Quarterly report pursuant to Section 13 or 15(d)

Acquisitions

v2.4.0.8
Acquisitions
 9 Months Ended
Sep. 30, 2014
Business Combinations [Abstract]  
Acquisitions
Acquisition

On July 31, 2014, the Company acquired HCHC Holdings, Inc. (“HCHC”), which is the parent company of Highland. Highland is an independent insurance brokerage that delivers life insurance, annuities and long-term care solutions to investment and insurance providers. Highland provides specialized point-of-sale support along with advanced marketing and estate and business planning techniques, delivering customized insurance solutions to both institutional clients and independent producers. Under the Agreement and Plan of Merger, dated July 31, 2014, by and among the Company, HCHC, HCHC Acquisition Inc. ("HCHC Acquisition"), a wholly-owned subsidiary of the Company, and the stockholders of HCHC, HCHC merged with and into HCHC Acquisition, with HCHC Acquisition remaining as the surviving corporation and a wholly-owned subsidiary of the Company.

The Company paid $3,613 in cash and issued 2,540,762 shares of the Company's common stock, which are subject to certain transfer restrictions, valued at $7,953. Also, the Company caused all indebtedness owed by certain HCHC subsidiaries under a credit agreement (in the amount of $21,834) to be repaid. Approximately $7,000 of HCHC Acquisition's (as successor in interest to HCHC) 10% promissory notes due February 26, 2019 remain outstanding. Legal and other acquisition related costs of approximately $566 were incurred and charged to expense for the second and third quarters of the Company's year ending December 31, 2014.

The Company has not completed the valuation studies necessary to finalize the acquisition-date fair values of assets acquired and liabilities assumed and related allocation of purchase price for Highland. Accordingly, amounts set forth below are preliminary estimates only. Once the valuation process has been completed, there may be changes to the reported values of assets acquired and liabilities assumed, including goodwill and intangible assets, and those changes could differ materially from what is presented below. The following table summarizes the estimated fair values of assets acquired and liabilities assumed at the date of acquisition:
 

Cash
$
260

Receivables...............................................................................
6,070

Identifiable intangible assets...................................................
38,045

Goodwill...................................................................................
16,483

Other assets..............................................................................
2,450

Total assets acquired................................................................
$
63,308

Commissions and fees payable................................................
(1,450
)
Notes payable-current..............................................................
(21,834
)
Notes payable-long term..........................................................
(7,000
)
Accounts payable and accrued liabilities.................................
(6,536
)
Deferred taxes payable, net.....................................................
(14,922
)
Total liabilities assumed..........................................................
$
(51,742
)
Total purchase price.................................................................
$
11,566



A deferred tax liability has been recorded for the excess of financial statement basis over tax basis of the acquired assets and assumed liabilities with a corresponding increase to goodwill. Goodwill, which is non-deductible for income tax purposes, was assigned to the insurance brokerage segment. Factors that contributed to a purchase price resulting in the recognition of goodwill include Highland's strategic fit with the Company’s existing businesses, including the resulting synergies and economies of scale expected from the acquisition.

Identifiable intangible assets as of the acquisition date consist of:







 
 
 
Useful Life
(years)
Technology
$
972

 
 
4
Relationships with customers
 
1,914

 
 
25 & 11
Renewals revenue
 
30,337

 
 
8
Trade names
 
1,711

 
 
9
Non-solicitation agreement
 
3,111

 
 
3
Total identifiable intangible assets
$
38,045

 
 
 
 
 
 
 
 
 



Fair value amounts (Level 3 inputs) were determined using an income approach for renewals revenue, relationships with customers and trade names and a cost approach for technology.

The accompanying condensed consolidated financial statements include the results of operations of Highland from the date of acquisition. The following unaudited pro forma information represents the Company’s consolidated results of operations as if the acquisition of Highland had occurred at the beginning of 2013. The pro forma net loss reflects amortization of the amounts ascribed to identifiable intangible assets acquired in the acquisition and elimination of Highland's interest expense related to notes repaid at the date of acquisition. In addition, the $14,125 non-recurring income tax benefit resulting from the acquisition has been eliminated from the pro forma results (see Note 5).

 
Three Months Ended
September 30, 2014
Nine Months Ended
September 30, 2014
Three Months Ended
September 30, 2013
Nine Months Ended September 30, 2013
Revenue
$
227,641

$
686,110

$
217,980

$
631,004

Net income (loss)
$
11,008

$
16,501

$
1,637

$
(1,858
)
Net loss available to common shareholders
$
(7,610
)
$
(9,436
)
$
(2,428
)
$
(9,775
)
Basic and diluted loss per share available to common shareholders
$
(0.04
)
$
(0.05
)
$
(0.01
)
$
(0.05
)
Weighted average common shares outstanding:
 
 
 
 
     Basic and diluted
183,816,643

184,045,751

184,300,067

185,436,714



The unaudited pro forma financial information is not intended to represent or be indicative of the Company’s consolidated results of operations that would have been reported had the acquisition of Highland been completed as of the beginning of 2013, nor should it be taken as indicative of the Company’s future consolidated results of operations.

Revenues and net loss for Highland for the period from August 1, 2014 to September 30, 2014 included in the accompanying statements of operations were $9,242 and $742, respectively.