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ACQUISITIONS AND DISPOSITIONS | 9 Months Ended
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Sep. 30, 2017
ACQUISITIONS AND DISPOSITIONS |
ACQUISITIONS AND DISPOSITIONS | 5. ACQUISITIONS AND DISPOSITIONS International Telecom Acquisitions One Communications (formerly KeyTech Limited) Acquisition On May 3, 2016, the Company completed its acquisition of a controlling interest in One Communications Ltd. (formerly known as KeyTech Limited, “One Communications”), 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 in Bermuda and the Cayman Islands (the “One Communications Acquisition”). Subsequent to the completion of the Company’s acquisition, One Communications changed its legal name from KeyTech Limited and changed its “CellOne” and “Logic” trade names in Bermuda to “One Communications”. Prior to the Company’s acquisition, One Communications also owned a minority interest of approximately 43% in the Company’s previously held and consolidated subsidiary, Bermuda Digital Communications Ltd. (“BDC”), that 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. 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 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 an approximate 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 subsequently 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 nine months ended September 30, 2016. Viya (formerly Innovative) Transaction 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 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. Subsequent to the Viya Transaction, the Company sold the acquired businesses in St. Maarten and the British Virgin Islands, as further described in “Dispositions” below. 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 (subsequently disposed, see below). 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 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 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 pension and postretirement benefit obligations. 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 in the fourth quarter of 2016. At September 30, 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. Dispositions 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. 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 August 18, 2017, the Company completed the sale of the Viya cable operations located in the British Virgin Islands. The company did not recognize a gain or loss on the transaction. The results of the St. Maarten, Aruba, and British Virgin Islands 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 liabilities, and $0.7 million to other net liabilities, and the resulting $3.1 million in goodwill which is not deductible for income tax purposes. 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 and New York (“Sovernet”). On March 8, 2017, the Company completed the sale for consideration of $25.9 million (the “Sovernet Transaction”). The consideration included $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 the acquirer, 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 based on whether or not the operational milestones are achieved by December 31, 2017. The table below identifies the assets and liabilities transferred (amounts in thousands):
Consideration Received | $ | 25,926 |
Assets and liabilities disposed |  |  |
Cash |  | 1,821 |
Accounts receivable |  | 1,696 |
Inventory |  | 639 |
Prepaid |  | 1,034 |
Property, plant and equipment |  | 25,294 |
Other assets |  | 288 |
Accounts payable and accrued liabilities |  | (1,718) |
Advance payments and deposits |  | (1,897) |
Net assets disposed |  | 27,157 |
Consideration less net assets disposed |  | (1,231) |
Transaction costs |  | (1,156) |
Loss | $ | (2,387) |
Prior to the closing of the transaction, the Company repurchased non-controlling interests from minority shareholders in a Sovernet subsidiary for $0.7 million. The non-controlling interest had a book value of zero. Additionally the Company recorded a loss on deconsolidation of $0.5 million. The Company incurred $1.2 million of transaction related charges pertaining to legal, accounting and consulting services associated with the transaction, of which $0.6 million were incurred during the nine months ended September 30, 2017. Since the Sovernet disposition does not relate to a strategic shift in our operations, the historic results and financial position of the operations are presented within continuing operations. Subsequent to close of the Sovernet Transaction, management continually monitored and assessed the probability of earning the contingent consideration. In September 2017, based on progress toward achieving the operational milestones necessary to earn the contingent consideration and the December 31, 2017 deadline under which such milestones are to be achieved, management has determined that the Company is unlikely to earn the contingent consideration or any material portion thereof. As a result the fair value of the contingent consideration was reduced to zero. The amount was recorded as a loss on disposition of assets within operating income during the three and nine months ended September 30, 2017. 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 nine months ended September 30, 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’ capital 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, the Company’s results were adjusted to reflect the Company’s incremental ownership in BDC. The historical results of the Vibrant Energy, and Western United States acquisitions are not included in the pro forma results as their impacts were not material to the Company’s historical results. The pro forma results for the nine months ended September 30, 2016 include $5.4 million of impairment charges recorded by One Communications and Viya prior to the Company’s acquisition of the businesses. Amounts are presented in thousands, except per share data.
|  | Nine months ended September 30, |
(unaudited) |  | 2016 |
|  | As |  | Pro- |
|  | Reported |  | Forma |
Revenue |  | $ | 328,471 |  | $ | 407,096 |
Net income attributable to ATN International, Inc. Stockholders |  |  | 10,206 |  |  | 12,768 |
Earnings per share: |  |  |  |  |  |  |
Basic |  |  | 0.63 |  |  | 0.79 |
Diluted |  |  | 0.63 |  |  | 0.79 |
The three months ended September 30, 2016 is not presented because both the One Communications and Viya transactions were completed on or before July 1, 2016. As a result there are no pro forma adjustments. The unaudited pro forma data is presented for illustrative purposes only and is not necessarily indicative of the operating results 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 (the “Vibrant Energy Acquisition”). The business operates under the name Vibrant Energy. The Company also retained several employees of the seller in the United Kingdom and India 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, Maharashtra 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 $4.9 million paid as of September 30, 2017 and $1.3 million payable at future dates, which is contingent upon the passage of time and achievement of initial production milestones that 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 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.

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