NOTE J – DISCONTINUED OPERATIONS

On January 3, 2017, the Company and its wholly-owned subsidiary, Presto Absorbent Products, Inc. (“PAPI”), entered into an asset purchase agreement wherein substantially all PAPI assets were sold and certain liabilities were assigned to Drylock Technologies, LTD. (“Drylock”) in exchange for $68,448,000. The proceeds amount differs from the amount previously disclosed because of the customary post-closing adjustments that were finalized during the second quarter of 2017, totaling $1,448,000. The asset purchase agreement also provided for additional proceeds of $4,000,000 upon the sale of certain delayed assets, consisting of machinery and equipment that were the subject of an involuntary conversion. The sale of the delayed assets was consummated during the second quarter of 2018 and resulted in no gain or loss. As a result of this transaction, the Company classified its results of operations for all periods presented to reflect its Absorbent Products business as a discontinued operation and classified the assets and liabilities of its Absorbent Products business as held for sale. The Company’s pre-tax gain on sale of $11,413,000, net of one-time transaction costs, was recorded in 2017 within earnings from discontinued operations. This amount differs from the gain previously reported as a result of the post-closing adjustments mentioned above that were finalized in the second quarter of 2017.

The following table summarizes the results of the Absorbent Products business within discontinued operations for each of the periods presented:



	Three Months Ended				Nine Months Ended
(in thousands) (unaudited)	September 30, 2018		October 1, 2017		September 30, 2018		October 1, 2017
Net sales	$	-	$	-	$	-	$	421
Cost of sales		68		(133)		57		(618)
Selling and general expenses		-		-		-		(24)
Gain on divestiture, net		-		-		-		11,413
Other income		-		-		-		2,078
Earnings (loss) from discontinued operations before provision for income taxes		68		(133)		57		13,270
Provision for (benefit from) income taxes from discontinued operations		(63)		(127)		(65)		4,323
Earnings (loss) from discontinued operations, net of tax	$	131	$	(6)	$	122	$	8,947

The following table summarizes the major classes of assets and liabilities of the Absorbent Products business held for sale for each of the periods presented:




(in thousands)	September 30, 2018 (Unaudited)		December 31, 2017
Accounts receivable, net	$	528	$	2,529
Property, plant and equipment, net		-		3,660
Assets held for sale	$	528	$	6,189

Accounts payable	$	-	$	210
Liabilities held for sale	$	-	$	210

The Consolidated Statements of Cash Flows do not present the cash flows from discontinued operations separately from cash flows from continuing operations. Cash used in operating activities from discontinued operations was $562,000 and $5,437,000 for the nine months ended September 30, 2018 and October 1, 2017, respectively. Cash provided by investing activities related to discontinued operations was $6,134,000 and $63,199,000 for the nine months ended September 30, 2018 and October 1, 2017, respectively.

In connection with the asset purchase agreement discussed above, the Company entered into a 10-year lease agreement with Drylock for a portion of its manufacturing and warehouse facilities. The lease agreement provided for total annual payments of $1,288,000 initially. During the fourth quarter of 2018, the lease agreement was amended to incorporate additional facilities that the Company built for Drylock. The amended lease provides for an initial term of approximately 14 years, and allows for successive three-year renewal periods, as well as options to terminate the lease early after five and ten years. The amended lease also provides for adjustments to the rental payments based on certain price indices, taxes, and space occupied. The Company estimates that annual payments under the lease will total $1,755,000. The Company also entered into a transition services agreement with Drylock, which terminated at the end of 2017. The amounts received from Drylock for transition services and rental income are recorded in Other Income on the Consolidated Statements of Comprehensive Income.