Quarterly report pursuant to Section 13 or 15(d)

Business Combinations

v3.8.0.1
Business Combinations
 3 Months Ended
Mar. 31, 2017
Business Combinations [Abstract]  
Business Combinations
Business Combinations

2017 Acquisitions

The Company did not consummate any acquisitions or business combinations during the three months ended March 31, 2017.

2016 Acquisition

Emerging Markets Communications

On July 27, 2016, the Company completed the EMC Acquisition. The acquisition date fair value consideration transferred to the EMC seller totaled approximately $166.3 million. This acquisition was intended to provide growth opportunities by expanding into a complementary maritime market in order to realize synergies by leveraging infrastructure and suppliers to achieve efficiencies and cost savings. We believed that these efficiencies and savings would result from removing overlap in existing network infrastructure, reducing bandwidth costs, lowering our development expenses and integrating our internal operations with EMC’s. The acquisition was also intended to achieve cross-selling opportunities for the Company’s content, digital media and operations solutions products into the maritime market.

The consideration for the EMC Acquisition consisted of the following (in thousands, except amounts in the footnotes to the table):

 
Amount
Cash consideration paid to seller (1)
$
100,454

Issuance of 5,466,886 shares of Company common stock (2)
40,607

Deferred consideration (3)
25,000

Settlement of pre-existing relationship
228

Total
$
166,289


(1)
In June 2017, the Company finalized the working capital adjustments with the EMC seller, resulting in the release to the Company of $1.3 million from a working-capital adjustment escrow.

(2)
The fair value of the Company’s common stock issued as consideration in the EMC Acquisition was measured based on the common-stock price upon closing of the transaction on July 27, 2016, less a 7.5% discount thereon for restriction on transferability.

(3)
On July 27, 2017, the Company elected to pay this amount in 5,080,049 newly issued shares of its common stock, which the Company issued to the EMC seller.

The following is a summary of the purchase price allocation to the estimated fair values of the identifiable assets acquired and the liabilities assumed at the EMC Acquisition date (dollars in thousands):

 
Weighted Average Useful Life (Years) (2)
 
Preliminary
Cash and cash equivalents
 
 
$
8,208

Restricted cash
 
 
16,257

Other current assets
 
 
60,625

Property, plant and equipment
 
 
82,220

Equity method investments (1)
 
 
152,700

Intangible assets:
 
 
 
Completed technology
3.4
 
18,500

Customer relationships
8.0
 
47,700

Backlog
3.0
 
18,300

Trademarks
5.0
 
1,000

Other non-current assets
 
 
2,321

Accounts payable and accrued liabilities
 
 
(68,864
)
Debt, including current
 
 
(371,990
)
Unfavorable vendor contracts, including current
 
 
(13,500
)
Deferred tax liabilities, net
 
 
(71,954
)
Deferred revenue, including current
 
 
(4,602
)
Other non-current liabilities
 
 
(9,479
)
Fair value of net assets acquired
 
 
(132,558
)
Consideration transferred
 
 
166,289

Goodwill
 
 
$
298,847


(1)
Represents 49% investments held by the Company in WMS and Santander.

(2)
The weighted average useful life in total is 5.9 years.

Goodwill arising from the EMC Acquisition was allocated primarily to the Maritime & Land Connectivity reporting unit, and the remainder was allocated to the Media & Content reporting unit and Aviation Connectivity reporting unit based on management’s belief that these latter two reporting units would realize synergies as a result of the EMC Acquisition. See Note 5. Goodwill for the amount allocated to each reporting unit. The allocation of fair value resulted in tax deductible goodwill of $74.9 million.

For the three months ended March 31, 2016, $0.8 million of transaction costs related to the EMC Acquisition, primarily consisting of legal and advisory fees, were classified as general and administrative in the Condensed Consolidated Statements of Operations. The Company did not incur any transaction costs during the three months ended March 31, 2017.

The following unaudited pro forma summary presents consolidated information of EMC for the three months ended March 31, 2016 assuming the EMC Acquisition had occurred on January 1, 2016. The most significant pro forma adjustments were to reflect the (net of tax) impact of: (i) amortization expenses related to intangibles; and (ii) interest expense on the then existing EMC indebtedness (taking into account the fair value adjustment to the debt as of the date of the EMC Acquisition). The unaudited pro forma financial information is an estimate for informational purposes only and does not reflect the actual results on the Company’s operations had the EMC Acquisition been consummated on January 1, 2016. These pro forma amounts are not designed to represent the future expected financial results of the Company.

 
Three Months Ended March 31,
(Dollars in Thousands)
2017
2016
 
Actual
Pro forma
Revenue
$
152,592

$
158,914

Net loss
(125,611
)
(16,448
)