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Business Divestitures | 3 Months Ended
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Apr. 02, 2021
Discontinued Operations and Disposal Groups [Abstract] |
Business Divestitures | Note B — Business Divestitures CPS business. On March 1, 2021, we entered into a definitive agreement to sell our Combat Propulsion Systems and related businesses (“CPS business”) to RENK AG for $398 million, subject to customary purchase price adjustments and closing conditions as set forth in the definitive agreement. The CPS business, which is reported as part of our Aviation Systems segment, engineers, designs and manufactures engines, transmissions, suspensions and turret drive systems for tracked and wheeled combat vehicle systems. Income before income taxes of our CPS business was $26 million and $16 million for the quarters ended April 2, 2021 and April 3, 2020, respectively. We expect to complete the sale of the CPS business in the second half of fiscal 2021. Because the pending divestiture of the CPS business would represent the disposal of a portion of a reporting unit within our Aviation Systems segment, we assigned $174 million of goodwill to the CPS business on a relative fair value basis during the quarter ended April 2, 2021 when the held for sale criteria were met. In connection with the preparation of our financial statements for the quarter ended April 2, 2021, we recognized a $69 million pre-tax loss to reduce the net assets of the CPS business disposal group to fair value, which included a non-cash goodwill impairment charge of $62 million (based on the excess of the carrying value of the business over estimated net cash proceeds, after estimated purchase price adjustments) and a $7 million non-cash remeasurement loss. These charges are included in the “Impairment of goodwill and other assets” and “Business divestiture-related losses” line items in our Condensed Consolidated Statement of Income (Unaudited) for the quarter ended April 2, 2021. The carrying amounts of the major classes of assets and liabilities of the CPS business classified as held for sale at April 2, 2021 were as follows:
(In millions) | April 2, 2021
Receivables | $ | 12 |
Contract assets | 49 |
Inventories | 4 |
Other current assets | 1 |
Property, plant and equipment | 16 |
Goodwill | 112 |
Other intangible assets | 189 |
Other non-current assets | 3 |
Assets of disposal group held for sale | $ | 386 |
Accounts payable | $ | 19 |
Contract liabilities | 5 |
Other accrued items | 3 |
Other non-current liabilities | 3 |
Deferred taxes | 5 |
Liabilities of disposal group held for sale | $ | 35 |
Military training business. On February 27, 2021, we entered into a definitive agreement to sell our military training business to CAE USA Inc., a subsidiary of CAE Inc., for $1,050 million, subject to customary purchase price adjustments and closing conditions as set forth in the definitive agreement. The military training business, which is reported as part of our Aviation Systems segment, provides flight simulation solutions and training services to the U.S. Department of Defense (“DoD”) and foreign military agencies. Income before income taxes of our military training business was $16 million and $24 million for the quarters ended April 2, 2021 and April 3, 2020, respectively. We expect to complete the sale of the military training business in the second half of fiscal 2021. In connection with the preparation of our financial statements for the quarter ended April 2, 2021, we tested goodwill assigned to the military training business disposal group for impairment and concluded that no goodwill impairment existed at the time the held for sale criteria were met. The carrying amounts of the major classes of assets and liabilities of the military training business classified as held for sale at April 2, 2021 were as follows:
(In millions) | April 2, 2021
Receivables | $ | 21 |
Contract assets | 80 |
Inventories | 4 |
Other current assets | 29 |
Property, plant and equipment | 73 |
Goodwill | 426 |
Other intangible assets | 297 |
Deferred income taxes | 9 |
Other non-current assets | 59 |
Assets of disposal group held for sale | $ | 998 |
Accounts payable | $ | 29 |
Contract liabilities | 13 |
Other accrued items | 38 |
Other non-current liabilities | 47 |
Liabilities of disposal group held for sale | $ | 127 |
VSE disposal group. On February 23, 2021, we entered into a definitive agreement to sell certain portions of our Voice Switch Enterprise business (“VSE disposal group”) for $20 million, subject to customary purchase price adjustments and closing conditions as set forth in the definitive agreement. The VSE disposal group, which is reported as part of our Aviation Systems segment, provides voice over internet protocol systems for air traffic management communications. Income before income taxes of the VSE disposal group was not material for the quarters ended April 2, 2021 or April 3, 2020. We expect to complete the sale of the VSE disposal group in the second half of fiscal 2021. Because the potential divestiture of the VSE disposal group would represent the disposal of a portion of a reporting unit within our Aviation Systems segment, we assigned $14 million of goodwill to the VSE disposal group on a relative fair value basis during the quarter ended July 3, 2020 when the held for sale criteria were met. In connection with the preparation of our financial statements for fiscal 2020, we recognized a $32 million pre-tax loss to reduce the net assets of the VSE disposal group to fair value, which included a non-cash goodwill impairment charge of $14 million (based on the excess of the carrying value of the business over estimated net cash proceeds, after estimated purchase price adjustments) and an $18 million non-cash remeasurement loss. During the quarter ended April 2, 2021, we recognized an additional $8 million loss to reduce the net assets of the VSE disposal group to fair value, which is included in the “Business divestiture-related losses” line items in our Condensed Consolidated Statement of Income (Unaudited) for the quarter ended April 2, 2021. The carrying amounts of assets and liabilities of the VSE disposal group classified as held for sale in our Condensed Consolidated Balance Sheet (Unaudited) were $30 million and $11 million, respectively, at April 2, 2021 and $35 million and $13 million, respectively, at January 1, 2021. EOTech business. On July 31, 2020, we completed the divestiture of our EOTech business for $42 million (net cash proceeds of $40 million after selling costs and estimated purchase price adjustments), subject to final customary purchase price adjustments as set forth in the definitive sale agreement. The EOTech business manufactures holographic sighting systems, magnified field optics and accessories for military, law enforcement and commercial markets around the world. The operating results of the EOTech business during the quarter ended April 3, 2020 were reported as part of our Communication Systems segment. Income before income taxes of the EOTech business was not material for the quarter ended April 3, 2020. Applied Kilovolts and Analytical Instrumentation business. On May 15, 2020, we completed the divestiture of our Applied Kilovolts and Analytical Instrumentation business for net cash proceeds of $12 million, after selling costs and purchase price adjustments as set forth in the definitive sale agreement. The operating results of the Applied Kilovolts and Analytical Instrumentation business during the quarter ended April 3, 2020 were reported as part of our Space and Airborne Systems segment. Income before income taxes of the Applied Kilovolts and Analytical Instrumentation business was not material for the quarter ended April 3, 2020. In connection with the preparation of our financial statements for the quarter ended April 3, 2020, we tested goodwill assigned to the Applied Kilovolts and Analytical Instrumentation business disposal group and goodwill assigned to the retained businesses of the reporting unit for impairment and concluded that goodwill related to the disposal group was impaired. As a result, we recorded a non-cash impairment charge of $5 million, which is included in the “Impairment of goodwill and other assets” line item in our Condensed Consolidated Statement of Income (Unaudited) for the quarter ended April 3, 2020. Airport security and automation business. On May 4, 2020, we completed the divestiture of the airport security and automation business to Leidos, Inc. for $1 billion (net cash proceeds of $987 million after selling costs and purchase price adjustments as set forth in the definitive sale agreement). The airport security and automation business provides solutions used by the aviation and transportation industries, regulatory and customs authorities, government and law enforcement agencies and commercial and other high-security facilities. The operating results of the airport security and automation business during the quarter ended April 3, 2020 were reported as part of our Aviation Systems segment. Income before income taxes of the airport security and automation business was $12 million for the quarter ended April 3, 2020. For purposes of allocating goodwill to the disposal groups above, we determined the fair value of each disposal group based on the respective negotiated selling price (or estimated net cash proceeds, in the case of no negotiated selling price), and the fair value of the retained businesses of the respective reporting unit 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” in the Notes to Consolidated Financial Statements in our Fiscal 2020 Form 10-K for additional information regarding the fair value hierarchy.

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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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