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2016 MTA Fall Conference Sponsorship and Exhibition registration will be open soon, watch for an email announcement when registration launches.
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MTA Peer Group 2016 Investment Opportunities Open!
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New EAS Test System
(from ITCI’s Industry Watch)
The FCC recently announced the launch of the new Emergency Alert System (EAS) Test Reporting System (ETRS).
The system was revised to standardize the way video and cable providers report national EAS test results. All video and cable providers that participate in EAS must complete Form One of ETRS on or before August 26, 2016. Forms Two and Three will become available on ETRS at the time of the initial nationwide test, which is scheduled for September 26, 2016.
To register for ETRS and gain access to Form One:
- Visit the ETRS page at: https://www.fcc.gov/general/eas-test-reporting-system
- Click on the ETRS registration page link
- After successfully completing the ETRS Registration Page, filers will be emailed their ETRS account credentials and a link to the ETRS log-in page, with instruction on how to access Form One. For more information or assistance, contact ITCI.
After the first National Test, Forms Two and Three will need to be completed, reporting on your test results. On July 11, 2016, the FCC added more event codes to the EAS system — including “Extreme Wind Warning”, “Storm Surge Watch”, and “Storm Surge Warning”. The Extreme Wind Warning (EWW) event code is to provide the public with advance notice of the onset of extreme sustained surface winds (greater than 115 mph) associated with a major land-fall hurricane. The Storm Surge Watch (SSA) and Storm Surge Warning (SSW) event codes were issued for an alert when there is a significant risk of life-threatening inundation from rising water moving inland from the ocean. Here in the Midwest, we are not in the zones for hurricanes or surges from the ocean, so nothing to worry about here!
The New Lease Accounting Standards – What Your Company Needs to Know
(from Olsen Thielen)
Does your company lease office space, vehicles, mobile towers, or buried fiber? If so, in February 2016 the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU 2016-02), Leases, and it does affect your company.
This ASU provides guidelines on lease accounting that represents the most significant change to lease accounting rules since capital and operating leases were distinguished in FASB 13 forty years ago in 1976. A separate topic was created in the FASB Codification, ASC Topic 842, Leases that will be effective for privately held companies and cooperatives for reporting periods beginning after December 15, 2019 (calendar year 2020). For companies presenting comparative financial statements, the 2019 financial results will be recast to reflect the new standard in the 2020 reporting period.
The primary reason for the change in the standards is designed to bring the statement users the ability to identify all operating lease commitments on the Balance Sheet. Previously, the operating lease commitment disclosures were only disclosed in the financial statement footnotes. The driving force for this change was to move United States GAAP towards International Financial Reporting Standards (IFRS), part of the various convergence initiatives including revenue recognition.
This article focuses on the key changes for a lessee. The effects on lessors are important, but the amount of change from existing practice to the current standard is less impactful for lessors.
Key provisions and highlights include:
- Definition of lease – Per ASC Topic 842, a lease is “a contract, or part of a contract, that conveys the right to control the use of an identified asset for a period of time in exchange for consideration.” The two major elements of this are the determination of a specific piece of property, plant or equipment and the control over the use of this identified asset for a period of time. Note that the new standard does not apply to intangible asset leasing arrangements such as wireless spectrum.
- Lease Term – All qualifying leasing arrangements with terms greater than 12 months in duration will be capitalized on the Balance Sheet. For all leases, the company will need to identify the noncancellable portion of the lease term including renewal options. If the lessee is reasonably certain to exercise the options, then the option period should be included in determining the lease term. There is a four-factor test for judging whether the company is reasonably certain to exercise the option.
- Lease classification – Leases will be separated into two types of leases with different accounting treatment (a GAAP compromise). Note that some companies may have a mixture of both types of leases recorded on their books:
- Finance Lease – This type of lease and related criteria is similar to current U.S. GAAP accounting for capital leases.
Accounting Treatment - A lease obligation liability is recorded at lease commencement date by calculating the present value of future lease payments using the lease’s stated interest rate or the company’s incremental borrowing rate. The liability will be reduced by each payment made on the lease.
A corresponding right to use-asset is recorded on the asset section of the Balance Sheet at lease commencement date. This asset is amortized through the life of the lease term by reducing the right-to-use asset on a monthly basis and recording amortization expense on the Income Statement. Interest expense is accrued each month on the lease obligation using either the stated rate or the company’s incremental borrowing rate.
- Operating Lease – The previous operating lease arrangements disclosed in the financial statements will now be captured on the Balance Sheet.
Accounting Treatment – Similar to the Finance Lease, a lease obligation liability is recorded at lease commencement date by calculating the present value of future lease payments using the lease’s stated interest rate or the company’s incremental borrowing rate. The liability will be reduced by each payment made on the lease.
A corresponding right-to-use asset is recorded on the asset section of the Balance Sheet at lease commencement date. Unlike a Finance Lease, there will be no explicit Interest and Amortization component presented on the Income Statement. The monthly expense will be captured in your company’s existing general ledger accounts used for existing leasing arrangements as required by Part 32 accounting. The monthly expense will be recognized evenly on a straight line basis over the term of the lease.
Contracts for Fiber or Network Capacity:
Contracts for usage of fiber-optic cable or network capacity may or may not qualify for lease accounting treatment, depending on the facts and circumstances of the contract.
Situation A – A lessee has entered into a dark fiber contract over a 5-year period that contains four specifically identified and dedicated fiber strands that are used and supplier can only substitute fibers for repairs or maintenance purposes and the customer has the decision making ability to light the fibers and decide how much data can be transmitted. In this case, the arrangement will likely qualify as a lease and be accounted for as such.
Situation B – A lessee has entered into a capacity fiber contract over a 5-year period that gives the company the ability to use up to four fibers of capacity; however, supplier can freely switch which fibers are used and supplier lights the fibers and makes the decisions on how much data can be transmitted. In this case, the arrangement will likely not qualify as a lease due to supplier control of the asset and it will be considered a contract and not a lease, and the accounting treatment will be the same as existing practice.
The key distinction in these scenarios is which party has control of the identification and usage of the underlying fiber strands.
Other Considerations: This article has not touched upon other potentially significant items related to the new lease standard such as:
- Rural Utilities Service and FCC reporting in future years.
- Cost Study implications from recording additional assets on the books that will be amortized.
- Income tax considerations relating to operating leases that will be capitalized on the books
- Greater risk of asset impairment with additional assets recorded on the books.
- Variable lease payments and non-lease components such as maintenance contracts.
- Determining the discount rate used to calculate present value of future lease payments.
- Related party and Inter-company leases on consolidated financial statements.
Impact on your Company:
- Increased amount of “right to use” assets and lease obligation liabilities for Finance and Operating leases. The Balance Sheet will grow accordingly. Note that the amount of right-to-use assets and lease obligations for both types of leases will need to be disclosed either on the face of the financial statements or in the footnotes.
- As a result of increased liabilities recorded on the books, the company may have more difficulty in meeting select financial covenants.
- Key distinction for non-financial measures. As a result of the GAAP compromise, there will be a distinction in calculating EBITDA depending on whether the company has Finance Leases (EBITDA addback due to expense hitting Amortization and Interest expense) or Operating Lease (no EBITDA addback as expense is considered lease expense).
- The recorded expense will be higher earlier in the term for Finance Leases due to the higher interest component up front for these types of leases.
- Increased record keeping and monthly journal entries for properly recording these leases and increased effort of maintaining Continuing Property Records.
- Is it preferable for your company to enter into a long-term arrangement at a favorable rate which will be subject to lease accounting requirements or enter into month-to-month arrangements that contain greater risk for price fluctuations?
Action Items for Your Company:
- 2016 and 2017: Gather and inventory all relevant contract information (contracts, term, payments, etc.) and begin identifying which lease contracts will remain when the leasing standard becomes effective. Review your fiber, tower, and capacity contracts to determine if they qualify for a lease or whether they are a non-lease contract. Conduct a preliminary discussion with your CPA to begin game planning the successful implementation of the standard.
- 2017 and 2018: Contact your CPA as considered necessary to begin preparing calculations of the lease obligation liability and the “right to use” asset for each of your leasing arrangements. Consider conducting a “before and after” simulation, whereby the company will compare its 2016 or 2017 GAAP financial statements to a hypothetical version based on the new lease accounting standards.
- 2017 and 2018: Contact your lender to discuss the new lease accounting requirements with them. Loan covenants based on financial ratios may need to be revised depending on the significance of your leasing arrangements. You may find that the bankers are aware of this change, but might not be up to speed on how this change will impact the modeling of financial covenants in place.
With enough planning and foresight, the implementation of the new standard can be a fairly routine matter for companies with a few leasing arrangements present. The information included above serves as a summary of the key changes, but does not address the specific facts and circumstances of your company’s current and future lease/contract structure. We will provide additional resources as more industry-specific guidance and regulations are issued on this significant change in the coming years.
Senators Launch Senate Broadband Caucus
(from NECA’s Washington Watch)
Sens. Shelley Moore Capito (R-W.Va.), Angus King (I-Maine), Amy Klobuchar (D-Minn.), Heidi Heitkamp (D-N.D.) and John Boozman (R-Ark.) launched the Senate Broadband Caucus on July 12, 2016, to serve as a platform to engage in discussions across committee jurisdictions and to inform senators and their staff about emerging broadband issues. They said the caucus will address: broadband challenges facing Americans; promote bipartisan discussions about possible solutions to increase connectivity and close the digital divide, especially in rural America; and engage with a broad range of industries and other stakeholders.
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MTA Member Works on Suicide Prevention
West Central’s Marketing Manager, Geri Salmela, works with a non-profit named Never.Give.Up. This group raises funds for area schools to teach suicide awareness and prevention. Suicide is the number one cause of death in Minnesota boys and girls between the ages of 15 and 24, which is alarming and tragic. Most who die by suicide are surrounded by friends and family who don’t recognize the signs. Never.Give.Up raises money for community schools to teach youth to recognize the signs, refer the person and seek help for themselves, or a friend. Last year, they raised over $30,000 and are hoping to top that and split the proceeds between two schools.
>> Click here to contribute or sign up as a sponsor.
>> Click here to download an informational flyer.
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Safety, I Choose You!
The hottest new craze around the world is the new “Pokémon Go” and although Safety is not one of the Pokémon characters, Safety should still be a major concern when playing "Pokémon Go." Here are a few safety tips for parents and players alike when playing Nintendo's new augmented reality game.
Make sure someone knows your itinerary
Let someone know where you'll be going to catch Pokémon and roughly when you'll return. "Pokémon Go" is also played exclusively on mobile phones, so there's no excuse to neglect checking in if plans change.
Don't go out alone
The buddy system is especially important when playing "Pokémon Go." This is always sound advice whenever you're exploring new neighborhoods — plus you always have a spare phone in case yours loses power, right? — but the game also rewards those who play together. Some of the rarest creatures in "Pokémon Go" will only appear if more than one person is roaming around a given area.
Stay alert late at night
Or don't play at all after the sun goes down. Although some of the game's creatures are more common at night, there are still many places where Pokémon appear during daylight hours. There's no real advantage to playing "Pokémon Go" after dark. Police departments have also warned players of straggling — it's easy enough to pick off a phone from an unsuspecting victim if he or she is standing idly on the sidewalk, eyes glued to a glowing screen. Always hold onto your purse, backpack, laptop bag, or anything else that holds valuables. It only takes a second for a thief to walk off with your bag because you weren’t paying enough attention.
Stay in well-lit places where people congregate
If you must play at night, use common sense when hunting for Pokémon or checking into Pokéstops. Pokémon tend to appear in places where people congregate, so the creatures shouldn't materialize in poorly lit or sparsely populated areas. Businesses are usually tagged as Pokéstops, so why not stay in one place and grab a meal or a drink while you play? Pokéstops refresh every five minutes, so there's ample reason to rest somewhere and play for a while. If you wouldn’t normally wander into a darkened alley at 3am, don’t do it for that rare Muk.
Don't bike/skateboard/drive and play…
Distracted driving, regardless of the vehicle, is always a bad idea.
… And watch where you're going
Although the game uses a virtual map where players can track Pokémon throughout real-world locations, it's not necessary to constantly watch the screen. "Pokémon Go" has a vibration function that makes it so your smartphone rumbles when a creature appears. If this feature is on, it's easy enough to activate the app, stick the phone in a pocket and wait for the vibration. Alternately, turning the game's music off also makes it easy to hear when a Pokémon pops up on the display — the creatures make a recognizable sound when they come up on the map.
Many Police departments have warned players against going onto private property while playing. The game doesn't expect players to travel into backyards in search of Pokémon. If a Pidgey, Rattata or other creature shows up on the screen, whether the map shows it in the middle of the street or in somebody's backyard, all a player needs to do in order to catch the creature is tap on it. Keep in mind that someone who doesn’t know or care about “Pokémon Go” could call the police (or worse) if you’re in the wrong place or even wearing the wrong clothes, or just because they don’t like the look of your face. It’s not your fault and it’s not fair, but a Pokémon game also isn’t worth pushing those limits.
“Pokémon Go” is an awesome way to get off your lazy butt and have fun outside, so get out there and catch those Pokémon!
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ITCI’S Dick Scheel is Retiring
After 41 years in the telecom industry, 27 with ITCI, Dick Scheel is retiring. Dick graduated from Augustana College in Sioux Falls, S.D., with a degree in Business Administration and Economics. Dick joined ITCI in 1989. MTA and the whole industry is sad to see him go, but we all wish him all the best with his retirement plans!
CTC Receives Unique Distinction
The NTCA recently announced nearly 80 community-based providers deliver gigabit broadband to rural communities. View the announcement here.
As part of the announcement, CTC (Consolidated Telecommunications Company- Brainerd) was noted as being the only NTCA company that has earned not only the NTCA Certified Gig-Capable Provider designation, but also the Smart Rural Community Showcase Award and the Smart Rural Community Collaboration Grant.
Make Plans to Attend the 2016 MACC Billing and Technology Conference
The schedule is set for the 2016 Mid America Computer Corporation (MACC) Billing and Technology Conference (MBTC). MACC clients from across the country will have the opportunity to learn new skills related to our products and network with their telecom industry peers. Registration is available for those MACC clients who have not already done so.
• The event will be held in Omaha, Nebraska
• Session One – September 7-9
• Session Two – September 12-14
• Follow this link for more information and registration: http://www.maccmbtc.com/
Questions can be directed to MACC’s Creative Services Coordinator, Kristi Rounds, at
402-533-5184 or firstname.lastname@example.org.
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