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Note 2 - Acquisitions

9 Months Ended

Sep. 30, 2021

Business Combination Disclosure [Text Block]

2. ACQUISITIONS

The Company accounts for certain acquisitions as business combinations pursuant to ASC 805. In accordance with ASC 805, the Company uses its best estimates and assumptions to assign fair value to the tangible and identifiable intangible assets acquired and liabilities assumed at the acquisition date based on the information that is available as of the acquisition date. The Company believes that the information available provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed for each acquisition, however, preliminary measurements of fair value for each acquisition are subject to change during the measurement period, and such changes could be material. The Company expects to finalize the valuation after each acquisition as soon as practicable but no later than one year after the acquisition date.

Goodwill is calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired in a business combination and represents the future economic benefits expected to arise from anticipated synergies and intangible assets that do not qualify for separate recognition, including an assembled workforce, noncontractual relationships and other agreements. As an indefinite-lived asset, goodwill is not amortized but rather is subject to impairment testing on at least an annual basis.

Acquisition costs incurred by the Company are not included as components of consideration transferred and instead are accounted for as expenses in the period in which the costs are incurred. The Company incurred $0.8 million and $0.6 million of acquisition costs during the three months ended September 30, 2021 and 2020, respectively, and $10.0 million and $3.9 million during the nine months ended September 30, 2021 and 2020, respectively. These costs are included in selling, general and administrative expenses within the Company’s condensed consolidated statements of operations and comprehensive income.

The following acquisitions occurred during the periods presented:

Hargray. On May 3, 2021, the Company acquired the remaining approximately 85% equity interest in Hargray, a data, video and voice services provider, that it did not already own for an approximately $2.0 billion cash purchase price, which implied a $2.2 billion total enterprise value for Hargray on a cash-free and debt-free basis. The all-cash transaction was funded through a combination of cash on hand and proceeds from indebtedness. The Hargray Acquisition expands the Company’s presence in the Southeastern U.S. and is expected to enable the Company to capitalize on Hargray’s experience and expertise in fiber expansion.

The following table summarizes the allocation of the Hargray purchase price consideration as of the acquisition date (in thousands):

	*Preliminary Purchase*
	*Price Allocation*
Assets Acquired
Cash and cash equivalents	$	17,652
Accounts receivable		17,991
Prepaid and other current assets		8,006
Property, plant and equipment		457,158
Intangible assets		1,592,000
Other noncurrent assets		4,636
Total Assets Acquired		2,097,443

Liabilities Assumed
Accounts payable and accrued liabilities		36,457
Deferred revenue (short-term portion)		8,462
Current portion of long-term debt (finance leases)		1,375
Long-term debt (finance leases)		2,912
Deferred income taxes		437,725
Other noncurrent liabilities		6,974
Total Liabilities Assumed		493,905

Net assets acquired		1,603,538
Purchase price consideration(1)		2,117,866
Goodwill recognized	$	514,328

⁽¹⁾

Consists of approximately $2.0 billion of cash for the additional approximately 85% equity interest in Hargray that the Company did not already own and the $146.6 million May 3, 2021 fair value of the Company’s existing approximately 15% equity investment in Hargray. The Company recognized a $33.4 million non-cash gain within other income in the condensed consolidated statement of operations and comprehensive income upon the acquisition, representing the difference between the existing equity investment’s fair value and $113.2 million carrying value. The fair value of the existing investment was calculated as approximately 15% of the fair value of Hargray’s total equity value (determined using the discounted cash flow method of the income approach, less debt), excluding the impact of any synergies or control premium that would be realized by a controlling interest.

Acquired identifiable intangible assets associated with the Hargray Acquisition consist of the following (dollars in thousands):

			*Useful Life*
	*Fair Value*		*(in years)*
Customer relationships	$	472,000		13.7
Trademark and trade name	$	10,000		4.2
Franchise agreements	$	1,110,000	Indefinite

Customer relationships and franchise agreements were valued using the multi-period excess earnings method (“MPEEM”) of the income approach. Significant assumptions used in the valuations include projected revenue growth rates, customer attrition rates, future earnings before interest, taxes, depreciation and amortization (“EBITDA” and as adjusted, “Adjusted EBITDA”) margins, future capital expenditures and an appropriate discount rate. No residual value was assigned to the acquired customer relationships or trademark and trade name. The customer relationships are amortized on an accelerated basis commensurate with future anticipated cash flows. The trademark and trade name are amortized on a straight-line basis. The total weighted average amortization period for the acquired finite-lived intangible assets is 13.5 years.

The Hargray Acquisition resulted in the recognition of $514.3 million of goodwill, which is not deductible for tax purposes.

For the three months ended September 30, 2021, the Company recognized revenues of $78.4 million and net income of $6.0 million from Hargray operations, which included acquired intangible assets amortization expense of $12.8 million. For the nine months ended September 30, 2021, the Company recognized revenues of $129.0 million and net income of $10.4 million from Hargray operations since the acquisition date of May 3, 2021, which included acquired intangible assets amortization expense of $21.3 million.

The following unaudited pro forma combined results of operations information for the three and nine months ended September 30, 2021 and 2020 has been prepared as if the Hargray Acquisition had occurred on January 1, 2020 (in thousands, except per share data):

	(Unaudited)
	*Three Months Ended*				*Nine Months Ended*
	*September 30,*				*September 30,*
	*2021*		*2020*		*2021*		*2020*
Revenues	$	430,237	$	401,855	$	1,276,146	$	1,173,810
Net income	$	52,255	$	58,383	$	165,898	$	169,805
Net income per common share:
Basic	$	8.68	$	9.73	$	27.58	$	29.46
Diluted	$	8.33	$	9.29	$	26.24	$	28.04

The unaudited pro forma combined results of operations information reflects the following pro forma adjustments (dollars in thousands):

	(Unaudited)
	*Three Months Ended*					*Nine Months Ended*
	*September 30,*					*September 30,*
	*2021*		*2020*			*2021*			*2020*
Depreciation and amortization	$	-	$	(3,387	)	$	(6,152	)	$	(9,882	)
Interest expense	$	-	$	(511	)	$	(2,867	)	$	(20,221	)
Acquisition costs	$	-	$	-		$	(15,403	)	$	-
Gain on step acquisition	$	-	$	-		$	(33,400	)	$	-
Income tax provision	$	-	$	975		$	35,593		$	7,526
Weighted average common shares outstanding - diluted		-		404,248			95,219			404,248

The unaudited pro forma combined results of operations information is provided for informational purposes only and is not necessarily intended to represent the results that would have been achieved had the Hargray acquisition been consummated on January 1, 2020 or indicative of the results that may be achieved in the future.

Valu-Net. On July 1, 2020, the Company acquired Valu-Net, an all-fiber internet service provider headquartered in Kansas, for a purchase price of $38.9 million.

Acquired identifiable intangible assets associated with the Valu-Net acquisition consisted of the following (dollars in thousands):

			*Useful Life*
	*Fair Value*		*(in years)*
Customer relationships	$	7,700		13.5
Trademark and trade name	$	800	Indefinite
Franchise agreements	$	11,200	Indefinite

Customer relationships and franchise agreements were valued using the MPEEM of the income approach. Significant assumptions used in the valuations include projected revenue growth rates, future EBITDA margins, future capital expenditures and an appropriate discount rate. No residual value was assigned to the acquired customer relationships. The customer relationships are amortized on an accelerated basis commensurate with future anticipated cash flows.