ATN International, Inc.
ATN International, Inc. (Form: 10-Q, Received: 05/09/2017 16:41:45)

Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

Form 10-Q

 

 

 

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

 

For the quarterly period ended March 31, 2017

 

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

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification Number)

 

500 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  ☒  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 ☐

(Do not check if a smaller reporting company)

 

Emerging growth company ☐

 

If 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 May 9, 2017, the registrant had outstanding 16,191,297 shares of its common stock ($.01 par value).

 

 

 


 

Table of Contents

ATN INTERNATIONAL, INC.

FORM 10-Q

 

Quarter Ended March 31, 2017

 

 

 

 

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 March 31, 2017 and December 31, 2016  

4

 

 

 

 

Condensed Consolidated Income Statements for the Three Ended March 31, 2017 and 2016

5

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2017 and 2016

6

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2017 and 2016

7

 

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

8

 

 

 

Item 2  

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

27-48

 

 

 

Item 3  

Quantitative and Qualitative Disclosures About Market Risk

48

 

 

 

Item 4  

Controls and Procedures

49

 

 

 

PART II—OTHER INFORMATION  

50

 

 

 

Item 1  

Legal Proceedings

50

 

 

 

Item1A  

Risk Factors

50

 

 

 

Item 2  

Unregistered Sales of Equity Securities and Use of Proceeds

50

 

 

 

Item 6  

Exhibits

51

 

 

 

SIGNATURES  

52

 

 

 

CERTIFICATIONS

 

 

 

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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 regulatory matters; changes to governmental regulations and laws affecting our business; 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; our recent acquisitions; 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 operate our newly acquired businesses in Bermuda and the U.S. Virgin Islands and integrate these operations into our existing operations; (2) the general performance of our operations, including operating margins, revenues, and the future growth and retention of our major customers and subscriber base and consumer demand for solar power; (3) government regulation of our businesses, which may impact our FCC and other telecommunications licenses or our renewables business; (4) economic, political and other risks facing our operations; (5) our ability to maintain favorable roaming arrangements; (6) our ability to efficiently and cost-effectively upgrade our networks and information technology (“IT”) platforms to address rapid and significant technological changes in the telecommunications industry; (7) the loss of or an inability to recruit skilled personnel in our various jurisdictions, including key members of management; (8) our ability to find investment or acquisition or disposition opportunities that fit our strategic goals for the Company; (9) increased competition; (10) our ability to operate and expand our renewable energy business; (11) our reliance on a limited number of key suppliers and vendors for timely supply of equipment and services relating to our network infrastructure; (12) the adequacy and expansion capabilities of our network capacity and customer service system to support our customer growth; (13) the occurrence of weather events and natural catastrophes; (14) our continued access to capital and credit markets;  (15) the risk of currency fluctuation for those markets in which we operate; and (16) 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" herein and in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, filed with the SEC on March 1, 2017, and the other reports we file from time to time with the SEC.  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. dollars unless otherwise specifically indicated.

 

 

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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)

 

 

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31, 

 

 

    

2017

    

2016

    

ASSETS

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

265,537

 

$

269,721

 

Restricted cash

 

 

714

 

 

524

 

Short-term investments

 

 

8,711

 

 

9,237

 

Accounts receivable, net of allowances of $13.5 million and $13.1 million, respectively

 

 

48,485

 

 

45,419

 

Materials and supplies

 

 

15,414

 

 

14,365

 

Prepayments and other current assets

 

 

37,769

 

 

28,103

 

Total current assets

 

 

376,630

 

 

367,369

 

Fixed Assets:

 

 

 

 

 

 

 

Property, plant and equipment

 

 

1,123,993

 

 

1,138,362

 

Less accumulated depreciation

 

 

(484,770)

 

 

(490,650)

 

Net fixed assets

 

 

639,223

 

 

647,712

 

Telecommunication licenses, net

 

 

48,260

 

 

48,291

 

Goodwill

 

 

62,873

 

 

62,873

 

Customer relationships, net

 

 

13,949

 

 

15,029

 

Restricted cash

 

 

16,153

 

 

18,113

 

Other assets

 

 

36,312

 

 

38,831

 

Total assets

 

$

1,193,400

 

$

1,198,218

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

12,529

 

$

12,440

 

Accounts payable and accrued liabilities

 

 

104,433

 

 

92,708

 

Dividends payable

 

 

5,505

 

 

5,487

 

Accrued taxes

 

 

22,099

 

 

13,531

 

Advance payments and deposits

 

 

16,986

 

 

25,529

 

Other current liabilities

 

 

273

 

 

410

 

Total current liabilities

 

 

161,825

 

 

150,105

 

Deferred income taxes

 

 

46,146

 

 

46,622

 

Other liabilities

 

 

31,606

 

 

47,939

 

Long-term debt, excluding current portion

 

 

139,870

 

 

144,383

 

Total liabilities

 

 

379,447

 

 

389,049

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

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; 17,057,056 and 16,971,634 shares issued, respectively, and 16,190,995 and 16,138,983 shares outstanding respectively

 

 

169

 

 

169

 

Treasury stock, at cost; 866,061 and 832,652 shares, respectively

 

 

(25,343)

 

 

(23,127)

 

Additional paid-in capital

 

 

161,568

 

 

160,176

 

Retained earnings

 

 

539,288

 

 

538,109

 

Accumulated other comprehensive income

 

 

3,871

 

 

1,728

 

Total ATN International, Inc. stockholders’ equity

 

 

679,553

 

 

677,055

 

Non-controlling interests

 

 

134,400

 

 

132,114

 

Total equity

 

 

813,953

 

 

809,169

 

Total liabilities and equity

 

$

1,193,400

 

$

1,198,218

 

 

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

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ATN INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED INCOME STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016

(Unaudited)

(In thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

Three months ended  March 31, 

 

 

    

2017

    

2016

 

REVENUE:

 

 

 

 

 

 

 

Wireless

 

$

56,230

 

$

58,878

 

Wireline

 

 

63,800

 

 

22,445

 

Renewable energy

 

 

4,900

 

 

5,589

 

Equipment and other

 

 

3,185

 

 

2,774

 

Total revenue

 

 

128,115

 

 

89,686

 

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

 

 

 

 

 

 

 

Termination and access fees

 

 

30,458

 

 

19,717

 

Engineering and operations

 

 

19,667

 

 

10,510

 

Sales and marketing

 

 

9,021

 

 

5,756

 

Equipment expense

 

 

2,545

 

 

3,229

 

General and administrative

 

 

24,349

 

 

16,372

 

Transaction-related charges

 

 

677

 

 

3,655

 

Depreciation and amortization

 

 

22,494

 

 

14,554

 

Loss on disposition of long-lived assets

 

 

1,111

 

 

 —

 

Total operating expenses

 

 

110,322

 

 

73,793

 

Income from operations

 

 

17,793

 

 

15,893

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

Interest income

 

 

286

 

 

348

 

Interest expense

 

 

(2,316)

 

 

(826)

 

Loss on deconsolidation of subsidiary

 

 

(529)

 

 

 —

 

Other (expense) income, net

 

 

(522)

 

 

14

 

Other expense, net

 

 

(3,081)

 

 

(464)

 

INCOME BEFORE INCOME TAXES

 

 

14,712

 

 

15,429

 

Income taxes

 

 

3,128

 

 

4,631

 

NET INCOME

 

 

11,584

 

 

10,798

 

Net income attributable to non-controlling interests, net of tax expense (benefit) of $ 0.3 million and $(0.1) million , respectively.

 

 

(4,725)

 

 

(4,678)

 

NET INCOME ATTRIBUTABLE TO ATN INTERNATIONAL, INC. STOCKHOLDERS

 

$

6,859

 

$

6,120

 

NET INCOME PER WEIGHTED AVERAGE SHARE ATTRIBUTABLE TO ATN INTERNATIONAL, INC. STOCKHOLDERS:

 

 

 

 

 

 

 

Basic

 

$

0.42

 

$

0.38

 

Diluted

 

$

0.42

 

$

0.38

 

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:

 

 

 

 

 

 

 

Basic

 

 

16,157

 

 

16,092

 

Diluted

 

 

16,246

 

 

16,198

 

DIVIDENDS PER SHARE APPLICABLE TO COMMON STOCK

 

$

0.34

 

$

0.32

 

 

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

 

 

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ATN INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016

(Unaudited)

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
March 31, 

 

2017

    

2016

Net income

$

11,584

 

$

10,798

Other comprehensive income:

 

 

 

 

 

Foreign currency translation adjustment

 

1,930

 

 

 3

Reclassifications of gains on sale of marketable securities to net income

 

(289)

 

 

 —

Unrealized loss on marketable securities

 

(41)

 

 

 —

Projected pension benefit obligation

 

513

 

 

 —

Other comprehensive income, net of tax

 

2,113

 

 

 3

Comprehensive income

 

13,697

 

 

10,801

Less: Comprehensive income attributable to non-controlling interests

 

(4,725)

 

 

(4,678)

Comprehensive income attributable to ATN International, Inc.

$

8,972

 

$

6,123

 

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

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ATN INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016

(Unaudited)

(In thousands)

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

2017

    

2016

Cash flows from operating activities:

 

 

 

 

 

Net income

$

11,584

 

$

10,798

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

 

 

 

 

 

Depreciation and amortization

 

22,494

 

 

14,554

Provision for doubtful accounts

 

854

 

 

71

Amortization and write off of debt discount and debt issuance costs

 

112

 

 

118

Stock-based compensation

 

1,666

 

 

1,728

Loss on disposition of long-lived assets

 

1,111

 

 

 —

Loss on deconsolidation of subsidiary

 

529

 

 

 —

Other non-cash activity

 

375

 

 

 —

Changes in operating assets and liabilities, excluding the effects of acquisitions and dispositions:

 

 

 

 

 

Accounts receivable

 

(5,860)

 

 

(9,794)

Materials and supplies, prepayments, and other current assets

 

(1,789)

 

 

(1,425)

Prepaid income taxes

 

995

 

 

 —

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

 

(14,465)

 

 

1,652

Accrued taxes

 

4,341

 

 

4,363

Other assets

 

2,033

 

 

(2,022)

Other liabilities

 

8,109

 

 

8,286

Net cash provided by operating activities

 

32,089

 

 

28,329

Cash flows from investing activities:

 

 

 

 

 

Capital expenditures

 

(45,702)

 

 

(16,445)

Purchase of marketable securities

 

 —

 

 

(2,000)

Divestiture of businesses,  net of transferred cash $2.1 million

 

22,597

 

 

 —

Sale of short-term investments

 

484

 

 

 —

Change in restricted cash

 

1,769

 

 

653

Net cash used in investing activities

 

(20,852)

 

 

(17,792)

Cash flows from financing activities:

 

 

 

 

 

Dividends paid on common stock

 

(5,487)

 

 

(5,145)

Distribution to non-controlling stockholders

 

(2,828)

 

 

(3,036)

Proceeds from stock option exercises

 

 —

 

 

165

Principal repayments of term loan

 

(4,442)

 

 

(1,535)

Purchase of common stock

 

(2,121)

 

 

(1,929)

Repurchases of non-controlling interests

 

(819)

 

 

 —

Investments made by minority shareholders in consolidated affiliates

 

69

 

 

 —

Net cash used in financing activities

 

(15,628)

 

 

(11,480)

Effect of foreign currency exchange rates on cash and cash equivalents

 

207

 

 

 —

Net change in cash and cash equivalents

 

(4,184)

 

 

(943)

Cash and cash equivalents, beginning of period

 

269,721

 

 

392,045

Cash and cash equivalents, end of period

$

265,537

 

$

391,102

 

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

 

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ATN INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1. ORGANIZATION AND BUSINESS OPERATIONS

 

The Company is a holding company that, through our operating subsidiaries, (i) provides wireless and wireline telecommunications services in North America, Bermuda and the Caribbean, (ii) develops, owns and operates commercial distributed generation solar power systems in the United States and India, and (iii) owns and operates terrestrial and submarine fiber optic transport systems in the United States and the Caribbean. The Company was incorporated in Delaware in 1987 and began trading publicly in 1991. Since that time, The Company has engaged in strategic acquisitions and investments to grow our operations. The Company continues to actively evaluate additional domestic and international acquisition, divestiture, and investment opportunities and other strategic transactions in the telecommunications, energy-related and other industries that meet our return-on-investment and other acquisition criteria.

The Company offers the following principal services:

 

·

Wireless.  In the United States, 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, and in other smaller markets in the Caribbean and the United States.

 

·

Wireline.  The Company’s wireline services include local telephone and data services in Bermuda, Guyana, the U.S. Virgin Islands, and in other smaller markets in the Caribbean and the United States.  The Company’s wireline services also include video services in Bermuda and the U.S Virgin Islands.  Through March 8, 2017, the Company also offered facilities‑based integrated voice and data communications services and wholesale transport services to enterprise and residential customers in New England, primarily Vermont, and in New York State. In addition, the Company offers wholesale long‑distance voice services to telecommunications carriers.

·

Renewable Energy.   In the United States, the Company provides distributed generation solar power to corporate, utility and municipal customers. Beginning in April 2016, the Company began developing projects in India to provide distributed generation solar power to corporate and utility customers.  The Company began to generate revenue from the India project during the three months ended March 31, 2017.

 

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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 March 31, 2017:

 

 

 

 

 

 

 

 

 

Segment

   

Services

   

Markets

   

Tradenames

 

U.S. Telecom

 

Wireless

 

United States (rural markets)

 

Commnet, Choice, Choice NTUA Wireless

 

 

 

Wireline

 

United States

 

Essextel

 

International Telecom

 

Wireline

 

Bermuda, Guyana, U.S. Virgin Islands

 

GTT+, One, Innovative (now Viya), Logic

 

 

 

Wireless

 

Bermuda, Guyana, U.S. Virgin Islands

 

One, GTT+, Innovative (now Viya), Choice (now Viya)

 

 

 

Video Services

 

Bermuda, U.S. Virgin Islands, Cayman Islands, British Virgin Islands

 

One, Innovative (now Viya), Logic, BVI Cable TV

 

Renewable   Energy

 

Solar

 

United States (Massachusetts, California, and New Jersey), India

 

Ahana Renewables, Vibrant Energy

 

 

The Company actively evaluates potential acquisitions, investment opportunities and other strategic transactions, both domestic and international, that meet its return on investment and other criteria. 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 are eliminated in consolidation.

 

 

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, 2016, filed with the SEC on March 1, 2017.

 

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

 

Certain reclassifications have been made in the prior period financial statements to conform the Company’s consolidated income statements to how management analyzes its operations in the current period.  The changes did not impact operating income.  For the three months ended March 31, 2016 the aggregate impact of the changes included a decrease to termination and access fees of $1.2 million, an increase to engineering and operations expenses of $0.7 million, an increase to sales and marketing expenses of $0.6 million and a decrease to general and administrative expenses of $0.1 million.

 

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The Company’s effective tax rate for the three months ended March 31, 2017 and 2016 was 21.3% and 30.0%, respectively.  The effective tax rate for the three months ended March 31, 2017 was primarily impacted by the following items (i) an approximate 7.2% benefit for the net capital loss due to the stock sales of the Company’s businesses in New England, New York and St. Maarten, and (ii) the mix of income generated among the jurisdictions in which it operates.  The effective tax rate for the three months ended March 31, 2016 was primarily impacted by the mix of income generated among the jurisdictions in which it 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 the mix of income generated among the jurisdictions in which it operates.

 

Recent Accounting Pronouncements

 

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers”, 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 standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. On July 9, 2015, the FASB approved the deferral of the new standard's effective date by one year. The new standard is now effective for annual reporting periods beginning after December 15, 2017. The FASB will permit companies to adopt the new standard early, but not before the original effective date of annual reporting periods beginning after December 15, 2016.  In March 2016, the FASB issued ASU 2016-08, “Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net).”  In April 2016, the FASB issued ASU 2016-10, “Identifying Performance Obligations and Licensing.”  In May 2016, the FASB issued ASU 2016-12, “Narrow-Scope Improvements and Practical Expedients.”  In December 2016, the FASB issued Accounting Standards Update 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers.”  These updates provide additional adoption guidance and clarification to ASU 2014-09.  The amendments must be adopted concurrently. The Company is currently evaluating the overall impact and the method of adoption of ASU 2014-09, including the latest developments from the Transition Resources Group. Areas most likely impacted may include, but not be limited to, the following: the timing of revenue recognition and the allocation of revenue between equipment and services, In addition, the new standard may require certain amounts be recorded in accounts receivable and deferred revenues on the balance sheet and enhanced disclosures around performance obligations. The Company does not currently know or cannot reasonably estimate quantitative information related to the impact of the new standard on our Consolidated Financial Statements.  The Company will adopt the standard on January 1, 2018.  Preliminarily, the Company plans to use the modified retrospective adoption method which requires it to apply the standard only to the most current period presented with the cumulative effect of applying the standard being recognized at the adoption date.

 

 In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements - Going Concern (Subtopic 205-40),” which requires management to assess a company’s ability to continue as a going concern and to provide related footnote disclosures in certain circumstances. ASU 2014-15 is effective for annual reporting periods ending after December 15, 2016. Early application is permitted. The Company adopted this guidance for the fourth quarter ended December 31, 2016. The adoption of this guidance did not impact The Company’s Consolidated Financial Statements.

 

In April 2015, the FASB issued ASU 2015-05, “Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement”, which provides guidance about whether a cloud computing arrangement includes software and how to account for that software license.  The new guidance does not change the accounting for a customer’s accounting for service contracts.  The adoption of ASU 2015-05 by the Company on January 1, 2017 did not have a material impact on the Company’s financial position, result of operations or cash flows.

 

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”, which provides 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 become effective for fiscal years, and

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interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted.  The Company is currently evaluating the impact of the new guidance on its Consolidated Financial Statements.

 

In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”. The standard is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. The Company adopted ASU 2016-09 on January 1, 2017. The guidance requires the recognition of the income tax effects of awards in the income statement when the awards vest or are settled, thus eliminating additional paid-in capital pools. This had no impact on the Company’s historical results. Also as a result of the adoption, the Company changed its policy election to account for forfeitures as they occur rather than on an estimated basis. The change resulted in the Company reclassifying $0.3 million from additional paid-in capital to retained earnings for the net cumulative-effect adjustment in stock compensation expense related to prior periods.

 

In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 standard further clarifies the classification of the following: (i) debt prepayment or debt extinguishment costs; (ii) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; (iii) contingent consideration payments made after a business combination; (iv) proceeds from the settlement of insurance claims; (v) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (vi) distributions received from equity method investees; (vii) beneficial interests in securitization transactions; and (viii) separately identifiable cash flows and application of the predominance principle. ASU 2016-15 will become effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. ASU 2016-15 should be applied using a retrospective transition method for each period presented. The Company is currently evaluating the impact of the new standard on its Consolidated Financial Statements.

 

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 for 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 will be effective for the Company on January 1, 2018. The Company is currently evaluating the potential impact that this standard may have on its results of operations.

 

In November 2016, the FASB issued Accounting Standards Update 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash,” or 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 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. ASU 2016-18 is effective for annual reporting periods, including interim periods within those periods, beginning after December 15, 2017, with early adoption permitted. The Company is currently evaluation the potential impact that this standard may have on its Consolidated Financial Statements.

 

In January 2017, the FASB issued Accounting Standards Update 2017-01,  “Business Combinations (Topic 805): Clarifying the Definition of a Business,”  or ASU 2017-01. The amendments in ASU 2017-01 provide a screen to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. Under ASU 2017-01, an entity first determines whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold is met, the set is not a business. If it’s not met, the entity then evaluates whether the set meets the requirement that a business include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. ASU 2017-01 also narrows the definition of outputs by more closely aligning it with how outputs are described in ASC 606. ASU 2017-01 is effective for annual reporting periods, including interim periods within those periods,

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beginning after December 15, 2017, with early adoption permitted. The Company prospectively adopted ASU 2017-01 in the fourth quarter of 2016.  The standard will result in its accounting for more transactions as asset acquisitions as opposed to business combination.

 

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 is currently evaluating the potential impact that this standard may have on its 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 business combinations, fair value of indefinite-lived intangible assets, goodwill and income taxes. Actual results could differ significantly from those estimates.

 

4. ACQUISITIONS AND DISPOSITIONS

 

International Telecom

 

One Communications (formerly KeyTech Limited)

 

On May 3, 2016, the Company completed our acquisition of a controlling interest in KeyTech Limited (“KeyTech”), a publicly held Bermuda company listed on the Bermuda Stock Exchange (“BSX”) that provides broadband and video services and other telecommunications services to residential and enterprise customers under the “Logic” name in Bermuda and the Cayman Islands.   Subsequent to the completion of our acquisition of KeyTech, KeyTech changed its legal name to One Communications Ltd. and changed its “CellOne” and “Logic” trade names in Bermuda to One Communications (“One Communications”).   Prior to our acquisition, One Communications also owned a minority interest of approximately 43% in the Company’s consolidated subsidiary, Bermuda Digital Communications Ltd. (“BDC”), which provides wireless services in Bermuda. As part of the transaction, the Company contributed its ownership interest of approximately 43% in BDC and approximately $42 million in cash in exchange for a 51% ownership interest in One Communications. As part of the transaction, BDC was merged with and into a company within the One Communications group and the approximate 15% interest in BDC held, in the aggregate, by BDC’s minority shareholders was converted into the right to receive common shares in One Communications. Following the transaction, BDC became wholly owned by One Communications, and One Communications continues to be listed on the BSX. A portion of the cash proceeds that One Communications received upon closing was used to fund a one-time special dividend to One Communications’ existing shareholders and to retire One Communications subordinated debt. On May 3, 2016, the Company began consolidating the results of One Communications within our financial statements in our International Telecom segment.

 

The One Communications Acquisition was accounted for as a business combination of a controlling interest in One Communications in accordance with ASC 805, Business Combinations , and the acquisition of an incremental ownership interest in BDC in accordance with ASC 810,  Consolidation .  The total purchase consideration of $41.6

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million of cash was allocated to the assets acquired and liabilities assumed at their estimated fair values as of the date of the acquisition. 

 

 

 

 

 

Consideration Transferred

 

 

Cash consideration - One Communications

$ 34,518

 

Cash consideration - BDC

7,045

 

Total consideration transferred

41,563

 

Non-controlling interests - One Communications

32,909

 

Total value to allocate

$ 74,472

 

Value to allocate - One Communications

67,427

 

Value to allocate - BDC

7,045

 

 

 

 

Purchase price allocation One Communications:

 

 

Cash

8,185

 

Accounts receivable

6,451

 

Other current assets

3,241

 

Property, plant and equipment

100,892

 

Identifiable intangible assets

10,590

 

Other long term assets

3,464

 

Accounts payable and accrued liabilities

(16,051)

 

Advance payments and deposits

(6,683)

 

Current debt

(6,429)

 

Long term debt

(28,929)

 

Net assets acquired

74,731

 

 

 

 

Gain on One Communications bargain purchase

$ 7,304

 

 

 

 

Purchase price allocation BDC:

 

 

Carrying value of BDC non-controlling interest acquired

2,940

 

 

 

 

Excess of purchase price paid over carrying value of non-controlling interest acquired

$ 4,105

 

 

 

The acquired property, plant and equipment is comprised of telecommunication equipment located in Bermuda and the Cayman Islands.   The property, plant and equipment was valued using the income and cost approaches.  Cash flows were discounted at approximately 15% rate to determine fair value under the income approach.  The property, plant and equipment have useful lives ranging from 3 to 18 years and the customer relationships acquired have useful lives ranging from 9 to 12 years.  The fair value of the non-controlling interest was determined using the income approach and a discount rate of approximately 15%.  The acquired receivables consist of trade receivables incurred in the ordinary course of business.  The Company has collected the full amount of the receivables.

 

The purchase price and resulting bargain purchase gain are the result of the market conditions and competitive environment in which One Communications operates along with the Company's strategic position and resources in those same markets.  Each of the Company and One Communications realized that their combined resources could better serve customers in Bermuda.  The bargain purchase gain is included in operating income for the year ended December 31, 2016. 

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Viya (formerly Innovative)

 

On July 1, 2016, the Company completed its acquisition of all of the membership interests of Caribbean Asset Holdings LLC (“CAH”), the holding company for the group of companies operating video services, Internet, wireless and landline services in the U.S. Virgin Islands, British Virgin Islands and through January 2017, St. Maarten (collectively, “Viya”), from the National Rural Utilities Cooperative Finance Corporation (“CFC”).  In April 2017, the U.S. Virgin Islands operations and the Company’s existing wireless operations rebranded their tradenames from “Innovative” and “Choice”, respectively, to “Viya.” The Company acquired the Viya operations for a contractual purchase price of $145.0 million, reduced by purchase price adjustments of $5.3 million (the “Viya Transaction”).  In connection with the transaction, the Company financed $60.0 million of the purchase price with a loan from an affiliate of CFC, the Rural Telephone Finance Cooperative (“RTFC”) on the terms and conditions of a Loan Agreement by and among RTFC, CAH and ATN VI Holdings, LLC, the parent entity of CAH and a wholly-owned subsidiary of the Company.  The Company funded the remaining purchase price with (i) $51.9 million in cash paid to CFC, (ii) $22.5 million in additional cash paid directly to fund Viya’ s pension in the fourth quarter of 2016, and (iii) $5.3 million recorded as restricted cash to satisfy Viya’ s other postretirement benefit plans.  On July 1, 2016, the Company began consolidating the results of Viya within its financial statements in its International Telecom segment.

 

The Viya Transaction was accounted as a business combination in accordance with ASC 805.  The consideration transferred to CFC of $111.9 million, and used for the purchase price allocation, differed from the contractual purchase price of $145.0 million due to certain GAAP purchase price adjustments including a reduction of $5.3 million related to working capital adjustments and the Company assuming pension and other postretirement benefit liabilities of $27.8 million as discussed above.  The Company transferred $51.9 million in cash and $60.0 million in loan proceeds to CFC for total consideration of $111.9 million that was allocated to the assets acquired and liabilities assumed at their estimated fair values as of the date of the acquisition.  The table below represents the allocation of the consideration transferred to the net assets of Viya based on their acquisition date fair values:

 

 

 

 

Consideration Transferred

$ 111,860

 

Non-controlling interests

221

 

Total value to allocate

112,081

 

 

 

 

Purchase price allocation:

 

 

Cash

4,229

 

Accounts receivable

6,553

 

Materials & supplies

6,533

 

Other current assets

1,927

 

Property, plant and equipment

108,284

 

Telecommunication licenses

7,623

 

Goodwill

20,586

 

Intangible assets

7,800

 

Other Assets

4,394

 

Accounts payable and accrued liabilities

(15,971)

 

Advance payments and deposits

(7,793)

 

Deferred tax liability

(2,935)

 

Pension and other postretirement benefit liabilities

(29,149)

 

Net assets acquired

$ 112,081

 

 

The acquired property, plant and equipment is comprised of telecommunication equipment located in the U.S Virgin Islands, British Virgin Islands and St. Maarten.  The property, plant and equipment was valued using the income and cost approaches.  Cash flows were discounted between 14% and 25% based on the risk associated with the cash flows to determine fair value under the income approach.  The property, plant and equipment have useful lives ranging

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from 1 to 18 years and the customer relationships acquired have useful lives ranging from 7 to 13 years.  The fair value of the non-controlling interest was determined using the income approach with discount rates ranging from 15% to 25%.  The acquired receivables consist of trade receivables incurred in the ordinary course of business.  The Company has collected the full amount of the receivables. The Company recorded a liability equal to the funded status of the plans in its purchase price allocation.  Discount rates between 3.6% and 3.9% were used to determine the benefit obligation. 

 

The goodwill generated from the Viya Transaction is primarily related to value placed on the acquired employee workforces, service offerings, and capabilities of the acquired businesses as well as expected synergies from future combined operations.  The goodwill is not deductible for income tax purposes.

 

The Company acquired Viya’s pension and other postretirement benefit plans as part of the transaction.  The plans cover employees located in the U.S. Virgin Islands and consist of noncontributory defined benefit pension plans and noncontributory defined medical, dental, vision and life benefit plans.  As noted above, the contractual purchase price included an adjustment related to the funded status of Viya’s pension and other postretirement benefit plans.  As contemplated by the transaction, the Company contributed approximately $22.5 million during the fourth quarter of 2016 to Viya’s pension plans.  This payment is recorded as a cash outflow from operations in the statement of cash flows as of December 31, 2016.  At March 31, 2017, the Company held $5.1 million of restricted cash equal to the unfunded status of the other postretirement benefit plans.  The cash is restricted due to the Company’s intent to use the cash to satisfy future postretirement benefit obligations.

 

Disposition

 

On January 3, 2017, the Company completed the sale of the Viya cable operations located in St.Maarten for $4.8 million and recognized a gain of $0.1 million on the transaction. 

 

On December 15, 2016, the Company transferred control of its subsidiary in Aruba to another stockholder in a nonreciprocal transfer.  Subsequent to that date, it no longer consolidated the results of the operations of the Aruba business. The Company did not recognize a gain or loss on the transaction.

 

The results of the St Maarten and Aruba operations are not material to the Company’s historical results of operations. Since the dispositions do not relate to a strategic shift in our operations, the historical results and financial position of the operations are presented within continuing operations.

 

U.S. Telecom

 

Acquisition

 

In July 2016, the Company acquired certain telecommunications fixed assets and the associated operations located in the western United States.  The acquisition qualified as a business combination for accounting purposes.  The Company transferred $9.1 million of cash consideration in the acquisition.  The consideration transferred was allocated to $10.2 million of acquired fixed assets, $3.5 million of deferred tax liability, and $0.7 million to other net liabilities, resulting in goodwill of $3.1 million. Results of operations for the business are included in the U.S. Telecom segment and are not material to the Company’s historical results of operations. 

 

Disposition

 

On August 4, 2016, the Company entered into a stock purchase agreement to sell its integrated voice and data communications and wholesale transport businesses in New England (“Sovernet”) to an affiliate of funds managed by Oak Hill Capital Management, LLC (“Oak Hill”). On March 8, 2017, the Company completed the sale for consideration of $25.9 million.  The consideration includes $20.9 million of cash, $3.0 million of receivables, and $2.0 million of contingent consideration.  The $3.0 million of receivables are held in escrow to satisfy working capital adjustments in favor of Oak Hill, to fund certain capital expenditure projects related to the assets sold and 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 could be up to $4.0 million

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based on whether or not the operational milestones are achieved by December 31, 2017 (the “Sovernet Transaction”).  The table below identifies the assets and liabilities transferred (amounts in thousands):

 

 

 

 

 

 

 

Consideration Transferred

$ 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)

 

 

 

 

 

 

The Company repurchased non-controlling interests from Sovernet’s minority shareholders 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 $1.1 million of transaction related charges pertaining to legal, accounting and consulting services associated with the transaction, of which $0.5 million were incurred during the three months ended March 31, 2017.  Sovernet does not qualify as a discontinued operation because the disposition does not relate to a strategic shift in our operations.

 

Prior to the Sovernet Transaction, in the second quarter of 2016, the Company recorded an impairment loss of $11.1 million on assets related to Sovernet.  The impairment consisted of a $3.6 million impairment of property, plant and equipment and $7.5 million impairment of goodwill.

 

Pro forma Results

 

The following table reflects unaudited pro forma operating results of the Company for the three months ended March 31, 2016 as if the One Communications and Viya Transactions occurred on January 1, 2016.  The pro forma amounts adjust One Communications’ and Viya’s results to reflect the depreciation and amortization that would have been recorded assuming the fair value adjustments to property, plant and equipment and intangible assets had been applied from January 1, 2016.  Also, the pro forma results were adjusted to reflect changes to the acquired entities’ financial structure related to the transaction.  One Communications’ results reflect the retirement of $24.7 million of debt.  Viya’s results reflect the retirement of $185.8 million of debt and the addition of $60 million of purchase price debt.  Finally, ATN’s results were adjusted to reflect ATN’s incremental ownership in BDC.  The pro forma results were not adjusted for the Renewable Energy transaction because it was not material to the Company’s historical results. 

 

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The pro forma results for the three months ended March 31, 2016 include $4.3 million of impairment charges recorded by One Communications prior to ATN’s acquisition of the business.  Amounts are presented in thousands, except per share data.

 

 

 

 

 

 

 

 

 

 

 

Three months ended March 31,

 

(unaudited)

 

2016

 

 

 

As

 

As

 

 

 

Reported

 

Adjusted

 

Revenue

 

$

89,686

 

$

135,859

 

Net income attributable to ATN International, Inc. Stockholders

 

 

6,120

 

 

6,061

 

Earnings per share:

 

 

 

 

 

 

 

Basic

 

 

0.38

 

 

0.38

 

Diluted

 

 

0.38

 

 

0.37

 

 

 

The unaudited pro forma data is presented for illustrative purposes only and is not necessarily indicative of the operating resulted that would have occurred if the acquisitions had been consummated on these dates or of future operating results of the combined company following the transactions.  

 

Renewable Energy

 

Vibrant Energy

 

On April 7, 2016, the Company completed its acquisition of a solar power development portfolio in India from Armstrong Energy Global Limited (“Armstrong”), a well-known developer, builder, and owner of solar farms (the “Vibrant Energy Acquisition”). The business operates under the name Vibrant Energy.  The Company also retained several Armstrong employees in the UK and India who are employed by the Company to oversee the development, construction and operation of the India solar projects. The projects to be developed initially are located in the states of Andhra Pradesh and Telangana and are based on a commercial and industrial business model, similar to the Company’s existing renewable energy operations in the United States.  As of April 7, 2016, the Company began consolidating the results of Vibrant Energy in its financial statements within its Renewable Energy segment.

 

The Vibrant Energy Acquisition was accounted for as a business combination in accordance with ASC 805.  The total purchase consideration of $6.2 million was allocated to the assets acquired and liabilities assumed at their estimated fair values as of the date of the acquisition.  The table below represents the allocation of the consideration transferred to the net assets of Vibrant Energy based on their acquisition date fair values (in thousands):

 

 

 

Consideration Transferred

$ 6,193

 

 

 

 

Purchase price allocation:

 

Cash

$ 136

Prepayments and other assets

636

Property, plant and equipment

7,321

Goodwill

3,279

Accounts payable and accrued liabilities

(5,179)

Net assets acquired

$ 6,193

 

  The consideration transferred includes $3.5 million paid and $2.7 million payable at future dates, which is contingent upon the passage of time and achievement of initial production milestones which are considered probable.  The acquired property, plant and equipment is comprised of solar equipment and the accounts payable and accrued liabilities consists mainly of amounts payable for certain asset purchases.  The fair value of the property, plant, and

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equipment was based on recent acquisition costs for the assets, given their recent purchase dates from third parties.  The goodwill is not deductible for income tax purposes and primarily relates to the assembled workforce of the business acquired.

 

 

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 corporate obligations 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 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.

 

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Assets and liabilities of the Company measured at fair value on a recurring basis as of March 31, 2017 and December 31, 2016 are summarized as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 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

 

$

19,785

 

$

 —

 

$

19,785

 

Short term investments

 

$

1,259

 

$

7,452

 

$

8,711

 

Commercial Paper

 

$

 —

 

$

50,038

 

$

50,038

 

Total assets measured at fair value

 

$

21,044

 

$

57,881

 

$

78,925

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016

 

 

    

 

 

    

Significant Other

    

 

 

 

 

 

Quoted Prices in

 

Observable

 

 

 

 

 

 

Active Markets

 

Inputs

 

 

 

 

Description

 

(Level 1)

 

(Level 2)

 

Total

 

Certificates of deposit

 

$

 —

 

$

391

 

$

391

 

Money market funds

 

$

29,027

 

$

 —

 

$

29,027

 

Short term investments

 

$

1,751

 

$

7,486

 

$

9,237

 

Commercial Paper

 

$

 —

 

$

29,981

 

$

29,981

 

Total assets measured at fair value

 

$

30,778

 

$

37,858

 

$

68,636

 

 

Certificate of Deposit

 

As of March 31, 2017 and March 31, 2016, 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 March 31, 2017 and March 31, 2016, 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.

 

Short Term Investments and Commercial Paper

 

As of March 31, 2017, this asset class consisted of short term foreign and U.S. corporate bonds and equity securities. Corporate bonds 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.

 

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 marketable securities is estimated using Level 2 inputs.  At March 31, 2017, the fair value of marketable securities approximated its carrying amount of $2.0 million and is included in other assets on the consolidated balance sheet.

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The fair value of long-term debt is estimated using Level 2 inputs.  At March 31, 2017, the fair value of long-term debt, including the current portion, was $155.6 million and its book value was $152.4 million.  At December 31, 2016, the fair value of long-term debt, including the current portion, was $15 9.9 million and its book value was $ 156.8 million.

6. LONG-TERM DEBT

 

On December 19, 2014, the Company amended and restated its then existing credit facility with CoBank, ACB and a syndicate of other lenders to provide for a $225 million revolving credit facility (the “Credit Facility”) that includes (i) up to $10 million under the Credit Facility for standby or trade letters of credit, (ii) up to $25 million under the Credit Facility for letters of credit that are necessary or desirable to qualify for disbursements from the FCC’s mobility fund and (iii) up to $10 million under a swingline sub-facility.

Amounts the Company may borrow under the Credit Facility bear interest at a rate equal to, at its option, either (i) the London Interbank

Offered Rate ( LIBOR ) plus an applicable margin ranging between 1.50% to 1.75% or (ii) a base rate plus an applicable margin ranging from 0.50% to 0.75%.   Swingline loans will bear interest at the base rate plus the applicable margin for base rate loans.  The base rate is equal to the higher of (i) 1.00%  plus the higher of (x) the one-week LIBOR and (y) the one-month LIBOR ; (ii) the federal funds effective rate (as defined in the Credit Facility ) plus 0.50% per annum; and (iii) the prime rate (as defined in the Credit Facility ). The applicable margin is determined based on the ratio (as further defined in the Credit Facility) of the Company’s indebtedness to EBITDA. Under the terms of the Credit Facility, the Company must also pay a fee ranging from 0.175% to 0.250% of the average daily unused portion of the Credit Facility over each calendar quarter.

 

On January 11, 2016, the Company amended the Credit Facility (the “Amendment”) to provide for lender consent to, among other actions, (i) the contribution by the Company of all of its equity interests in ATN Bermuda Holdings, Ltd. to ATN Overseas Holdings, Ltd. in connection with the One Communications Transaction, and subject to the closing of the One Communications Transaction, a one-time, non-pro rata cash distribution by One Communications in an aggregate amount not to exceed $13.0 million to certain of One Communications’ shareholders; and (ii) the incurrence by certain subsidiaries of the Company of secured debt in an aggregate principal amount not to exceed $60.0 million in connection with the Company’s option to finance a portion of the Viya Transaction. The Amendment increases 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 .

 

 On April 14, 2017, the Company further amended the Credit Facility to increase the amount One Communications Debt (as defined below) to an aggregate amount of $60.0 million.

The Credit Facility contains customary representations, warranties and covenants, including a financial covenant that imposes a maximum ratio of indebtedness to EBITDA as well as covenants 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 Credit Facility contains a financial covenant by us that imposes a maximum ratio of indebtedness to EBITDA. As of March 31, 2017, the Company was in compliance with all of the financial covenants of the Credit Facility.

As of March 31, 2017, the Company had no borrowings under the Credit Facility and approximately $5.9 million of outstanding letters of credit.

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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 that bore interest at rates between 4.5% and 6.0%, matured at various times between 2018 and 2023 and were secured by certain solar facilities.  Repayment of the Original Ahana Debt was being made in cash on a monthly basis until maturity.

 

The Original Ahana Debt also included a loan from Public Service Electric & Gas (the “PSE&G Loan”).  The PSE&G Loan 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 solar renewable energy credits (“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 beginning on March 31, 2017, 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 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 were 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 contain customary representations, warranties and certain affirmative and negative covenants, which limit 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 are subject to financial covenants that imposes 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 basis 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 March 31, 2017, the Company was in compliance with all of the financial covenants of the Series A Notes and the Series B Notes.

 

 

As of March 31, 2017, $2.1 million of the Original Ahana Debt and $64.6 million of the Series A Notes and Series B Notes remained outstanding.

 

One Communications Debt

In connection with the One Communications Transaction 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 matures in 2021, bears interest at the three-month LIBOR rate plus a margin of 3.25%, and repayment is made quarterly until maturity.  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 a financial covenant that limits the maximum ratio of indebtedness less cash to annual operating cash flow. The debt is also subject to certain financial covenants that are tested at the end of each fiscal year: 1) a minimum ratio of free cash flow to debt service requirement; 2) maximum ratio of net debt to EBITDA; and 3) a minimum ratio of consolidated EBIT to net interest costs. The debt is secured by the property and assets of certain One Communications subsidiaries.  As of March 31, 2017, the Company was in compliance with all of the financial covenants.

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As of March 31, 2017, $28.9 million of the One Communications Debt remained outstanding.

 

Viya Debt (formerly Innovative Debt)

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 less cash to annual operating cash flow.  The covenant is tested on an annual basis commencing fiscal 2017.  Interest is paid quarterly 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 circumstance.  The debt is secured by certain assets of the Company’s Viya subsidiaries.

 

The Company paid a fee of $0.9 million to lock the interest rate at 4% per annum over the term of the debt.  The fee was recorded as a reduction to the debt carrying amount and will be amortized over the life of the loan. 

 

As of March 31, 2017, $60.0 million of the Viya Debt remained outstanding and $0.8 million of the rate lock fee was unamortized.

 

 

 

7. GOVERNMENT GRANTS

 

The Company has received funding from the U.S. Government and its agencies under Stimulus and Universal Services Fund programs.  These are generally designed to fund telecommunications infrastructure expansion into rural or underserved areas of the United States.  The fund programs are evaluated to determine if they represent funding related to capital expenditures (capital grants) or operating activities (income grants).

 

Phase I Mobility Fund Grants

 

As part of the Federal Communications Commission’s (“FCC”) reform of its Universal Service Fund (“USF”) program, which previously provided support to carriers seeking to offer telecommunications services in high-cost areas and to low-income households, the FCC created the 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 has received $21.1 million of Phase I Mobility Fund support to its wholesale wireless business (the “Mobility Funds”) to expand voice and broadband networks in certain geographic areas in order to offer either 3G or 4G coverage. As part of the receipt of the Mobility Funds, the Company committed to comply with certain additional FCC construction and other requirements. A portion of these funds will be used to offset network capital costs and a portion is used to offset the costs of supporting the networks for a period of five years from the award date. In connection with its application for the Mobility Funds, the Company has issued approximately $5.9 million in letters of credit, which are outstanding as of March 31, 2017, to the Universal Service Administrative Company (“USAC”) to secure these obligations. If the Company fails to comply with any of the terms and conditions upon which the Mobility Funds were granted, or if it loses eligibility for the Mobility Funds, USAC will be entitled to draw the entire amount of the letter of credit applicable to the affected project plus penalties.

 

The Mobility Funds projects and their results are included within our U.S. Telecom segment. As of March 31, 2017, the Company had received approximately $21.1   million in Mobility Funds. 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 offsets operating expenses, of which $6.1   million has been recorded to date, $5.9  million is recorded within current liabilities, and the remaining $1.9   million is recorded within long term liabilities in the Company’s consolidated balance sheet as of March 31, 2017. 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 arrangement in July 2018.

 

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8. EQUITY

 

Stockholders’ equity was as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended March 31, 

 

 

 

2017

 

2016

 

 

 

ATN

 

Non-Controlling

 

 

 

 

ATN

 

Non-Controlling

 

Total

 

 

    

International, Inc.

    

Interests

    

Total Equity

    

International, Inc.

    

Interests

    

Equity

 

Equity, beginning of period

 

$

677,055

 

$

132,114

 

$

809,169

 

$

680,299

 

$

81,425

 

$

761,724

 

Stock-based compensation

 

 

1,666

 

 

 —

 

 

1,666

 

 

1,728

 

 

 —

 

 

1,728

 

Comprehensive income:

 

 

0

 

 

0

 

 

 

 

 

 

 

 

0

 

 

 

 

Net income

 

 

6,859

 

 

4,725

 

 

11,584

 

 

6,120

 

 

4,678

 

 

10,798

 

Pension

 

 

513

 

 

 —

 

 

513

 

 

 —

 

 

 —

 

 

 —

 

Reclassifications of gains on sale of marketable securities to net income

 

 

(289)

 

 

 —

 

 

(289)

 

 

 —

 

 

 —

 

 

 —

 

Unrealized loss on marketable securities

 

 

(41)

 

 

 —

 

 

(41)

 

 

 —

 

 

 —

 

 

 —

 

Foreign Currency translation adjustment

 

 

1,930

 

 

 

 

1,930

 

 

 3

 

 

 

 

 3

 

Total comprehensive income

 

 

8,972

 

 

4,725

 

 

13,697

 

 

6,123

 

 

4,678

 

 

10,801

 

Issuance of common stock upon exercise of stock options

 

 

95

 

 

 —

 

 

95

 

 

582

 

 

 —

 

 

582

 

Dividends declared on common stock

 

 

(5,460)

 

 

 —

 

 

(5,460)

 

 

(5,166)

 

 

 —

 

 

(5,166)

 

Distributions to non-controlling interests

 

 

 —

 

 

(2,888)

 

 

(2,888)

 

 

 —

 

 

(3,090)

 

 

(3,090)

 

Investments made by non-controlling interests

 

 

 

 

69

 

 

69

 

 

 

 

 —

 

 

 —

 

Loss on deconsolidation of subsidiary

 

 

 —

 

 

529

 

 

529

 

 

 —

 

 

 —

 

 

 —

 

Change in accounting method- adoption of ASC 2016-09

 

 

110

 

 

 —

 

 

110

 

 

 

 

 —

 

 

 —

 

Repurchase of non-controlling interests

 

 

(670)

 

 

(149)

 

 

(819)

 

 

 —

 

 

 —

 

 

 —

 

Purchase of treasury stock

 

 

(2,215)

 

 

 —

 

 

(2,215)

 

 

(2,348)

 

 

 —

 

 

(2,348)

 

Equity, end of period

 

$

679,553

 

$

134,400

 

$

813,953

 

$

681,218

 

$

83,013

 

$

764,231

 

 

 

 

9. NET INCOME PER SHARE

 

For the three months ended March 31, 2017 and 2016, outstanding stock options were the only potentially dilutive securities. The reconciliation from basic to diluted weighted average shares of common stock outstanding is as follows (in thousands):

 

 

 

 

 

 

 

 

Three months ended  March 31, 

 

 

    

2017

    

2016

 

Basic weighted-average shares of common stock outstanding

 

16,157

 

16,092

 

Stock options

 

89

 

106

 

Diluted weighted-average shares of common stock outstanding

 

16,246

 

16,198

 

 

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The above calculation for the three months ended March 31, 2017 and 2016, does not include approximately 5,000 shares related to certain stock options because the effect of such options were anti-dilutive.

 

10. SEGMENT REPORTING

 

The Company updated its reportable operating segments in the first quarter of 2016 to align with how management began to allocate resources and assess the performance of its business operations.  The Company’s reportable segments consist of the following: i) U.S. Telecom, consisting of the Company’s former U.S. Wireless and U.S. Wireline segments, ii) International Telecom, consisting of the Company’s former Island Wireless and International Integrated Telephony segments and the results of its One Communications (formerly KeyTech, Ltd.) and Viya Acquisitions as discussed below, and iii) Renewable Energy, consisting of the Company’s former Renewable Energy segment and the results of its Vibrant Energy Acquisition. 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended March 31, 2017

 

    

 

 

    

 

    

 

 

    

 

 

 

 

 

 

 

U.S.

 

International

 

Renewable

 

Reconciling

 

 

 

 

 

Telecom

 

Telecom

 

Energy

 

Items  (1)

 

Consolidated

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wireless

 

$

37,162

 

$

19,068

 

$

 —

 

$

 —

 

$

56,230

Wireline

 

 

6,051

 

 

57,749

 

 

 —

 

 

 —

 

 

63,800

Renewable Energy

 

 

 —

 

 

 —

 

 

4,900

 

 

 —

 

 

4,900

Equipment and Other

 

 

579

 

 

2,474

 

 

132

 

 

 —

 

 

3,185

Total Revenue

 

 

43,792

 

 

79,291

 

 

5,032

 

 

 —

 

 

128,115

Depreciation and amortization

 

 

6,551

 

 

13,117

 

 

1,454

 

 

1,372

 

 

22,494

Non-cash stock-based compensation

 

 

 —

 

 

129

 

 

29

 

 

1,508

 

 

1,666

Operating income (loss)

 

 

16,617

 

 

9,966

 

 

1,441

 

 

(10,231)

 

 

17,793

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended March 31, 2016

 

    

 

 

    

    

    

 

 

    

 

 

    

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