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ACQUISITIONS AND DISPOSITIONS | 9 Months Ended
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Sep. 30, 2022
ACQUISITIONS AND DISPOSITIONS |
ACQUISITIONS AND DISPOSITIONS | 6. ACQUISITIONS AND DISPOSITIONS ​ US Telecom ​ Acquisition of Sacred Wind Enterprises ​ On November 7, 2022, the Company, via its newly formed wholly owned subsidiary Alloy, Inc. (“Alloy”), acquired all of the issued and outstanding stock of Sacred Wind Enterprises, Inc. (“Sacred Wind”), a rural telecommunications provider in New Mexico (the “Sacred Wind Transaction”). As part of the Sacred Wind Transaction, the Company paid approximately $27 million in cash and, following the contribution of all of its ownership interests in its Commnet business to Alloy, issued approximately 6% of the fully diluted shares in Alloy to the Sacred Wind stockholders. The Company will also assume Sacred Wind’s debt of approximately $32 million, to the Rural Utilities Services. In addition, the Purchase Agreement includes certain earn-outs, based on various performance measures, the values of which are currently being assessed, to be paid to the Sacred Wind stockholders. ​ The Company believes that the acquisition of Sacred Wind will expand its infrastructure reach and broadband services in the rural Southwest and increase its wholesale carrier, residential and business broadband services. ​ ​ ​ Acquisition of Alaska Communications ​ On July 22, 2021, the Company completed the acquisition of Alaska Communications Systems Group, Inc. (“Alaska Communications”) for consideration of $339.5 million of cash, net of $11.9 million of cash and restricted cash acquired and $1.9 million of accrued consideration representing amounts payable related to stock compensation payable within one year of the close date (the “Alaska Transaction”). The cash consideration was used to purchase $186.8 million of Alaska Communications equity and repay $164.6 million of existing Alaska Communications debt. ​ The Company funded the acquisition with cash on hand, debt, and a $71.5 million contribution from certain affiliates of Freedom 3 Capital and other investors (the “Freedom 3 Investment”). The Company borrowed, through multiple financing transactions, a net of $283 million consisting of (i) the full $210 million aggregate amount of the Alaska Term Loan (as defined below) in a single borrowing by Alaska Communications; (ii) $10 million of the Alaska Revolving Facility (as defined below) by Alaska Communications; and (iii) $63.0 million under its revolving credit facility under the 2019 CoBank Credit Facility (as defined below). The Company incurred $6.6 million of debt issuance and debt discount costs. ​ The Company has accounted for the Freedom 3 Investment as redeemable noncontrolling interests in Alaska Communications its consolidated financial statements. As of July 22, 2021, the redeemable noncontrolling interests consisted of $22.6 million of redeemable common units, $48.3 million of redeemable preferred units, and $0.6 million of warrants to purchase common units, in each case, in an affiliate of Alaska Communications. The Company owns the remaining redeemable common units, redeemable preferred units and warrants in such entity. All common units contain a put option allowing the holder to sell the common units to such Alaska Communications affiliate at the then fair market value. The put option begins at the earlier of a future initial public offering of the Alaska Communications operations or July 2028. The redeemable preferred units carry a 9% preferred dividend which compounds quarterly. The preferred units contain a put option allowing the holder to sell the preferred units to an affiliate of Alaska Communications at the unpaid issue price plus unpaid dividends. The put option begins at the earlier of a future initial public offering of the Alaska Communications operations or July 2028. Lastly, the warrants in the Alaska Communications affiliate allow the holders to purchase an additional 3% of the common units at a fixed price. ​ The fair value of the common units remained at $22.6 million at September 30, 2022, unchanged from the value at July 22, 2021. The value of the preferred units was $53.8 million at September 30, 2022 which consists of the original issue price of $48.3 million and $5.5 million of accrued preferred dividends. The value of the warrants was $0.6 million at September 30, 2022, unchanged from July 22, 2021. ​ As a result of the Alaska Transaction, the Company owns 52% of the common equity of Alaska Communications and controls its operations and management. ​ ​ The table below represents the allocation of the total consideration transferred to the acquired assets and assumed liabilities based on management’s estimate of their acquisition date fair values (amounts in thousands): ​
​ | ​ | ​
Consideration Transferred | $ | 353,280
Noncontrolling interests | ​ | 470
Total value to allocate | ​ | 353,750
Purchase price allocation: | ​ | ​
Cash and cash equivalents | ​ | 10,553
Restricted cash | ​ | 1,326
Short-term investments | ​ | 434
Accounts receivable | ​ | 30,453
Inventory, materials and supplies | ​ | 1,374
Prepayments and other current assets | ​ | 8,038
Fixed assets | ​ | 408,694
Telecommunication licenses | ​ | 683
Intangible assets | ​ | 44,333
Operating lease right-of-use assets | ​ | 60,402
Other assets | ​ | 2,387
Accounts payable and accrued liabilities | ​ | (39,188)
Accrued taxes | ​ | (3,766)
Advance payments and deposits | ​ | (15,842)
Current portion of lease liabilities | ​ | (2,425)
Deferred income taxes | ​ | (17,040)
Lease liabilities, excluding current portion | ​ | (44,234)
Other liabilities | ​ | (92,432)
Net assets acquired | $ | 353,750
​ The acquired fixed assets are comprised of telecommunication equipment located in Alaska and the western United States. The fixed assets were valued using the income and cost approaches. Cash flows were discounted between 4% and 14% based on the risk associated with the cash flows to determine fair value under the income approach. The fixed assets have useful lives ranging from 2 to 30 years. The intangible assets consist of $34.9 million of customer relationships and $9.5 million of trade name. The intangible assets were valued using an income approach based on data specific to Alaska Communications as well as market participant assumptions where appropriate. The estimated fair value of the customer relationships was determined using the multi-period excess earnings method. The estimated fair value of the trade name was determined using the relief from royalty method. The useful lives of the customer relationships and trade name are five and 15 years, respectively. The acquired receivables consist of trade receivables incurred in the ordinary course of business. The Company expects to collect the full amount of the receivables. Other liabilities includes $81.5 million of deferred revenue from long term customer contracts. The Company adopted ASU 2021-08 in 2021, which requires contract liabilities to be accounted for consistently with how they were recognized and measured in the acquiree’s financial statements. As a result, the acquired deferred revenue was recorded at Alaska Communications’ book value as of the Closing Date. ​ The Company’s statement of operations for the three months ended September 30, 2022 includes $63.5 million of revenue and $3.2 million of losses before taxes attributable to the Alaska Transaction. The Company’s statement of operations for the nine months ended September 30, 2022 includes $184.4 million of revenue and $8.3 million of losses before taxes attributable to the Alaska Transaction. The Company incurred $11.2 million of transaction related charges pertaining to legal, accounting, consulting services, and employee related costs associated with the transaction, of which $0.8 million were incurred during the nine months ended September 30, 2022. The Company paid $1.7 million of the accrued consideration during the nine months ended September 30, 2022. ​ The following table reflects unaudited pro forma operating results of the Company for the three and nine months ended September 30, 2021 assuming the transaction occurred on January 1, 2020. The unaudited pro forma amounts adjust Alaska Communications’ results to reflect the depreciation and amortization that would have been recorded assuming the fair value adjustments to fixed assets and intangible assets had been applied from January 1, 2020. Additionally, all transaction costs associated with the Alaska Transaction were recorded on January 1, 2020 in the unaudited pro forma results. Lastly, the unaudited pro forma results were adjusted to reflect changes to the acquired entities’ financial structure related to the transaction. Specifically, the pre-closing debt of $164.6 million, and associated interest, was removed and $283.0 million of transaction debt, and associated interest, was included in the unaudited pro forma results. In addition, the pro forma results included the allocation of income and accrual of preferred dividends to the redeemable noncontrolling interest. The table includes final purchase accounting adjustments recorded in the fourth quarter of 2021. ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Three months ended | ​ | ​ | Nine months ended
​ | ​ | September 30, 2021 | ​ | ​ | September 30, 2021
​ | ​ | As Reported | ​ | ​ | Pro Forma | ​ | ​ | As Reported | ​ | ​ | Pro Forma
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Revenue | $ | 166,760 | ​ | $ | 180,214 | ​ | $ | 415,135 | ​ | $ | 550,900
Net Income (loss) attributable to ATN International, Inc. Stockholders | $ | (2,619) | ​ | $ | 4,778 | ​ | $ | 2,103 | ​ | $ | 5,089
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Earnings (loss) Per Share | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Basic | $ | (0.22) | ​ | $ | 0.22 | ​ | $ | 0.08 | ​ | $ | 0.09
Diluted | $ | (0.22) | ​ | $ | 0.22 | ​ | $ | 0.08 | ​ | $ | 0.09
​ The unaudited pro forma adjustments increased net income attributable to ATN International, Inc. Stockholders by $7.4 million and $3.0 million for the three and nine months ended September 30, 2021, respectively. The increase was due to an increase from the net income of the Alaska Communications operations excluding transaction costs. ​ 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 this transaction. ​ Renewable Energy ​ Disposition of International Solar Business ​ In January 2021, the Company completed the sale of 67% of the outstanding equity in its business that owns and operates distributed generation solar power projects operated under the Vibrant name in India (the “Vibrant Transaction”). The post-sale results of the Company’s ownership interest in Vibrant are recorded through the equity method of accounting within the Corporate and Other operating segment. As such, the Company’s consolidated financial statements do not include revenue and operating expenses from Vibrant, but instead, “other income (expense)” within the Corporate and Other operating segment includes the Company’s share of Vibrant’s profits or losses. The Company will continue to present the historical results of its Renewable Energy segment for comparative purposes. ​ ​ The table below identifies the assets and liabilities transferred (in thousands): ​
​ | ​ | ​
Consideration Received | $ | 35,218
Assets and liabilities disposed | ​ | ​
Current assets | ​ | 4,899
Property, plant and equipment | ​ | 45,891
Other assets | ​ | 439
Current liabilities | ​ | (759)
Net assets disposed | $ | 50,470
​ | ​ | ​
Consideration less net assets disposed | ​ | (15,252)
​ | ​ | ​
Foreign currency losses reclassified from accumulated other comprehensive income | ​ | (6,258)
​ | ​ | ​
Loss on sale | ​ | (21,510)
Transaction costs | ​ | (1,283)
Loss on sale including transaction costs | $ | (22,793)
​ The Company reported a loss on sale of $21.5 million during the year ended December 31, 2020 due to the Vibrant Transaction. The Company recorded transaction costs of $1.3 million on the Vibrant Transaction, of which $0.7 million was recorded during the year ended December 31, 2020 and $0.6 million was recorded during the year ended December 31, 2021. The consideration received includes $19.5 million of cash and $3.9 million of receivables related to the amounts held in escrow and earn out consideration. The Company has recorded $11.8 million pursuant to an equity method investment with respect to its remaining 33% ownership interest in Vibrant. The Company completed its assessment of earn out and escrow amounts in the third quarter of 2022. During the year ended December 31, 2021, the Company recorded additional losses of $1.6 million related to the ongoing working capital, escrow, and contingent consideration assessment. During the nine months ended September 30, 2022, the Company recorded an additional loss of $0.7 million related to its continuing assessment of those items and received $1.8 million of amounts previously held in escrow. ​ The Vibrant Transaction does not qualify as discontinued operations because the disposition was not a strategic shift which will have a major effect on the Company’s operations, and as a result, the historical results and financial position of the operations are presented within continuing operations.

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