Business Divestitures and Asset Sales

3 Months Ended

Apr. 03, 2020

Discontinued Operations and Disposal Groups [Abstract]

Note C — Business Divestitures and Assets Sales

Airport security and automation business. On February 4, 2020, we entered into a definitive agreement to sell the airport security and automation business to Leidos, Inc. for $1 billion in cash, subject to customary purchase price adjustments as set forth in the definitive agreement. The airport security and automation business, which is reported as part of our Aviation Systems segment, provides solutions used by the aviation and transportation industries, regulatory and customs authorities, government and law enforcement agencies and commercial and other high-security facilities. The assets and liabilities of the airport security and automation business were classified as held for sale in our Condensed Consolidated Balance Sheet (Unaudited) at April 3, 2020. On May 4, 2020, following the close of the first quarter of fiscal 2020, we completed the sale of the airport security and automation business. We expect to use the net cash proceeds from the sale for general corporate purposes and potential repurchases of shares of our common stock.

Because the then pending divestiture of the airport security and automation business represented the disposal of a portion of a reporting unit within our Aviation Systems segment, we assigned $588 million of goodwill to the airport security and automation business disposal group on a relative fair value basis during the first quarter of fiscal 2020, when the held for sale criteria were met. The fair value of the airport security and automation business disposal group was determined based on the negotiated selling price, and the fair value of the retained businesses of the reporting unit was determined based on a

combination of market-based valuation techniques, utilizing quoted market prices and comparable publicly reported transactions, and projected discounted cash flows. These fair value determinations are categorized as Level 3 in the fair value hierarchy due to their use of internal projections and unobservable measurement inputs. See Note 1: Significant Accounting Policies in the Notes to Consolidated Financial Statements in our Fiscal Transition Period Form 10-KT for additional information regarding the fair value hierarchy.

In conjunction with the allocation of goodwill to the airport security and automation business, we tested goodwill assigned to the disposal group and goodwill allocated to the retained businesses of the reporting unit for impairment and concluded that no goodwill impairment existed at the time the held for sale criteria were met in late January 2020. However, indicators of potential impairment of goodwill related to the retained businesses of the reporting unit were present as of April 3, 2020 due to the downturn in the commercial aviation market that resulted from the novel COVID-19 strain of coronavirus (“COVID-19”) pandemic and its impact on global air traffic. See Note K — Goodwill and Other Intangible Assets in these Notes for additional information regarding goodwill impairment charges.

The carrying amounts of the major classes of assets and liabilities of the airport security and automation business classified as held for sale at April 3, 2020 are as follows:



	April 3, 2020

	(In millions)
Receivables	$	75
Contract assets	75
Inventories	136
Other current assets	11
Property, plant and equipment	39
Goodwill	588
Other intangible assets	203
Other assets	19
Assets of disposal group held for sale	$	1,146

Accounts payable	$	82
Contract liabilities	34
Other accrued items	24
Other non-current liabilities	33
Deferred taxes	22
Liabilities of disposal group held for sale	$	195

The airport security and automation business had net income before income taxes of $12 million for the quarter ended April 3, 2020.

EOTech business. On March 20, 2020, we entered into a definitive agreement to sell our EOTech business for $42 million, subject to customary purchase price adjustments and customary closing conditions as set forth in the definitive agreement. The EOTech business, which is reported as part of our Communication Systems segment, manufactures holographic sighting systems, magnified field optics and accessories for military, law enforcement and commercial markets around the world. The assets and liabilities of the EOTech business were classified as held for sale in our Condensed Consolidated Balance Sheet (Unaudited) at April 3, 2020. We expect to complete the sale of the EOTech business in mid-2020.

Because the pending divestiture of the EOTech business represented the disposal of a portion of a reporting unit within our Communication Systems segment, we assigned $9 million of goodwill to the EOTech business disposal group on a relative fair value basis during the first quarter of fiscal 2020, when the held for sale criteria were met. The fair value of the EOTech business disposal group was determined based on the negotiated selling price, and the fair value of the retained businesses of the reporting unit was determined based on a combination of market-based valuation techniques, utilizing quoted market prices and comparable publicly reported transactions, and projected discounted cash flows. These fair value determinations are categorized as Level 3 in the fair value hierarchy due to their use of internal projections and unobservable measurement inputs. See Note 1: “Significant Accounting Policies” in the Notes to Consolidated Financial Statements in our Fiscal Transition Period Form 10-KT for additional information regarding the fair value hierarchy.

In conjunction with the assignment of goodwill to the EOTech business, we tested goodwill assigned to the disposal group and goodwill assigned to the retained businesses of the reporting unit for impairment and concluded that no goodwill impairment existed at the time the held for sale criteria were met.

The carrying amounts of the major classes of assets and liabilities of the EOTech business classified as held for sale at April 3, 2020 are as follows:



	April 3, 2020

	(In millions)
Receivables	$	10
Inventories	12
Property, plant and equipment	3
Goodwill	9
Other intangible assets	12
Other assets	2
Assets of disposal group held for sale	$	48

Accounts payable	$	4
Contract liabilities	1
Other accrued items	3
Liabilities of disposal group held for sale	$	8

Applied Kilovolts and Analytical Instrumentation business. On February 19, 2020, we entered into a definitive agreement to sell our Applied Kilovolts and Analytical Instrumentation business, which is reported as part of our Space and Airborne Systems segment, subject to customary closing conditions as set forth in the definitive agreement. The carrying amounts of Applied Kilovolts and Analytical Instrumentation business assets and liabilities classified as held for sale in our Condensed Consolidated Balance Sheet (Unaudited) at April 3, 2020 were $14 million and $1 million, respectively. We expect to complete the sale transaction of the Applied Kilovolts and Analytical Instrumentation business in mid-2020.

We assigned $2 million of goodwill to the Applied Kilovolts and Analytical Instrumentation business disposal group on a relative fair value basis during the quarter ended April 3, 2020, when the held for sale criteria were met. In connection with the preparation of our financial statements for the quarter ended April 3, 2020, we concluded that goodwill related to the Applied Kilovolts and Analytical Instrumentation business was impaired and recorded a non-cash impairment charge of $5 million, which is included in the “Impairment of goodwill and other assets” line item in our Condensed Consolidated Statement of Income (Unaudited) for the quarter ended April 3, 2020.

Harris Night Vision. On September 13, 2019, we completed the sale of the Harris Night Vision business, a global supplier of high-performance, vision-enhancing products for U.S. and allied military and security forces and commercial customers, for $350 million (net cash proceeds of $346 million after selling costs and estimated purchase price adjustments), subject to final customary purchase price adjustments pursuant to a definitive agreement we entered into on April 4, 2019 as part of the regulatory process in connection with the L3Harris Merger and recognized a pre-tax gain of $229 million.

Through fiscal 2019, the Harris Night Vision business was reported as part of our former Communication Systems segment. As a result of the then-pending divestiture, the Harris Night Vision business was not included in any of our new business segments and, consequently, the operating results of the business are included in “Other non-reportable business segments” for the quarters ended April 3, 2020 and March 29, 2019 in this Report. Income before income taxes for the Harris Night Vision business was $6 million for the quarter ended March 29, 2019.