Discontinued operations

6 Months Ended

Jun. 30, 2020

Discontinued operations

Discontinued Operations

3. DISCONTINUED OPERATIONS

On April 8, 2020, the Company completed the sale of the MDA Business to 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”), for an aggregate purchase price of $729 million (C$1.0 billion) (“MDA Transaction”). The Company recognized an after-tax gain on disposal of discontinued operations of $304 million, net of $25 million in taxes, on the

MDA Transaction for the quarter ended June 30, 2020. The tax on the MDA Transaction is primarily due to the estimated U.S. federal Base Erosion and Anti-Abuse Tax and California state corporate income tax, the latter being attributable to recent legislation suspending the use of net operating loss (“NOL”) carryforwards. The gain on the MDA Transaction includes a reclassification of the related foreign currency translation adjustment balance of $64 million from Accumulated other comprehensive (loss) income. See Note 8 for details on the use of proceeds from the MDA Transaction.

The operating results and cash flows related to the MDA Business are reflected as discontinued operations in the Unaudited Condensed Consolidated Statements of Operations and the Unaudited Condensed Consolidated Statements of Cash Flows for the three and six months ended June 30, 2020 and June 30, 2019, respectively. For the three and six months ended June 30, 2020, the Company has reported the operating results and cash flows related to the MDA Business through April 7, 2020.

In addition, 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 based on an agreed upon fee arrangement through April 8, 2021, with an option to extend to October 2021 for certain services.

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020 1		2019		2020 1		2019
Revenues:
Product	$	5	$	57	$	44	$	110
Service		6		40		42		83
Total revenues		11		97		86		193
Costs and expenses:
Product costs, excluding depreciation and amortization		4		39		38		80
Service costs, excluding depreciation and amortization		3		21		24		45
Selling, general and administrative		—		13		13		31
Depreciation and amortization		—		3		4		6
Impairment loss		—		12		12		12
Operating income (loss)		4		9		(5)		19
Interest expense, net		—		—		1		—
Other expense (income), net 2		2		(1)		(34)		—
Income before taxes		2		10		28		19
Income tax expense (benefit)		—		1		(4)		(1)
Income from operations of discontinued operations, net of tax		2		9		32		20
Gain on disposal of discontinued operations, net of tax		304		—		304		—
Income from discontinued operations, net of tax	$	306	$	9	$	336	$	20

¹ For the three and six months ended June 30, 2020, MDA results are presented through April 7, 2020.

² 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 for the six months ended June 30, 2020.

MDA holds an investment in a privately held company in which it does not have significant influence and for which the fair value cannot be reliably measured through external indicators. The investment is evaluated quarterly for impairment. There was no impairment loss recorded during the three months ended June 30, 2020. During the six months ended June

20, 2020, the Company recorded an impairment loss of $12 million as the privately held company filed for bankruptcy and as a result, the investment was fully impaired. During the three and six months ended June 30, 2019, the Company recorded an impairment loss of $12 million due to an observable price change related to its investment.

The carrying amounts of the major classes of assets and liabilities, which are classified as held for sale in the Unaudited Condensed Consolidated Balance Sheet as of December 31, 2019, are as follows:

	December 31,
	2019
Assets
Cash and cash equivalents	$	45
Trade and other receivables, net		168
Deferred tax assets		117
Property, plant and equipment		29
Intangible assets		27
Goodwill		310
Other assets 1		55
Current assets held for sale	$	751
Liabilities
Accounts payable	$	88
Accrued liabilities		18
Accrued compensation and benefits		21
Contract liabilities		29
Pension and other postretirement benefit liabilities		21
Other liabilities 2		53
Current liabilities held for sale	$	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.