Discontinued Operations & Gain on the Sale of the ASO Business Unit

3 Months Ended

Sep. 30, 2014

Discontinued Operations and Disposal Groups [Abstract]

Discontinued Operations & Gain on the Sale of the ASO Business Unit

(2) 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 to conduct the Company's former ASO business unit to Lockheed Martin Corporation for an agreed upon purchase price of $61.0 million, less a working capital adjustment. As of September 30, 2014, the estimated purchase price is $59.3 million, which includes a working capital adjustment of $1.7 million. As of September 30, 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 be settled in the next twelve months, 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. Our former ASO business consists 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 our former ASO business’ assets. As such, 100% of interest expense on the debt was allocated to discontinued operations in the amount of $62 thousand and $65 thousand for the three months ended September 30, 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 three months ended September 30, 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 three months ended September 30, 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. The Company has agreed to provide services to the Buyer for a period of up to one year and the Buyer has 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 months ended September 30, 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 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 condensed consolidated statements of operations:

	Three Months Ended  September 30,
	2014			2013
Major line items constituting income of discontinued operations
Revenue	$	2,807		$	6,689
Cost of revenue		(1,313	)		(3,086	)
Selling, general and administrative		(128	)		(187	)
Interest and other expense, net		(63	)		(64	)
Gain on sale of discontinued operations		25,630			—
Income tax expense		(2,378	)		(1,173	)
Income of discontinued operations	$	24,555		$	2,179

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 where 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