Quarterly report pursuant to Section 13 or 15(d)

Acquisition

v3.8.0.1
Acquisition
 3 Months Ended
Mar. 31, 2018
Business Combinations [Abstract]  
Acquisition
Acquisition

The Company accounted for the Transactions contemplated under the reorganization agreement using the acquisition method of accounting. Under this method, HoldCo is the acquirer of GCI Liberty. The acquisition price was
$1.1 billion (level 1). The application of the acquisition method resulted in the assignment of purchase price to the GCI Liberty assets acquired and liabilities assumed based on our preliminary estimates of their acquisition date fair values (primarily level 3). The assets acquired and liabilities assumed, and as discussed within this note, are those assets and liabilities of GCI Liberty prior to the completion of the Transactions. The determination of the fair values of the acquired assets and liabilities (and the determination of estimated lives of depreciable tangible and identifiable intangible assets) requires significant judgment.
    
The preliminary acquisition price allocation for GCI Liberty is as follows (amounts in thousands):
 
 
 
Cash and cash equivalents
 
$
132,563

Receivables
 
184,704

Property and equipment
 
1,195,126

Goodwill
 
924,629

Intangible assets not subject to amortization
 
563,000

Intangible assets subject to amortization
 
543,905

Other assets
 
97,580

Deferred revenue
 
(76,991
)
Debt, including capital leases
 
(1,706,049
)
Other liabilities
 
(273,055
)
Deferred income tax liabilities
 
(292,284
)
Preferred stock
 
(174,922
)
Non-controlling interest
 
(7,000
)
 
 
$
1,111,206



Goodwill is calculated as the excess of the consideration transferred over the identifiable net assets acquired and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce, value associated with future customers, continued innovation and non-contractual relationships. Amortizable intangible assets of $543.9 million were acquired and are comprised of a tradename with an estimated useful life of approximately 8 years, customer relationships with a weighted average useful life of approximately 13 years and right-to-use assets with a weighted average useful life of 8 years. Approximately $170.0 million of the acquired goodwill will be deductible for income tax purposes. As of March 31, 2018, the valuation related to the acquisition of GCI Liberty is not final, and the acquisition price allocation is preliminary and subject to revision. The primary areas of the acquisition price allocation that are not yet finalized are related to certain property and equipment, intangible assets, liabilities and tax balances.

Since the date of the acquisition, included in net earnings (loss) for the three months ended March 31, 2018 is $1.5 million in losses related to the operations of GCI Liberty. The unaudited pro forma revenue, net earnings and basic and diluted net earnings per common share of GCI Liberty, prepared utilizing the historical financial statements of HoldCo, giving effect to acquisition accounting related adjustments made at the time of acquisition, as if the acquisition discussed above occurred on January 1, 2017, are as follows:
 
 
Three months ended
 
 
March 31,
 
 
2018
 
2017
 
 
amounts in thousands, except per share amounts
Revenue
 
$
220,805

 
229,292

Net earnings (loss)
 
$
(178,874
)
 
393,520

Net earnings (loss) attributable to GCI Liberty shareholders
 
$
(178,719
)
 
393,637

Basic net earnings (loss) attributable to Class A and Class B GCI Liberty, Inc. shareholders per common share
 
$
(1.66
)
 
3.61

Diluted net earnings (loss) attributable to Class A and Class B GCI Liberty, Inc. shareholders per common share
 
$
(1.66
)
 
3.61



The pro forma results include adjustments primarily related to the amortization of acquired tangible and intangible assets, revenue, interest expense, stock-based compensation and the exclusion of transaction related costs. The pro forma information is not representative of the Company’s future results of operations nor does it reflect what the Company’s results of operations would have been if the acquisition had occurred previously and the Company consolidated the results of GCI Liberty during the periods presented.