Annual report pursuant to Section 13 and 15(d)

Sale of Quality Assurance and Information Technology Infrastructure Businesses

v3.10.0.1
Sale of Quality Assurance and Information Technology Infrastructure Businesses
12 Months Ended
Oct. 28, 2018
Discontinued Operations and Disposal Groups [Abstract]  
Sale of Quality Assurance and Information Technology Infrastructure Businesses
Sale of Quality Assurance and Information Technology Infrastructure Businesses

Quality Assurance Business
On October 27, 2017, the Company completed the sale of its quality assurance business within the Technology Outsourcing Services and Solutions segment to Keywords International Limited and Keywords Studios plc for a purchase price of $66.4 million, subject to a customary working capital adjustment. The gain on sale of $48.0 million was recorded in continuing operations in the Consolidated Statements of Operations for the year ended October 29, 2017. The divestiture did not meet the criteria to be presented as discontinued operations in accordance with ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360). However, the disposition did represent an individually significant component of the Company’s business. The pretax income of the quality assurance business included in the Company’s Consolidated Statements of Operations prior to the disposition was $4.5 million.
Concurrently with the sale, the Company entered into a Transition Services and Asset Transfer Agreement, under which the Company continued to provide certain accounting and operational support services to the buyer, on a monthly fee-for-service basis for a period of up to six months post-closing.  

Information Technology Infrastructure Business
In March 2017, the Company completed the sale of Maintech to Maintech Holdings, LLC, a newly-formed holding company and affiliate of Oak Lane Partners, LLC (“Buyer”). Under the terms of the Stock Purchase Agreement, the Company received proceeds of $18.3 million, subject to a $0.1 million holdback and certain adjustments including a customary working capital adjustment that was finalized within 60 days of the sale. Net proceeds from the transaction amounted to $13.1 million after certain transaction-related fees, expenses and repayment of an outstanding Bank of America, N.A. (“BofA”) loan balance. The Company recognized a gain on disposal of $3.9 million from the sale transaction in the second quarter of fiscal 2017.
Concurrently with the sale, the Company entered into a Transition Services and Asset Transfer Agreement, under which the Company continued to provide certain accounting and operational support services to the Buyer, on a monthly fee-for-service basis for a period of up to six months post-closing. The Company and Maintech have also executed a three-year IT as a service agreement, whereby Maintech will continue to provide helpdesk and network monitoring services to the Company, similar to the services that were provided before the transaction.
Discontinued Operations
On December 1, 2014, the Company completed the sale of its Computer Systems segment to NewNet Communication Technologies, LLC (“NewNet”), a Skyview Capital, LLC, portfolio company. The proceeds of the transaction were a $10.0 million note bearing interest at one half percent (0.5 percent) per year due in four years and convertible into a capital interest of up to 20% in NewNet. The note was valued at $8.4 million on the transaction date which approximated fair value. The unamortized discount for the note was $1.1 million through the settlement date.
On October 27, 2017, the Company and NewNet entered into a Settlement Agreement and Mutual General Release (the “Settlement Agreement”). Pursuant to the terms of the Settlement Agreement, NewNet agreed to early payment of the note for $7.5 million. The payment was offset by a $1.5 million deduction to settle the outstanding working capital adjustment and minor indemnity claims under the Membership Interest Purchase Agreement dated as of December 1, 2014 (the “Purchase Agreement”), and receivables under the transition services agreement related to the Purchase Agreement. As a result, the Company received $6.0 million on a net basis.
The early payment of the note resulted in a settlement charge of $1.4 million, which was recorded in the Consolidated Statements of Operations for the year ended October 29, 2017. The Company also incurred a working capital adjustment of $1.7 million, which was recorded as a loss on disposal in Discontinued operations in the Consolidated Statements of Operations for the year ended October 29, 2017.
The following table reconciles the major line items in the Company’s Consolidated Statements of Operations for discontinued operations (in thousands):
 
Year Ended
 
October 29, 2017
Loss from discontinued operations
 
Net revenue
$

Cost of services

Selling, administrative and other operating costs

Other (income) expense, net

Loss from discontinued operations

Loss on disposal of discontinued operations
(1,693
)
Loss from discontinued operations before income taxes
(1,693
)
Income tax provision

Loss from discontinued operations that is presented in the Consolidated Statements of Operations
$
(1,693
)