5,174

)

2,794

 

35.1

 

Interest income

 

186

 

172

 

(14

)

(7.5

)

Equity in earnings of unconsolidated affiliate

 

2,331

 

976

 

(1,355

)

(58.1

)

Other income, net

 

(282

)

536

 

818

 

290.1

 

Other income (expense), net