3. Revenue Recognition

The Company’s significant accounting policies are detailed in “Note 2 – Summary of Significant Accounting Policies” within Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2017. The Company’s accounting policies are updated as a result of adopting ASC 606 on January 1, 2018. The adoption of ASC 606 impacted the accounting for contract acquisition costs, multiyear retail wireless contracts with promotional discounts, and deferral of certain activation fees as further described below.

Revenue Recognition – The Company earns revenue from its telecommunication and renewable energy operations. The Company recognizes revenue through the following steps:

Identification of the contract with a customer

Identification of the performance obligations in the contract

Determination of the transaction price

Allocation of the transaction price to the performance obligations in the contract

Recognize revenue when, or as, we satisfy performance obligations

Revenue Recognition- Telecommunications

Wireless revenue consists of wholesale and retail revenue. Wholesale revenue is generated from providing mobile voice and data services to the customers of other wireless carriers, the provision of network switching services and certain transport services using the Company’s wireless networks. The transaction price of some wholesale revenue contracts includes variable consideration in the form of volume discounts. Management uses its judgment based on projected transaction volumes to estimate the transaction price and to allocate the transaction price to the performance obligations in the contract. Revenue is recognized over time as the service is rendered to the customer. Retail revenue is generated from providing mobile voice and data services to subscribers as well as roaming services provided to other carriers’ customers roaming into our retail markets. This revenue is recognized over time as the service is rendered. Lastly, wireless revenue includes revenues from equipment sold to customers which is recognized when the equipment is delivered to the customer.

Management considers transactions where customers purchase subsidized or discounted equipment and mobile voice or data services to be a single contract. For these contracts, the transaction price is allocated to the equipment and mobile service based on their standalone selling prices. The standalone selling price is based on the amount the Company charges for the equipment and service to similar customers. Equipment revenue is recognized when the equipment is delivered to customers and service revenue is recognized as service is rendered.

Wireline revenue is generated from access and usage fees for internet, voice and video services charged to subscribers as well as wholesale long-distance voice services provided to telecommunication carriers at contracted rates. Revenue from these contracts is recognized over time as the service is rendered to the customer.

The Company’s wireless and wireline contracts occasionally include promotional discounts such as free service periods or discounted products. If a contract contains a substantive termination penalty, the transaction price is allocated to the performance obligations based on standalone selling price resulting in accelerated revenue recognition and the establishment of a contract asset that will be recognized over the life of the contract. If a contract includes a promotional discount but no substantive termination penalty the discount is recorded in the promotional period and no contract asset it established. The Company’s customers also have the option to purchase additional telecommunication services. Generally, these options are not performance obligations and are excluded from the transaction price because they do not provide the customers with a material right.

The Company may charge upfront fees for activation and installation of some of its products and services. These fees are reviewed to determine if they represent a separate performance obligation. If they are not a separate performance obligation, the contract price associated with them is recognized over the life of the customer. If the fees represent a performance obligation they are recognized when delivered to the customer based on standalone selling price.

Sales and use and state excise taxes collected from customers that are remitted to the governmental authorities are reported on a net basis and excluded from the revenues and sales.

Revenue Recognition-Renewable Energy

Revenue from the Company’s Renewable Energy segment is generated from the sale of electricity through power purchase agreements (“PPA’s”) with various customers that generally range from 10 to 25 years. The Company recognizes revenue at contractual PPA rates over time as electricity is generated and simultaneously consumed by the customer. The Company’s Renewable Energy segment also generates revenue from the sale of Solar Renewable Energy Credits (“SRECs”). Revenue is recognized over time as SRECs are sold through long-term purchase agreements at the contractual rate specified in the agreement.

Disaggregation

The Company's revenue is presented on a disaggregated basis in Note 12 based on an evaluation of disclosures outside the financial statements, information regularly reviewed by the chief operating decision maker for evaluating the financial performance of operating segments and other information that is used for performance evaluation and resource allocations. This includes revenue from wireline, wireless and renewable energy, as well as domestic versus international wireline and wireless services. This disaggregation of revenue depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

Contract Assets and Liabilities

The Company recognizes contract assets and liabilities on its balance sheet. Contract assets represent unbilled amounts typically resulting from retail wireless contracts with both a multiyear service period and a promotional discount. In these contracts the revenue recognized exceeds the amount billed to the customer. The current portion of the contract asset is recorded in prepayments and other current asset and the noncurrent portion is included in other assets on our balance sheets. Contract liabilities consist of advance payments and billings in excess of revenue recognized. Retail revenue for postpaid customers is generally billed one month in advance and recognized over the period that the corresponding service is rendered to customers. To the extent the service is not provided by the reporting date the amount is recognized as a contract liability. Prepaid service, including mobile voice and data services, sold to customers is recorded as deferred revenue prior to the commencement of services. Contract liabilities are recorded in advanced payments and deposits on our balance sheets. Contract assets and liabilities consisted of the following (amounts in thousands):


		June 30, 2018		March 31, 2018		$ Change	% Change
Contract asset – current	$	1,434	$	1,309	$	125	10%
Contract asset – noncurrent		568		498		70	14%
Contract liabilities		(9,552)		(9,827)		275	-3%
Net contract liability	$	(7,550)	$	(8,020)	$	470	-6%

The contract asset-current is included in prepayments and other current assets, the contract asset – noncurrent is included in other assets, and the contract liabilities are included in advance payments and deposits on the Company’s balance sheet. The decrease in our net contract liability was due to the timing of customer prepayments and contract billings. In the second quarter of 2018, we recognized revenue of $8.5 million related to our March 31, 2018 contract liability and amortized $0.5 million of the March 31, 2018 contract asset into revenue. The Company recognized revenue of $0.6 million in the second quarter of 2018 related to performance obligations that were satisfied or partially satisfied in previous periods.

Contract Acquisition Costs

The Company pays sales commissions to its employees and agents for obtaining customer contracts. These costs are incremental because they would not have been incurred if the contract was not obtained. The Company recognizes an asset for these costs and subsequently amortizes the asset on a systematic basis consistent with the pattern of the transfer of the services to the customer. The amortization period, which is between 2 and 6 years, considers both the original contract period as well as anticipated contract renewals as appropriate. The amortization period also includes renewal commissions when those commissions are not commensurate with new commissions. The Company estimates contract renewals based on its actual renewals in recent periods. When the expected amortization period is one year or less the Company utilizes the practical expedient and expenses the costs as incurred. The June 30, 2018 balance sheet includes current contract acquisition costs of $1.3 million in prepayments and other current assets and long term contract acquisition costs of $0.9 million in other assets. During the three and six months ended June 30, 2018 the Company amortized $0.3 million and $0.6 million, respectively, of contract acquisition cost.

Remaining Performance Obligations

Remaining performance obligations represent the transaction price allocated to unsatisfied performance obligations of certain multiyear retail wireless contracts that include a promotional discount. The transaction price allocated to unsatisfied performance obligations was $10.6 million at June 30, 2018. The Company expects to satisfy the remaining performance obligations and recognize the transaction price within 24 months. The Company has certain retail, wholesale, and renewable energy contracts where transaction price is allocated to remaining performance obligations. However the company omits these contracts from the disclosure by applying the right to invoice, one year or less, and wholly unsatisfied performance obligation practical expedients.

Impacts of adoption in the current period

The Company adopted ASC 606 on January 1, 2018 using the modified retrospective method. The Company elected the practical expedient to apply the new guidance only to contracts that were not substantially complete at the adoption date. The cumulative effect of adopting ASC 606 resulted in a contract asset of $1.6 million of which $1.2 million was recorded in prepayments and other current assets and $0.4 million was recorded in other assets, a contract liability of $0.2 million recorded in advance payments and deposits, contract acquisition costs of $1.5 million of which $0.9 million was recorded in prepayments and other current assets and $0.6 million was recorded in other assets, and a deferred tax liability of $0.3 million with the offset of $1.5 million recorded to retained earnings and $1.1 million recorded to minority interest. The tables below identify changes to the Company’s financial statements as of June 30, 2018 and for the three months then ended as a result of the adoption of ASC 606 as compared to previous revenue guidance (amounts in thousands):


Balance Sheet – June 30, 2018
		Reported		Change		Under previous guidance
Prepayments and other current assets	$	35,386	$	(2,757)	$	32,629

Total current assets	$	264,313	$	(2,757)	$	261,556

Other assets	$	39,444	$	(1,433)	$	38,011

Total assets	$	1,188,999	$	(4,190)	$	1,184,809

Advance payments and deposits	$	17,727	$	(299)	$	17,428
Accrued taxes		10,238		(142)		10,096
						-
Total current liabilities	$	157,390	$	(441)	$	156,949

Deferred income taxes	$	30,755	$	(301)	$	30,454

Total liabilities	$	369,490	$	(742)	$	368,748

Retained earnings	$	550,872	$	(1,967)	$	548,905
Minority interest	$	136,424	$	(1,481)	$	134,943

Total equity	$	819,509	$	(3,448)	$	816,061

Total liabilities and equity	$	1,188,999	$	(4,190)	$	1,184,809


		Statement of Operations

		Three months ended June 30, 2018						Six months ended June 30, 2018

		Reported		Change		Under previous guidance		Reported		Change		Under previous guidance
Wireless revenue	$	50,496	$	(204)	$	50,292	$	101,043	$	(337)	$	100,706

Total revenue	$	117,788	$	(204)	$	117,584	$	222,263	$	(337)	$	221,926

Sales, marketing and customer service	$	8,413	$	240	$	8,653	$	16,974	$	618	$	17,592

Total operating expenses	$	102,035	$	240	$	102,275	$	202,301	$	618	$	202,919

Income from operations	$	15,753	$	(444)	$	15,309	$	19,962	$	(955)	$	19,007
Income before taxes		12,868		(444)		12,424		14,485		(955)		13,530
Income tax provision		2,088		(49)		2,039		6,008		(142)		5,866

Net income	$	10,780	$	(395)	$	10,385	$	8,477	$	(813)	$	7,664
Net income attributable to non-controlling interests		(3,564)		154		(3,410)		(6,816)		335		(6,481)
Net income attributable to ATN International, Inc. stockholders	$	7,216	$	(241)	$	6,975	$	1,661	$	(478)	$	1,183


		Statement of Comprehensive Loss

		Three months ended June 30, 2018						Six months ended June 30, 2018

		Reported		Change		Under previous guidance		Reported		Change		Under previous guidance
Net income	$	10,780	$	(395)	$	10,385	$	8,477	$	(813)	$	7,664
Other comprehensive loss, net of tax		(2,509)		-		(2,509)		(3,402)		-		(3,402)
Comprehensive loss		8,271		(395)		7,876		5,075		(813)		4,262
Less: Comprehensive income attributable to non-controlling interests		(3,564)		154		(3,410)		(6,816)		335		(6,481)
Comprehensive income (loss) attributable to ATN International, Inc.	$	4,707	$	(241)	$	4,466	$	(1,741)	$	(478)	$	(2,219)


Statement of Cash Flows - Six months ended June 30, 2018

		Reported		Change (1)		Under previous guidance
Net income	$	8,477	$	(813)	$	7,664

Materials and supplies, prepayments and other current assets	$	1,254	$	(681)	$	573
Accrued taxes		1,249		142		1,391
Accounts payable and accrued liabilities, advance payments and deposits and other current liabilities		(2,137)		68		(2,069)
Other assets	$	(1,208)	$	(342)	$	(1,550)

(1)

The adoption of ASC 606 had no impact on operating cash flows, investing cash flows, financing cash flows or net change in total cash.