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Basis of Presentation

9 Months Ended

Sep. 30, 2020

Accounting Policies [Abstract]

Basis of Presentation

1.	Basis of Presentation

The Business - Gogo (“we,” “us,” “our”) is the global leader in providing broadband connectivity solutions and wireless in-flight entertainment to the business aviation industry. Through our Business Aviation (“BA”) business, we provide in-flight Internet connectivity and other voice and data communications products and services and sell equipment for in-flight telecommunications to the business aviation market. These services include Gogo Biz, our in-flight broadband service, Gogo Vision, our in-flight entertainment service, and satellite-based voice and data services through our strategic alliances with satellite companies.

On August 31, 2020, we entered into an agreement to sell our Commercial Aviation, or “CA,” business to Intelsat Jackson Holdings S.A. (“Intelsat” or the “Buyer”), as discussed below. As a result, the CA business is classified as held for sale and reported as discontinued operations and all periods presented in this Form 10-Q have been conformed to represent the CA business as a discontinued operation. See Note 3, “Discontinued Operations,” for additional information.

Services provided on commercial aircraft by our CA business include Passenger Connectivity, which allows passengers to connect to the Internet from their personal Wi-Fi-enabled devices; Passenger Entertainment, which offers passengers the opportunity to enjoy a broad selection of in-flight entertainment options on their personal Wi-Fi enabled devices; and Connected Aircraft Services (“CAS”), which offer airlines connectivity for various operations and currently includes, among other services, real-time credit card transaction processing, electronic flight bags and real-time weather information. Before classifying the CA business as held for sale we divided it into two segments – Commercial Aviation North America, or “CA-NA,” and Commercial Aviation Rest of World, or “CA-ROW.”

As a result of the pending sale of the CA business, the chief operating decision maker evaluates performance and business results for continuing operations, and makes resource and operating decisions, on a consolidated basis. As such, we do not have segment information to disclose in this Form 10-Q.

Basis of Presentation - The accompanying unaudited condensed consolidated financial statements and notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in conformity with Article 10 of Regulation S-X promulgated under the Securities Act of 1933, as amended (the “Securities Act”). Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements and should be read in conjunction with our annual audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019 as filed with the Securities and Exchange Commission (“SEC”) on March 13, 2020 (the “2019 10-K”). These unaudited condensed consolidated financial statements reflect, in the opinion of management, all material adjustments (which include normal recurring adjustments) necessary to fairly state, in all material respects, our financial position, results of operations and cash flows for the periods presented.

The results of operations and cash flows for the three and nine month periods ended September 30, 2020, including the impact of COVID-19, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020.

We have one class of common stock outstanding as of September 30, 2020 and December 31, 2019.

Sale of CA Business - On August 31, 2020, we entered into a purchase and sale agreement (the “Purchase Agreement”) with the Buyer, pursuant to which, subject to the satisfaction of the conditions set forth in the Purchase Agreement, we will sell our CA Business to the Buyer through the sale of all of the issued and outstanding units of our subsidiaries Gogo LLC, a Delaware limited liability company, and Gogo International Holdings LLC, a Delaware limited liability company, for a purchase price of $400 million in cash, subject to certain adjustments (the “Transaction”).

Consummation of the Transaction is subject to the satisfaction or waiver of (i) certain customary mutual closing conditions, including (a) the absence of any law or injunction prohibiting consummation of the Transaction, (b) the expiration or termination of the required waiting, notice or review periods and approvals or clearances under the Hart-Scott-Rodino Act, as amended (the “HSR Act”), and certain other approvals under competition laws, (c) the receipt of the CFIUS Clearance (as defined in the Purchase Agreement) and (d) the receipt of certain specified regulatory approvals, including the receipt of approvals required by the Federal Communications Commission and (ii) certain conditions in favor of the Company, including that the DIP (“debtor-in-possession”) Order and the Bankruptcy Court Order (each as defined in the Purchase Agreement), remain in full force and effect. The waiting period under the HSR Act expired on October 15, 2020. The Transaction has been approved by the U.S. Bankruptcy Court for the Eastern District of Virginia, Richmond Division.

Under the Purchase Agreement, until the closing of the Transaction, we will be subject to a customary exclusivity covenant, which restricts our ability to solicit alternative acquisition proposals from third parties, to provide non-public information to third parties and to engage in negotiations with third parties regarding alternative acquisition proposals.

The Purchase Agreement contains certain termination rights, including, among others, (i) for the Company and Buyer, if the Transaction is not consummated on or before April 30, 2021, subject to extension to July 31, 2021 for certain limited purposes, including obtaining certain required regulatory consents, and (ii) for the Company, if either the DIP Order or the Bankruptcy Court Order ceases to be in full force and effect.

At the closing of the Transaction, the parties will enter into certain ancillary agreements, including a transition services agreement, an intellectual property license agreement and commercial agreements, including an ATG network sharing agreement, pursuant to which we will provide to the Buyer certain inflight connectivity services on our current ATG network and access to the 5G ATG network upon its launch, subject to certain revenue sharing obligations. Under the ATG network sharing agreement, the Buyer will have exclusive access to the ATG network for commercial aviation in North America, subject to minimum revenue guarantees starting at $5 million in the first year of the agreement.

We expect to use the proceeds from the Transaction to improve our net debt position and continue to invest in growth opportunities, such as Gogo 5G. The Transaction is currently expected to close before the end of the first quarter of 2021.

As a result of the pending Transaction, the CA business is classified as held for sale and reported in discontinued operations and all periods presented in this Form 10-Q have been conformed to represent the CA business as a discontinued operation. We report the financial results of discontinued operations separately from continuing operations to distinguish the financial impact of disposal transactions from ongoing operations. Discontinued operations reporting occurs only when the disposal of a component or a group of components (i) meets the held-for-sale classification criteria or is disposed of by sale or other than by sale, and (ii) represents a strategic shift that will have a major effect on our operations and financial results. The results of operations and cash flows of a discontinued operation are restated for all comparative periods presented. Unless otherwise noted, discussion in these Notes to Unaudited Condensed Consolidated Financial Statements refers to our continuing operations. Refer to Note 3, “Discontinued Operations” for further information.

Shareholder Rights Plan - On September 23, 2020, our Board of Directors adopted a Section 382 Rights Agreement (the “Rights Agreement”), between the Company and Computershare Trust Company, N.A., as rights agent, and declared a dividend of one preferred share purchase right (a “Right”) for each outstanding share of common stock of the Company, outstanding on the record date of October 2, 2020, to the stockholders of record on that date. Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series A Preferred Stock, par value $0.01 per share, of the Company (the “Preferred Shares”) at a price of $38.40 per one one-thousandth of a Preferred Share represented by a Right, subject to adjustment.

The purpose of the Rights Agreement is to facilitate the Company’s ability to preserve its net operating losses (“NOLs”) and certain other tax attributes in order to be able to offset potential future income taxes for federal income tax purposes. The Company’s ability to use its NOLs and other tax attributes would be substantially limited if it experiences an “ownership change,” as such term is defined in Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”). A company generally experiences an ownership change if the percentage of the value of its stock owned by certain “5-percent shareholders,” as such term is defined in Section 382 of the Code, increases by more than 50 percentage points over a rolling three-year period. The Rights Agreement is intended to reduce the likelihood of an ownership change under Section 382 of the Code by deterring any person or group from acquiring beneficial ownership of 4.9% or more of the shares of the Company’s common stock then-outstanding.

Initially, the Rights will be attached to all shares of the Company’s common stock. Until the Distribution Date (as defined below), the Rights will be transferred with and only with the common stock. As long as the Rights are attached to the common stock, the Company will issue one Right with each new share of common stock so that all such shares of common stock will have Rights attached (subject to certain limited exceptions). The Rights will separate and begin trading separately from the common stock, and Right certificates will be caused to evidence the Rights, on the earlier to occur of (i) the close of business on the tenth day following public disclosure of facts indicating that a person or group has acquired beneficial ownership of 4.9% or more of the outstanding common stock (an “Acquiring Person”) (or, in the event the Board of Directors determines to effect an exchange in accordance with Section 24 of the Rights Agreement and the Board of Directors determines that a later date is advisable, then such later date) and (ii) the close of business on the tenth business day (or such later date as may be determined by action of the Board of Directors prior to such time as any person becomes an Acquiring Person) following the commencement of a tender offer or exchange offer the consummation of which would result in the beneficial ownership by a person or group of 4.9% or more of the outstanding common stock (the earlier of such dates, the “Distribution Date”).

The Rights are not exercisable until the Distribution Date. The Rights will expire on the earliest to occur of (i) the close of business on the day following the certification of the voting results of the Company’s 2021 annual meeting of stockholders, if at such stockholder meeting or any other meeting of stockholders of the Company duly held prior to such meeting, a proposal to ratify the Rights Agreement has not been passed by the requisite vote of the Company’s stockholders, (ii) the date on which the Board of Directors determines in its sole discretion that (x) the Rights Agreement is no longer necessary for the preservation of material valuable NOLs or tax attributes or (y) the NOLs and tax attributes have been fully utilized and may no longer be carried forward and (iii) the close of business on September 23, 2023.

Use of Estimates - The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates the significant estimates and bases such estimates on historical experience and on various other assumptions believed to be reasonable under the circumstances. However, actual results could differ materially from those estimates.