Sale of Wireless Operations | 3 Months Ended |
Mar. 31, 2015 |
Discontinued Operations and Disposal Groups [Abstract] | |
Sale of Wireless Operations | 2 | SALE OF WIRELESS OPERATIONS | | | | | | | | | | | | | | | |
On December 4, 2014, the Company entered into a Purchase and Sale Agreement (the “Agreement”) to sell to General Communication, Inc (“GCI”), ACSW’s interest in AWN and substantially all the assets and subscribers related to the wireless business of ACS and its affiliates, as described below (the “Wireless Sale”). |
Pursuant to the Agreement, ACS agreed to sell to GCI its interest in AWN and substantially all the assets and subscriber contracts of ACS and its affiliates related to ACS’s wireless business (the “Acquired Assets”) for a cash payment of $300,000, which amount was subject to adjustment for certain working capital assets and liabilities as well as minimum subscriber levels and preferred distributions. |
The transaction was completed on February 2, 2015. After adjustments for certain working capital assets and liabilities, minimum subscriber levels and preferred distributions totaling $14,612, and $9,000 of cash held in escrow pending resolution of potential additional purchase price adjustments (not reflected in the recognized gain), cash proceeds on the sale were $276,388, of which $240,472 was utilized to pay down our 2010 Senior Secured Credit Facility (“Senior Credit Facility”). This adjustment process is subject to a review and approval process and may ultimately be trued up within 90 days of the sale. GCI is disputing certain of the adjustments discussed above. Resolution of these potential adjustments is not expected to have a material effect on our financial statements. The Company recorded a gain before income tax of $39,719 in the three month period ended March 31, 2015. |
The following table provides the calculation of the gain: |
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Consideration received: | | | | | | | | | | | | | | | | |
Cash | | $ | 35,916 | | | | | | | | | | | | | |
Cash held in escrow | | | 9,000 | | | | | | | | | | | | | |
Principal payment on Senior Credit Facility | | | 240,472 | | | | | | | | | | | | | |
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Total consideration received | | | 285,388 | | | | | | | | | | | | | |
Carrying value of assets and liabilities sold: | | | | | | | | | | | | | | | | |
Equity investment in AWN | | | 250,192 | | | | | | | | | | | | | |
Assets and liabilities, net | | | 13,862 | | | | | | | | | | | | | |
Net change in deferred capacity revenue | | | (18,385 | ) | | | | | | | | | | | | |
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Total carrying value of assets and liabilities sold | | | 245,669 | | | | | | | | | | | | | |
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Gain on disposal of assets | | $ | 39,719 | | | | | | | | | | | | | |
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The Acquired Assets included, without limitation, all the equity interests of AWN owned or held by ACSW, substantially all of ACS’s wireless subscriber assets, including subscriber contracts, and certain network assets at predetermined demarcation points to the cell site locations, including certain fiber strands and associated cell site electronics and microwave facilities and associated electronics. This transaction also includes a capacity agreement with GCI that is similar to the capacity agreement provided in the July 23, 2013 transaction with AWN, whereby ACS provides certain capacity from the predetermined demarcation points to a central switch location and, if required, to points outside of Alaska. GCI did not acquire certain “Excluded Assets”, which included, without limitation, cash, certain inventory, all rights and assets (other than drop circuits) primarily used to provide wireline services and any right or asset used by ACS or any of its affiliates to provide local exchange services under the Communications Act of 1934, as amended. GCI assumed from ACS post-closing liabilities of ACS and its affiliates under contracts assumed by GCI and liabilities with respect to the ownership by ACSW of its equity interest in AWN to the extent accruing and related to the period after closing. All other liabilities were retained by ACS and its affiliates. |
The two companies agreed upon a service transition plan in which ACS continued to provide certain retail and back office services to its previous wireless customers for an interim period, which was completed on April 17, 2015. This arrangement did not cover the costs of providing the service. As of March 31, 2015, the fair value of these services was $4,050, which exceeded the consideration received for this service by approximately $710. This estimated loss was reflected in the calculation of our gain on the sale. |
In addition to the major elements discussed above, ACS and its controlled affiliates are restricted from operating a wireless network or providing wireless products or services in Alaska for a period of four years after closing, except for: (a) fixed wireless replacement, (b) WiFi, (c) wireless backhaul and transport, (d) cell site leases and (e) acting as a wireless internet service provider. |
As part of the transaction, the Company initiated a plan to sell certain assets associated with realigning operations to focus on its wireline broadband business going forward. These assets include certain handset inventory, which was sold, and retail store leases which are actively being marketed for sale to third parties. Upon completion of the service transition plan, the Company is accelerating its wireless retail wind-down activities, which include exiting all retail store locations, reducing workforce directly or indirectly associated with the retail wireless business, and taking other steps to align its cost structure as a smaller, more focused company. |
The Company considered the sale of assets to GCI under the guidance of Accounting Standards Codification (“ASC”) 205-20 Discontinued Operations and ultimately concluded that the assets sold did not meet the definition of a component of an entity. The conclusion was based on the determination that the assets did not comprise operations that can be clearly distinguished, either operationally or for financial reporting. The Company has one operating segment and one reporting unit and although there are revenue streams that are clearly identifiable, the majority of the operating costs are comingled across the operations of its business and cannot be reasonably separated. |
The following table provides a reconciliation of the major classes of assets and liabilities included in the Consolidated Balance Sheet under the captions “Current assets held-for-sale”, “Non-current assets held-for-sale,” “Current liabilities held-for-sale” and “Non-current liabilities held-for-sale” at March 31, 2015 and December 31, 2014: |
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| | March 31, | | | December 31, | | | | | | | | | |
2015 | 2014 | | | | | | | | |
Current assets: | | | | | | | | | | | | | | | | |
Accounts receivable, non-affiliates, net | | $ | — | | | $ | 7,607 | | | | | | | | | |
Materials and supplies | | | — | | | | 1,958 | | | | | | | | | |
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Total current assets held-for-sale | | $ | — | | | $ | 9,565 | | | | | | | | | |
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Property, plant and equipment, net of accumulated depreciation of $2,045 and $8,835 | | | 2,523 | | | | 14,664 | | | | | | | | | |
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Total non-current assets held-for-sale | | $ | 2,523 | | | $ | 14,664 | | | | | | | | | |
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Current liabilities: | | | | | | | | | | | | | | | | |
Current portion of long-term obligations | | $ | 299 | | | $ | 287 | | | | | | | | | |
Accounts payable, accrued and other current liabilities, non-affiliates | | | — | | | | 301 | | | | | | | | | |
Accounts payable, accrued and other current liabilities, affiliates, net | | | — | | | | 14,411 | | | | | | | | | |
Advance billings and customer deposits | | | — | | | | 3,729 | | | | | | | | | |
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Total current liabilities held-for-sale | | $ | 299 | | | $ | 18,728 | | | | | | | | | |
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Long-term obligations, net of current portion | | | 2,050 | | | | 2,107 | | | | | | | | | |
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Total non-current liabilities held-for-sale | | $ | 2,050 | | | $ | 2,107 | | | | | | | | | |
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Although they did not meet the criteria for being classified as assets held-for-sale, certain other assets and liabilities were impacted by the transaction as follows: |
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| • | | The equity method investment in AWN, valued at $250,192, was sold to GCI on February 2, 2015. | | | | | | | | | | | | | |
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| • | | The remaining Deferred AWN capacity revenue, which was created during the AWN transaction in 2013 and was being amortized over the 20 year contract life, was removed. This capacity had a carrying value of $59,672 on February 2, 2015. It was replaced with a new service obligation in the amount of $41,287 which was recorded at the estimated fair value of the services to be provided to GCI in the future and will be amortized over the new contract life of up to 30 years. | | | | | | | | | | | | | |
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| • | | On February 2, 2015, the Company’s Senior Credit Facility was amended resulting in $240,472 in principal payments and the write-off of associated debt discount and debt issuance costs of $721 and $1,907, respectively in the three month period ended March 31, 2015. For additional information on this amendment, see Note 6 “Long-term Obligations.” | | | | | | | | | | | | | |
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| • | | Current deferred tax assets of $92,836 representing Federal and state net operating loss carryforwards and state alternative minimum tax credit carryforwards, and non-current deferred tax liabilities of $70,577 related to the Company’s investment in AWN reversed in the first quarter of 2015 as a result of the Wireless Sale. | | | | | | | | | | | | | |
In connection with the Company’s decision to sell its wireless operations the Company has, and will continue to incur, a number of transaction and related wind-down costs throughout 2015. The wind-down costs include those associated with workforce reductions, termination of contracts and other associated obligations that meet the criteria for being reported as exit obligations under ASC 420 Exit or Disposal Cost Obligations. In the fourth quarter of 2014, the Company adjusted its inventory held for sale, less cost to sell, to fair value and began to incur labor obligations. The labor obligations are expected to be significant in the first half of 2015, and then begin to decline in the second half of the year. The Company also expects certain contract termination costs associated with retail store leases and the discontinuance of the wireless billing system software contract to begin to occur in the second quarter, and to continue throughout 2015. These obligations include costs associated with the disposal of $2,523 in capital lease assets and $2,349 in capital lease liabilities that were classified as assets and liabilities held-for-sale at March 31, 2015, as well as costs to vacate operating leases which have a remaining term of approximately 11 years and a remaining contract value of $6,306. The leased space is currently occupied and negotiation of the release from the liabilities is underway. The settlement terms are currently uncertain. Transaction costs include legal, debt amendment, accounting and other costs necessary to consummate the transaction. The Company has incurred $4,346 in transaction and wind-down costs in 2015. |
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The following table summarizes the Company’s current obligations for exit activities as of and for the three month period ended March 31, 2015: |
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| | Labor | | | Contract | | | Other | | | Total | |
Obligations | Terminations | Associated |
| | Obligations |
Balance, December 31, 2014 | | $ | 490 | | | $ | — | | | $ | — | | | $ | 490 | |
Charged to expense | | | 2,485 | | | | — | | | | — | | | | 2,485 | |
Paid and/or settled | | | (749 | ) | | | — | | | | — | | | | (749 | ) |
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Balance, March 31, 2015 | | $ | 2,226 | | | $ | — | | | $ | — | | | $ | 2,226 | |
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The exit activities as noted above that have been incurred to date are included in the captions “Selling, general and administrative”, and “Cost of service and sales, non-affiliate” on the Company’s “Consolidated Statements of Comprehensive Income”. The exit liability is included in “Accounts payable and other accrued liabilities – non affiliates” on the Company’s “Consolidated Balance Sheets”. |