Quarterly report pursuant to Section 13 or 15(d)

Business Combination

v2.4.0.8
Business Combination
 6 Months Ended
Jun. 30, 2013
Business Combinations [Abstract]  
Business Combination
Business Combination

Accounting Treatment of the Business Combination

After the closing of the Business Combination on January 31, 2013, the Business Combination was consummated, in which a merger subsidiary of GEAC merged with and into Row 44, with Row 44 surviving, and concurrently GEE acquired 86% of the issued and outstanding shares of AIA held by PAR Investment Partners L.P. (“PAR”). Row 44 is considered the acquirer for accounting purposes, and has accounted for the Row 44 Merger as a recapitalization. The AIA stock purchase is accounted for as an acquisition of a business because the Company obtained effective control of AIA. Row 44 was determined to be the acquirer based on the following facts and circumstances:

•
Row 44 had the greatest enterprise value between Row 44 and AIA based on the consideration paid by GEAC;
•
The officers of the newly combined company consist primarily of former Row 44 executives, including the Chief Executive Officer, Chief Financial Officer, and General Counsel;
•
GEAC paid a premium over the market value of AIA’s shares prior to the public announcement of the AIA Stock Purchase;
•
As of the date of the Business Combination, the Row 44 and combined Company's headquarters are in the same Los Angeles metropolitan area; and
•
The composition of the Board of Directors does not result in the ability of either Row 44 or AIA being able to appoint, elect, or remove a majority of the Board of Directors.

Since the Row 44 Merger is accounted for as a recapitalization, the assets and liabilities of Row 44 and GEAC are carried at historical cost and GEE has not recorded any step-up in basis or any intangible assets or goodwill as a result of the Row 44 Merger. Under the acquisition method, the acquisition-date fair value of the gross consideration transferred to effect the AIA Stock Purchase was allocated to the assets acquired, the liabilities assumed, and non-controlling interest based on their estimated fair values. Transaction costs of $16.4 million were attributable to the Business Combination and were recorded as reductions to the additional paid-in capital. In connection with the closing of the Row 44 Merger, Row 44 paid PAR $11.9 million under a backstop fee agreement. This was recorded as transaction costs reflected in operating results as a general and administrative expense in the period ended March 31, 2013.

The fair values set forth in the AIA Purchase Agreement were preliminary and provisional and subject to adjustment if additional information is obtained during the measurement period (a period of up to one year from the Closing Date) of this transaction that would change the fair value allocation as of the acquisition date.

The number of shares of voting and non-voting common stock of the Company issued and outstanding immediately following the consummation of the Business Combination is reflected in the unaudited consolidated statement of stockholders' equity found in this Form 10-Q. There were no additional shares of common stock of the Company issued in the period following the consummation of the Business Combination and June 30, 2013.

In the consolidated financial statements, the recapitalization of the number of shares of common stock attributable to Row 44 is reflected retroactive to December 31, 2012. Accordingly, the number of shares of common stock that was used to calculate the Company's earnings per share for all periods prior to the Business Combination was 20,352,151, which comprises the number of shares of common stock, net of treasury stock, issued to Row 44 stockholders.

Accordingly, the number of shares of common stock, net of treasury stock, issued to Row 44 stockholders in the Row 44 Merger was used to calculate the Company's earnings per share for all periods prior to the Business Combination.

Row 44 Merger

Pursuant to the Row 44 Merger Agreement, all shares of capital stock of Row 44 then outstanding were converted into the right to receive shares of common stock of the Company, and all options to purchase common stock of Row 44 then outstanding were net stock settled for shares of common stock of the Company. In exchange for the shares of Row 44, the Company issued at closing 23,405,785 shares of GEAC common stock to the Row 44 equity holders. AIA's ownership of 3,053,634 shares of GEE stock was deemed to be treasury stock.

The cash flows related to the Row 44 Merger in the Business Combination, as reported in the unaudited consolidated statements of cash flows within the investing section, is summarized as follows (in thousands):

 
Amount
Operating cash
$
8

Add: cash held in trust
189,255

Less: cash paid for GEAC shares that were redeemed
(101,286
)
Add: cash received from backstop participants
71,250

Net cash received from Row 44 Merger
$
159,227



AIA Stock Purchase

The acquisition date fair value of the consideration transferred totaled $144.3 million. The fair value was determined based on the closing market price of the Company's common stock on January 31, 2013. The fair values set forth below are subject to adjustments if additional information is obtained during the measurement period (a period of up to one year from the closing date) of this transaction that would change the fair value allocation as of the acquisition date.

The following table summarizes the provisional allocation of the AIA purchase price to the estimated fair values of the assets acquired and liabilities assumed in the AIA Stock Purchase (in thousands):
Amount
Goodwill
$
39,928

Existing technology - software
2,537

Existing technology - games
12,150

IPR&D
7,210

Customer relationships
79,871

Other intangibles
2,659

Content library
15,418

Other assets acquired, net of liabilities assumed
9,771

Net assets acquired
169,544

Less: Non-controlling interests
25,287

Total consideration transferred
$
144,257



As a result of the AIA Stock Purchase, a non-controlling interest was recorded on the Company's consolidated balance sheets. As of March 31, 2013 and June 30, 2013, the remaining 14% and 6%, respectively, of AIA shares was owned by others unrelated and independent of Global Eagle. The fair value of the non-controlling interest was determined based upon the fair value of AIA common stock on the closing date. Since the acquisition date, the results of AIA have been included in the Condensed Consolidated Statements of Comprehensive Loss for the five months ended June 30, 2013 in the Content segment.