Divestiture Activities Divestiture Activities (Notes) |
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| Disposal Groups, Including Discontinued Operations, Disclosure [Text Block] |
Note 5. Divestiture Activities
During the fourth quarter of fiscal 2018, the Cortland Fibron business (EC&S segment) met the criteria for assets held for sale treatment. The Company completed the sale of the Cortland Fibron business on December 19, 2018 for $12.5 million in cash. The transaction could be subject to additional divestiture charges consisting of closing working capital adjustments in the third quarter of fiscal 2019.
During the first quarter of fiscal 2019, the Company determined that the Precision Hayes and Cortland U.S. businesses (EC&S segment) were non-core assets, did not align with the strategic objectives of the Company and, as a result, the Company committed to a plan to sell these businesses. The Company completed the sale of the Precision Hayes business on December 31, 2018 for $23.6 million cash net of final transaction costs, working capital adjustments, accelerated vesting of equity compensation, completion bonuses and other adjustments which were recognized in the second quarter of fiscal 2019. In addition, the related assets and liabilities of the Cortland U.S. business to be sold are classified as assets/liabilities held for sale in the condensed consolidated balance sheet as of February 28, 2019 and approximate the estimated fair value, less cost to sell.
On January 24, 2019, the Company announced its intention to focus solely on its IT&S segment, and as a result, initiated a process to potentially divest the remaining EC&S segment. However, the assets and liabilities of the remaining EC&S segment have not been classified as held for sale as there is no assurance that a transaction will result from the sale process. Material charges reflecting a write down of the EC&S net assets to their net realizable value could result in non-cash impairment charges in future periods. The Company is unable to estimate the total amount or range of amounts of the potential impairment charges in future periods in connection with this action, as no assurance can be given that a transaction will result from the EC&S sale process or as to its timing. As a result of the Company’s interim impairment analysis of the EC&S asset group, an indication of impairment was not present as of February 28, 2019 and, therefore, there were no non-cash impairment charges recorded during the second quarter of fiscal 2019. The Company intends to comment on, or provide updates regarding, these matters (including the status of the divestiture or size of impairment) only when it determines that further disclosure is appropriate or required. Year-to-date, the Company has incurred pre-tax divestiture charges of $2.3 million relating to the contemplated EC&S segment divestiture.
The Company recognized $6.9 million of impairment & divestiture charges in the second quarter of fiscal 2019, comprised of: (i) a $3.5 million charge representing the excess of the net book value of assets held for sale to the anticipated proceeds of the Cortland U.S. business, (ii) $2.5 million of other divestiture charges (primarily working capital adjustments, accelerated vesting of equity compensation and completion bonuses) related to the divestiture of the Precision Hayes and Cortland Fibron businesses and (iii) $0.9 million related to the divestiture of the remaining EC&S segment. These charges generated an income tax benefit of $0.2 million in the second quarter of fiscal 2019. Year-to-date, the Company has recognized $43.4 million of impairment & divestiture charges in fiscal 2019, comprised of: (i) a $24.6 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 $13.7 million related to the recognition in earnings of the cumulative effect of foreign currency rate changes since acquisition and (iii) $5.1 million of other divestiture charges. These charges generated a fiscal 2019 year-to-date income tax benefit of $2.8 million.
The following is a summary of the assets and liabilities held for sale (in thousands):
(1) Represents the consolidated assets and liabilities for the Cortland U.S. business held for sale at February 28, 2019.
(2) Represents the Cortland Fibron business held for sale at August 31, 2018.
The historical results of the Precision Hayes and Cortland businesses are not material to the condensed consolidated financial results of the Company and are included in continuing operations. The Precision Hayes and Cortland businesses had combined net sales of $14.9 million and $28.1 million in the three months ended February 28, 2019 and 2018, respectively and $44.3 million and $56.1 million in the six months ended February 28, 2019 and 2018, respectively. Additional charges are anticipated upon the completion of the sale of the Cortland U.S. business and include, but are not limited to, items such as liabilities triggered only upon sale completion, changes in the composition of the net asset disposal groups and changes to estimated sales proceeds. The Precision Hayes and Cortland Fibron businesses could incur immaterial additional divestiture charges in the third quarter of fiscal 2019 relative to the final settlement of net asset disposal groups and other divestiture charges.
On December 1, 2017, the Company completed the sale of the Viking business for net cash proceeds of $8.8 million, which resulted in an after-tax impairment & divestiture charge of $12.4 million in the second quarter of 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 six months ended February 28, 2018) are not material to the condensed consolidated financial results and are included in continuing operations.
As part of our portfolio management process, we routinely review our businesses with respect to our strategic initiatives and long-term objectives and are taking actions that are anticipated to improve the operational performance of the Company. The aforementioned divestitures and any potential future divestitures pose risks and challenges that could negatively impact our business, including required separation or carve-out activities and costs, disputes with buyers or potential impairment charges.
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| Schedule of Assets and Liabilities Held for Sale [Table Text Block] |
The following is a summary of the assets and liabilities held for sale (in thousands):
(1)
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