Quarterly report pursuant to Section 13 or 15(d)

Discontinued Operations & Other Divestiture Charges Discontinued Operations & Divestiture Activities (Notes)

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Discontinued Operations & Other Divestiture Charges Discontinued Operations & Divestiture Activities (Notes)
6 Months Ended
Feb. 29, 2020
Divestiture Activities [Abstract]  
Disposal Groups, Including Discontinued Operations, Disclosure [Text Block]
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 previously announced 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 purchase price of approximately $214.5 million (which included approximately $3.0 million to be paid in four equal quarterly installments after closing, of which $0.7 million was received in the three months ended February 29, 2020). In connection with the completion of the sale in the three months ended November 30, 2019, the Company recorded a net loss of $4.2 million comprised of a loss of $22.4 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 quarter largely offset by an income tax benefit of $18.2 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 in the three months ended November 30, 2019 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. In the three months ended February 29, 2020, the Company also incurred approximately $0.3 million of additional miscellaneous divestiture related costs. The final loss on the sale is subject to the customary negotiation of final working capital amounts.
During the first quarter of fiscal 2019, the Company determined that the Precision Hayes 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 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, retention bonuses and other adjustments which were recognized within the second quarter of fiscal 2019. The Company recorded $0.0 million and $9.5 million of impairment & divestiture charges during the three and six months ended February 28, 2019, respectively, of which the charges for the six-month period represented the excess of the net book value of the net assets held for sale less the anticipated proceeds, less costs to sell.
The Company completed the sale of the Cortland Fibron business on December 19, 2018 for $12.5 million in cash. During the three and six months ended February 28, 2019, the Company recognized $2.6 million and $4.3 million of impairment & divestiture charges associated with the divestiture of the Cortland Fibron business.
In addition to the above disclosed matters, the Company also incurred $0.9 million and $2.5 million of divestiture related costs during the three and six months ended February 29, 2020, respectively.
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 Condensed Consolidated Statements of Operations for all periods presented.
The following represents the detail of "(Loss) earnings from discontinued operations, net of income taxes" within the Condensed Consolidated Statements of Operations (in thousands):
 
 
Three Months Ended
 
Six Months Ended
 
 
February 29, 2020*
 
February 28, 2019
 
February 29, 2020*
 
February 28, 2019
Net sales
 
$

 
$
112,119

 
$
67,010

 
$
246,099

Cost of products sold
 

 
85,948

 
49,749

 
185,232

Gross profit
 

 
26,171

 
17,261

 
60,867

 
 
 
 
 
 
 
 
 
Selling, administrative and engineering expenses
 
619

 
17,312

 
11,451

 
37,383

Amortization of intangible assets
 

 
1,587

 

 
3,569

Restructuring charges (benefit)
 

 
14

 
(11
)
 
446

Impairment & divestiture charges
 
314

 
3,344

 
28,730

 
16,319

Operating (loss) earnings
 
(933
)
 
3,914

 
(22,909
)
 
3,150

Financing (benefits) costs, net
 

 
(4
)
 
14

 
(7
)
Other expense (income), net
 

 
141

 
(104
)
 
547

(Loss) earnings before income tax expense (benefit)
 
(933
)
 
3,777

 
(22,819
)
 
2,610

Income tax expense (benefit)
 
823

 
1,789

 
(16,812
)
 
1,652

Net (loss) earnings from discontinued operations
 
$
(1,756
)
 
$
1,988

 
$
(6,007
)
 
$
958

* "(Loss) earnings from discontinued operations, net of income taxes" for the periods presented in fiscal 2020 include 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 U.S. GAAP. Furthermore, the Company excluded EC&S segment employees from the fiscal 2020 bonus compensation plan, hence there are no expenses associated with the plan for that period.
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 $6.0 million, which resulted in an impairment & divestiture benefit of $4.6 million in the three months ended November 30, 2019. In the three months ended February 29, 2020, the Company recorded an additional benefit of $0.1 million related to agreement with the buyer on final working capital amounts and various other benefits. In March 2020, the buyer of the UNI-LIFT product line extended a long-term supply agreement with a significant customer. Pursuant to the sales agreement, this action triggered the requirement for the buyer to pay $1.5 million of contingent proceeds and payment was subsequently received by the Company. These contingent proceeds were not reflected within the condensed consolidated financial statements as of and for the periods ended February 29, 2020, but will be reflected within the condensed consolidated financial statements as of and for the periods ending May 31, 2020.
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. We recorded impairment & divestiture charges of $4.6 million in the three months ended November 30, 2019 comprised of impairment charges of $2.5 million representing the excess of net assets held for sale compared to the anticipated proceeds less costs to sell, $1.9 million associated with our requirement to withdraw from the multi-employer pension plan associated with that business and $0.2 million of other divestiture related charges. The Company completed the divestiture of the Milwaukee Cylinder business on December 2, 2019 for a negligible amount. In the three months ended February 29, 2020, the Company recorded inconsequential amounts of impairment & divestiture charges. The historical results of the Milwaukee Cylinder business, inclusive of the UNI-LIFT product line, (which had net sales of $4.3 million in the three months ended February 28, 2019 and $2.9 million and $7.1 million in the six months ended February 29, 2020 and February 28, 2019, respectively) are not material to the condensed 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 $1.3 million in the three months ended November 30. 2019. During the three months ended February 29, 2020, the Company recorded $0.1 million of impairment & divestiture charges related to working capital adjustment. The historical results of the Connectors product line (which had net sales of $1.0 million in the three months ended February 28, 2019 and $0.2 million and $2.5 million in the six months ended February 29, 2020 and February 28, 2019, respectively) are not material to the condensed consolidated financial results.
At February 29, 2020, the Company determined that it was no longer probable that a loss will occur related to an outstanding legal matter associated with a previously divested business, as such, recorded an impairment & divestiture benefit of $0.8 million in the three months ended February 29, 2020.