Investment and Variable Interest Entity

9 Months Ended

May 02, 2020

Investment and VIE [Abstract]

Investment and Variable Interest Entity

Investment and Variable Interest Entity

As discussed in Note 2, in the fourth quarter of Fiscal 2019, the Company completed the Transaction which provided for, among other things, the sale by ascena of maurices to Viking. Effective upon the closing of the Transaction, ascena received cash proceeds and a 49.6% ownership interest in the operations of maurices through its investment in Viking, consisting of interests in Viking preferred and common stock. Viking's operations substantially consist of its investment in maurices. At the end of Fiscal 2019, the Company’s investment in Viking was recorded at $42.1 million. The Company is accounting for its investment under the equity method of accounting.

Viking, primarily through its investment in maurices, reported (loss) income of approximately $(12.3) million and $11.0 million for the three and nine months ended May 2, 2020, respectively, which primarily represents results from the operations of maurices. The results of maurices includes the preliminary impact of adjusting its assets and liabilities to fair value under the acquisition method of accounting for business combinations, which will be finalized during Fiscal 2020. The Company recognized its share of the income in the accompanying condensed consolidated statement of operations which was determined by using the hypothetical liquidation at book value ("HLBV"). HLBV is a balance sheet approach whereby a calculation is prepared at each balance sheet date to determine the amount that the Company would receive if the underlying equity investment entity were to liquidate all of its assets (as valued in accordance with GAAP) and distribute that cash to its investors based on the contractually defined liquidation priorities. The difference between the calculated liquidation distribution amounts at the beginning and the end of the reporting period, after adjusting for capital contributions and distributions, is the Company's share of the earnings or losses from the equity investment for that period.

In connection with the sale of maurices, the Company agreed to provide transition services to maurices for varying periods of time depending on the service. Service periods ranged from 3-36 months and include services such as legal, tax, logistics, sourcing and other back office functions. For the three and nine months ended May 2, 2020, recognized fees from these services are approximately $15.5 million and $48.4 million, respectively, which are primarily recorded as a reduction of Buying, distribution and occupancy expenses and Selling, general and administrative expenses.

As of May 2, 2020, the Company's investment in Viking was recorded at $53.1 million and the Company had a receivable due from maurices of $45.2 million, primarily for in-transit inventory purchased on their behalf. Of the receivable balance, $12 million is classified in non-current assets. There were no amounts due to maurices as of May 2, 2020. The Company's investment balance, plus the receivable and the private label credit card revenue guarantee, which is disclosed in Note 2 to the audited consolidated financial statements included in the Fiscal 2019 10-K, represent our maximum exposure to any potential loss. The private label credit card revenue guarantee is recorded at its estimated fair value as of May 2, 2020 using Level 3 measurements and is not materially different from the amount recorded as of August 3, 2019.