Business Divestiture

6 Months Ended

Jun. 28, 2020

Discontinued Operations and Disposal Groups [Abstract]

Business Divestiture

BUSINESS DIVESTITURE

Sale of Operations and Maintenance Business

In the third quarter of fiscal 2019, we signed a Membership Interest and Purchase Agreement ("MIPA") with NovaSource Power Services ("NovaSource”) to sell our O&M services contracts for utility, commercial, and industrial scale photovoltaic power projects and related assets and liabilities, for total consideration of $36.3 million. The transaction closed on May 14, 2020, when agreed conditions precedent were met and consideration due under the MIPA was received from NovaSource.

Upon closing, we received net cash consideration of $16.0 million after an estimated $5.3 million working capital adjustment, as well as hold-backs totaling in aggregate $15.0 million for certain retained obligations and contracts not novated as of closing. We assessed the recoverability of these holdbacks and included our best estimate of the amount recoverable in the future, in our calculation of net gain on sale. The final net consideration is subject to final working capital adjustments that are expected to be agreed and finalized with NovaSource during the third quarter of fiscal 2020, which are not expected to materially impact the gain recognized in the second quarter of fiscal 2020. Additionally, we also agreed to retain and subcontract certain O&M contracts for selected large utility scale power plant projects in North America at a fixed price to NovaSource. The contracts were deemed loss-making on the closing date and accordingly, we recorded a liability for the expected loss to be recognized for these contracts that will be amortized over the expected period of loss of 3 years.

In evaluating the accounting treatment for this sale, the transaction was considered the sale of a business as defined in ASC 805, Business Combinations. We recorded a gain of $10.5 million, which was recorded "gain on business divestiture" in our condensed consolidated statements of operations for the three and six months ended June 28, 2020. We recorded $1.0 million of tax expense during the six months ended June 28, 2020 related to the sale and also recorded $2.7 million of transaction expenses, which were expensed as incurred and included within “sales, general and administrative expenses” in our condensed consolidated statement of operations for the three and six months ended June 28, 2020.

The assets and liabilities of our O&M business that were sold in the transaction are summarized below:

(In thousands)
Accounts receivable	$	5,693
Contract assets, current portion	3,239
Prepaid expenses, other current assets, and cash	4,786
Other long-term assets	634
Total assets	14,352
Accounts payable	3,434
Contract liabilities, current portion	4,204
Other current liabilities	808
Other long-term liabilities	2,245
Total liabilities	10,691
Net assets	$	3,661

As of June 28, 2020, net proceeds received are as follows:

(In thousands)
Purchase price	$	36,300
Holdback receivables, including contracts not novated	(15,000)
Estimated working capital adjustment, upon close	(5,324)
Net proceeds received	$	15,976

Net gain on sale for the three and six months ended June 28, 2020 is as follows:

(In thousands)
Net proceeds received	$	15,976
Estimated receivable from amount held back for retained obligations	7,199
Liabilities for loss-making contracts retained	(6,026)
Book value of net assets sold	(3,661)
Estimated working capital adjustment, post close1	(3,030)
Net gain on sale	$	10,458

1 Final working capital adjustment will be completed during the third quarter of fiscal 2020