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Business Divestitures | 6 Months Ended
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Jul. 02, 2021
Discontinued Operations and Disposal Groups [Abstract] |
Business Divestitures | Note B — Business Divestitures 2021 Divestitures Held for Sale Businesses Electron Devices business. On July 2, 2021, we entered into a definitive agreement to sell our Electron Devices business to an affiliate of Arlington Capital Partners for $185 million, subject to customary purchase price adjustments and closing conditions as set forth in the definitive agreement. The Electron Devices business, which is reported as part of our Aviation Systems segment, manufactures microwave devices for ground-based, airborne and satellite communications and radar. We expect to complete the sale of the Electron Devices business in the second half of fiscal 2021. Aerospace Products disposal groups. During the quarter ended July 2, 2021, we determined the criteria to be classified as held for sale were met with respect to two businesses within our Aviation Systems segment, which we refer to together in this Report as the “AP disposal groups”. We expect to complete the sale of the AP disposal groups in the next twelve months. VSE disposal group. On February 23, 2021, we entered into a definitive agreement to sell the VSE disposal group for $20 million, subject to customary purchase price adjustments and closing conditions as set forth in the definitive agreement. The definitive agreement includes provisions to accommodate, as necessary, closing the transactions contemplated by the agreement on a deferred basis if local consents and regulatory approvals in certain jurisdictions are obtained at a later date than in other jurisdictions. 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. During the quarter ended July 2, 2021, as contemplated by the definitive agreement, we consummated transactions in several jurisdictions for net cash proceeds of $2 million. (We consummated the closing in the final jurisdiction on July 30, 2021). Because the divestiture of the VSE disposal group represents 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 less costs to sell, 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 and two quarters ended July 2, 2021, we recorded additional pre-tax losses of $18 million and $26 million, respectively, for non-cash remeasurement losses. The non-cash goodwill impairment is included in the “Impairment of goodwill and other assets” line item in our Condensed Consolidated Statement of Income (Unaudited). The carrying amounts of the major classes of assets and liabilities for the businesses classified as held for sale included in our Condensed Consolidated Balance Sheet (Unaudited) at July 2, 2021 were as follows:
(In millions) | Electron Devices business |  | AP disposal groups |  | VSE disposal group |  | Consolidated Total
Receivables, net | $ | 25 |  |  | $ | 19 |  |  | $ | 1 |  |  | $ | 45 |
Contract assets | 65 |  |  | 11 |  |  | 7 |  |  | 83 |
Inventories | 17 |  |  | 28 |  |  | 1 |  |  | 46 |
Other current assets | 3 |  |  | 2 |  |  | — |  |  | 5 |
Property, plant and equipment, net | 28 |  |  | 15 |  |  | 1 |  |  | 44 |
Goodwill | 15 |  |  | 11 |  |  | — |  |  | 26 |
Other intangible assets | 60 |  |  | 31 |  |  | 5 |  |  | 96 |
Deferred taxes | — |  |  | 1 |  |  | — |  |  | 1 |
Other non-current assets | 96 |  |  | 37 |  |  | — |  |  | 133 |
Assets of disposal group held for sale | $ | 309 |  |  | $ | 155 |  |  | $ | 15 |  |  | $ | 479 |
Accounts payable | $ | 14 |  |  | $ | 9 |  |  | $ | 1 |  |  | 24 |
Contract liabilities | 52 |  |  | 2 |  |  | 1 |  |  | 55 |
Other accrued items | 36 |  |  | 11 |  |  | — |  |  | 47 |
Other non-current liabilities | 78 |  |  | 37 |  |  | — |  |  | 115 |
Deferred taxes | — |  |  | 2 |  |  | — |  |  | 2 |
Liabilities of disposal group held for sale | $ | 180 |  |  | $ | 61 |  |  | $ | 2 |  |  | $ | 243 |
The carrying amounts of the assets and liabilities of the VSE disposal group classified as held for sale in our Consolidated Balance Sheet were $35 million and $13 million, respectively, at January 1, 2021. Completed Divestitures CPS business. On July 2, 2021, we completed the divestiture of the CPS business to RENK AG for $398 million (net proceeds of $347 million after selling costs and estimated purchase price adjustments, including $6 million of accrued selling costs). The CPS business engineers, designs and manufactures engines, transmissions, suspensions and turret drive systems for tracked and wheeled combat vehicle systems. The operating results of the CPS business through the date of divestiture were reported as part of our Aviation Systems segment. Because the then-pending divestiture of the CPS business represented 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, and we recognized 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), which is included in the “Impairment of goodwill and other assets” line item in our Condensed Consolidated Statement of Income (Unaudited). Military training business. On July 2, 2021, we completed the divestiture of the military training business to CAE USA Inc., a subsidiary of CAE Inc., for $1,050 million (net proceeds of $1,057 million after selling costs and estimated purchase price adjustments, including $17 million of accrued selling costs). The military training business provides flight simulation solutions and training services to the U.S. Department of Defense (“DoD”) and foreign military agencies. The operating results of the military training business through the date of divestiture were reported as part of our Aviation Systems segment. 2020 Divestitures EOTech business. On July 31, 2020, we completed the divestiture of the 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. 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 through the date of divestiture were reported as part of our Communication Systems segment. Applied Kilovolts and Analytical Instrumentation business. On May 15, 2020, we completed the divestiture of the Applied Kilovolts and Analytical Instrumentation business for net cash proceeds of $12 million, after selling costs and purchase price adjustments. 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). The operating results of the Applied Kilovolts and Analytical Instrumentation business through the date of divestiture were reported as part of our Space and Airborne Systems segment. 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). 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 through the date of divestiture were reported as part of our Aviation Systems segment. For purposes of allocating goodwill to the disposal groups, 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. For additional information regarding the impairment of goodwill related to our business and disposal group divestitures, see Note I — Goodwill and Other Intangible Assets in these Notes. The following table presents the amount of income (loss) before income taxes attributable to businesses divested or held for sale in our Condensed Consolidated Statement of Income (Unaudited):
| Quarter Ended |  | Two Quarters Ended
(In millions) | July 2, 2021 |  | July 3, 2020 |  | July 2, 2021 |  | July 3, 2020
Electron Devices business | $ | 11 |  |  | $ | 6 |  |  | $ | 30 |  |  | $ | 15 |
CPS business | 27 |  |  | 13 |  |  | 53 |  |  | 29 |
Military training business | 18 |  |  | 16 |  |  | 35 |  |  | 40 |
Airport security and automation business | — |  |  | (3) |  |  | — |  |  | 9 |
The “Business divestiture-related gains (losses)” line item in our Condensed Consolidated Statement of Income (Unaudited) is comprised of the following pre-tax gains (losses) associated with businesses divested or held for sale:
| Quarter Ended |  | Two Quarters Ended
(In millions) | July 2, 2021 |  | July 3, 2020 |  | July 2, 2021 |  | July 3, 2020
VSE disposal group(1) | $ | (18) |  |  | $ | (14) |  |  | $ | (26) |  |  | $ | (14) |
CPS business(2) | (12) |  |  | — |  |  | (19) |  |  | — |
Military training business | 212 |  |  | — |  |  | 212 |  |  | — |
Airport security and automation business | — |  |  | (23) |  |  | — |  |  | (26) |
Other(3) | (2) |  |  | (12) |  |  | (2) |  |  | (12) |
Total Business divestiture-related gain (losses) | $ | 180 |  |  | $ | (49) |  |  | $ | 165 |  |  | $ | (52) |
_______________ (1)During the quarter ended July 3, 2020, upon classifying the VSE disposal group as held for sale, we recorded a non-cash impairment charge of $14 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 July 3, 2020. We recognized an $18 million non-cash remeasurement loss related to the VSE disposal group during the year ended January 1, 2021. (2)During the quarter ended April 2, 2021, upon classifying the CPS business as held for sale, we recorded a non-cash impairment charge of $62 million, which is included in the “Impairment of goodwill and other assets” line item in our Condensed Consolidated Statement of Income (Unaudited). See Note I — Goodwill and Other Intangible Assets in these Notes for additional information. (3)Reflects adjustments to the gains and losses on completed divestitures not shown above, including for fiscal 2020, $12 million for finalization of purchase price adjustments and recognition of a non-cash adjustment related to working capital, which decreased the gain initially recognized on the sale of the Harris Night Vision business divested on September 13, 2019.

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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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