Exhibit 99.2
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information is provided for informational purposes only. The unaudited pro forma condensed combined financial information is not necessarily indicative of what the financial position or results of operations of ATN International, Inc. (the “Company” or “ATN”) or KeyTech Limited (“KeyTech”), actually would have been if the acquisition of KeyTech 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 acquisition.
Pro forma adjustments related to the unaudited pro forma condensed combined income statements give effect to certain events that are (i) directly attributable to the acquisition, (ii) factually supportable and (iii) expected to have a continuing impact on the combined results. The unaudited pro forma condensed combined financial information is based on a number of management’s assumptions and estimates among other things, estimates, assumptions and uncertainties regarding (1) the estimated fair value of the assets and liabilities acquired, which are sensitive to assumptions and market conditions, (2) the bargain purchase gain from the acquisition, and (3) the amount of costs relating to the acquisition.
Unaudited Pro Forma Condensed Combined Financial Information for ATN International, Inc. and KeyTech
ATN completed its acquisition of a controlling 51% interest in KeyTech on May 3, 2016 and filed pro forma financial information in an 8-K/A filing dated July 19, 2016. As described in that filing, KeyTech provides telecommunication services in Bermuda and the Cayman Islands. Also as part of the transaction, the Company contributed its controlling ownership interest in Bermuda Digital Communications Ltd. (“BDC”), which provides wireless services in Bermuda, to KeyTech (the “Acquisition”). On October 28, 2016, KeyTech filed its March 31, 2016 financial statements with the Bermuda Stock Exchange which restated its financial statements for its fiscal year ended March 31, 2015. The restated financial statements included certain impairment charges which reduced KeyTech’s assets and earnings for the period ended March 31, 2015. The unaudited pro forma condensed combined financial information contained herein updates the pro forma financial information included in the Company’s 8-K/A filing dated July 19, 2016.
The unaudited pro forma condensed combined statements of operations combine the historical consolidated statements of operations of the Company and KeyTech, giving effect to the Acquisition as if it had occurred at the beginning of the periods presented. The pro forma information presents an annual and interim period. The annual period combines the Company’s twelve months ended December 31, 2015 with KeyTech’s twelve months ended March 31, 2016. KeyTech’s fiscal year begins on April 1 and ends on March 31. As permitted by Article 11 of Regulation S-X (“Article 11”) KeyTech’s results for the twelve months ended March 31, 2016 were used to prepare the pro-forma income statement. The interim period combines the Company’s results for the nine months ended September 30, 2016 with KeyTech’s results from January 1, 2016 through May 2, 2016, which is the portion of the interim period presented that KeyTech was not consolidated by the Company. You should read this unaudited pro forma information in conjunction with the accompanying notes to the unaudited pro forma condensed combined financial information, the historical financial statements of the Company filed with the Securities and Exchange Commission (“SEC”), and historical financial statements of KeyTech filed herein.
The unaudited pro forma condensed combined financial information does not include a balance sheet. Under Article 11 a pro forma balance sheet is not presented when the transaction is already reflected in the Company’s most recent balance sheet.
The Acquisition is treated herein as a purchase of KeyTech by the Company, in accordance with ASC 805, Business Combinations. Accordingly, ATN calculated the fair value of the net assets acquired and consideration transferred. The fair value of net assets acquired exceeded the fair value of the consideration transferred resulting in ATN recording a bargain purchase gain equal to the excess. As part of the Acquisition, ATN’s BDC subsidiary became an indirect wholly owned subsidiary of KeyTech increasing ATN’s ownership interest in BDC from 43% to 51%.
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The unaudited pro forma condensed combined statements of operations include certain purchase accounting adjustments, including items expected to have a continuing impact on the combined results, such as decreased depreciation and amortization expense on acquired property, plant and equipment and intangible assets.
The unaudited pro forma condensed combined financial information conforms KeyTech’s accounting policies to those of ATN. KeyTech’s financial information is prepared in accordance with International Financial Reporting Standards and ATN’s financial information is prepared in accordance with US GAAP. Based on ATN’s review of the summary of significant accounting policies disclosed in the financial statements of KeyTech, it identified certain adjustments to conform IFRS accounting policies to US GAAP. These adjustments are documented in the pro forma financial information.
Items Not Reflected in the Unaudited Pro Forma Condensed Combined Financial Information
The unaudited pro forma condensed combined statements of operations do not include the impacts of any revenue, cost, or operating synergies that may have resulted or may result in the future from the Acquisition. 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.
The Company and KeyTech incurred certain direct, incremental and non-recurring acquisition expenses totalling $5.0 million in connection with the Acquisition during the periods presented. These expenses were removed from the pro forma condensed combined statements of operations as a pro-forma adjustment for the year ended December 31, 2015 and the nine months ended September 30, 2016 as they were direct and incremental to the Acquisition and will not recur in future periods.
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Unaudited Pro Forma Statement of Operations
Nine months ended September 30, 2016:
| | (a)
ATN
nine months ended
September 30, 2016 | | (a), (c)
KeyTech
January 1, 2016 - May
2, 2016 | | KeyTech - IFRS
to GAAP
Adjustments | | Pro Forma
Adjustments | | Pro Forma
Combined | |
Revenue: | | | | | | | | | | | |
Wireless | | $ | 177,300 | | $ | — | | $ | — | | $ | — | | $ | 177,300 | |
Wireline | | 122,190 | | 26,133 | | — | | — | | 148,323 | |
Renewable energy | | 16,935 | | — | | — | | — | | 16,935 | |
Equipment and Other | | 12,046 | | 1,849 | | — | | — | | 13,895 | |
| | | | | | | | | | | |
Total revenues | | 328,471 | | 27,982 | | — | | — | | 356,453 | |
| | | | | | | | | | | |
Operating expenses (excluding depreciation and amortization unless otherwise indicated): | | | | | | | | | | | |
Termination and access fees | | 80,479 | | 11,431 | | — | | — | | 91,910 | |
Engineering and operations | | 36,270 | | 1,954 | | — | | — | | 38,224 | |
Sales and marketing | | 22,387 | | 1,921 | | — | | — | | 24,308 | |
Equipment expense | | 10,498 | | — | | — | | — | | 10,498 | |
General and administrative | | 63,949 | | 7,584 | | — | | — | | 71,533 | |
Transaction-related charges | | 16,156 | | 183 | | — | | (3,519 | )(e) | 12,820 | |
Restructuring charges | | 1,785 | | — | | | | — | | 1,785 | |
Depreciation and amortization | | 52,913 | | 6,509 | | (190 | )(j) | (2,655 | )(f) | 56,577 | |
Impairment of assets | | 11,425 | | 4,340 | | | | — | | 15,765 | |
Bargain purchase gain | | (7,304 | ) | — | | | | 7,304 | (d) | — | |
Gain on disposition of long-lived assets | | 27 | | — | | — | | — | | 27 | |
| | | | | | | | | | | |
Operating expenses | | 288,585 | | 33,922 | | (190 | ) | 1,130 | | 323,447 | |
| | | | | | | | | | | |
Income from operations | | 39,886 | | (5,940 | ) | 190 | | (1,130 | ) | 33,006 | |
| | | | | | | | | | | |
Other income (expense) | | | | | | | | | | | |
Interest Income | | 929 | | 12 | | — | | (2 | )(h) | 939 | |
Interest Expense | | (3,674 | ) | (1,265 | ) | — | | 741 | (h) | (4,198 | ) |
Other income (expense), net | | 643 | | 2,632 | | — | | (1,992 | )(g) | 1,283 | |
| | | | | | | | | | | |
Other income (expense) | | (2,102 | ) | 1,379 | | — | | (1,253 | ) | (1,976 | ) |
| | | | | | | | | | | |
Income before taxes | | 37,784 | | (4,561 | ) | 190 | | (2,383 | ) | 31,030 | |
Income taxes | | 17,178 | | — | | — | | 366 | (i) | 17,544 | |
| | | | | | | | | | | |
Income from continuing operations | | 20,606 | | (4,561 | ) | 190 | | (2,749 | ) | 13,486 | |
Income from discontinued operations net of tax | | — | | — | | — | | — | | — | |
| | | | | | | | | | | |
Net income | | 20,606 | | (4,561 | ) | 190 | | (2,749 | ) | 13,486 | |
Net income attributable to non-controlling interests, net of tax | | (10,400 | ) | 44 | | — | | 1,774 | (g) | (8,582 | ) |
| | | | | | | | | | | |
Net income attributable to stockholders | | $ | 10,206 | | $ | (4,517 | ) | $ | 190 | | $ | (975 | ) | $ | 4,904 | |
| | | | | | | | | | | |
Net income per weighted average basic share attributable to ATN International, Inc. stockholders: | | | | | | | | | | | |
Continuing operations | | $ | 0.63 | | | | | | | | $ | 0.30 | |
Disontinued operations | | $ | — | | | | | | | | $ | — | |
Total | | $ | 0.63 | | | | | | | | $ | 0.30 | |
| | | | | | | | | | | |
Net income per weighted average diluted share attributable to ATN International, Inc. stockholders: | | | | | | | | | | | |
Continuing operations | | $ | 0.63 | | | | | | | | $ | 0.30 | |
Disontinued operations | | $ | — | | | | | | | | $ | — | |
Total | | $ | 0.63 | | | | | | | | $ | 0.30 | |
| | | | | | | | | | | |
Weighted average common shares outstanding: | | | | | | | | | | | |
Basic | | 16,128 | | | | | | | | 16,128 | |
| | | | | | | | | | | |
Diluted | | 16,228 | | | | | | | | 16,228 | |
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Unaudited Pro Forma Statement of Operations
Twelve months ended:
| | ATN
December 31, 2015 | | (a), (b)
KeyTech
March 31, 2016 | | KeyTech - IFRS
to GAAP
Adjustments | | Pro Forma
Adjustments | | Pro Forma
Combined | |
Revenue: | | | | | | | | | | | |
Wireless | | $ | 237,042 | | $ | — | | $ | — | | $ | — | | $ | 237,042 | |
Wireline | | 86,485 | | 78,908 | | — | | — | | 165,393 | |
Renewable energy | | 21,040 | | — | | — | | — | | 21,040 | |
Equipment and Other | | 10,802 | | 10,402 | | — | | — | | 21,204 | |
| | | | | | | | | | | |
Total revenues | | 355,369 | | 89,310 | | — | | — | | 444,679 | |
| | | | | | | | | | | |
Operating expenses (excluding depreciation and amortization unless otherwise indicated): | | | | | | | | | | | |
Termination and access fees | | 81,928 | | 37,828 | | — | | — | | 119,756 | |
Engineering and operations | | 37,244 | | 6,468 | | — | | — | | 43,712 | |
Sales and marketing | | 21,466 | | 6,357 | | — | | — | | 27,823 | |
Equipment expense | | 14,997 | | — | | — | | — | | 14,997 | |
General and administrative | | 59,890 | | 25,086 | | — | | — | | 84,976 | |
Transaction-related charges | | 7,182 | | 618 | | — | | (1,541 | )(e) | 6,259 | |
Depreciation and amortization | | 56,890 | | 15,507 | | (571 | )(j) | (3,375 | )(f) | 68,451 | |
Gain on disposition of long-lived assets | | (2,823 | ) | — | | — | | — | | (2,823 | ) |
Impairment of assets | | — | | 4,340 | | — | | — | | 4,340 | |
| | | | | | | | | | | |
Operating expenses | | 276,774 | | 96,204 | | (571 | ) | (4,916 | ) | 367,491 | |
| | | | | | | | | | | |
Income from operations | | 78,595 | | (6,894 | ) | 571 | | 4,916 | | 77,188 | |
| | | | | | | | | | | |
Other income (expense) | | | | | | | | | | | |
Interest Income | | 588 | | 65 | | — | | (5 | )(h) | 648 | |
Interest Expense | | (3,180 | ) | (3,697 | ) | — | | 2,116 | (h) | (4,761 | ) |
Loss on deconsolidation of subsidiary | | (19,937 | ) | — | | — | | — | | (19,937 | ) |
Other income (expense), net | | 135 | | 8,078 | | — | | (6,338 | )(g) | 1,875 | |
| | | | | | | | | | | |
Other income (expense) | | (22,394 | ) | 4,446 | | — | | (4,227 | ) | (22,175 | ) |
| | | | | | | | | | | |
Income before taxes | | 56,201 | | (2,448 | ) | 571 | | 689 | | 55,013 | |
Income taxes | | 24,137 | | — | | — | | 202 | (i) | 24,339 | |
| | | | | | | | | | | |
Income from continuing operations | | 32,064 | | (2,448 | ) | 571 | | 487 | | 30,674 | |
Income from discontinued operations net of tax | | 1,092 | | — | | — | | — | | 1,092 | |
| | | | | | | | | | | |
Net income | | 33,156 | | (2,448 | ) | 571 | | 487 | | 31,766 | |
Net income attributable to non-controlling interests, net of tax | | (16,216 | ) | 99 | | — | | 2,424 | (g) | (13,693 | ) |
| | | | | | | | | | | |
Net income attributable to stockholders | | $ | 16,940 | | $ | (2,349 | ) | $ | 571 | | $ | 2,911 | | $ | 18,073 | |
| | | | | | | | | | | |
Net income per weighted average basic share attributable to ATN International, Inc. stockholders: | | | | | | | | | | | |
Continuing operations | | $ | 0.99 | | | | | | | | $ | 1.06 | |
Disontinued operations | | $ | 0.07 | | | | | | | | $ | 0.07 | |
Total | | $ | 1.06 | | | | | | | | $ | 1.13 | |
| | | | | | | | | | | |
Net income per weighted average diluted share attributable to ATN International, Inc. stockholders: | | | | | | | | | | | |
Continuing operations | | $ | 0.98 | | | | | | | | $ | 1.05 | |
Disontinued operations | | $ | 0.07 | | | | | | | | $ | 0.07 | |
Total | | $ | 1.05 | | | | | | | | $ | 1.12 | |
| | | | | | | | | | | |
Weighted average common shares outstanding: | | | | | | | | | | | |
Basic | | 16,022 | | | | | | | | 16,022 | |
| | | | | | | | | | | |
Diluted | | 16,142 | | | | | | | | 16,142 | |
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Notes to Unaudited Pro Forma Condensed Combined Financial Information
(in thousands, except share data)
(a) Certain reclassifications have been made to the historical presentation of KeyTech to conform to the presentation used in the unaudited pro forma condensed combined statements of operations.
(b) KeyTech’s fiscal year begins on April 1 and ends on March 31. As permitted by Article 11 of Regulation S-X, KeyTech’s results for its fiscal year ended March 31, 2016 were used to prepare the twelve month pro forma condensed combined statements of operations.
(c) ATN began consolidating KeyTech on May 3, 2016. As a result ATN’s results of operations include KeyTech from May 3, 2016 through September 30, 2016. To present the pro forma nine month results KeyTech’s results from January 1, 2016 through May 2, 2016 were combined with ATN’s results for the nine months ended September 30, 2016. KeyTech’s results from January 1, 2016 through March 31, 2016 are included in both the twelve and nine month pro forma statements of operations.
(d) ATN’s gain on bargain purchase from the Acquisition was eliminated from the unaudited pro forma statement of operations because it is a nonrecurring item that is directly related to the transaction.
(e) Eliminates acquisition related costs since these costs are direct and incremental to the Acquisition and are not expected to recur.
(f) Reflects the adjustment to depreciation and amortization of KeyTech’s property, plant and equipment and intangible assets arising from their estimated fair values and useful lives. The estimated depreciation and amortization, as if the Acquisition had occurred at the beginning of the periods presented is below:
| | Estimated | | | | Depreciation and | | Depreciation and | |
| | useful life | | Fair | | amortization expense | | amortization expense | |
| | (in years) | | Value | | April 1, 2015 - March 31, 2016 | | January 1, 2016 - May 2, 2016 | |
Telecommunication equipment | | 3-18 | | $ | 49,712 | | $ | 5,649 | | $ | 1,883 | |
Buildings | | 30 | | 26,452 | | 882 | | 294 | |
Office and computer equipment | | 3-5 | | 8,398 | | 2,116 | | 705 | |
Furniture and fixtures | | 5 | | 5,813 | | 1,163 | | 388 | |
Land | | — | | 6,242 | | — | | — | |
Transportation vehicles | | 3 | | 811 | | 270 | | 90 | |
Construction in progress | | — | | 3,463 | | — | | — | |
Total property, plant and equipment | | | | $ | 100,891 | | $ | 10,080 | | $ | 3,360 | |
| | | | | | | | | |
Trade name | | Indefinite | | $ | 1,900 | | $ | — | | $ | — | |
Customer lists | | 9-12 | | 8,690 | | 1,481 | | 494 | |
| | | | $ | 10,590 | | $ | 1,481 | | $ | 494 | |
| | | | | | | | | |
Pro forma depreciation and amortization expense | | | | | | 11,561 | | 3,854 | |
Historical depreciation and amortization expense | | | | | | 14,936 | | 6,509 | |
Pro forma adjustment to depreciation and amortization expense | | | | | | $ | (3,375 | ) | $ | (2,655 | ) |
(g) Prior to the Acquisition, ATN consolidated the results of BDC and KeyTech recorded its proportional share of BDC’s income under the equity method of accounting. This entry eliminates ATN’s non-controlling interest expense related to BDC, eliminates KeyTech’s share of BDC income, and recalculates ATN non-controlling interest expense based on KeyTech’s pro forma results.
(h) In conjunction with the transaction KeyTech retired $24.7 million of debt. This adjustment eliminates the interest expense and yield on cash.
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(i) To record income tax expense at an estimated statutory tax rate of 39.5% on pro forma adjustments as appropriate above.
(j) Prior to the acquisition, KeyTech accounted for its land and buildings in accordance with International Accounting Standard 16 — Property, plant and equipment. Accordingly, land and buildings were presented at fair value. ATN records its land and buildings at historical cost less accumulated depreciation. This entry conforms KeyTech’s accounting policy to ATN’s.
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