Annual report pursuant to Section 13 and 15(d)

Divestiture Activities

v3.19.3
Divestiture Activities
 12 Months Ended
Aug. 31, 2019
Discontinued Operations and Disposal Groups [Abstract]  
Discontinued Operations
Note 5.   Divestiture Activities
On July 9, 2019, as part of our overall strategy to become a pure-play industrial tools and services company, the Company entered into a SPA to divest the remaining businesses within the EC&S segment at a purchase price of approximately $214.5 million (which includes approximately $3.0 million to be paid in four quarterly installments after closing). 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 PHI 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) earnings from discontinued operations" in the Consolidated Statements of Operations for all periods presented. In addition, their assets and liabilities are recorded as "Assets from discontinued operations" and "Liabilities from discontinued operations", respectively, within the Consolidated Balance Sheets for each period presented.
The following is a summary of the assets and liabilities of discontinued operations (in thousands):
 
August 31,
 
2019
 
2018
Accounts receivable, net
$
52,802

 
$
67,412

Inventories, net
76,825

 
86,933

Other current assets
8,058

 
13,467

Property, plant & equipment, net
32,172

 
37,432

Goodwill
16,862

 
233,779

Other intangible assets, net
93,314

 
120,344

Other long-term assets
5,545

 
9,566

Assets of discontinued operations
$
285,578

 
$
568,933

 
 
 
 
Trade accounts payable
$
43,628

 
$
65,169

Accrued compensation and benefits
12,101

 
19,930

Reserve for cumulative translation adjustment
54,469

 
35,346

Other current liabilities
12,101

 
14,800

Deferred income taxes
20,029

 
24,145

Pension and postretirement benefit liabilities
1,344

 
912

Other long-term liabilities
91

 
271

Liabilities of discontinued operations
$
143,763

 
$
160,573


The following represents the detail of "(Loss) earnings from discontinued operations, net of income taxes" within the Consolidated Statements of Operations (in thousands):
 
 
Year Ended August 31,
 
 
2019
 
2018
 
2017
Net sales
 
$
459,144

 
$
541,308

 
$
479,193

Cost of products sold
 
344,563

 
409,332

 
359,846

Gross profit
 
114,581

 
131,976

 
119,347

 
 
 
 
 
 
 
Selling, administrative and engineering expenses
 
68,339

 
81,188

 
69,360

Amortization of intangible assets
 
5,666

 
11,285

 
11,377

Restructuring charges
 
1,779

 
1,440

 
3,994

Impairment & divestiture charges*
 
286,175

 
70,071

 
—

Operating (loss) profit
 
(247,378
)
 
(32,008
)
 
34,616

 
 
 
 
 
 
 
Financing costs, net
 
124

 
619

 
482

Other expense (income), net
 
1,922

 
(759
)
 
(1,064
)
Loss (earnings) before income tax expense (benefit)
 
(249,424
)
 
(31,868
)
 
35,198

 
 
 
 
 
 
 
Income tax expense (benefit)
 
7,788

 
(5,474
)
 
6,136

Net (loss) earnings from discontinued operations
 
$
(257,212
)
 
$
(26,394
)
 
$
29,062

*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 anticipated divestiture of EC&S.
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. In the fourth quarter of fiscal 2017, related to the then pending sale of our Viking business, we recognized impairment & divestiture charges of $117.0 million which consisted of (i) a $16.1 million charge representing the excess of the net book value of assets held for sale to the anticipated proceeds; (ii) a non-cash impairment charge of $69.0 million related to the recognition in earnings of the cumulative effect of foreign currency rate changes since acquisition; (iii) a $28.6 million cash charge related to the operating lease buyout of certain rental assets and (iv) a $3.3 million of other divestiture charges.
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.