Note 14 – Discontinued Operations

On September 3, 2014, the Company approved a plan to sell certain non-core business units including Eclipse, a manufacturer of embedded communication intercept receivers for signal intelligence applications; Wallop Defence Systems, Ltd. (Wallop), a manufacturer of flare countermeasure devices; Pacific Aerospace and Electronics Inc. (PA&E), a manufacturer of hermetically sealed electrical connectors; and a small distribution business. These businesses were not separate reporting units as defined under U.S. GAAP and no indicator of impairment existed at August 1, 2014, requiring an impairment test of their corresponding reporting units’ goodwill or these businesses’ long-lived assets. Based upon the estimated fair values, the Company incurred an estimated after-tax loss of $49.5 million in the fourth fiscal quarter of 2014 on assets held for sale in discontinued operations. Principal assumptions used in measuring the estimated after-tax loss included estimated selling price of the discontinued business, discount rates, industry growth rates, and pricing of comparable transactions in the market. Eclipse and the distribution business are included in the Avionics & Controls segment, Wallop is included in the Advanced Materials segment, and PA&E is included in the Sensors & Systems segment.

On June 5, 2015, the Company completed the sale of Eclipse for approximately $10 million. The Company retained ownership of the land, building and building improvements, which are being held for sale. On July 20, 2015, the Company completed the sale of PA&E for approximately $22 million. The selling price for both businesses is subject to customary working capital adjustments.

During the third fiscal quarter of 2015, the Company incurred a loss of $1.7 million on discontinued operations. During the first nine months of fiscal 2015, the Company incurred a loss on discontinued operations of $20.3 million, including a $16.4 million loss on assets held for sale. For the first nine months of fiscal 2015, a $11.9 million loss on assets held for sale at Avionics & Controls was principally due the reduction of Eclipse’s estimated selling price based upon lower expectations of earnings for the business and continuing negotiations with the buyer. The $5.1 million write-off in Advanced Materials was due to the effects of valuing Wallop’s balance sheet at the current exchange rate incurred in the first nine months of fiscal 2015.

During the first nine months of fiscal 2015, the Company recorded a $2.0 million increase in a liability related to environmental remediation at a previously sold business for which the Company provided indemnification. A loss of $1.3 million, net of tax, is reflected in discontinued operations.

The operating results of the discontinued operations for the three month period ended July 31, 2015, consisted of the following:

In Thousands	Avionics &			Sensors &		Advanced
	Controls			Systems		Materials			Other			Total

Net Sales	$	4,436		$	6,419	$	5,424		$	-		$	16,279

Operating earnings (loss)		(1,132	)		1,533		(830	)		(803	)		(1,232	)
Gain (loss) on net assets held for sale		(1,718	)		619		(18	)		-			(1,117	)
Tax expense (benefit)		(695	)		428		(127	)		(262	)		(656	)
Income (loss) from discontinued operations	$	(2,155	)	$	1,724	$	(721	)	$	(541	)	$	(1,693	)

The operating results of the discontinued operations for the nine month period ended July 31, 2015, consisted of the following:

In Thousands	Avionics &			Sensors &			Advanced
	Controls			Systems			Materials			Other			Total

Net Sales	$	18,349		$	18,684		$	11,529		$	-		$	48,562

Operating earnings (loss)		(2,649	)		3,270			(3,909	)		(1,988	)		(5,276	)
Gain (loss) on net assets held for sale		(11,871	)		(3	)		(5,089	)		-			(16,963	)
Tax expense (benefit)		(1,252	)		626			(686	)		(673	)		(1,985	)
Income (loss) from discontinued operations	$	(13,268	)	$	2,641		$	(8,312	)	$	(1,315	)	$	(20,254	)

The operating results of the discontinued operations for the three month period ended August 1, 2014, consisted of the following:

In Thousands	Avionics &			Sensors &			Advanced
	Controls			Systems			Materials			Other		Total

Net Sales	$	7,249		$	5,860		$	11,706		$	-	$	24,815

Operating earnings (loss)		(1,847	)		141			(196	)		-		(1,902	)
Gain (loss) on net assets held for sale		-			-			-			-		-
Tax expense (benefit)		(520	)		(461	)		8			-		(973	)
Income (loss) from discontinued operations	$	(1,327	)	$	602		$	(204	)	$	-	$	(929	)

The operating results of the discontinued operations for the nine month period ended August 1, 2014, consisted of the following:

In Thousands	Avionics &			Sensors &			Advanced
	Controls			Systems			Materials			Other			Total

Net Sales	$	24,783		$	16,798		$	20,987		$	-		$	62,568

Operating earnings (loss)		(6,566	)		(278	)		(5,020	)		(343	)		(12,207	)
Gain (loss) on net assets held for sale		-			-			-			-			-
Tax expense (benefit)		(2,136	)		(595	)		(991	)		-			(3,722	)
Income (loss) from discontinued operations	$	(4,430	)	$	317		$	(4,029	)	$	(343	)	$	(8,485	)

Assets and Liabilities Held for Sale within the Consolidated Balance Sheet at July 31, 2015, are comprised of the following:

In Thousands	Avionics &		Sensors &		Advanced
	Controls		Systems		Materials		Total

Accounts receivable, net	$	1,589	$	-	$	4,949	$	6,538
Inventories		2,451		-		5,111		7,562
Prepaid expenses		21		-		277		298
Deferred income tax benefits		-		-		-		-
Income tax refundable		-		-		-		-
Current Assets of Businesses Held for Sale	$	4,061	$	-	$	10,337	$	14,398

Net property, plant and equipment	$	5,324	$	-	$	16,817	$	22,141
Intangibles, net		950		-		6,905		7,855
Deferred income tax benefits		-		-		-		-
Other assets		-		-		1,562		1,562
Non-Current Assets of Businesses Held for Sale	$	6,274	$	-	$	25,284	$	31,558

Accounts payable	$	1,533	$	-	$	5,389	$	6,922
Accrued liabilities		506		-		1,457		1,963
Current Liabilities of Businesses Held for Sale	$	2,039	$	-	$	6,846	$	8,885

Deferred income tax liabilities	$	-	$	-	$	1,795	$	1,795
Other liabilities		64		-		-		64
Non-Current Liabilities of Businesses Held for Sale	$	64	$	-	$	1,795	$	1,859

Net Assets of Businesses Held for Sale	$	8,232	$	-	$	26,980	$	35,212

Assets and Liabilities Held for Sale within the Consolidated Balance Sheet at October 31, 2014, were comprised of the following:

In Thousands	Avionics &		Sensors &			Advanced
	Controls		Systems			Materials		Total

Accounts receivable, net	$	5,154	$	3,752		$	2,106	$	11,012
Inventories		12,646		7,972			5,258		25,876
Prepaid expenses		408		86			335		829
Deferred income tax benefits		671		680			-		1,351
Income tax refundable		-		-			2,378		2,378
Current Assets of Businesses Held for Sale	$	18,879	$	12,490		$	10,077	$	41,446

Net property, plant and equipment	$	4,949	$	4,105		$	19,839	$	28,893
Intangibles, net		22,228		10,659			8,327		41,214
Deferred income tax benefits		-		(30	)		-		(30	)
Other assets		-		-			1,600		1,600
Non-Current Assets of Businesses Held for Sale	$	27,177	$	14,734		$	29,766	$	71,677

Accounts payable	$	2,194	$	873		$	6,326	$	9,393
Accrued liabilities		1,765		1,008			2,025		4,798
Current Liabilities of Businesses Held for Sale	$	3,959	$	1,881		$	8,351	$	14,191

Deferred income tax liabilities	$	11,084	$	6,243		$	1,537	$	18,864
Other liabilities		-		-			12		12
Non-Current Liabilities of Businesses Held for Sale	$	11,084	$	6,243		$	1,549	$	18,876

Net Assets of Businesses Held for Sale	$	31,013	$	19,100		$	29,943	$	80,056