Annual report pursuant to Section 13 and 15(d)

Divestiture Activities

v3.20.2
Divestiture Activities
 12 Months Ended
Aug. 31, 2020
Discontinued Operations and Disposal Groups [Abstract]  
Discontinued Operations
Note 5. Discontinued Operations and Other Divestiture Activities
Discontinued Operations
On October 31, 2019, as part of our overall strategy to become a pure-play industrial tools and services company, the Company completed the sale of the businesses comprising its former Engineered Components & Systems ("EC&S") segment to wholly owned subsidiaries of BRWS Parent LLC, a Delaware limited liability company and affiliate of One Rock Capital Partners II, LP, for a sales price of approximately $215.8 million (inclusive of the settlement of working capital adjustments). Approximately $3.0 million of the purchase price was to be paid in four equal quarterly installments after closing, of which $0.7 million is outstanding as of August 31, 2020. In connection with the completion of the sale, the Company recorded a net loss of $4.7 million comprised of a loss of $23.0 million representing the excess of the net assets (exclusive of deferred tax assets and liabilities associated with subsidiaries of the Company whose stock was sold as part of the transaction) as compared to the purchase price less costs to sell and the recognition in earnings of the cumulative effect of foreign currency exchange gains and losses during the year largely offset by an income tax benefit of $18.3 million associated with the write off of the net deferred tax liability on subsidiaries of the EC&S segment for which the stock was divested. The Company also recognized an additional $3.3 million of impairment & divestiture costs associated with the accelerated vesting of restricted stock awards associated with employees terminated as part of the transaction and $2.7 million of additional divestiture charges which were necessary to complete the transaction.
At August 31, 2019, the EC&S segment met the criteria for assets held-for-sale treatment. As a result, the Company recognized impairment & divestiture charges in fiscal 2019 of $264.5 million which consisted of $210.0 million representing the excess net book value of the net assets over the anticipated sales proceeds less costs to sell and $54.5 million representing the recognition in earnings of the cumulative effect of foreign currency exchange losses previously recorded in equity since acquisition.
On December 31, 2018, the Company completed the sale of the Precision Hayes International business for $23.6 million cash, net of final transaction costs, working capital adjustments, accelerated vesting of equity compensation, retention bonuses and other adjustments. The Company recorded $9.5 million of impairment & divestiture charges during the fiscal year representing the excess of the net book value of the assets held for sale less the anticipated proceeds, less costs to sell. During the fourth quarter of fiscal 2018, the Company recognized impairment & divestiture charges of $23.7 million relating to the excess of net book value of assets over anticipated proceeds which consisted of i) $17.5 million related to goodwill, ii) $5.0 million related to amortizable intangible assets and ii) $1.2 million related to fixed asset impairment.
The Company also completed the sale of the Cortland Fibron business on December 19, 2018 for $12.5 million in cash. The Company recognized $1.7 million of impairment & divestiture charges in fiscal 2019 representing the excess net book value of the net assets less the proceeds from sale, net of transaction costs. Additionally, due to the business meeting the criteria for asset held for sale treatment at August 31, 2018, the Company recognized impairment & divestiture charges in fiscal 2018 of $46.3 million which consisted of i) $35.3 million related to the recognition in earnings of the cumulative effect of foreign currency rate changes since acquisition; ii) $10.5 million representing the excess of the net book value of assets held for sale to the anticipated proceeds and iii) $0.5 million of other divestiture charges.
As the aforementioned divestitures were a part of our strategic shift to become a pure-play industrial tools and services company, the results of their operations (including the stated impairment & divestiture charges) are recorded as a component of "Loss from discontinued operations" in the Consolidated Statements of Operations for all periods presented.
The following is a summary of the assets and liabilities of discontinued operations (in thousands):
August 31, 2019
Accounts receivable, net $ 52,802 
Inventories, net 76,825 
Other current assets 8,058 
Property, plant & equipment, net 32,172 
Goodwill 16,862 
Other intangible assets, net 93,314 
Other long-term assets 5,545 
Assets of discontinued operations $ 285,578 
Trade accounts payable $ 43,628 
Accrued compensation and benefits 12,101 
Reserve for cumulative translation adjustment 54,469 
Other current liabilities 12,101 
Deferred income taxes 20,029 
Pension and postretirement benefit liabilities 1,344 
Other long-term liabilities 91 
Liabilities of discontinued operations $ 143,763 
The following represents the detail of "Loss from discontinued operations, net of income taxes" within the Consolidated Statements of Operations (in thousands):
Year Ended August 31,
2020 * 2019 2018
Net sales $ 67,010  $ 459,144  $ 541,308 
Cost of products sold 49,749  344,563  409,332 
Gross profit 17,261  114,581  131,976 
Selling, administrative and engineering expenses 11,561  68,339  81,188 
Amortization of intangible assets —  5,666  11,285 
Restructuring (benefit) charges (11) 1,779  1,440 
Impairment & divestiture charges**
28,972  286,175  70,071 
Operating loss (23,261) (247,378) (32,008)
Financing costs, net 14  124  619 
Other (income) expense, net (104) 1,922  (759)
Loss before income tax (benefit) expense (23,171) (249,424) (31,868)
Income tax (benefit) expense (18,337) 7,788  (5,474)
Net loss from discontinued operations $ (4,834) $ (257,212) $ (26,394)
* "Loss from discontinued operations, net of income taxes" for the year ended August 31, 2020 includes the results of the EC&S segment for the two months ended October 31, 2019 (the divestiture date) as well as the ancillary impacts from certain retained liabilities subsequent to the divestiture. As a result of the classification of the segment as assets and liabilities held for sale for the two months ended October 31, 2019, the Company did not record amortization or depreciation expense in the results of operations in accordance with GAAP.
** In addition to the impairment & divestiture charges discussed above, the Company also incurred approximately $10.5 million of divestiture charges in fiscal 2019 related to the, at the time, anticipated divestiture of EC&S.
Other Divestiture Activities
On September 20, 2019, the Company completed the sale of the UNI-LIFT product line, a component of our Milwaukee Cylinder business (IT&S segment) for net cash proceeds of $7.5 million (inclusive of the settlement of working capital adjustments and the buyer achieving certain criteria which met the requirement for payment of $1.5 million of contingent proceeds). The transaction resulted in an impairment & divestiture benefit of $6.3 million for the year ended August 31, 2020 recorded as an "Impairment & divestiture benefit" within the Consolidated Statements of Operations.
After the sale of the UNI-LIFT product line, the Company determined that the remaining Milwaukee Cylinder business was a non-core asset, did not align with the strategic objectives of the Company and, as a result, the Company committed to a plan to sell this business. The Company completed the divestiture of the Milwaukee Cylinder business on December 2,
2019 for a negligible amount. The Company recorded impairment & divestiture charges of $4.5 million for the year ended August 31, 2020 predominately comprised of impairment charges of $2.5 million representing the excess of net assets held for sale compared to the net proceeds and $1.7 million associated with our requirement to withdraw from the multi-employer pension plan associated with that business and $0.3 million of other divestiture related charges and true-ups of retained liabilities.
The historical results of the Milwaukee Cylinder business, inclusive of the UNI-LIFT product line, (which had net sales of $2.9 million, $13.2 million and $11.1 million in the year ended August 31, 2020, 2019 and 2018, respectively) are not material to the consolidated financial results.
On October 22, 2019, the Company completed the sale of the Connectors product line (IT&S segment) for net cash proceeds of $2.7 million, which resulted in an impairment & divestiture benefit of $1.0 million in the year ended August 31, 2020. The historical results of the Connectors product line (which had net sales of $0.2 million, $5.0 million and $0.2 million for the year ended August 31, 2020, 2019 and 2018, respectively) are not material to the consolidated financial results.
During the year ended August 31, 2020, the Company modified estimates on outstanding legal matters associated with previously divested businesses, as such, recorded a net impairment & divestiture benefit of $0.5 million in the year ended August 31, 2020.
On December 1, 2017, the Company completed the sale of the Viking business (Other Segment) for net cash proceeds of $8.8 million, which resulted in an after-tax impairment & divestiture charge of $12.4 million in fiscal 2018, comprised of real estate lease exit charges of $3.0 million related to retained facilities that became vacant as a result of the Viking divestiture and approximately $9.4 million of associated discrete income tax expense.
The historical results of the Viking business (which had net sales of $2.7 million in the year ended August 31, 2018) are not material to the consolidated financial results.