Note 14 – Discontinued Operations

The Company’s board of directors previously approved the plan to sell certain non-core business units including Eclipse Electronic Systems, Inc. (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; a small distribution business and a small manufacturing business.

On June 5, 2015, the Company sold Eclipse for $7.9 million and retained ownership of the land, building and building improvements, which are held for sale. In addition, on July 20, 2015, the Company sold PA&E for $23.4 million. Under the terms of the stock purchase agreements for the sale of Eclipse and PA&E, the Company agreed to indemnify the buyer for certain breaches of the Company’s representations and warranties and certain other items for up to $2.8 million and $3.9 million, respectively. An escrow account in the amount of $1.1 million was established at closing of the sale of PA&E to partially cover the Company’s indemnification obligations. A claim against the escrow amount, if paid, would result in a corresponding decrease in the purchase price for the sale of PA&E.

During the third fiscal quarter of 2016 and 2015, the Company incurred a loss of $8.7 million and $0.6 million, respectively, on discontinued operations. Included in the loss of $8.7 million for the third fiscal quarter of 2016 is a loss on assets held for sale at Avionics & Controls and Advanced Materials of $2.4 million and $1.9 million, respectively. The loss at Avionics & Controls was principally due to a reduction of estimated selling price. The loss at Advanced Materials was principally due to the effect of changes in foreign currency exchange rates on the estimated sale price and Wallop’s assets held for sale. Principal assumptions used in measuring the estimated loss on assets held for sale included estimated selling price of the discontinued business and discount rates.

During the first nine months of fiscal 2016 and 2015, the Company incurred a loss of $15.5 million and $21.0 million, respectively. Included in the loss of $15.5 million for the first nine months of fiscal 2016 is a loss on assets held for sale at Advanced Materials and Avionics & Controls of $5.5 million and $2.4 million, respectively. The loss at Advanced Materials was principally due to the effect of changes in foreign currency exchange rates on the estimated sale price and Wallop’s assets held for sale. The loss at Avionics & Controls was principally due to a reduction of estimated selling price. Principal assumptions used in measuring the estimated loss on assets held for sale included estimated selling price of the discontinued business and discount rates.

During the first nine months of fiscal 2015, the Company recorded a $1.7 million increase in a liability related to environmental remediation at a previously sold business for which the Company provided indemnification. A loss of $1.1 million, net of tax, is reflected in discontinued operations.

The operating results of the discontinued operations for the three month period ended July 1, 2016, consisted of the following:

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

Net Sales	$	3,577		$	-		$	456		$	-		$	4,033

Operating earnings (loss)		(1,184	)		(71	)		(5,908	)		(251	)		(7,414	)
Tax expense (benefit)		570			(83	)		876			(87	)		1,276
Income (loss) from discontinued operations	$	(1,754	)	$	12		$	(6,784	)	$	(164	)	$	(8,690	)

Included in Operating Earnings (Loss):
Loss on net assets held for sale	$	(2,411	)	$	-		$	(1,912	)	$	-		$	(4,323	)

The operating results of the discontinued operations for the nine month period ended July 1, 2016, consisted of the following:

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

Net Sales	$	13,638		$	-		$	5,229		$	-		$	18,867

Operating earnings (loss)		785			(378	)		(14,775	)		(262	)		(14,630	)
Tax expense (benefit)		1,256			(83	)		(223	)		(87	)		863
Income (loss) from discontinued operations	$	(471	)	$	(295	)	$	(14,552	)	$	(175	)	$	(15,493	)

Included in Operating Earnings (Loss):
Loss on net assets held for sale	$	(2,355	)	$	-		$	(5,540	)	$	-		$	(7,895	)

The operating results of the discontinued operations for the recast three month period ended June 26, 2015, consisted of the following:

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

Net Sales	$	11,248		$	7,577		$	2,583		$	-	$	21,408

Operating earnings (loss)		(1,196	)		1,352			(1,687	)		9		(1,522	)
Tax expense (benefit)		(869	)		(56	)		(39	)		-		(964	)
Income (loss) from discontinued operations	$	(327	)	$	1,408		$	(1,648	)	$	9	$	(558	)

Included in Operating Earnings (Loss):
Gain (loss) on net assets held for sale	$	323		$	(622	)	$	(1,017	)	$	-	$	(1,316	)

The operating results of the discontinued operations for the recast nine month period ended June 26, 2015, consisted of the following:

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

Net Sales	$	38,839		$	19,834		$	8,733		$	-		$	67,406

Operating earnings (loss)		(12,591	)		3,101			(12,908	)		(1,683	)		(24,081	)
Tax expense (benefit)		(958	)		616			(2,115	)		(590	)		(3,047	)
Income (loss) from discontinued operations	$	(11,633	)	$	2,485		$	(10,793	)	$	(1,093	)	$	(21,034	)

Included in Operating Earnings (Loss):
Loss on net assets held for sale	$	(11,116	)	$	(622	)	$	(4,025	)	$	-		$	(15,763	)

Assets and Liabilities Held for Sale within the Consolidated Balance Sheet at July 1, 2016, are comprised of the following:

In Thousands	Avionics &			Sensors &		Advanced
	Controls			Systems		Materials		Total

Accounts receivable, net	$	3,032		$	-	$	4,309	$	7,341
Inventories		8,956			-		295		9,251
Prepaid expenses		145			-		202		347
Deferred income tax benefits		-			-		-		-
Income tax refundable		-			-		1,095		1,095
Current Assets of Businesses Held for Sale		12,133			-		5,901		18,034

Net property, plant and equipment		5,349			-		2,689		8,038
Intangibles, net		-			-		1,759		1,759
Deferred income tax benefits		(392	)		-		-		(392	)
Other assets		-			-		1,330		1,330
Non-Current Assets of Businesses Held for Sale		4,957			-		5,778		10,735

Accounts payable		251			-		1,486		1,737
Accrued liabilities		7,666			-		2,880		10,546
Current Liabilities of Businesses Held for Sale		7,917			-		4,366		12,283

Deferred income tax liabilities		-			-		902		902
Other liabilities		-			-		320		320
Non-Current Liabilities of Businesses Held for Sale		-			-		1,222		1,222

Net Assets of Businesses Held for Sale	$	9,173		$	-	$	6,091	$	15,264

Assets and Liabilities Held for Sale within the Consolidated Balance Sheet at October 2, 2015, were comprised of the following:

In Thousands	Avionics &			Sensors &		Advanced
	Controls			Systems		Materials		Total

Accounts receivable, net	$	5,360		$	-	$	1,546	$	6,906
Inventories		14,763			-		5,841		20,604
Prepaid expenses		156			-		185		341
Current Assets of Businesses Held for Sale		20,279			-		7,572		27,851

Net property, plant and equipment		5,474			-		12,199		17,673
Intangibles, net		945			-		4,928		5,873
Deferred income tax benefits		(147	)		-		-		(147	)
Other assets		-			-		1,518		1,518
Non-Current Assets of Businesses Held for Sale		6,272			-		18,645		24,917

Accounts payable		1,878			-		4,837		6,715
Accrued liabilities		8,340			-		2,051		10,391
Current Liabilities of Businesses Held for Sale		10,218			-		6,888		17,106

Deferred income tax liabilities		-			-		194		194
Other liabilities		2,215			-		-		2,215
Non-Current Liabilities of Businesses Held for Sale		2,215			-		194		2,409

Net Assets of Businesses Held for Sale	$	14,118		$	-	$	19,135	$	33,253