Acquisitions | 9 Months Ended |
Sep. 30, 2013 |
Acquisitions | ' |
Acquisitions | ' |
3. Acquisitions |
|
SystemMetrics Corporation |
|
On September 30, 2013, the Company completed its acquisition of all of SystemMetrics Corporation (“SystemMetrics”) common stock for $16.3 million. Of the total purchase price, $11.9 million was payable at closing, net of cash acquired and purchase price adjustments. A balance of $3.3 million is subject to an earn-out over a three year period. Payment of the earn-out is contingent on SystemMetrics meeting certain performance metrics and continued employment of the SystemMetrics’ key executive. The purchase transaction has been accounted for as a business combination. For financial reporting purposes, the earn-out will be accounted for as compensation expense as earned. |
|
SystemMetrics provides virtual and physical data center colocation services in the State of Hawaii along with other telecommunication services that are complementary to the Company’s operations. Transaction costs amounted to $0.4 million. These costs were primarily professional fees and recognized as general and administrative expenses as incurred. |
|
The Company followed the acquisition method of accounting and allocated the purchase price to the tangible and intangible assets acquired and liabilities assumed based on their preliminary fair values, and the estimates and assumptions are subject to change within the measurement period, which is one year from the acquisition date. The excess of the purchase price over those fair values was recorded as goodwill. The following table summarizes the assets acquired and the liabilities assumed (dollars in thousands): |
|
Assets - | | | | | | | | | | | | |
Property and equipment | | $ | 3,781 | | | | | | | | | | |
Intangible assets | | 4,380 | | | | | | | | | | |
Goodwill | | 10,368 | | | | | | | | | | |
Other assets | | 643 | | | | | | | | | | |
| | 19,172 | | | | | | | | | | |
| | | | | | | | | | | | |
Liabilities - | | | | | | | | | | | | |
Current liabilities | | 3,684 | | | | | | | | | | |
Non-current liabilities | | 2,304 | | | | | | | | | | |
Deferred income taxes | | 1,326 | | | | | | | | | | |
| | 7,314 | | | | | | | | | | |
| | | | | | | | | | | | |
Net acquisition price | | $ | 11,858 | | | | | | | | | | |
|
Because the acquisition occurred on September 30, 2013, the financial results of SystemMetrics had no impact on the Company’s consolidated statements of income for the three or nine months ended September 30, 2013. |
|
The fair value of property, plant and equipment was based on the highest and best use of the specific properties. To determine fair value the Company considered and applied primarily the cost approach. This approach considers the amount required to construct or purchase a new asset of equal utility at current prices with adjustments to the value for physical deterioration, functional obsolescence and economic obsolescence. The fair value of intangible assets including the brand name and customer relationship intangibles were based on discounted cash flows from projections of results of operations for SystemMetrics. |
|
The goodwill recognized is attributed to the anticipated synergies to be achieved by combining the operations of the Company and SystemMetrics. The goodwill is not deductible for income tax reporting purposes and is anticipated to be attributed to a newly formed data center segment. |
|
The following unaudited pro forma results of operations are provided for the three and nine months ended September 30, 2013 and 2012 as if the acquisition of SystemMetrics occurred on January 1, 2012. The pro forma combined results of operations have been prepared by adjusting the historical results of the Company to include the historical results of SystemMetrics. Adjustments were made to the historical results for the purchase price allocation which primarily impacts depreciation and amortization, to eliminate the interest on certain debt financing which was not assumed in the purchase, to eliminate certain intercompany revenue between the entities and to reallocate the transaction related expenses from the 2013 to the 2012 periods. |
|
These supplemental pro forma results of operations are provided for illustrative purposes only and do not purport to be indicative of the actual results that would have been achieved by the combined company for the periods presented or that may be achieved by the combined company in the future. The pro forma results of operations do not include any costs savings or synergies that resulted, or will result, from the acquisition or any estimated costs that will be incurred to integrate SystemMetrics. Future results may vary significantly from the results reflected in this pro forma financial information because of future events and transactions as well as other factors. |
|
The pro forma results are as follows (dollars in thousands): |
|
| | For the Three Months Ended | | For the Nine Months Ended | |
| | September 30, | | September 30, | |
| | 2013 | | 2012 | | 2013 | | 2012 | |
| | | | | | | | | |
Revenues | | $ | 99,649 | | $ | 98,512 | | $ | 296,443 | | $ | 294,411 | |
Expenses | | 91,610 | | 87,885 | | 264,808 | | 262,631 | |
Operating income | | 8,039 | | 10,627 | | 31,635 | | 31,780 | |
Other income (expense) | | (4,082 | ) | (5,480 | ) | (18,344 | ) | (21,974 | ) |
Income before income tax benefit | | 3,957 | | 5,147 | | 13,291 | | 9,806 | |
Income tax expense (benefit) | | 1,301 | | (298 | ) | 4,970 | | (799 | ) |
| | | | | | | | | |
Net income | | $ | 2,656 | | $ | 5,445 | | $ | 8,321 | | $ | 10,605 | |
|
Wavecom Solutions Corporation |
|
On December 31, 2012, the Company completed its acquisition of Wavecom Solutions Corporation (“Wavecom”) for $8.7 million in cash, net of cash acquired and final purchase adjustments. Wavecom provides telecommunication services in the State of Hawaii which are complementary to the Company’s operations. |
|
The Company followed the acquisition method of accounting and allocated the purchase price to the tangible and intangible assets acquired and liabilities assumed based on their preliminary fair values, and the estimates and assumptions are subject to change within the measurement period, which is one year from the acquisition date. The measurement period remains open as of September 30, 2013 as the Company continues to evaluate additional information obtained related to the amount recognized for certain estimated liabilities. The excess of the purchase price over those fair values was recorded as goodwill. During the three months ended March 31, 2013, the Company made adjustments to the preliminary purchase price allocation based on additional information as to the existence and value of certain assets. In addition, the net acquisition price changed with the final purchase adjustments agreed to by the seller. The measurement period adjustments did not have a significant impact on the Company’s condensed consolidated statements of income for the nine months ended September 30, 2013. In addition, these adjustments did not have a significant impact on the Company’s consolidated balance sheets as of December 31, 2012. Therefore, the Company has not retrospectively adjusted the comparative 2012 financial information presented herein. The adjustments are as follows (dollars in thousands): |
|
| | | | | | Recognized | | | | |
| | Recognized | | Measurement | | as of | | | | |
| | as of | | Period | | Acquisition | | | | |
| | Acquisition | | Adjustments | | As Revised | | | | |
| | | | | | | | | | |
Assets - | | | | | | | | | | |
Property and equipment | | $ | 11,898 | | $ | 876 | | $ | 12,774 | | | | |
Intangible assets | | 1,060 | | (410 | ) | 650 | | | | |
Goodwill | | 1,569 | | (154 | ) | 1,415 | | | | |
Other assets | | 1,663 | | — | | 1,663 | | | | |
| | 16,190 | | 312 | | 16,502 | | | | |
| | | | | | | | | | |
Liabilities - | | | | | | | | | | |
Current liabilities | | 2,360 | | — | | 2,360 | | | | |
Payable from Wavecom to the Company | | 4,037 | | — | | 4,037 | | | | |
Non-current liabilities | | 1,450 | | — | | 1,450 | | | | |
| | 7,847 | | — | | 7,847 | | | | |
| | | | | | | | | | |
Net acquisition price | | $ | 8,343 | | $ | 312 | | $ | 8,655 | | | | |
|