2.	SALE OF WIRELESS OPERATIONS

December 4, 2014,

the Company entered into a Purchase and Sale Agreement to sell to GCI, ACSW

’s interest in the Alaska Wireless Network (“AWN”) and substantially all the assets and subscribers used primarily in the wireless business of Alaska Communications and its affiliates (the “Acquired Assets”) (the “Wireless Sale”).

The Acquired Assets included, without limitation, all the equity interests of AWN owned or held by ACSW, substantially all of

Alaska Communication’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 whereby Alaska Communications provides certain capacity from the predetermined demarcation points to a central switch location and, if required, to points outside of Alaska.

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 ot

her adjustments totaling

$14,840,

cash proceeds on the sale were

$285,160,

of which

$240,472

was used to pay down the Company’s

2010

Senior Secured Credit Facility (

“2010

Senior Credit Facility”). The Company recorded a gain before income tax of

$48,232

in the year ended

December 31, 2015.

The

two

companies entered into a service transition plan in which

Alaska Communications 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

and was reported as operating revenue. The fair value of the services exceeded the consideration received for this service by approximately

$522.

The

$522

loss was included in the calculation of the gain on the sale.

May 2015,

the Company received a cash payment from GCI of

$1,680

for timely completion of a transition support agreement. The services provided by the Company in connection with this agreement were

not

consistent with services rendered in the normal course of business. Accordingly, this amount was included in cash proceeds and gain on the sale.

August 4, 2015,

the Company and GCI entered into an agreement to

resolve all outstanding issues between the parties associated with the Wireless Sale including finalization of the purchase price adjustments. In the

third

quarter of

2015,

$7,092

$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

of cash placed in escrow was disbursed to the Company upon timely completion of certain backhaul orders during the

fourth

quarter of

2015.

These backhaul orders consisted of services rendered by the Company in the normal course of business, and the resulting margin was consistent with that typically generated from such services. Accordingly, the

$228

was recorded as revenue.

The following table provides the calculation of the gain:

Consideration:
Cash	$	44,688
Principal payment on 2010 Senior Credit Facility		240,472
Total consideration		285,160
Carrying value of assets and liabilities sold:
Equity investment in AWN		250,192
Assets and liabilities, net		5,121
Net change in deferred capacity revenue		(18,385	)
Total carrying value of assets and liabilities sold		236,928
Gain on disposal of assets	$	48,232

In addition to the major elements discussed above,

Alaska Communications 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

managed IT services company. Exit from all retail store locations and the achievement of key cost savings were completed in

2015.

The Company considered the sale of assets to GCI under the guidance of ASC

205

20,

“Discontinued Operations” and concluded that the assets sold did

not

meet the definition of a component of an entity. The conclusion was based on the determination that the assets did

not

comprise operations that can be clearly distinguished, either operationally or for financial reporting purposes. The Company has

one

operating segment and

one

reporting unit, and although there are revenue streams that are clearly identifiable, the majority of the operating costs are integrated across the operations of its business and cannot b

e reasonably separated.

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

-year contract life, was removed. This capacity had a carrying value of

$59,672

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

years.

●

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

2015.

For additional information on this amendment, see Note

“

Long-term Obligations.

”

●

Current deferred tax assets of $

84,233

representing Federal and state net operating loss carry forwards and state alternative minimum tax credit carry forwards, and non-current deferred tax liabilities of

$70,577

related to the Company’s investment in AWN reversed in

2015

as a result of the Wireless Sale.

In connection with its decision to sell its wireless operations, the Company incur

red a number of transaction related and wind-down costs throughout

2015.

In addition, costs were incurred in connection with plans associated with synergies and future cost reductions resulting from the Company becoming a more focused broadband and managed IT 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” (“ASC

420”

). The Company also incurred costs associated with termination benefits accounted for under ASC

712,

“Compensation – Nonretirement Postemployment Benefits” (“ASC

712”

). Significant wind-down costs included contract termination costs associated with retail store leases. These obligations included costs associated with the disposal of capital lease assets and liabilities and costs to vacate operating leases which had a remaining term of approximately

years and a remaining contract value of

$2,797

February 2, 2015.

Exit from these leases was complete as of

December 31, 2015.

Transaction costs included legal, debt amendment, accounting and other costs necessary to consummate the transaction. The Company incurred costs totaling

$13,272

2015

associated with the transaction and wind-down activities. These costs included exit costs of

$10,745

presented in the table below and transaction and certain transition costs totaling

$2,527.

Of the

$13,272,

$4,893

was recorded to “Cost of services and sales (excluding depreciation and amortization), non-affiliates” and

$8,379

was recorded to “Selling, general and administrative” in the Company’s Consolidated Statements of Comprehensive (Loss) Income.

The following tabl

e summarizes the Company’s obligations for exit activities, including costs accounted for under both ASC

420

and ASC

712,

as of and for the years ended

December 31, 2016

and

2015:

	Labor Obligations			Contract Terminations			Other Associated Obligations			Total
Balance at December 31, 2014	$	490		$	-		$	-		$	490
Charged to expense		6,485			3,966			294			10,745
Paid and/or settled		(5,752	)		(3,966	)		(294	)		(10,012	)
Balance at December 31, 2015		1,223			-			-			1,223
Credited to expense		(93	)		-			-			(93	)
Paid and/or settled		(1,130	)		-			-			(1,130	)
Balance at December 31, 2016	$	-		$	-		$	-		$	-