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DIVESTITURES, ASSET SALES AND DISCONTINUED OPERATIONS | 6 Months Ended
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Jan. 03, 2020
Discontinued Operations and Disposal Groups [Abstract] |
DIVESTITURES, ASSET SALES AND DISCONTINUED OPERATIONS | NOTE 3: DIVESTITURES, ASSET SALES AND DISCONTINUED OPERATIONS Divestitures 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 $343 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 two quarters ended January 3, 2020 and fiscal 2019, 2018 and 2017 in this Report. Income before income taxes for the Harris Night Vision business was not material for the two quarters ended January 3, 2020 and was $27 million, $20 million and $9 million for fiscal 2019, 2018 and 2017, respectively. The carrying amounts of the major classes of assets and liabilities of the Harris Night Vision business classified as held for sale at June 28, 2019 are summarized below:
| June 28, 2019
| (In millions)
Receivables | $ | 18 |
Inventories | 52 |
Property, plant and equipment | 29 |
Goodwill | 30 |
Other intangible assets | 4 |
Assets of disposal group held for sale | $ | 133 |
Accounts payable | $ | 13 |
Contract liabilities | 1 |
Compensation and benefits | 3 |
Other accrued items | 3 |
Defined benefit plans | 16 |
Liabilities of disposal group held for sale | $ | 36 |
Asset Sales Stormscope. On August 30, 2019, we completed the sale of the Stormscope product line for $20 million in cash and recorded a pre-tax gain of $12 million in the “Engineering, selling and administrative expenses” line item of our Consolidated Statement of Income for the two quarters ended January 3, 2020. Discontinued Operations We completed two significant divestitures during fiscal 2017, the divestiture of our government information technology (“IT”) services business (“IT Services”) and the divestiture of our Harris CapRock Communications commercial business (“CapRock”), which are described in more detail below. These divestitures individually and collectively represented a strategic shift away from non-core markets (for example, energy, maritime and government IT services). The decision to divest these businesses was part of our strategy to simplify our operating model to focus on technology-differentiated, high-margin businesses, and had a major effect on our operations and financial results. As a result, IT Services and CapRock are reported as discontinued operations in the accompanying Consolidated Financial Statements and these Notes. Except for disclosures related to our cash flows, or unless otherwise specified, disclosures in the accompanying Consolidated Financial Statements and these Notes relate solely to our continuing operations. The major components of discontinued operations in our Consolidated Statement of Income included the following:
| Two Quarters Ended |  | Fiscal Years Ended
| January 3, 2020 |  | June 28, 2019 |  | June 29, 2018 |  | June 30, 2017
| (In millions)
Revenue from product sales and services | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 1,039 |
Cost of product sales and services | — |  |  | — |  |  | — |  |  | (885 | )
Engineering, selling and administrative expenses | — |  |  | — |  |  | — |  |  | (91 | )
Impairment of goodwill and other assets | — |  |  | — |  |  | — |  |  | (240 | )
Non-operating loss, net(1) | (1 | ) |  | (5 | ) |  | (8 | ) |  | (7 | )
Loss before income taxes | (1 | ) |  | (5 | ) |  | (8 | ) |  | (184 | )
Loss on sale of discontinued operations, net(2) | — |  |  | — |  |  | — |  |  | (11 | )
Income tax benefit | — |  |  | 1 |  |  | 5 |  |  | 110 |
Discontinued operations, net of income taxes | $ | (1 | ) |  | $ | (4 | ) |  | $ | (3 | ) |  | $ | (85 | )
_______________
(1) | “Non-operating loss, net” included a loss of $2 million in fiscal 2017 related to our former broadcast communications business (“Broadcast Communications”), which was divested in fiscal 2013.
(2) | “Loss on sale of discontinued operations, net” in fiscal 2017 included a $3 million decrease to the loss on the sale of Broadcast Communications.
Depreciation and amortization, capital expenditures and significant non-cash items of discontinued operations included the following:
| Fiscal Year Ended
| June 30, 2017
| (In millions)
Depreciation and amortization | $ | 39 |
Capital expenditures | 4 |
Significant non-cash items: |
Impairment of goodwill and other assets | (240 | )
Loss on sale of discontinued operations, net | (11 | )
IT Services On April 28, 2017, we completed the divestiture to an affiliate of Veritas Capital Fund Management, L.L.C. of IT Services, which primarily provided IT and engineering managed services to U.S. Government customers, for net cash proceeds of $646 million, and recognized a pre-tax loss of $28 million (an after-tax gain of $55 million after certain tax benefits related to the transaction or $.44 per diluted share) on the sale after transaction expenses. The decision to divest IT Services was part of our strategy to simplify our operating model to focus on technology-differentiated, high-margin businesses. Because the then-pending divestiture of IT Services represented the disposal of a portion of a reporting unit, we assigned $487 million of goodwill to the IT Services disposal group on a relative fair value basis during the third quarter of fiscal 2017, when the held for sale criteria were met. The fair value of the IT Services disposal group was determined based on the negotiated selling price, and the fair value of the retained businesses (which comprised the remaining portion 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 for additional information regarding the fair value hierarchy. In conjunction with the allocation, we tested goodwill assigned to the disposal group and goodwill allocated to the retained businesses for impairment. As a result, we concluded that goodwill and other assets related to IT Services were impaired as of March 31, 2017, and we recorded a non-cash impairment charge of $240 million in discontinued operations, $228 million of which related to goodwill. The goodwill impairment charge was non-deductible for tax purposes. The following table presents the key financial results of IT Services included in “Discontinued operations, net of income taxes” in our Consolidated Statement of Income:
| Fiscal Years Ended
| June 28, 2019 |  | June 29, 2018 |  | June 30, 2017
| (In millions)
Revenue from product sales and services | $ | — |  |  | $ | — |  |  | $ | 895 |
Cost of product sales and services | — |  |  | — |  |  | (777 | )
Engineering, selling and administrative expenses | — |  |  | — |  |  | (68 | )
Impairment of goodwill and other assets | — |  |  | — |  |  | (240 | )
Non-operating loss | (1 | ) |  | (4 | ) |  | (9 | )
Loss before income taxes | (1 | ) |  | (4 | ) |  | (199 | )
Loss on sale of discontinued operations, net | — |  |  | — |  |  | (28 | )
Income tax benefit | — |  |  | 5 |  |  | 69 |
Discontinued operations, net of income taxes | $ | (1 | ) |  | $ | 1 |  |  | $ | (158 | )
CapRock On January 1, 2017, we completed the divestiture to SpeedCast International Ltd. of CapRock, which provided wireless, terrestrial and satellite communications services to energy and maritime customers, for net cash proceeds of $368 million, and recognized a pre-tax gain of $14 million ($61 million after certain tax benefits related to the transaction, including reversal of valuation allowances on capital losses and net operating losses, or $.49 per diluted share) on the sale after transaction expenses and purchase adjustments in respect of net cash and net working capital as set forth in the definitive sales agreement entered into on November 1, 2016. The following table presents the key financial results of CapRock included in “Discontinued operations, net of income taxes” included in our Consolidated Statement of Income:
| Two Quarters Ended |  | Fiscal Years Ended
| January 3, 2020 |  | June 28, 2019 |  | June 29, 2018 |  | June 30, 2017
| (In millions)
Revenue from product sales and services | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 144 |
Cost of product sales and services | — |  |  | — |  |  | — |  |  | (108 | )
Engineering, selling and administrative expenses | — |  |  | — |  |  | — |  |  | (23 | )
Non-operating income (loss) | (1 | ) |  | (3 | ) |  | (4 | ) |  | 4 |
Income (loss) before income taxes | (1 | ) |  | (3 | ) |  | (4 | ) |  | 17 |
Gain on sale of discontinued operations | — |  |  | — |  |  | — |  |  | 14 |
Income tax benefit | — |  |  | 1 |  |  | — |  |  | 41 |
Discontinued operations, net of income taxes | $ | (1 | ) |  | $ | (2 | ) |  | $ | (4 | ) |  | $ | 72 |

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- Definition The entire disclosure related to a disposal group. Includes, but is not limited to, a discontinued operation, disposal classified as held-for-sale or disposed of by means other than sale or disposal of an individually significant component. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 360 -URI http://asc.fasb.org/topic&trid=2155823 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=2122178 + Details
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