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Acquisition Accounting | 6 Months Ended
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Jun. 30, 2014
Business Combinations [Abstract] |
Acquisition Accounting | Acquisition Accounting On April 30, 2013, the merger of Dex One and SuperMedia was consummated, with 100% of the equity of SuperMedia being exchanged for 6.9 million Dex Media common shares that were issued to former SuperMedia shareholders at the converted $11.90 per share price, which equated to a fair value of common stock issued of $82 million. We accounted for the business combination using the acquisition method of accounting in accordance with ASC 805, with Dex One identified as the acquiring entity for accounting purposes. Dex One was considered the acquiring entity for accounting purposes based on certain criteria including, but not limited to, the fact that (1) upon consummation of the merger, Dex One shareholders held approximately 60% of the common stock of Dex Media as compared to approximately 40% held by SuperMedia shareholders and (2) Dex One's chairman of the board of directors continued as the chairman of the board of directors of Dex Media. We prepared the appraisals necessary to assess the fair values of the SuperMedia tangible and intangible assets acquired and liabilities assumed, and goodwill, which represented the excess of the purchase price over the fair value of the net tangible and intangible assets acquired, recognized as of the acquisition date. The income approach was utilized in determining the fair value of the intangible assets, which consist of directory services agreements with certain local telephone service providers, client relationships, trademarks and domain names, and patented technologies. The market approach was utilized to determine the fair value of SuperMedia's debt obligations. As of March 31, 2014, the measurement period for the acquisition was finalized. Purchase Price Allocation
Fair value of assets acquired | (in millions)
Cash and cash equivalents | $ | 154 |
Accounts receivable | 111 |
Unbilled accounts receivable | 316 |
Other current assets | 64 |
Fixed assets and capitalized software | 42 |
Intangible assets | 635 |
Goodwill | 389 |
Pension assets | 58 |
Other non-current assets | 4 |
Total fair value of assets acquired | $ | 1,773 |
Fair value of liabilities acquired |
Accounts payable and accrued liabilities | $ | 114 |
Long-term debt (including current maturities) | 1,082 |
Employee benefit obligations | 99 |
Unrecognized tax benefits | 45 |
Deferred tax liabilities | 351 |
Total fair value of liabilities acquired | $ | 1,691 |
Total allocable purchase price | $ | 82 |
Common Stock The Merger Agreement provided that each issued and outstanding share of SuperMedia common stock be converted into the right to receive 0.4386 shares of Dex Media common stock. As of April 30, 2013, 15.6 million shares of SuperMedia common stock were issued and outstanding, which resulted in the issuance of 6.9 million shares of Dex Media common stock. Dex One shareholders received 0.2 shares of Dex Media common stock for each share of Dex One common stock that they owned, which reflects a 1-for-5 reverse stock split of Dex One common stock. The closing trading price of Dex One common stock on April 30, 2013 of $2.38, when adjusted for the 1-for-5 reverse stock split equated to a Dex Media common stock value of $11.90 per share. The 6.9 million Dex Media shares issued to former SuperMedia shareholders at the converted $11.90 per share price equated to a fair value of common stock issued of $82 million. Long-term debt including current maturities As a result of acquisition accounting, SuperMedia's outstanding debt was adjusted to a fair value of $1,082 million, from its face value of $1,442 million, resulting in a discount of $360 million being recognized. The discount is being amortized to interest expense over the remaining term of the SuperMedia senior secured credit facilities using the effective interest method. Goodwill and Intangible Assets The goodwill of $389 million that was recorded as part of the acquisition represents the expected synergies and residual benefits that Dex Media believes will result from the combined operations. The Company determined that the $389 million of acquired goodwill is not deductible for tax purposes. Subsequent to the merger, as disclosed in our 2013 Annual Report on Form 10-K, the Company recorded a $74 million goodwill impairment charge. The fair value of intangible assets acquired of $635 million was determined using valuation techniques consistent with the income approach to measure fair value. The directory services agreements with certain local telephone service providers and client relationships were valued utilizing the excess earnings approach. The excess earnings attributable to the directory services agreements and client relationships were discounted utilizing a weighted average cost of capital of 21%. The trademark and domain names and patented technologies were valued utilizing the relief from royalty approach. The estimated remaining useful lives were estimated based on the future economic benefit to be received from the assets. The intangible assets are being amortized utilizing the income forecast method, which is an accelerated amortization method that assumes the value derived from these intangible assets is greater in the earlier years and steadily declines over time based on expected future cash flows. The following table sets forth the components of the intangible assets acquired.
| Fair Value | Estimated Useful Lives
| (in millions) |
Directory services agreements | $ | 145 |  | 5 years
Client relationships | 420 |  | 3 years
Trademarks and domain names | 60 |  | 5 years
Patented technologies | 10 |  | 4 years
Total fair value of intangible assets acquired | $ | 635 |  |
Deferred Revenue, Deferred Directory Costs, and Unbilled Accounts Receivable Prior to the merger with Dex One, SuperMedia had $386 million of deferred revenue and $122 million of deferred directory costs on its consolidated balance sheet. As a result of acquisition accounting, the fair value of deferred revenue at April 30, 2013 for SuperMedia was determined to have no value, equating to $386 million of revenue that would have been amortized by SuperMedia from May 2013 through April 2014, that will not be recognized by Dex Media. SuperMedia has minimal, if any, remaining performance obligations related to its clients who have previously contracted for advertising, thus, no value was assigned to its deferred revenue. The fair value of deferred directory costs as of April 30, 2013 for SuperMedia was determined to have no value, other than paper held in inventory and prepayments associated with future publications. These costs do not have any future value since SuperMedia has already incurred the costs to produce the clients' advertising and does not anticipate to incur any significant additional costs associated with those published directories. This equated to $93 million of cost that would have been amortized by SuperMedia from May 2013 through April 2014, that was not recognized by Dex Media. The exclusion of these results from the consolidated statements of comprehensive (loss) of Dex Media, did not impact our cash flows. In connection with acquisition accounting, the fair value of SuperMedia's unbilled accounts receivable was determined to be $316 million. Unbilled accounts receivable represents amounts that are not billable at the balance sheet date, but are billed over the remaining life of the clients' advertising contracts. Results of SuperMedia As a result of acquisition accounting, SuperMedia's historical results through April 30, 2013 have not been included in the Company's consolidated results. Merger Transaction Costs The Company cumulatively incurred $42 million of merger transaction costs. Of this amount, $8 million represents deferred financing costs associated with the amendments of Dex One's senior secured credit facilities. This amount was recorded to other assets on the Company's consolidated balance sheet and will be amortized to interest expense over the remaining term of the related Dex One senior secured credit facilities using the effective interest method. The remainder of these costs, which include one-time costs associated with investment bankers, legal, and professional fees, were expensed as part of general and administrative expense on the Company's consolidated statements of comprehensive (loss). Of these costs, $9 million and $19 million were incurred and expensed during the three and six months ended June 30, 2013, and are reflected as general and administrative expense on the Company's consolidated statement of comprehensive (loss). No merger transaction costs were incurred during the six months ended June 30, 2014. For additional information on merger related costs, see Note 3 - Merger Integration and Transaction Costs. Pro Forma Information The unaudited pro forma information below presents the combined operating results of Dex Media, with results prior to the acquisition date adjusted, as if the transaction had occurred January 1, 2012. These pro forma adjustments include adjustments associated with the amortization of the acquired intangible assets, the elimination of merger transaction costs, the impacts of the adjustment to interest expense to reflect the incremental change in interest rates associated with credit facility interest rate amendments, the amortization of deferred financing costs associated with Dex One and the amortization of the long-term debt fair value adjustment to SuperMedia's senior secured credit facility. The 2014 and 2013 pro forma results have been adjusted to include the operating results of SuperMedia from January 1, 2013 to April 30, 2013 and the impact to revenue and expense associated with SuperMedia's deferred revenue and deferred directory cost estimates associated with directories published between January 1, 2013 and April 30, 2013, which were written off as a result of acquisition accounting as of April 30, 2013 and thus not recognized in our GAAP operating results. The historical financial information has been adjusted to give effect to pro forma events that are (1) directly attributable to the acquisition, (2) factually supportable and (3) expected to have a continuing impact on the combined results of Dex One and SuperMedia. The unaudited pro forma results below are presented for illustrative purposes only and do not reflect the realization of potential cost savings. These pro forma results do not purport to be indicative of the results that would have actually been obtained if the merger had occurred on January 1, 2012, nor does the pro forma data intend to be a projection of results that may be obtained in the future. Unaudited Pro Forma Results
| Three Months Ended June 30, | Six Months Ended June 30,
| 2014 | 2013 | 2014 | 2013
| (in millions)
Operating revenue | $ | 474 |  | $ | 558 |  | $ | 960 |  | $ | 1,139 |
Net (loss) | $ | (85 | ) | $ | (5 | ) | $ | (153 | ) | $ | (50 | )
The impact of the pro forma adjustments on operating revenue and net (loss) for the three months ended June 30, 2014 was less than $1 million.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=25497992&loc=d3e1383-128463 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=7488404&loc=d3e6996-128479 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6910749&loc=d3e4922-128472 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=6910749&loc=d3e4934-128472 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6910749&loc=d3e4926-128472 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=7488404&loc=d3e7000-128479 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=25497992&loc=d3e1392-128463 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=25497992&loc=d3e1486-128463 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=7488404&loc=d3e6927-128479 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=25497992&loc=d3e1497-128463 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=25497992&loc=d3e1490-128463 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=7488404&loc=d3e7008-128479 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6910749&loc=d3e4845-128472 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 6 -URI http://asc.fasb.org/extlink&oid=25497992&loc=d3e1500-128463 Reference 15: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 7 -URI http://asc.fasb.org/extlink&oid=25497992&loc=d3e1524-128463 + Details
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