Discontinued operations

3 Months Ended

Mar. 31, 2020

Discontinued operations

Discontinued Operations

3.  DISCONTINUED OPERATIONS

On December 30, 2019, the Company announced that Maxar Technologies Holdings Inc., a Delaware corporation and wholly-owned subsidiary of Maxar (“Maxar Holdings” and, together with the Company, the “Sellers”), and Neptune Acquisition Inc., a corporation existing under the laws of the Province of British Columbia and an affiliate of Northern Private Capital Ltd. (“MDA Purchaser”) entered into a Stock Purchase Agreement, dated as of December 29, 2019

(“MDA Agreement”), that provides for, among other things, the MDA Purchaser to purchase the MDA Business, the Company’s Canadian subsidiary, from the Sellers for an aggregate purchase price of C$1.0 billion (“MDA Transaction”). On April 8, 2020, the Company completed the sale of MDA. The Company will recognize a gain on the sale of MDA in the second quarter of 2020. Refer to Note 20 for details on the MDA Transaction.

The Company intends to use the net cash proceeds from the MDA Transaction, as determined by the Company’s Original Syndicated Credit Facility, the 2023 Notes and the MDA Agreement, to pay down long-term debt. Refer to Note 20 for details on subsequent events. The net cash proceeds include the netting of certain fees and liabilities which include the indemnification of the MDA Purchaser for certain liabilities including a dispute with the Ukrainian customer. As of December 31, 2019, the Company had recorded a $60 million liability for the matters, for which the Company expected to withhold proceeds from the sale, reflected in Accrued liabilities within the Consolidated Balance Sheet. This dispute was settled in favor of the Company on March 31, 2020, which resulted in the Company being awarded costs and attorney fees in the amount of $2 million. The Company recognized a $39 million recovery of the previously recorded liability in relation to this dispute. As part of the dispute being settled there are certain other payments to third parties, including subcontractors, which will now be settled. As of March 31, 2020, $21 million remains accrued for on the Company’s Unaudited Condensed Consolidated Balance Sheet in relation to these payments. Refer to Note 18 for details. The Company does not expect any material current income tax consequences in connection with the MDA Transaction.

In addition to the MDA Transaction, upon closing, the Company and the MDA Purchaser entered into a Transition Services Agreement pursuant to which the MDA Purchaser will receive certain services (“Services”). The Services will be provided through April 8, 2021, with an option to extend up to six months to October 2021 for certain services.

Income from discontinued operations, net of tax in the Unaudited Condensed Consolidated Statements of Operations consist of the following:

	Three Months Ended
	March 31,
	2020		2019
Revenues:
Product	$	39	$	53
Service		36		43
Total revenues	$	75	$	96
Costs and expenses:
Product costs, excluding depreciation and amortization	$	34	$	41
Service costs, excluding depreciation and amortization		21		24
Selling, general and administrative		13		18
Depreciation and amortization		4		3
Impairment loss		12		—
Operating (loss) income		(9)		10
Interest expense, net		1		—
Other (income) expense, net1		(36)		1
Income before taxes		26		9
Income tax benefit		(4)		(2)
Income from discontinued operations, net of tax	$	30	$	11

¹ Other (income) expense, net includes the $39 million recovery of the previously recorded liability in relation to the Company’s dispute with the Ukrainian Customer.

MDA holds an investment in a privately held company in which it does not have significant influence and the fair value of which cannot be reliably measured through external indicators. The investment is evaluated quarterly for impairment. In the second quarter of 2019, the Company noted an observable price change related to its investment and, as a result, recorded an impairment loss of $12 million. In the first quarter of 2020, the privately held company filed for bankruptcy and as a result the remainder of the investment was written off, which resulted in an additional impairment loss of $12 million. There was no impairment during the three months ended March 31, 2019.

The carrying amounts of the major classes of assets and liabilities, which are classified as held for sale in the Unaudited Condensed Consolidated Balance Sheets, are as follows:

	March 31,		December 31,
	2020		2019
Assets
Cash and cash equivalents	$	15	$	45
Trade and other receivables, net		125		168
Deferred tax assets		108		117
Property, plant and equipment		27		29
Intangible assets		21		27
Goodwill		287		310
Other assets 1		44		55
Current assets held for sale	$	627	$	751
Liabilities
Accounts payable	$	48	$	88
Accrued liabilities		15		18
Accrued compensation and benefits		19		21
Contract liabilities		26		29
Pension and other postretirement benefit liabilities		20		21
Other liabilities 2		47		53
Current liabilities held for sale	$	175	$	230

¹ Other assets include income tax receivables, operating lease assets, prepaid and other current assets.

²  Other liabilities include operating and finance lease liabilities, current income taxes payable and other current liabilities.