Note 9 — Equity Method Investments and Related Party Transactions

Eutelsat strategic partnering arrangement

In March 2017, the Company acquired a 49% interest in Euro Infrastructure Co. for $139.5 million as part of the consummation of the Company’s strategic partnering arrangement with Eutelsat. The Company’s total net cash outlay for its investment in Euro Infrastructure Co., including approximately $2.4 million of transaction costs, was approximately $141.9 million. Also at the closing, Eutelsat purchased 49% of the issued shares of a subsidiary of the Company, Euro Retail Co. for an immaterial amount. Under the strategic partnering arrangement, Euro Infrastructure Co. owns and operates the KA-SAT satellite and related assets and offers wholesale satellite capacity services in the European region, and Euro Retail Co. purchases wholesale satellite capacity services and offers retail satellite-based broadband internet services in the European region. Also at the closing, the Company and Eutelsat entered into shareholders’ agreements and other ancillary agreements with respect to the ownership, management and operation of the two entities.

The Company’s investment in Euro Infrastructure Co. is accounted for under the equity method and the total investment, including basis difference allocated to tangible assets, identifiable intangible assets, deferred income taxes and goodwill, is classified as a single line item, as an investment in unconsolidated affiliate, on the Company’s consolidated balance sheets. Because the underlying net assets in Euro Infrastructure Co. and the related excess carrying value of investment over the proportionate share of net assets are denominated in Euros, foreign currency translation gains or losses impact the recorded value of the Company’s investment. The Company recorded foreign currency translation gains, net of tax, of approximately $12.7 million for the fiscal year ended March 31, 2018, in accumulated other comprehensive income (loss). The Company records its proportionate share of the results of Euro Infrastructure Co., and any related basis difference amortization expense, within equity in income (losses) of unconsolidated affiliate, net, one quarter in arrears. Accordingly, the Company included its share of the results of Euro Infrastructure Co. from the date of the Company’s investment in Euro Infrastructure Co. on March 3, 2017 through December 31, 2017 in its consolidated financial statements for the fiscal year ended March 31, 2018. The Company’s investment in Euro Infrastructure Co. is presented at cost of investment plus its accumulated proportional share of income or loss, including amortization of the difference in the historical basis of the Company’s contribution, less any distributions it has received.

The difference between the Company’s carrying value of its investment in Euro Infrastructure Co. and its proportionate share of the net assets of Euro Infrastructure Co. as of March 31, 2018 and March 31, 2017 is summarized as follows:

	As of March 31, 2018			As of March 31, 2017
	(In thousands)
Carrying value of investment in Euro Infrastructure Co.	$	163,835		$	141,894
Less: proportionate share of net assets of Euro Infrastructure Co.		147,115			127,393
Excess carrying value of investment over proportionate share of net assets	$	16,720		$	14,501
The excess carrying value has been primarily assigned to:
Goodwill	$	23,523		$	20,791
Identifiable intangible assets		12,839			12,379
Tangible assets		(21,342	)		(20,241	)
Deferred income taxes		1,700			1,572
	$	16,720		$	14,501

The identifiable intangible assets have useful lives of up to 11 years and a weighted average useful life of approximately ten years, and tangible assets have useful lives of up to 11 years and a weighted average useful life of approximately 11 years. Goodwill is not deductible for tax purposes.

The Company’s share of income on its investment in Euro Infrastructure Co. was $2.0 million for the fiscal year ended March 31, 2018, consisting of the Company’s share of equity in Euro Infrastructure Co.’s income, including amortization of the difference in the historical basis of the Company’s contribution. As the Company records its proportionate share of the results of Euro Infrastructure Co., and any related basis difference amortization expense, within equity in income (losses) of unconsolidated affiliate, net, one quarter in arrears, the Company did not have any share of income on its investment in Euro Infrastructure Co. in the prior year period.

Since acquiring its interest in Euro Infrastructure Co., the Company has recorded $2.0 million in retained earnings of undistributed cumulative earnings in equity interests, net of tax, as of March 31, 2018.

Related-party transactions

Transactions with the equity method investee are considered related-party transactions. Richard Baldridge, the President and Chief Operating Officer and a Director of the Company, also serves on the board of directors of Ducommun Inc. The following tables set forth the material related-party transactions entered into between Euro Infrastructure Co. and its subsidiaries, or Ducommon Inc. on the one hand, and the Company and its subsidiaries, on the other hand, in the ordinary course of business for the time periods presented:

Fiscal Years Ended

March 31,

2018

March 31,

2017

March 31,

2016

(In thousands)

Revenue – Euro Infrastructure Co.

9,277

Expense – Euro Infrastructure Co.

7,134

Cash received – Euro Infrastructure Co.

7,460

Cash paid – Euro Infrastructure Co.

7,040

	As of March 31, 2018		As of March 31, 2017
	(In thousands)
Accounts receivable – Euro Infrastructure Co.	$	3,307	$	**
Accounts payable – Ducommun Inc.		2,073	***
Collections in excess of revenues and deferred revenues – Euro Infrastructure Co.		3,246	**

*	Euro Infrastructure Co. and its subsidiaries were not related parties in fiscal year 2016.

**	Amount was insignificant.

***	There was no related-party activity for the periods indicated.