3. 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 name, and the “Logic” name, to One Communications Ltd (“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 under the “CellOne” name. 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 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 - KeyTech	$ 34,518
Cash consideration - BDC	7,045
Total consideration transferred	41,563
Non-controlling interests - KeyTech	32,909
Total value to allocate	$ 74,472
Value to allocate KeyTech	67,427
Value to allocate - BDC	7,045

Purchase price allocation KeyTech:
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 KeyTech 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. Both companies realized that their combined resources would accelerate the transformation of both companies to better serve customers in these markets. The bargain purchase gain is included in operating income in the accompanying income statement for the year ended December 31, 2016.

The Company’s income statement for the year ended December 31, 2016 includes $55.5 million of revenue and $2.8 million of income before taxes attributable to the One Communication Acquisition. The Company incurred $4.3 million of transaction related charges pertaining to legal, accounting and consulting services associated with the transaction, of which $3.4 million were incurred during the year ended December 31, 2016.

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 Innovative group of companies operating video services, Internet, wireless and landline services in the U.S. Virgin Islands, British Virgin Islands and St. Maarten (“Innovative”), from the National Rural Utilities Cooperative Finance Corporation (“CFC”). The Company acquired the Innovative operations for a contractual purchase price of $145.0 million, reduced by purchase price adjustments of $5.3 million (the “Innovative 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 $51.9 million of the purchase price in cash, subsequently paid $22.5 million to fund Innovative’s pension in the fourth quarter of 2016, and recorded $5.3 million as restricted cash to satisfy Innovative’s other postretirement benefit plans. Following the purchase, the Company’s current operations in the U.S. Virgin Islands under the “Choice” name will be combined with Innovative to deliver residential and business subscribers a full range of telecommunications and media services. On July 1, 2016, the Company began consolidating the results of Innovative within its financial statements in its International Telecom segment.

The Innovative Transaction was accounted as a business combination in accordance with ASC 805. The consideration transferred 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 agreeing to subsequently settle assumed pension and other postretirement benefit liabilities of $27.8 million. As of December 31 2016, the Company transferred consideration of $111.9 million which was allocated to the assets acquired and liabilities assumed at their estimated fair values as of the date of the acquisition. The final purchase price represents a reduction of $0.4 million from the preliminary purchase price. The decrease was due to settlement of working capital adjustments. The table below represents the allocation of the consideration transferred to the net assets of Innovative 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 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 Innovative 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 Innovative’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 Innovative’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 Innovative’s pension plans. This payment is recorded as a cash outflow from operations in the statement of cash flows. At December 31, 2016, 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 and the specific nature of the commitment

The Company’s income statement for year ended December 31, 2016 includes $53.0 million of revenue and $1.5 million of income before taxes attributable to the Innovative Transaction. The Company incurred $4.1 million of transaction related charges pertaining to legal, accounting and consulting services associated with the transaction, of which $2.2 million were incurred during the year ended December 31, 2016.

Disposition

In September 2016, the Company entered into an agreement to sell the Innovative cable operations located in St.Maarten. The transaction was complete on January 3, 2017 and will be recorded in the Company’s 2017 results. The Company does not expect to recognize a gain or loss on the transaction. Since the disposition does not relate to a strategic shift in our operations, the subsidiary’s historical results and financial position are presented within continuing operations.

During March 2015, the Company sold certain assets and liabilities of our Turks and Caicos business in its International Telecom segment. As a result, we recorded a net loss of approximately $19.9 million, which is included in other income (expense) on its statement of operations, arising from the deconsolidation of non-controlling interests of $20.0 million partially offset by a gain of $0.1 million arising from an excess of the sales proceeds over the carrying value of net assets disposed of. Since the disposition does not relate to a strategic shift in our operations, the subsidiary’s historical results and financial position are presented within continuing operations.

Deconsolidation of Subsidiary

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 which generated $2.8 million in revenues during the year ended December 31, 2016. The Company did not recognize a gain or loss on the transaction.

Pro forma Results

The following table reflects unaudited pro forma operating results of the Company for the year ended December 31, 2016 and December 31, 2015 assuming that the One Communications and Innovative Transactions occurred at the beginning of each period presented. The pro forma amounts adjust One Communications’ and Innovative’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, 2015. 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. Innovative’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 do not include the Company’s US Telecom or Renewable Energy acquisitions because they are immaterial both individually and in the aggregate to the Company’s historical results.

The pro forma results for the year ended December 31, 2016 include $5.4 million of impairment charges, $4.3 million recorded by One Communications and $1.1 million recorded by Innovative. The pro forma results for the year ended December 31, 2015 include $168.7 million of impairment charges, $85.6 million recorded by One Communications and $83.1 million recorded by Innovative. Both the 2016 and 2015 impairment charges were recorded prior to ATN’s acquisition of the entities. Amounts are presented in thousands, except per share data:


		Year ended December 31,
(unaudited)		2016				2015
		As		Pro-		As		Pro-
		Reported		Forma		Reported		Forma
Revenue	$	457,003	$	535,628	$	355,369	$	546,589
Net income (loss) attributable to ATN International, Inc. Stockholders		12,101		14,660		16,940		(97,102)
Earnings per share:
Basic		0.75		0.91		1.06		(6.06)
Diluted		0.75		0.90		1.05		(6.02)

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 this transaction.

U.S. Telecom

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. The deferred tax liability and goodwill increased by $2.7 million from the preliminary purchase price allocation due to a measurement period adjustment. The adjustment had no impact on the Company’s income. 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.

Pending Disposition

During June 2016, as a result of recent industry consolidation activities and a review of strategic alternatives for the Company’s U.S. Wireline business in the Northeast, the Company identified factors indicating the carrying amount of certain assets may not be recoverable. More specifically, the factors included the competitive environment, recent industry consolidation, and the Company’s view of future opportunities in the market which began to evolve in the second quarter of 2016. On August 4, 2016, the Company entered into a stock purchase agreement to sell the majority of its U.S. Wireline business. The transaction is subject to customary closing conditions.

As a result of this transaction and the recent developments in the market, the Company determined it was appropriate to assess the reporting unit’s assets for impairment. The reporting unit holds three types of assets for purposes of impairment testing: i) other assets such as accounts receivable and inventory, ii) long lived assets such as property plant and equipment, and iii) goodwill. Management first assessed the other assets for impairment and determined no impairment was appropriate. Second, the property, plant and equipment was assessed for impairment. The assessment compared the undiscounted cash flows from the use and eventual disposition of the asset group to its carrying amount and determined the carrying amount was not recoverable. The asset group represents the lowest level of assets with identifiable independent cash flows. The impairment loss of $3.6 million was equal to the amount by which the carrying amount exceeded the fair value. Third, management assessed goodwill for impairment following the two step impairment test. The carrying amount of the reporting unit exceeded its fair value, after considering the $3.6 million asset impairment. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of goodwill to measure the amount of impairment loss. The impairment loss equaled $7.5 million. The Company utilized the income approach, with Level 3 valuation inputs, which considered both the purchase agreement and cash flows discounted at a rate of 14% in its fair value calculations. In total, the Company recorded an impairment charge of $11.1 million. The impairment charge is included in income from operations for the year ended December 31, 2016.

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 cash 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 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.

For the year ended December 31, 2016, the Vibrant Energy Acquisition accounted for $0.4 million of the Company’s revenue. The Company incurred $11.4 million of transaction related charges pertaining to legal, accounting and consulting services associated with the transaction, of which $10.1 million were incurred during the year ended December 31, 2016. Results of operations for the business are not material to the Company’s historical results of operations.