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Discontinued Operations & Gain on the Sale of the ASO Business Unit
 6 Months Ended
Dec. 31, 2014
Discontinued Operations and Disposal Groups [Abstract]  
Discontinued Operations & Gain on the Sale of the ASO Business Unit

(3) Discontinued Operations & Gain on the Sale of the ASO Business Unit

 

On August 22, 2014, the Company completed the previously announced sale of substantially all of its assets used in the Company's former ASO business unit to Lockheed Martin Corporation (the “Buyer”) for an agreed upon sales price of $61.0 million, less a working capital adjustment. As of December 31, 2014, the estimated sales price is $59.3 million, which includes a working capital adjustment of $1.7 million. As of December 31, 2014, the Company has received cash of $52.6 million and has recorded receivables of $0.6 million for the working capital holdback, which is classified in other current assets, and $6.1 million for the indemnity holdback. The working capital holdback will most likely be settled during the Company’s third quarter, once both sides agree on the final net working capital amount as of the date of the transaction. The indemnity holdback is being held in escrow under the terms of an escrow agreement until February 2016 (the 18-month anniversary of the consummation of the transaction). The Company believes it will fully realize the indemnity holdback in February 2016. The ASO business consisted of (i) ownership, operation and maintenance of spacecraft processing facilities in Titusville, Florida and Vandenberg Air Force Base, California (“VAFB”), (ii) supporting government and commercial customers processing complex communication, earth observation and deep space satellite launches, (iii) designing and building spacecraft processing equipment and facilities and (iv) providing propellant services including designing, building and testing propellant service equipment for fueling spacecraft.

 

Additionally, as part of the Asset Sale, the Company used a portion of the proceeds to pay off the outstanding balance of its term loan of $5.7 million, which was secured by assets of the ASO business. As such, 100% of interest expense on the debt was allocated to discontinued operations in the amount of $62 thousand and $127 thousand for the six months ended December 31, 2014 and 2013, respectively.

 

The sale of our former ASO business, which was previously reported within our former ASO business unit segment, resulted in a pre-tax gain of $25.6 million ($23.7 million after-tax) for the six months ended December 31, 2014. The pre-tax gain on this sale reflects the excess of the sum of the cash proceeds received over the net book value of the net assets of the Company’s former ASO business. The total pre-tax gain on the sale for the six months ended December 31, 2014, includes the following (in thousands):

 

Cash proceeds from the sale of the ASO business   $ 52,591  
Receivable for working capital holdback     598  
Receivable for indemnity holdback     6,100  
Liabilities assumed by the Buyer     2,478  
Net book value of assets sold     (36,175 )
Other     38  
Gain on sale of our former ASO business   $ 25,630  

 

The Company and the Buyer entered into a transition services agreement to which the Company and the Buyer agreed to provide the other party with certain services, including, among others, services related to benefits, human resources and payroll administration, cash management, financial statements and compliance, each of a type currently provided by or for the Company or our former ASO business unit prior to the Asset Sale. Pursuant to the transition services agreement, the Company agreed to provide services to the Buyer for a period of up to one year and the Buyer agreed to provide services to the Company for a period of up to six months. Each party has the option to extend the term of the services provided by the other party for a period of one year. The services provided may be terminated by the party receiving such services on an individual basis upon 30 days’ notice to the providing party. The party receiving services shall pay the providing party, as consideration for such services, on a time and materials basis, fees based upon an agreed upon set fringe rate and fee rate and the salary of the employee of the providing party who is providing such services.

 

While we are a party to the transition services agreement, we have determined that the continuing cash flows generated by this agreement did not constitute significant continuing involvement in the operations of our former ASO business. As such, the net assets, operating results and cash flows related to our former ASO business have been separately reflected as discontinued operations for the three and six months ended December 31, 2014 and 2013.

 

The following table provides a reconciliation of the major assets and liabilities of our former ASO business to the amounts reported in the previously reported condensed consolidated balance sheet:

 

    June 30, 
2014		  
Carrying amounts of major classes of assets included as part of discontinued operations        
Accounts receivable, net   $ 1,220  
Prepaid expenses and other current assets     185  
Property and equipment, net     33,858  
Other assets, net     29  
Total assets of discontinued operations   $ 35,292  
         
Carrying amounts of major classes of liabilities included as part of discontinued operations        
Accounts payable   $ 184  
Accrued liabilities and other     632  
Deferred revenue     873  
Term note payable     5,655  
Deferred revenue     237  
Total liabilities of discontinued operations   $ 7,581  

 

The following table provides a reconciliation of the major components of income of our former ASO business to the amounts reported in the consolidated statements of operations:

 

    Three Months Ended 
December 31,		     Six Months Ended 
December 31,		  
    2014     2013     2014     2013  
Major line items constituting income of discontinued operations                                
Revenue   $ —     $ 2,457     $ 2,807     $ 9,145  
Cost of revenue     —       (2,682 )     (1,313 )     (5,767 )
Selling, general and administrative     —       (187 )     (128 )     (374 )
Other income (expense), net     —       (63 )     (63 )     (127 )
Gain on sale of discontinued operations     —       —       25,630       —  
 Income tax expense     (184 )     (564 )     (2,562 )     (1,736 )
Income on discontinued operations   $ (184 )   $ (1,039 )   $ 24,371     $ 1,141  

 

Revenue generated by our former ASO business unit payload processing facilities was recognized ratably over the occupancy period of the satellite while in those facilities from arrival through launch. Those contracts were firm fixed price mission specific contracts. The percentage-of-completion method was used for all contracts were incurred costs could be reasonably estimated and successful completion could be reasonably assured at inception. Changes in estimated costs to complete and provisions for contract losses were recognized in the period they become known. Below is a summary of revenue recognition methods under our former ASO business unit:

 

Services/Products Provided   Contract Type   Method of Revenue Recognition
Payload Processing Facilities   Firm Fixed Price — Mission Specific  

Ratably, over the occupancy period of a satellite

within the facility from arrival through launch
         
Construction Contracts   Firm Fixed Price   Percentage-of-completion based on costs incurred
         
Engineering Services  

Cost Reimbursable

Award/Fixed Fee

   Reimbursable costs incurred plus award/fixed fee