XML 28 R10.htm IDEA: XBRL DOCUMENT
v3.20.2

Discontinued Operations | 9 Months Ended
--- | ---
Sep. 30, 2020
Discontinued Operations And Disposal Groups [Abstract] |
Discontinued Operations |
3. | Discontinued Operations
As discussed in Note 1, “Basis of Presentation,” on August 31, 2020, we entered into a Purchase Agreement with Intelsat pursuant to which, Intelsat will purchase the CA business. As a result of the pending transaction, the CA business is classified as held for sale and reported as discontinued operations. Total assets and liabilities held for sale related to discontinued operations are stated separately in our unaudited condensed consolidated balance sheet and are comprised of the following items (in thousands):
|  | September 30, |  |  |  | December 31, |
|  | 2020 |  |  |  | 2019 |
Assets |  |  |  |  |  |  |
Current assets: |  |  |  |  |  |  |
Accounts receivable, net of allowances of $2,959 and $0, respectively | $ | 46,314 |  |  | $ | 59,038 |
Inventories |  | 82,033 |  |  |  | 81,939 |
Prepaid expenses and other current assets, net of allowances of $1,511 and $0, respectively |  | 34,101 |  |  |  | 29,492 |
Total current assets |  | 162,448 |  |  |  | 170,469 |
Non-current assets: |  |  |  |  |  |  |
Property and equipment, net |  | 355,674 |  |  |  | 491,135 |
Goodwill and intangible assets, net |  | 20,886 |  |  |  | 24,696 |
Operating lease right-of-use assets |  | 22,229 |  |  |  | 27,579 |
Other non-current assets, net of allowances of $9,302 and $0, respectively |  | 66,262 |  |  |  | 77,551 |
Total non-current assets |  | 465,051 |  |  |  | 620,961 |
Total assets | $ | 627,499 |  |  | $ | 791,430 |
Liabilities and Stockholders’ deficit |  |  |  |  |  |  |
Current liabilities: |  |  |  |  |  |  |
Accounts payable | $ | 30,622 |  |  | $ | 11,665 |
Accrued liabilities |  | 94,796 |  |  |  | 126,041 |
Deferred revenue |  | 25,249 |  |  |  | 32,564 |
Deferred airborne lease incentives |  | 54,255 |  |  |  | 26,582 |
Total current liabilities |  | 204,922 |  |  |  | 196,852 |
Non-current liabilities: |  |  |  |  |  |  |
Deferred airborne lease incentives |  | 82,523 |  |  |  | 135,399 |
Non-current operating lease liabilities |  | 38,823 |  |  |  | 35,792 |
Other non-current liabilities |  | 43,168 |  |  |  | 38,962 |
Total non-current liabilities |  | 164,514 |  |  |  | 210,153 |
Total liabilities | $ | 369,436 |  |  | $ | 407,005 |
All assets and liabilities held for sale were classified as Current assets held for sale and Current liabilities held for sale as of September 30, 2020 in the unaudited condensed consolidated balance sheets as it is probable that the sale will occur within one year. The following table summarizes the results of discontinued operations which are presented as Net loss from discontinued operations in our unaudited condensed consolidated statements of operations (in thousands):
|  | For the Three Months |  |  | For the Nine Months |
|  | September 30, |  |  | Ended September 30, |
|  | 2020 |  |  | 2019 |  |  | 2020 |  |  | 2019 |
Revenue: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Service revenue |  | $ | 40,498 |  |  | $ | 103,050 |  |  | $ | 163,800 |  |  | $ | 333,824 |
Equipment revenue |  |  | 3,496 |  |  |  | 16,792 |  |  |  | 35,750 |  |  |  | 57,462 |
Total revenue |  |  | 43,994 |  |  |  | 119,842 |  |  |  | 199,550 |  |  |  | 391,286 |
Operating expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cost of service revenue (exclusive of items shown below) |  |  | 29,530 |  |  |  | 63,845 |  |  |  | 121,334 |  |  |  | 183,659 |
Cost of equipment revenue (exclusive of items shown below) |  |  | 5,984 |  |  |  | 13,915 |  |  |  | 31,907 |  |  |  | 56,010 |
Engineering, design and development |  |  | 16,285 |  |  |  | 20,747 |  |  |  | 41,702 |  |  |  | 61,897 |
Sales and marketing |  |  | 5,742 |  |  |  | 7,156 |  |  |  | 14,308 |  |  |  | 21,700 |
General and administrative |  |  | 11,306 |  |  |  | 8,583 |  |  |  | 37,138 |  |  |  | 28,648 |
Impairment of long-lived assets |  |  | — |  |  |  | — |  |  |  | 47,376 |  |  |  | — |
Depreciation and amortization |  |  | 45,666 |  |  |  | 25,431 |  |  |  | 120,229 |  |  |  | 78,132 |
Total operating expenses |  |  | 114,513 |  |  |  | 139,677 |  |  |  | 413,994 |  |  |  | 430,046 |
Operating income (loss) |  |  | (70,519 | ) |  |  | (19,835 | ) |  |  | (214,444 | ) |  |  | (38,760 | )
Total other (income) expense |  |  | 315 |  |  |  | 143 |  |  |  | 3,565 |  |  |  | (2,865 | )
Loss before income taxes |  |  | (70,834 | ) |  |  | (19,978 | ) |  |  | (218,009 | ) |  |  | (35,895 | )
Income tax provision |  |  | 400 |  |  |  | 59 |  |  |  | 393 |  |  |  | 263 |
Net loss from discontinued operations, net of tax |  | $ | (71,234 | ) |  | $ | (20,037 | ) |  | $ | (218,402 | ) |  | $ | (36,158 | )
Change in estimates - During the second quarter of 2020, our agreement with Delta Air Lines, Inc. (“Delta”) to provide 2Ku service on certain Delta aircraft was amended to change the contract expiration date from February 2027 with respect to all aircraft to a staggered, fleet by fleet expiration schedule under which expiration dates will occur between November 2020 and July 2022 (the “Delta amendment”). As a result, the useful lives of the equipment installed on these fleets have been shortened to align with the expiration dates in the amended agreement. The change in estimated useful lives resulted in approximately $27 million and $41 million, respectively, of accelerated depreciation during the three and nine month periods ended September 30, 2020. We ceased depreciating these assets and other depreciable assets included as part of the discontinued operations when the CA business was classified as held for sale. Additionally, the amortization periods for the remaining deferred airborne lease incentives associated with the equipment installed on the 2Ku fleets have been shortened to align with the new expiration dates, which resulted in approximately $18 million and $24 million, respectively, of accelerated amortization during the three and nine month periods ended September 30, 2020. Amortization of deferred airborne lease incentives is a reduction to cost of service revenue in our unaudited condensed consolidated statements of operations. Credit Losses - During the nine month period ended September 30, 2020, we recorded $10.7 million of provisions for expected credit losses, primarily related to one international airline partner entering bankruptcy administration during the period, while we had recoveries of approximately $0.4 million during the three month period ended September 30, 2020. See Note 4, “Recent Accounting Pronouncements” for additional information. Arrangements with commercial airlines – For our CA business, pursuant to contractual agreements with our airline partners, we place our equipment on commercial aircraft operated by the airlines in order to deliver our service to passengers on the aircraft. We currently have two types of commercial airline arrangements: turnkey and airline-directed. Under the airline-directed model, we have transferred control of the equipment to the airline and therefore the airline is our customer in these transactions. Under the turnkey model, we have not transferred control of our equipment to our airline partner and, as a result, the airline passenger is deemed to be our customer. Transactions with our airline partners under the turnkey model are accounted for as an operating lease of space on an aircraft. We recognized $27.4 million and $49.3 million, respectively, for the three and nine month periods ended September 30, 2020 and $6.3 million and $21.4 million, respectively, for the prior-year periods as a reduction to our cost of service revenue in our unaudited condensed consolidated statements of operations from the amortization of deferred airborne lease incentives. The increase during the three and nine month periods ended September 30, 2020 was due to the Delta amendment. Under the turnkey model, the revenue share paid to our airline partners represents operating lease payments. These payments are deemed to be contingent rental payments as the payments due to each airline are based on a percentage of our CA service revenue generated from that airline’s passengers, which is unknown until realized. Therefore, we cannot estimate the lease payments due to an airline at the commencement of our contract with such airline. This rental expense is included in cost of service revenue and is partially offset by the amortization of the deferred airborne lease incentives discussed above. Due to the accelerated amortization resulting from the Delta amendment and a significant reduction in revenue share as a result of COVID-19, the amortization of deferred airborne lease incentives exceeded our revenue share expense by $23.0 million and $30.2 million, respectively, for the three and nine month periods ended September 30, 2020. We incurred net rental expense of $5.0 million and $15.6 million, respectively, for the prior-year periods. Asset impairment - We review our long-lived assets, including property and equipment, right-of-use assets, and other non-current assets, for potential impairment whenever events indicate that the carrying amount of such assets may not be recoverable. We perform this review by comparing the carrying value of the long-lived assets to the estimated future undiscounted cash flows expected to result from the use of the assets. We group certain long-lived assets by airline contract and by connectivity technology. If we determine an impairment exists, the amount of the impairment is computed as the difference between the asset group’s carrying value and its estimated fair value, following which the assets are written down to their estimated fair value. In light of the COVID-19 pandemic and its impact on air travel, including decreased flights, decreased gross passenger opportunity and our airline partners’ temporary parking of a significant number of their aircraft, we conducted a review as of March 31, 2020 and determined that the carrying values for the asset groups related to three of our airline agreements for the CA business exceeded their estimated undiscounted cash flows, which triggered the need to estimate the fair value of these assets. Fair value reflects our best estimate of the discounted cash flows of the impaired assets. For the airborne assets and right-of-use assets associated with the three airline agreements (the “impaired assets”), we recorded an impairment charge of $46.4 million for the three month period ended March 31, 2020, reflecting the difference between the carrying value and the estimated fair value of the impaired assets. We conducted another review as of June 30, 2020 due to the continuation of the COVID-19 pandemic as well as the signing of the Delta amendment and determined that $1.0 million of deferred STC costs was impaired due to the bankruptcy of three airline partners. As such, we recorded a $1.0 million charge for impairment of long-lived assets for the three month period ended June 30, 2020. We had no such impairment charges during the three months ended September 30, 2020. We are continuously monitoring the COVID-19 pandemic and its impact. If the negative impact of the pandemic on the assets related to our airline agreements continues, including as a result of airline partners’ decisions to temporarily park certain aircraft or permanently remove certain aircraft from their fleets to reduce capacity, we could incur additional material impairment charges in future periods. Stock-based compensation – In August 2020, our compensation committee approved modifications to the vesting conditions and exercise periods of outstanding equity compensation awards held by certain of our current employees. These modifications were made in connection with, and contingent upon the consummation of, the Transaction. Certain of these awards vest based on conditions that are not classified as a service, market or performance condition and as a result such awards are classified as a liability. The following is a summary of our stock-based compensation expense by operating expense line contained within the results of discontinued operations (in thousands):
|  | For the Three Months |  |  |  | For the Nine Months |
|  | Ended September 30, |  |  |  | Ended September 30, |
|  | 2020 |  |  |  | 2019 |  |  |  | 2020 |  |  |  | 2019 |
Cost of service revenue | $ | 2,259 |  |  | $ | 367 |  |  | $ | 3,066 |  |  | $ | 1,106 |
Engineering, design and development |  | 2,712 |  |  |  | 559 |  |  |  | 3,735 |  |  |  | 1,832 |
Sales and marketing |  | 2,141 |  |  |  | 463 |  |  |  | 2,957 |  |  |  | 1,597 |
General and administrative |  | 1,409 |  |  |  | 405 |  |  |  | 2,319 |  |  |  | 1,445 |
Total stock-based compensation expense | $ | 8,521 |  |  | $ | 1,794 |  |  | $ | 12,077 |  |  | $ | 5,980 |
For additional information on our stock-based compensation plans, see Note 17, “Employee Retirement and Postretirement Benefits.” Contractual Commitments - We have agreements with vendors to provide us with satellite transponder and teleport services. These agreements vary in length and amount and as of September 30, 2020 commit us to purchase satellite transponder and teleport services totaling approximately $28.8 million in 2020 (October 1 through December 31), $138.6 million in 2021, $118.5 million in 2022, $92.3 million in 2023, $59.4 million in 2024 and $259.4 million thereafter. We have agreements with various vendors under which we have remaining commitments to purchase satellite-based systems, certifications and development services. Such commitments will become payable as we receive the equipment or certifications, or as development services are provided. Damages and Penalties - We have entered into a number of agreements with our airline partners that require us to provide a credit or pay penalties or liquidated damages to our airline partners on a per aircraft, per day or per hour basis if we are delayed in delivering our equipment, unable to install our equipment on aircraft by specified timelines or fail to comply with service level commitments. The maximum amount of future credits or payments we could be required to make under these agreements is uncertain because the amount of future credits or payments is based on certain variable inputs.

X
- References No definition available. + Details
Name: | us-gaap_DiscontinuedOperationsAndDisposalGroupsAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure related to a disposal group. Includes, but is not limited to, a discontinued operation, disposal classified as held-for-sale or disposed of by means other than sale or disposal of an individually significant component. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 360 -URI http://asc.fasb.org/topic&trid=2155823 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=2122178 + Details
Name: | us-gaap_DisposalGroupsIncludingDiscontinuedOperationsDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration