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10. Acquisitions
When we acquire a business, we allocate the purchase price to the various components of the acquisition based upon the fair value of each component using various valuation techniques, including the market approach, income approach and/or cost approach.
The accounting standard for business combinations requires most identifiable assets, liabilities, noncontrolling interests and goodwill acquired to be recorded at fair value. Transaction costs related to the acquisition of the business are expensed as incurred. Costs associated with the issuance of debt associated with a business combination are capitalized and included as a yield adjustment to the underlying debt’s stated rate.
Acquired intangible assets other than goodwill are amortized over their estimated useful lives unless the lives are determined to be indefinite.
Hughes Communications
On June 8, 2011, we completed the Hughes Acquisition, pursuant to the Hughes Agreement by and between us, certain of our subsidiaries, including EchoStar Satellite Services L.L.C., and Hughes Communications, Inc. Pursuant to the Hughes Agreement, 100% of the issued and outstanding shares of common stock and vested stock options of Hughes Communications, Inc. were converted into the right to receive $60.70 (minus any applicable exercise price) in cash and substantially all of the outstanding debt of Hughes Communications was repaid. The funding of the Hughes Acquisition was supported by the issuance of $1.1 billion of senior secured notes and $900 million of senior unsecured notes. See Note 8 for further discussion.
In connection with the Hughes Acquisition, each share of unvested restricted stock and unvested stock option of Hughes Communications, Inc. was converted into the right to receive $60.70 (minus any applicable exercise price) in cash on the vesting date of the stock award. As of September 30, 2011, our maximum liability for these unvested stock awards of Hughes Communications, Inc. was approximately $34 million, which is payable based on the original vesting terms of the stock award. Of the $34 million, $17 million was accrued as of September 30, 2011, the remainder of which will be recognized over the remaining vesting period.
In addition, we are also liable to pay approximately $17 million, of which $11 million was accrued as of September 30, 2011, in change of control bonuses to certain of the executives of Hughes Communications in December 2011.
Hughes is the global leader in broadband satellite technologies and services and a leading provider of managed network services. Together with Hughes, we have an extensive fleet of owned and leased satellites, experienced personnel and communications facilities around the world. The acquisition significantly expands our ability to provide new video and data products and solutions.
The Hughes Acquisition was accounted for as a business combination. However, we have not completed allocating the purchase price among the assets that were acquired and thus the allocation in the table below may change.
|
|
|
Preliminary |
|
|
|
|
Purchase Price |
|
|
|
|
Allocation |
|
|
|
|
(In thousands) |
|
|
Cash |
|
$ |
84,768 |
|
|
Marketable investment securities |
|
22,148 |
|
|
Other current assets |
|
281,205 |
|
|
Property and equipment |
|
917,240 |
|
|
Intangibles |
|
433,057 |
|
|
Goodwill |
|
523,135 |
|
|
FCC authorizations |
|
400,000 |
|
|
Other noncurrent assets |
|
55,776 |
|
|
Current liabilities |
|
(266,017 |
) |
|
Deferred tax liabilities |
|
(244,781 |
) |
|
Long-term liabilities |
|
(22,239 |
) |
|
Non-controlling interest |
|
(9,679 |
) |
|
Total purchase price |
|
$ |
2,174,613 |
|
In connection with the Hughes Acquisition, we incurred $35 million of acquisition related transaction costs consisting primarily of banking, bond forfeiture, legal and accounting fees. These costs are included in “Other, net” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).
In connection with the issuance of our 6 1/2% Senior Secured Notes due 2019 and our 7 5/8% Senior Notes due 2021, we incurred $58 million of debt issuance costs, which are included in “Other noncurrent assets, net” on our Condensed Consolidated Balance Sheets. For the three and nine months ended September 30, 2011, we amortized $1 million and $2 million, respectively, of debt issuance costs.
The following unaudited pro forma condensed consolidated operating results for the three and nine months ended September 30, 2011 and 2010 give effect to the Hughes Acquisition as if it occurred on January 1, 2010 except for certain transaction and compensation costs. These pro forma amounts are not necessarily indicative of the operating results that would have occurred if these transactions had occurred on such date and should not be used as a predictive measure of our future financial position, results of operations or liquidity. The pro forma adjustments are based on currently available information and certain assumptions that we believe are reasonable.
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For the Three Months |
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For the Nine Months |
|
|
|
|
Ended September 30, |
|
Ended September 30, |
|
|
Supplemental pro forma financial information (Unaudited) |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
|
|
|
(In thousands) |
|
|
Total revenue |
|
$ |
862,671 |
|
$ |
871,975 |
|
$ |
2,392,511 |
|
$ |
2,594,389 |
|
|
Net income (loss) attributable to EchoStar common shareholders |
|
$ |
(2,357 |
) |
$ |
(36,667 |
) |
$ |
(10,760 |
) |
$ |
(56,086 |
) |
|
Basic net income (loss) per share attributable to EchoStar common shareholders |
|
$ |
(0.03 |
) |
$ |
(0.43 |
) |
$ |
(0.12 |
) |
$ |
(0.66 |
) |
|
Diluted net income (loss) per share attributable to EchoStar common shareholders |
|
$ |
(0.03 |
) |
$ |
(0.43 |
) |
$ |
(0.12 |
) |
$ |
(0.66 |
) |
Effective June 9, 2011, revenue and expenses associated with the Hughes Acquisition are included within the Hughes segment in our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). See Note 12 for further discussion.
Move Networks
On December 31, 2010, we acquired certain assets of Move Networks, Inc. for $45 million, of which $2.25 million was placed into escrow for certain potential contingencies. These assets include patented technology that enables the adaptive delivery of video content via the Internet which will allow us to expand our portfolio of advanced technologies serving cable, satellite, telecommunications companies and IPTV video providers. This transaction was accounted for as a business combination. The allocation of the purchase price is in the table below.
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|
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Purchase Price |
|
|
|
|
Allocation |
|
|
|
|
(In thousands) |
|
|
In-process R&D |
|
$ |
26,482 |
|
|
Property and equipment |
|
7,213 |
|
|
Goodwill |
|
6,457 |
|
|
Other intangibles |
|
4,271 |
|
|
Accounts receivable |
|
535 |
|
|
Other current |
|
33 |
|
|
Total purchase price |
|
$ |
44,991 |
|
The transaction did not have an impact on our results of operations for the year ended December 31, 2010 and would not have materially impacted our results of operations for 2010 had the transaction occurred on January 1, 2010. |