| Sale of Wireless Operations | 2. SALE OF WIRELESS
OPERATIONS
On December 4, 2014, the Company entered into a Purchase and
Sale Agreement to sell to General Communication, Inc
(“GCI”), ACSW’s interest in AWN and substantially
all the assets and subscribers used primarily in the wireless
business of ACS and its affiliates (the “Acquired
Assets”), as described below, 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 “Wireless Sale”).
The transaction was completed on February 2, 2015, subject to
resolution of potential additional purchase price adjustments.
After final resolution in the third quarter of 2015 (as described
below) of adjustments for certain working capital assets and
liabilities, minimum subscriber levels, preferred distributions and
other adjustments totaling $14,612, and $228 of cash held in escrow
pending completion of certain backhaul orders, cash proceeds on the
sale were $285,160, of which $240,472 was utilized to pay down the
Company’s 2010 Senior Credit Facility. The Company recorded a
gain before income tax of $48,232 in the nine month period ended
September 30, 2015.
On August 4, 2015, the Company and GCI entered into an
agreement to resolve all outstanding disputes between the parties
associated with the Wireless Sale including finalization of the
purchase price adjustments. In the third quarter of 2015, $7,092 of
$9,000 cash placed in escrow at closing pending resolution of
potential additional purchase price adjustments was disbursed to
the Company and $1,680 was disbursed to GCI. The gain on and
proceeds from the Wireless Sale described above include the $7,092
received from escrow in the third quarter of 2015. The remaining
$228 will be disbursed to the Company upon timely completion of
certain backhaul orders during the fourth quarter of 2015, or to
GCI in the event the Company does not complete the backhaul orders
on a timely basis. Final resolution of escrow disbursements was
originally scheduled for February 2016.
The following table provides the calculation of the gain:
Consideration:
Cash $ 44,688
Cash held in escrow 228
Principal payment on 2010 Senior Credit Facility 240,472
Total consideration 285,388
Carrying value of assets and liabilities sold:
Equity investment in AWN 250,192
Assets and liabilities, net 5,349
Net change in deferred capacity revenue (18,385 )
Total carrying value of assets and liabilities sold 237,156
Gain on disposal of assets $ 48,232
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.
The two companies entered into 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 full cost of providing the service. The fair value of these
services was $4,769, which exceeded the consideration received for
this service by approximately $522. This loss was reflected in the
calculation of the gain on the sale.
In May 2015, the Company received a cash payment from GCI of $1,680
for timely completion of a transition support agreement. This
amount was reflected in cash proceeds and 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. These assets
included certain handset inventory, which was sold, and retail
store leases which were actively marketed for sale to third
parties. Upon completion of the service transition plan, the
Company accelerated its plan to achieve cost savings related to the
wind-down of the wireless business and from the synergies derived
from becoming a more focused broadband and IT Managed services
company. Key cost avoidance milestones have been achieved,
including completing the exit from all retail store locations.
The Company considered the sale of assets to GCI under the guidance
of Accounting Standards Codification (“ASC”) 205-20,
“ Discontinued Operations
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 December 31, 2014. There were no
assets or liabilities held for sale at September 30, 2015.
December 31,
Current assets:
Accounts receivable, non-affiliates, net $ 7,607
Materials and supplies 1,958
Total current assets held-for-sale $ 9,565
Property, plant and equipment, net of accumulated depreciation of
$8,835 14,664
Total non-current assets held-for-sale $ 14,664
Current liabilities:
Current portion of long-term obligations $ 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
Total current liabilities held-for-sale $ 18,728
Long-term obligations, net of current portion 2,107
Total non-current liabilities held-for-sale $ 2,107
Although they did not meet the criteria for classification as
held-for-sale, certain other assets and liabilities were impacted
by the transaction as follows:
• The equity method investment in AWN,
valued at $250,192, was sold to GCI on February 2, 2015.
• 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.
• On February 2, 2015, the
Company’s 2010 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 nine month period ended September 30,
2015. For additional information on this amendment, see Note 7
“ Long-term Obligations.
• Current deferred tax assets of
$89,542 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
nine month period ended September 30, 2015 as a result of the
Wireless Sale.
In connection with its decision to sell its wireless operations,
the Company has, and will continue to incur, a number of
transaction related and wind-down cost throughout 2015. In
addition, costs have been incurred in connection with plans
associated with synergies and future cost reductions resulting from
the Company becoming a more focused broadband and IT Managed
services company. The costs incurred for wind-down and synergy
activities include those associated with workforce reductions,
termination of retail store and other contracts, and other
associated obligations that meet the criteria for reporting as exit
obligations under ASC 420, “ Exit or Disposal Cost
Obligations Compensation – Nonretirement
Postemployment Benefits
The following table summarizes the Company’s current
obligations for exit activities, including costs accounted for
under both ASU 420 and ASU 712, as of and for the nine month period
ended September 30, 2015:
Labor Contract Other Total
Balance, December 31, 2014 $ 490 $
— $
— $ 490
Charged to expense 5,758 3,966 294 10,018
Paid and/or settled (5,103 ) (3,966 ) (285 ) (9,354 )
Balance, September 30, 2015 $ 1,145 $
— $ 9 $ 1,154
The exit activities as noted above that have been incurred to date
are included in the captions “Selling, general and
administrative”, and “Cost of services and sales,
non-affiliates” on the Company’s “Consolidated
Statements of Comprehensive Income”. The exit liability is
included in “Accounts payable, accrued and other current
liabilities – non affiliates” on the Company’s
“Consolidated Balance Sheets”. |
