NOTE 17: 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. These businesses were not separate reporting units as defined under U.S. GAAP, and there was no indicator of impairment 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 $2.9 million, $8.4 million and $30.8 million in fiscal 2017, 2016 and 2015, respectively, on the assets held for sale in discontinued operations. Principle 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. The additional losses on the assets were due to either the finalization of the selling prices of the assets disposed or to update the estimated fair values of the assets which continued to be held for sale. The estimated fair values were impacted by current market conditions for the sale transactions based mainly upon the status of negotiations with the potential buyers.

On March 28, 2017, the Company sold a small manufacturing business for $0.6 million and a note receivable of $2.4 million, resulting in a gain on sale of the business of $0.8 million. The note receivable is due March 28, 2021, with an interest rate of 2.05%.

On May 4, 2016, the Company sold certain assets of Wallop for 2.5 million British pounds and deferred compensation up to a maximum payment of 9 million British pounds. In the definitive purchase and sale agreement for the sale of these assets, the Company provided standard representations and warranties as well as indemnification to the buyer of the Wallop operation. The Company is obligated to indemnify the buyer for certain losses of up to 5.0 million British pounds, if, among other things, the Company breaches the representations and warranties. Subsequent to September 29, 2017, the Company received notification of a claim from the buyer of the Wallop operation alleging breaches of representations and warranties primarily associated with defective products and late product deliveries. Although a loss is possible, the amount of any loss related to this claim cannot be estimated at this time. The Company does not expect the possible loss to have a material effect on the Company’s financial position. The deferred compensation is payable based upon receipt of acceptable orders during a three-year period ending May 3, 2019, and is equal to the amount of the acceptable order times a specified percentage ranging from 26.5% to 31%. The earn-out payment is estimated to be 5.6 million British pounds at September 29, 2017.

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 $22.3 million.

The Company recorded an expense related to environmental remediation at a previously sold business for which the Company provided indemnification of $0.9 million in fiscal 2017, $0.8 million in fiscal 2016, and $2.1 million in fiscal 2015. The liability for this environmental obligation was $0.1 million and $0.8 million at September 29, 2017, and September 30, 2016, respectively. Remediation costs paid in fiscal 2017, 2016, and 2015 were $1.6 million, $1.5 million and $2.0 million, respectively.

The results of discontinued operations for the last three years were as follows:

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

2017
Net Sales	$	4,964		$	-	$	-		$	-		$	4,964

Operating earnings (loss)		(447	)		894		(8,259	)		(895	)		(8,707	)
Tax expense (benefit)		(470	)		-		(614	)		(312	)		(1,396	)
Income (loss) from discontinued operations	$	23		$	894	$	(7,645	)	$	(583	)	$	(7,311	)

Included in Operating Earnings (Loss):
Gain (loss) on net assets held for sale	$	320		$	-	$	(3,226	)	$	-		$	(2,906	)
Gain (loss) on sale of discontinued operations		793			-		-			-			793

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

2016
Net Sales	$	17,572		$	-		$	5,222		$	-		$	22,794

Operating earnings (loss)		1,350			(379	)		(15,761	)		(788	)		(15,578	)
Tax expense (benefit)		1,487			(83	)		(1,448	)		(268	)		(312	)
Income (loss) from discontinued operations	$	(137	)	$	(296	)	$	(14,313	)	$	(520	)	$	(15,266	)

Included in Operating Earnings (Loss):
Gain (loss) on net assets held for sale	$	(2,457	)	$	-		$	(5,991	)	$	-		$	(8,448	)

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

2015 (Unaudited, Recast)
Net Sales	$	47,603		$	21,221		$	14,407		$	-		$	83,231

Operating earnings (loss)		(24,004	)		3,458			(22,424	)		(2,261	)		(45,231	)
Tax expense (benefit)		(2,948	)		814			(2,456	)		(322	)		(4,912	)
Income (loss) from discontinued operations	$	(21,056	)	$	2,644		$	(19,968	)	$	(1,939	)	$	(40,319	)

Included in Operating Earnings (Loss):
Gain (loss) on net assets held for sale	$	(16,763	)	$	(622	)	$	(13,407	)	$	-		$	(30,792	)

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

2015
Net Sales	$	40,835		$	18,684		$	12,883		$	-		$	72,402

Operating earnings (loss)		(24,591	)		3,041			(17,588	)		(2,120	)		(41,258	)
Tax expense (benefit)		(3,002	)		626			(1,104	)		(725	)		(4,205	)
Income (loss) from discontinued operations	$	(21,589	)	$	2,415		$	(16,484	)	$	(1,395	)	$	(37,053	)

Included in Operating Earnings (Loss):
Gain (loss) on net assets held for sale	$	(18,864	)	$	(229	)	$	(12,061	)	$	-		$	(31,154	)

Assets and Liabilities Held for Sale within the Consolidated Balance Sheet at September 29, 2017, are comprised of the following:

	Avionics &		Sensors &		Advanced
In Thousands	Controls		Systems		Materials		Total

Other current assets	$	-	$	-	$	6,501	$	6,501
Current Assets of Businesses Held for Sale	$	-	$	-	$	6,501	$	6,501

Net property, plant and equipment	$	5,262	$	-	$	-	$	5,262
Other assets		-		-		8,072		8,072
Non-Current Assets of Businesses Held for Sale	$	5,262	$	-	$	8,072	$	13,334

Accounts payable	$	-	$	-	$	138	$	138
Accrued liabilities		-		-		7,046		7,046
Current Liabilities of Businesses Held for Sale	$	-	$	-	$	7,184	$	7,184

Deferred income tax liabilities	$	-	$	-	$	1,404	$	1,404
Other liabilities	$	-	$	-	$	320	$	320
Non-Current Liabilities of Businesses Held for Sale	$	-	$	-	$	1,724	$	1,724

Net Assets of Businesses Held for Sale	$	5,262	$	-	$	5,665	$	10,927

Assets and Liabilities Held for Sale within the Consolidated Balance Sheet at September 30, 2016, are comprised of the following:

	Avionics &			Sensors &		Advanced
In Thousands	Controls			Systems		Materials		Total

Accounts receivable, net	$	2,588		$	-	$	4,093	$	6,681
Inventories		8,070			-		398		8,468
Prepaid expenses		127			-		103		230
Income tax refundable		-			-		71		71
Current Assets of Businesses Held for Sale	$	10,785		$	-	$	4,665	$	15,450

Net property, plant and equipment	$	5,368		$	-	$	2,869	$	8,237
Intangibles, net		-			-		1,856		1,856
Deferred income tax benefits (liabilities)		(392	)		-		400		8
Other assets		-			-		1,299		1,299
Non-Current Assets of Businesses Held for Sale	$	4,976		$	-	$	6,424	$	11,400

Accounts payable	$	441		$	-	$	1,463	$	1,904
Accrued liabilities		7,000			-		1,909		8,909
Current Liabilities of Businesses Held for Sale	$	7,441		$	-	$	3,372	$	10,813

Other liabilities	$	-		$	-	$	320		320
Non-Current Liabilities of Businesses Held for Sale	$	-		$	-	$	320	$	320

Net Assets of Businesses Held for Sale	$	8,320		$	-	$	7,397	$	15,717