EX-99.3 5 tm2128022d1_ex99-3.htm EXHIBIT 99.3

 

Exhibit 99.3

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

On July 22, 2021 (“Closing Date”) ATN International, Inc. (“ATN” or the “Company”) completed the acquisition of Alaska Communications Systems Group, Inc. (“Alaska Communications”) contemplated by the Agreement and Plan of Merger (the “Merger Agreement”), by and among Alaska Communications, a Delaware corporation, Alaska Management, Inc., a Delaware corporation and successor in interest to Project 8 Buyer, LLC, a Delaware limited liability company (“Parent”), and Project 8 MergerSub, Inc., a Delaware corporation and a wholly-owned subsidiary of Parent (“Merger Sub”). Parent is a wholly-owned subsidiary of ALSK Holdings, LLC (“ALSK Holdings”), a Delaware limited liability company formed (together with Parent and Merger Sub) for the purpose of acquiring Alaska Communications by ATN International, Inc. and Freedom 3 Investments IV, LP, a Delaware limited partnership advised by Freedom 3 Capital, LLC. On the terms, and subject to the conditions of the Merger Agreement, on the Closing Date, Merger Sub merged with and into Alaska Communications (the “Merger”), with Alaska Communications continuing as the surviving corporation (“Surviving Corporation”). As a result of the Merger, Alaska Communications became a consolidated subsidiary of the Company.

 

On the Closing Date, MergerSub, as initial borrower, and upon, from and after the consummation of the Merger, the Surviving Corporation, as borrower (the “Borrower”), entered into a Credit Agreement to provide debt financing in the form of a revolving facility in an aggregate amount at any one time outstanding not to exceed $35,000,000 (the “Alaska Revolving Facility”) and an initial term loan facility in the aggregate amount not to exceed $210,000,000 (the “Alaska Initial Term Facility” and, together with the Alaska Revolving Facility, collectively, the “Alaska Credit Facility”). On the Closing Date, the lenders advanced to Merger Sub (a) the full aggregate amount of the Initial Term Facility in a single borrowing and (b) $10,000,000 of the Revolving Facility. The Alaska Credit Facility also provides for incremental term loans (“Incremental Term Loans”) up to an aggregate principal amount of the greater of $70,000,000 and trailing twelve month Consolidated EBITDA (as defined in the Credit Facility), subject to the Borrower meeting certain conditions. The final maturity date for the Alaska Credit Facility is July 22, 2026. Amounts outstanding under the Revolving Facility and Initial Term Facility bear an interest rate of LIBOR plus a margin ranging from 3.00% to 4.00% based on the Borrower’s Consolidated Total Net Leverage Ratio (as defined in the Credit Agreement). At the Borrower’s discretion, an alternate base rate may be selected at a margin that is 1% lower than the counterpart LIBOR margin. Principal payments on the Alaska Initial Term Facility are due quarterly commencing in the fourth quarter of 2023 in quarterly amounts as follows: from the fourth quarter of 2023 through the third quarter of 2024, $1,312,500; and from the fourth quarter of 2024 through the third quarter of 2026, $2,625,000. The remaining unpaid balance is due on July 22, 2026.

 

Also, to fund the Merger in part, the Company drew a net $63 million under its revolving credit facility under its Fourth Amended and Restated Credit Agreement among the Company, as Borrower, certain of the Company’s subsidiaries, as Guarantors, CoBank, ACB as Administrative Agent, Lead Arranger, Swingline Lender, an Issuing Lender and a Lender, Fifth Third Bank, as a Joint Lead Arranger, MUFG Union Bank, N.A., as a Joint Lead Arranger and an Issuing Lender, and the other Lenders named therein (the “CoBank Revolver”).

 

Lastly, the Company funded the Merger, in part, with contribution from affiliates and investment funds managed by Freedom 3 Capital, LLC as well as other institutional investors (collectively the “Freedom 3 Investors”). The Freedom 3 Investors contributed $72 million in conjunction with the Merger (the “Freedom 3 Investment” and collectively with the CoBank Revolver and the Alaska Credit Facility the “Transaction Financing”). The Freedom 3 Investment consists of common and preferred equity instruments of ALSK Holdings, a subsidiary of the Company which holds the ownership of Alaska Communications. The preferred equity carries a 9% annual dividend, and both the common and preferred equity instruments are redeemable at the option of the Freedom 3 Investors.

 

The following unaudited pro forma condensed combined financial information is provided for informational purposes only to estimate the effects of the Merger and the Transaction Financing (collectively, the “Alaska Transaction”) based on the historical financial statements of the Company and Alaska Communications after giving effect to the Merger related pro forma adjustments described herein. The unaudited pro forma condensed combined financial information is not necessarily indicative of what the financial position or results of operations of the Company would have been if the acquisition of Alaska Communications by the Company had been completed as of and for the periods indicated. In addition, the unaudited pro forma condensed combined financial information does not purport to project the future financial position or operating results of the Company after consummation of the Alaska Transaction.

 

The unaudited pro forma condensed combined statements of operations combine the historical consolidated statements of operations of the Company and Alaska Communications, giving effect to the Merger as if it had occurred on January 1, 2020. The unaudited pro forma condensed combined balance sheet combines the historical condensed consolidated balance sheets of the Company and Alaska Communications, giving effect to the Merger as if it occurred on the date of the balance sheet presented. You should read this unaudited pro forma condensed combined financial information in conjunction with the accompanying notes to the unaudited pro forma condensed combined financial information, the historical consolidated financial statements of the Company as of and for the periods ended December 31, 2020 and March 31, 2021 filed with the Securities and Exchange Commission, and historical consolidated financial statements of Alaska Communications filed herein.

 

1 

 

 

Pro forma adjustments related to the unaudited pro forma condensed combined statements of operations and unaudited pro forma condensed combined balance sheet give effect to transaction accounting adjustments. The pro forma adjustments depict adjustments required by U.S. Generally Accepted Accounting Principles (“U.S. GAAP”) to account for the Alaska Transaction.

 

The unaudited pro forma condensed combined financial information is based on a number of other assumptions and estimates and is subject to a number of uncertainties relating to the Alaska Transaction and related matters, including, among other things, estimates, assumptions and uncertainties regarding (1) the estimated fair values of certain assets and liabilities acquired, which are sensitive to assumptions and market conditions, and (2) the amount of the intangible assets that will arise from the acquisition.

 

The Merger is treated herein as a business combination, in accordance with ASC 805, Business Combinations. Accordingly, the Company calculated the fair value of the net assets acquired and consideration transferred. In the unaudited pro forma condensed combined balance sheet, the consideration transferred by the Company to acquire Alaska Communications has been allocated to the assets acquired and liabilities assumed based upon the Company’s preliminary estimate of their respective fair values as of the Closing Date.

 

Final allocations have not been completed and continue to be refined based upon certain valuations and other studies after the Closing Date of the Merger. Accordingly, the pro forma adjustments relating to the purchase price allocation are preliminary and have been made solely for the purpose of providing unaudited pro forma condensed combined financial information and are subject to revision based on a final determination of fair value. Thus, the final purchase price allocation may differ in material respects from that presented in the unaudited pro forma condensed combined financial information. The unaudited pro forma condensed combined statements of operations also include certain transaction accounting adjustments, such as increased depreciation and amortization expense on the assets acquired, decreased deferred revenue, changes to interest expense, and the related tax impacts of those adjustments as a result of the Alaska Transaction.

 

The unaudited pro forma condensed combined statements of operations do not include the impacts of any revenue, cost or other operating synergies that may have resulted or may result in the future from the Alaska Transaction. Therefore, certain revenue and expense amounts will likely be different, both in total and as a percent of overall revenue and expense, in future periods even if the Company were to continue the exact same pricing, service scope, and subscriber levels as in the past.

 

2 

 

 

Unaudited Pro Forma Condensed Combined Balance Sheet
March 31, 2021
(Amounts in Thousands)

 

              Transaction Accounting Adjustments      
    ATN    Alaska
Communications		    Financing
Adjustments		    Note 5    Acquisition
Adjustments		    Note 5    Pro Forma
Combined		 
Assets                                   
Cash and cash equivalents  $91,259   $22,114   $347,965     (a)    $(351,373)    (b)    $109,965 
Restricted cash   1,072    1,326    -         -         2,398 
Accounts receivable, net   41,600    40,284    -         (1,940)    (c)     79,944 
Customer receivable   2,365    -    -         -         2,365 
Inventory, materials and supplies   6,185    1,128    -         -         7,313 
Prepayments and other current assets   52,796    7,651    -         -         60,447 
Total current assets   195,277    72,503    347,965         (353,313)        262,432 
                                    
Fixed assets, net   528,071    394,974    -         (22,256)    (e)     900,789 
Telecommunications licenses, net   114,083    683    -         -         114,766 
Goodwill   60,690    -    -         -         60,690 
Other intangible assets, net   5,560    -    -         52,288    (d)    57,848 
Operating lease right-of-use assets   61,762    88,135    -         (42,372)    (c)     107,525 
Customer receivable - long term   21,056    -    -         -         21,056 
Other assets   71,223    11,190    -         -         82,413 
                                    
Total assets  $1,057,722   $567,485   $347,965        $(365,653)       $1,607,519 
                                    
Liabilities, mezzanine equity and stockholders' equity                                   
Current portion of long-term debt  $3,750   $9,000   $-        $(9,000)    (b)    $3,750 
Current portion of customer receivable credit facility   1,101    -    -         -         1,101 
Accounts payable and accrued liabilities   74,529    32,318    -         17,954     (b), (f)     124,801 
Dividends payable   2,708    -    -         -         2,708 
Accrued taxes   8,495    3,889    -         -         12,384 
Current portion of lease liabilities   12,446    3,347    -         (1,020)    (c)     14,773 
Advanced payments and deposits   24,727    15,148    -         (1,145)    (g)     38,730 
Total current liabilities   127,756    63,702    -         6,789         198,247 
                                    
Deferred income taxes   8,171    6,109    -         9,035     (c)     23,315 
Other liabilities   50,738    93,821    -         (7,952)    (g)     136,607 
Lease liabilities, excluding current portion   50,902    82,221    -         (41,574)    (c)     91,549 
Customer receivable credit facility, net of current portion   9,713    -    -         -         9,713 
Long term debt, excluding current portion   68,173    155,040    276,432     (a)     (155,040)    (b)     344,605 
Total liabilities   315,453    400,893    276,432         (188,742)        804,036 
                                    
Mezzanine Equity                                   
Common units   -    -    23,199     (a)     -         23,199 
Preferred units   -    -    48,334     (a)     -         48,334 
Total mezzanine equity   -    -    71,533         -         71,533 
                                    
Common stock   172    553    -         (553)    (h)     172 
Treasury stock   (61,677)   (1,812)   -         1,812     (h)     (61,677)
Additional paid-in capital   186,930    163,038    -         (163,038)    (h)     186,930 
Retained earnings   516,897    10,048    -         (20,678)    (f), (h)     506,267 
Accumulated other comprehensive income (loss)   269    (5,976)   -         5,976     (h)     269 
Total stockholders' equity   642,591    165,851    -         (176,481)        631,961 
                                    
Non-controlling interests   99,678    741    -         (430)    (c)     99,989 
Total equity   742,269    166,592    -         (176,911)        731,950 
Total liabilities, mezzanine equity and stockholders' equity  $1,057,722   $567,485   $347,965        $(365,653)       $1,607,519 

 

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Unaudited Pro Forma Condensed Combined Statement of Operations

Three months ended March 31, 2021

(Amounts in Thousands)

 

              Transaction Accounting Adjustments     
   ATN    Alaska
Communications		    Financing
Adjustments		   Note 6   Acquisition
Adjustments		   Note 6   Pro Forma
Combined		 
Revenue:                               
Communication Services  $110,636   $57,041   $-      $(235)   (a)  $167,442 
Other   13,874    3,627    -       -       17,501 
                                
Total revenues   124,510    60,668    -       (235)      184,943 
                                
Operating expenses (excluding depreciation and amortization unless otherwise indicated):                     
Cost of services   49,507    27,366    -       -       76,873 
Cost of construction revenue   12,606    -    -       -       12,606 
Selling, general and administrative   37,693    18,289    -       -       55,982 
Transaction-related charges   730    923    -       (1,070)  (b)   583 
Depreciation and amortization   20,508    11,048    -       5,884   (c)   37,440 
Loss on disposition of long-lived assets   117    84    -       -       201 
                                
Operating expenses   121,161    57,710    -       4,814       183,685 
                                
Income (loss)  from operations   3,349    2,958    -       (5,049)      1,258 
                                
Other income (expense)                               
Interest income   (6)   3    -       -       (3)
Interest expense   (1,147)   (2,652)   (2,746)  (d)   2,652   (d)   (3,893)
Other income, net   2,375    393    -       -       2,768 
                                
   Other income (expense)   1,222    (2,256)   (2,746)      2,652       (1,128)
                                
Income (loss) before income taxes   4,571    702    (2,746)      (2,397)      130 
Income tax expense (benefit)   295    118    (770)   (e)   (681)   (e)   (1,038)
                                
Net income (loss)   4,276    584    (1,976)      (1,716)      1,168 
                                
Net (income) loss attributable to non-controlling interests, net of tax   (1,570)   22    858   (f)   533   (f)   (157)
                                
Net income (loss) after non-controlling interest  $2,706   $606   $(1,118)     $(1,183)     $1,011 
                                
Net income per weighted average share attributable to ATN International, Inc. stockholders: (Note7)                               
Basic  $0.17                        $- 
Diluted  $0.17                        $- 
                                
                                
Weighted average common shares outstanding:                               
Basic   15,902                         15,902 
Diluted   15,952                         15,952 

 

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Unaudited Pro Forma Condensed Combined Statement of Operations

Twelve  months ended December 31, 2020

(Amounts in Thousands)

 

           Transaction Accounting Adjustments     
   ATN   Alaska Communications   Financing Adjustments   Note 6   Acquisition Adjustments   Note 6   Pro Forma Combined 
Revenue:                                   
Communication Services  $433,509   $226,251   $-        $(904)    (a)    $658,856 
Other   21,935    14,318    -         -         36,253 
                                    
Total revenues   455,444    240,569    -         (904)        695,109 
                                    
Operating expenses (excluding depreciation and amortization unless otherwise indicated):    
Cost of services   185,113    112,443    -         -         297,556 
Cost of construction revenue   10,616    -    -         -         10,616 
Selling, general and administrative   139,011    65,773    -         -         204,784 
Transaction-related charges   1,641    9,550    -         11,701    (b)     22,892 
Depreciation and amortization   88,311    40,667    -         28,881    (c)    157,859 
Loss on disposition of long-lived assets   21,572    240    -         -         21,812 
                                    
Operating expenses   446,264    228,673    -         40,582         715,519 
                                    
Income (loss) from operations   9,180    11,896    -         (41,486)        (20,410)
                                    
Other income (expense)                                   
Interest Income   421    174    -         -         595 
Interest Expense   (5,347)   (11,000)   (10,985)   (d)    11,000    (d)    (16,332)
Other income (expense), net   (4,161)   439    -         -         (3,722)
                                    
   Other income (expense)   (9,087)   (10,387)   (10,985)        11,000         (19,459)
                                    
Income (loss) before income taxes   93    1,509    (10,985)        (30,486)        (39,869)
Income tax expense (benefit)   801    2,665    (3,079)    (e)     (8,661)    (e)     (8,274)
                                    
Net loss   (708)   (1,156)   (7,906)        (21,825)        (31,595)
                                    
Net (income) loss attributable to non-controlling interests, net of tax   (13,414)   83    3,431    (f)    10,991    (f)    1,091 
                                    
Net loss after non-controlling interest  $(14,122)  $(1,073)  $(4,475)       $(10,834)       $(30,504)
                                    
Net loss per weighted average share attributable to ATN International, Inc. stockholders: (Note7)                                   
Basic  $(0.89)                           $(2.19)
Diluted  $(0.89)                           $(2.19)
                                    
Weighted average common shares outstanding:                                   
Basic   15,923                             15,923 
Diluted   15,923                             15,923 

 

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Notes to Unaudited Pro Forma Condensed Combined Financial Information
(Amounts In Thousands, Except Per Share Data)

 

1.Description of the Transaction

 

On July 22, 2021, the Company completed the acquisition of Alaska Communications pursuant to the terms of the Merger Agreement whereby Alaska Communications became a consolidated subsidiary of the Company. At completion of the Merger, each Alaska Communications common share was converted into the right to receive $3.40 per share in cash representing a total value of $353 million of cash and consideration payable, (“Merger Consideration”). The consideration transferred consists of $351 million of cash and $2 million of accrued consideration. The cash consideration was used to purchase $187 million of Alaska Communications equity and repay $164 million of existing Alaska Communications debt.

 

The Company funded the acquisition with cash on hand, debt, and a contribution from the Freedom 3 Investors. The Company borrowed, through multiple financing transactions a net of $283 million. On the Closing Date, the lenders advanced to Merger Sub (a) the full $210 million aggregate amount of the Alaska Initial Term Facility in a single borrowing and (b) $10 million of the Alaska Revolving Facility. The Company incurred $7 million of debt issuance and debt discount costs. Also, to fund the Merger Consideration in part, the Company drew a net $63 million under its revolving credit facility under its CoBank Revolver. Lastly, the Freedom 3 Investors contributed $72 million in conjunction with the Merger. The Company will account for the Freedom 3 Investment as mezzanine equity in its consolidated financial statements.

 

As a result of the Merger, the Company owns 52% of the common equity of Alaska Communications and controls its operations and management.

 

2.Basis of Presentation

 

The unaudited pro forma condensed consolidated combined financial information was prepared in accordance with Article 11 of Regulation S-X.

 

The unaudited Pro Forma Condensed Combined Statements of Operations for the year ended December 31, 2020 and three months ended March 31, 2021 assumes that the Merger was consummated on January 1, 2020 and reflects pro forma adjustments to reflect the accounting for the transaction in accordance with U.S. GAAP. The historical financial information included in the Pro Forma Condensed Combined Statements of Operations was derived from the Company’s and Alaska Communications’ consolidated financial statements for the year ended December 31, 2020 and three months ended March 31, 2021.

 

The unaudited Pro Forma Condensed Combined Balance Sheet at March 31, 2021 was prepared using the unaudited historical condensed consolidated financial statements of the Company and Alaska Communications at March 31, 3021 and presents the combined financial position of the Company and Alaska Communications as if the Merger occurred on March 31, 2021. The Pro Forma Condensed Combined Balance Sheet reflects pro forma adjustments to reflect the accounting for the transaction in accordance with U.S. GAAP.

 

The Company completed a preliminary review of Alaska Communication’s accounting policies and determined there were no material changes required to conform to the Company’s accounting policies. The unaudited pro forma condensed combined financial information adjusts Alaska Communication’s results to conform to the Company’s presentation. Refer to Note 3.

 

The Company incurred certain direct, incremental, and non-recurring acquisition expenses totaling $5.8 million in connection with the Merger. In addition, Alaska Communications incurred $16.3 million of additional direct, incremental, and non-recurring acquisition expenses. All of the $22.1 million of acquisition expenses are included in the Pro Forma Condensed Combined Statement of Operations for the year ended December 31, 2020.

 

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3.Reclassification adjustments

 

As part of preparing the unaudited pro forma condensed combined financial information, management performed a preliminary analysis of Alaska Communication’s financial information to identify differences in accounting policies as compared to those of the Company and differences in financial statement presentation as compared to the presentation of the Company.

 

Refer to the table below for a summary of the identified reclassification adjustments made to present Alaska Communication’s condensed consolidated balance sheet as of March 31, 2021 to conform presentation to that of the Company (amounts in thousands).

  

Alaska Communications Consolidated
Balance Sheet Line Items		  ATN Consolidated Balance
Sheet Line Items		  Alaska
Communications
Consolidated
Balance
Sheet		   Reclassification      Alaska
Communications
Historical - After
Reclassification		 
Cash and cash equivalents  Cash and cash equivalents  $22,114   $-      $22,114 
Restricted cash  Restricted cash   1,326    -       1,326 
Short-term investments      434    (434)   (a)   - 
Accounts receivable, net  Accounts receivable, net   40,284    -       40,284 
Materials and supplies  Inventory, materials and supplies   9,093    (7,965)   (b)   1,128 
Prepayments and other current assets  Prepayments and other current assets   7,217    434    (a)   7,651 
Property, Plant and equipment, net  Net fixed assets   387,009    7,965    (b)   394,974 
Operating lease right-of-use assets  Operating lease right-of-use assets   88,135    -       88,135 
Other assets  Other assets   11,873    (683)   (c)   11,190 
   Telecommunications license, net   -    683    (c)   683 
Current portion of long-term obligations  Current portion of long-term debt   9,071    (71)   (d)   9,000 
Accounts payable, accrued and other current liabilities  Accounts payable and accrued liabilities   51,355    (19,037)   (e)   32,318 
   Accrued taxes   -    3,889    (e)   3,889 
   Advanced payments and deposits   -    15,148    (e)   15,148 
Operating lease liabilities - current  Current portion of lease liabilities   3,276    71    (d)   3,347 
Long term obligations, net of current portion  Long term debt, excluding current portion   157,630    (2,590)   (d)   155,040 
Deferred income taxes  Deferred income taxes   6,109    -       6,109 
Operating lease liabilities - noncurrent  Lease liabilities, excluding current portion   79,631    2,590    (d)   82,221 
Other long-term liabilities, net of current portion  Other liabilities   93,821    -       93,821 
Common stock  Common stock   553    -       553 
Treasury stock  Treasury stock   (1,812)   -       (1,812)
Additional paid-in capital  Additional paid-in capital   163,038    -       163,038 
Retained earnings  Retained earnings   10,048    -       10,048 
Accumulated other comprehensive loss  Accumulated other comprehensive income (loss)   (5,976)   -       (5,976)
Noncontrolling interests  Non-controlling interests   741    -       741 

 

(a)Represents a reclassification of short-term investments to prepayments and other current assets to conform to the Company’s presentation.

 

(b)Represents a reclassification of materials and supplies to net fixed assets to conform to the Company’s presentation.

 

(c)Represents a reclassification of other assets to telecommunication licenses to conform to the Company’s presentation.

 

(d)Represents a reclassification of lease liabilities to conform to the Company’s presentation.

 

(e)Represents a reclassification of accounts payable, accrued and other current liabilities to accrued taxes and advanced payments and deposits to conform to the Company’s presentation.

 

7

 

 

Refer to the table below for a summary of the reclassification adjustments made to Alaska Communication’s consolidated statement of comprehensive income for the three months ended March 31, 2021 to conform presentation to that of the Company (amounts in thousands).

 

Alaska Communications Consolidated
Statement of Comprehensive Income Line
Items		  ATN Consolidated Statement of
Operations Line Items		  Alaska
Communications
Consolidated
Statement of
Comprehensive
Income		   Reclassification       Alaska
Communications
Historical - After
Reclassification		 
Operating Revenue  Communication services  $60,668   $(3,627)   (g)    $57,041 
   Other   -    3,627    (g)     3,627 
Cost of services and sales (excluding depreciation and amortization)  Cost of services   27,366    -         27,366 
Selling, general and administrative  Selling, general and administrative   18,289    -         18,289 
Transaction and termination costs  Transaction-related charges   923    -         923 
Depreciation and amortization  Depreciation and amortization   11,048    -         11,048 
Loss on disposal of assets, net  Loss on disposition of long-lived assets   84    -         84 
Interest expense  Interest expense   (2,652)   -         (2,652)
Interest income  Interest income   3    -         3 
Other income, net  Other income (expense)   393    -         393 
Income tax expense  Income tax expense (benefit)   118    -         118 
Net loss attributable to noncontrolling interest  Net (income) loss attributable to non-controlling interests, net of tax   22    -         22 

 

(f)Represents a reclassification of revenue to communications services revenue and other revenue to conform to the Company’s presentation.

 

Refer to the table below for a summary of the reclassification adjustments made to Alaska Communication’s consolidated statement of comprehensive income for the year ended December 31, 2020 to conform presentation (amounts in thousands).

 

Alaska Communications Consolidated
Statement of Comprehensive Income Line
Items		  ATN Consolidated Statement of
Operations Line Items		  Alaska
Communications
Consolidated
Statement of
Comprehensive
Income		   Reclassification       Alaska
Communications
Historical - After
Reclassification		 
Operating Revenue  Communication services  $240,569   $(14,318)    (h)   $226,251 
   Other   -    14,318     (h)    14,318 
Cost of services and sales (excluding depreciation and amortization)  Cost of services   112,443    -         112,443 
Selling, general and administrative  Selling, general and administrative   65,773    -         65,773 
Transaction and termination costs  Transaction-related charges   9,550    -         9,550 
Depreciation and amortization  Depreciation and amortization   40,667    -         40,667 
Loss on disposal of assets, net  Loss on disposition of long-lived assets   240    -         240 
Interest expense  Interest expense   (11,000)   -         (11,000)
Interest income  Interest income   174    -         174 
Other income, net  Other income (expense)   439    -         439 
Income tax expense  Income tax expense (benefit)   2,665    -         2,665 
Net loss attributable to noncontrolling interest  Net (income) loss attributable to non-controlling interests, net of tax   83    -         83 

 

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(g)Represents a reclassification of revenue to communications services revenue and other revenue to conform to the Company’s presentation.

 

Additionally, the Company presented the $5.6 million Customer relationships asset included in its March 31, 2021 balance sheet as Other intangible assets in the pro forma condensed combined balance sheet. Also, for the year ended December 31, 2021, the Company combined the previously disclosed operating expenses of Termination and access fees with Engineering and operations as the newly represented Cost of services. In addition, the previously disclosed Sales, marketing and Customer service expenses are now combined with the previously disclosed General and administrative expenses within the newly represented Selling, general and administrative expenses.

 

4.Preliminary purchase price allocation

 

The Company has completed its preliminary assessment of the fair value of assets acquired and liabilities assumed of Alaska Communications. The consideration transferred consists of $351 million of cash and $2 million of accrued consideration. The cash consideration was used to purchase $187 million of Alaska Communications equity and repay $164 million of existing Alaska Communications debt. The accrued consideration represents amounts payable related to stock compensation allocated to purchase consideration and payable within one year of the Closing Date. The Company funded the cash portion of the transaction price with the proceeds from the Alaska Credit Facility, the CoBank Revolver, and the Freedom 3 Investment. The consideration transferred is allocated to the acquired net assets of Alaska Communications.

 

The table below represents a preliminary allocation of the total consideration transferred to the acquired assets and assumed liabilities based on management’s preliminary estimate of their acquisition date fair values (amounts in thousands):

  

Consideration Transferred  $353,280 
Non-controlling interests   311 
Total purchase price   353,591 
      
Preliminary purchase price allocation:     
Cash and cash equivalents   22,114 
Restricted cash   1,326 
Accounts receivable   38,344 
Inventory, materials and supplies   1,128 
Prepayments and other current assets   7,651 
Fixed assets   372,718 
Telecommunication licenses   683 
Intangible assets   52,288 
Operating lease right-of-use assets   45,763 
Other assets   11,190 
Accounts payable and accrued liabilities   (37,735)
Accrued taxes   (3,889)
Advance payments and deposits   (14,003)
Current portion of lease liabilities   (2,327)
Deferred income taxes   (15,144)
Other liabilities   (85,869)
Lease liabilities, excluding current portion   (40,647)
      
Net assets acquired   353,591 

 

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5.Adjustments to unaudited pro forma condensed combined balance sheet

 

Refer to the items below for a reconciliation of the pro forma adjustments reflected in the unaudited pro forma condensed combined balance sheet:

 

a)Represents cash received from the Alaska Credit Facility, the CoBank Revolver and issuance of common and preferred units of ALSK Holdings (amounts in thousands).

 

Description  Amount 
Proceeds from Alaska Revolving Credit Facility  $10,000 
Proceeds from Alaska Initial Term Facility   210,000 
Proceeds from CoBank Revolver   63,000 
Debt issuance costs   (6,568)
Total long-term debt   276,432 
      
Mezzanine equity - preferred units   48,334 
Mezzanine equity - common units   23,199 
Total mezzanine equity   71,533 
      
Cash (pro forma financing adjustment)  $347,965 

 

b)Represents cash and accrued consideration transferred to acquire Alaska Communications. A portion of the cash consideration was used to repay Alaska Communications’ existing outstanding debt (amounts in thousands).

 

Description  Amount 
Cash paid to shareholders  $186,801 
Repayment Alaska Communications of existing debt and accrued interest   164,572 
Total cash consideration   351,373 
      
Accrued consideration   1,907 
Total consideration  $353,280 

 

c)Represents preliminary fair value adjustments in accordance with preliminary purchase allocation discussed in Note 4.

 

d)Represents the pro forma adjustment to intangible assets based on a preliminary fair value assessment. The Company allocated $42.8 million to customer relationships and $9.5 million to trade names acquired. The fair values of the intangibles were determined using an income approach based on data specific to Alaska Communications as well as market participant assumptions where appropriate. More specifically, the customer relationships were valued using the excess earnings method and the trade names were valued using the relief from-from royalty method.
   
e)Reflects the adjustment to fixed assets of Alaska Communications’ arising from their estimated fair values and useful lives. The fair value of the fixed assets acquired is presented below (amounts in thousands):

 

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   Estimated    
   useful life  Fair 
Description  (in years)  Value 
Telecommunication equipment  2-16  $310,402 
Office and computer equipment  2-3   10,441 
Buildings  10-18   24,507 
Transportation vehicles  2-3   1,483 
Leasehold improvements  3   1,162 
Land  -   16,340 
Furniture and fixtures  2-3   280 
Construction in progress  -   8,103 
Fixed assets     $372,718 

 

f)Reflects pro forma adjustments to accounts payable and accrued liabilities (amounts in thousands).

 

Description  Amount 
Fair value adjustments to accounts payable and accrued liabilities  $5,948 
Accrued interest   (532)
Accrued purchase consideration   1,907 
Accrued transaction costs   10,631 
Pro forma adjustment  $17,954 

 

The $1.9 million of accrued purchase consideration represents amounts payable related to stock compensation allocated to purchase consideration and payable within one year of the Closing Date. The accrued transaction costs represent the accrual of an additional $10.6 million of transaction costs incurred by the Company and Alaska Communications after March 31, 2021. The Company and Alaska Communications incurred certain direct, incremental and non-recurring acquisition expenses totaling $22.1 million, including the $10.6 million accrual noted above, in connection with the Merger during the periods presented in the condensed combined statements of operations. This amount was included in the pro forma condensed combined statement of operation for the year ended December 31, 2020. The costs will not affect the statement of operations beyond twelve months after the Closing Date.

 

g)Reflects pro forma adjustments to advance payments and deposits and other liabilities.

 

Description  Amount 
Current portion of deferred revenue  $(1,145)
Pro forma adjustment  $(1,145)
      
Fair value adjustments to other liabilities  $(1,019)
Deferred revenue, net of  current portion   (6,933)
Pro forma adjustment  $(7,952)

 

Deferred revenue was adjusted to decrease the assumed performance obligations to a fair value of approximately $84.8 million, a reduction of $7.9 million from the carrying value. The fair value was determined based on the estimated costs to fulfill the remaining obligations plus a normal profit margin. After the acquisition, this adjustment will reduce revenue related to the assumed performance obligations as the services are provided over the respective remaining periods of the agreements.

 

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h)Represents the elimination of Alaska Communications’ historical equity in conjunction with the Merger.

 

6.Adjustments to unaudited pro forma condensed combined statements of operations

 

Refer to the items below for a reconciliation of the pro forma adjustments reflected in the unaudited pro forma condensed combined statement of operations:

 

(a)As discussed in Note 5(g) the fair value of the acquired deferred revenue was less than its carrying value. This adjustment decreases revenue by $0.2 million for the three months ended March 31, 2021, and $0.9 million for the year ended December 31, 2020 reflect the difference between prepayments related to deferred revenue arrangements and the fair value of the assumed performance obligations as they are satisfied.
   
(b)Adjustment for year ended December 31, 2020 includes pro forma adjustment to accrue $10.6 million of transaction costs incurred by the Company and Alaska Communications and record $1.1 million of transaction costs incurred during the three months ended March 31, 2021. Adjustment for three months ended March 31, 2021 removes $1.1 million of transaction costs included in the pro forma adjustment for the year ended December 31, 2020. In total, the Company and Alaska Communications incurred transaction costs totaling $22.1 million in connection with the Merger. This amount was included in the pro forma condensed combined statement of operation for the year ended December 31, 2020. The costs will not affect the statement of operations beyond twelve months after the Closing Date.
   
(c)Represents pro form acquisition adjustment to record the depreciation and amortization expense as if the Merger occurred on January 1, 2020 based on the fair value of acquired fixed and identified intangible assets. In addition, represents removal of depreciation expense associated with Alaska Communications’ historical fixed assets (amounts in thousands).

 

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          Depreciation and   Depreciation and 
   Estimated      amortization   amortization 
   useful life  Fair   expense   expense 
Descripton  (in years)  Value   (twelve months ended 12/31/2020)   (three months ended 3/31/2021) 
Telecommunication equipment  2-16  $310,402   $47,876   $11,969 
Office and computer equipment  2-3   10,441    3,481    870 
Buildings  10-18   24,507    1,594    399 
Transportation vehicles  2-3   1,483    634    159 
Leasehold improvements  3   1,162    387    97 
Land  -   16,340    -    - 
Furniture and fixtures  2-3   280    101    25 
Construction in progress  -   8,103    -    - 
Fixed assets     $372,718   $54,073   $13,519 
                   
                   
Telecommunication licenses  Indefinite  $683   $-   $- 
Customers  6   42,824    14,447    3,167 
Tradename  15   9,464    1,028    246 
Total intangibles     $52,971   $15,475   $3,413 
                   
                   
Pro forma depreciation and amortization expense          $69,548   $16,932 
Less: Historical depreciation and amortization expense           40,667    11,048 
Pro forma adjustment to depreciation and amortization expense          $28,881   $5,884 

 

The tradename is amortized on a straight-line method over 15 years. The customer relationships are amortized on an accelerated method over a useful life of 6 years.

 

(d)The adjustment represents the elimination of interest expense associated with Alaska Communications’ existing debt and records interest expense on the Alaska Credit Facility and the CoBank Revolver. As described in Notes 5(a) and 5(b), as a result of the Merger Alaska Communications’ existing debt of $165 million was repaid, and $220 million was drawn on the Alaska Credit Facility and $63 million was drawn on the CoBank Revolver. Debt discount and issuance costs of $7 million were incurred for the Alaska Credit Facility. Interest on amounts drawn on the Alaska Credit Facility is equal to LIBOR plus a margin of 3.5%. Alaska Communications holds an interest rate swap which has a notional amount of $125 million and a fixed interest rate of 1.6735%. Interest on amount drawn on the CoBank Revolver is equal to LIBOR plus a margin of 1.5%. For purposes of calculating pro forma interest expense, interest rates of 5.17% and 3.59% were used for the fixed and variable portions of the Alaska Credit Facility, respectively, and an interest rate of 1.59% was used for the CoBank Revolver. The pro forma interest expense is below (amounts in thousands):

 

Description  Three months
ended March 31,
2021		   Year ended
December 31,
2020		 
Interest expense on Alaska Credit Facility  $(2,496)  $(9,984)
Interest expense on CoBank Revolver   (250)   (1,001)
Financing interest (pro forma financing adjustment)   (2,746)   (10,985)
           
Less: interest expense on Alaska Communications existing debt   2,652    11,000 
Interest expense (total transaction accounting adjustment)  $(94)  $15 

 

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The table below sets forth the impact that a 0.125% increase or decrease in the hypothetical assumed interest rate would have on interest expense for the relevant periods for only the variable rate debt (amounts in thousands).

 

Description  Three months
ended March 31,
2021		   Year ended
December 31,
2020		 
1/8% increase  $(49)  $(198)
1/8% decrease  $49   $198 

 

(e)To record income tax expense at an estimated statutory tax rate of 24% on pro forma adjustments related to the Company and 28% on pro forma adjustments related to Alaska Communications.

 

(f)Reflect adjustments to the Company’s net (income) loss attributable to non-controlling interest to reflect the Alaska Transaction.

 

7.Pro forma earnings per share

 

The pro forma combined basic and diluted earnings per share calculation is below (amounts in thousands, except per share data).

 

   Three months
ended March 31,
2021		   Year ended
December 31,
2020		 
Net income (loss)  $1,299   $(31,117)
Net (income) loss attributable to non-controlling interests, net of tax   (220)   862 
Preferred dividends   (1,088)   (4,350)
Net income (loss) share attributable to ATN International, Inc. stockholders  $(9)  $(34,605)
           
Net loss per weighted average share attributable to ATN International, Inc. stockholders:          
Basic  $-   $(2.17)
Diluted  $-   $(2.17)
           
Weighted average common shares outstanding:          
Basic   15,902    15,923 
Diluted   15,952    15,923 

 

ALSK Holdings issued $48.3 million of preferred units with a 9% dividend. The preferred dividends for the three months ended March 31, 2021 and year ended December 31, 2020 were $1.1 million and $4.4 million, respectively.

 

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