Note 14 – Discontinued Operations

The Company’s Board of Directors previously approved a plan to sell certain non-core business units including Wallop Defence Systems, Ltd. (Wallop), a manufacturer of flare countermeasure devices; a small distribution business; and a small manufacturing business.

On May 4, 2016, the Company sold certain assets of Wallop for 2.5 million British pounds and deferred consideration up to a maximum payment of 9 million British pounds. The deferred consideration 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 4.9 million British pounds, or $6.5 million, at June 29, 2018. The Company was notified in December 2017 that it earned 1.3 million British pounds, or $1.8 million, in deferred consideration, half of which was paid to the Company in the second quarter of fiscal 2018 and the remaining half of which is expected to be paid in the fourth quarter of fiscal 2018 in accordance with the terms of the purchase and sale agreement. 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. In the first quarter of fiscal 2018, 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.

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%.

The Company incurred a $1.9 million loss from discontinued operations in the third quarter of fiscal 2018 compared to a $0.8 million loss from discontinued operations in the third quarter of fiscal 2017. During the first nine months of fiscal 2018 and 2017, the Company incurred a loss from discontinued operations of $2.1 million and $6.2 million, respectively. Included in the $6.2 million loss for the first nine months of fiscal 2017 was a $3.6 million loss on Wallop assets held for sale, principally due to a reduction in the estimated sale price and the effect of changes of foreign currency exchange rates. There was no significant change to the estimated sale price in the third quarter of fiscal 2018.

The operating results of the discontinued operations for the three months ended June 29, 2018, consisted of the following:

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

Net Sales	$	-		$	-	$	-		$	-		$	-

Operating earnings (loss)		(1,182	)		-		(1,452	)		(17	)		(2,651	)
Tax expense (benefit)		(35	)		-		(722	)		-			(757	)
Income (loss) from discontinued operations	$	(1,147	)	$	-	$	(730	)	$	(17	)	$	(1,894	)

Included in Operating Earnings (Loss):
Gain (loss) on net assets held for sale	$	(1,041	)	$	-	$	(1,134	)	$	-		$	(2,175	)

The operating results of the discontinued operations for the three months ended June 30, 2017, consisted of the following:

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

Net Sales	$	-		$	-	$	270		$	-		$	270

Operating earnings (loss)		(594	)		-		(598	)		(3	)		(1,195	)
Tax expense (benefit)		(62	)		-		(318	)		-			(380	)
Income (loss) from discontinued operations	$	(532	)	$	-	$	(280	)	$	(3	)	$	(815	)

Included in Operating Earnings (Loss):
Gain (loss) on net assets held for sale	$	163		$	-	$	709		$	-		$	872
Gain on sale of discontinued operations		(395	)		-		-			-			(395	)

The operating results of the discontinued operations for the nine months ended June 29, 2018, consisted of the following:

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

Net Sales	$	-		$	-	$	-		$	-		$	-

Operating earnings (loss)		(299	)		-		(2,942	)		(67	)		(3,308	)
Tax expense (benefit)		(2	)		-		(1,156	)		(13	)		(1,171	)
Income (loss) from discontinued operations	$	(297	)	$	-	$	(1,786	)	$	(54	)	$	(2,137	)

Included in Operating Earnings (Loss):
Gain (loss) on net assets held for sale	$	(291	)	$	-	$	(489	)	$	-		$	(780	)

The operating results of the discontinued operations for the nine months ended June 30, 2017, consisted of the following:

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

Net Sales	$	4,964		$	-	$	270		$	-		$	5,234

Operating earnings (loss)		(713	)		893		(7,214	)		(896	)		(7,930	)
Tax expense (benefit)		(492	)		-		(941	)		(312	)		(1,745	)
Income (loss) from discontinued operations	$	(221	)	$	893	$	(6,273	)	$	(584	)	$	(6,185	)

Included in Operating Earnings (Loss):
Gain (loss) on net assets held for sale	$	77		$	-	$	(3,614	)	$	-		$	(3,537	)
Gain on sale of discontinued operations		793			-		-			-			793

Assets and Liabilities Held for Sale within the Consolidated Balance Sheet at June 29, 2018, are comprised of the following:

In Thousands	Avionics &		Sensors &		Advanced
	Controls		Systems		Materials		Total

Other current assets	$	-	$	-	$	4,052	$	4,052
Current Assets of Businesses Held for Sale		-		-		4,052		4,052

Net property, plant and equipment		4,221		-		-		4,221
Other assets		-		-		8,411		8,411
Non-Current Assets of Businesses Held for Sale		4,221		-		8,411		12,632

Accounts payable		-		-		12		12
Accrued liabilities		-		-		3,200		3,200
Current Liabilities of Businesses Held for Sale		-		-		3,212		3,212

Deferred income tax liabilities		-		-		2,590		2,590
Other liabilities		-		-		320		320
Non-Current Liabilities of Businesses Held for Sale		-		-		2,910		2,910

Net Assets of Businesses Held for Sale	$	4,221	$	-	$	6,341	$	10,562

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

In Thousands	Avionics &		Sensors &		Advanced
	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