Restructuring and Long-Lived Asset Impairment

9 Months Ended

Sep. 30, 2023

Restructuring and Long-Lived Asset Impairment

Restructuring and Long-Lived Asset Impairment

4. Restructuring and Long-Lived Asset Impairment

Restructuring – 2019 Strategic Shift

On September 3, 2019, the Board of Directors of CWH approved a plan (the “2019 Strategic Shift”) to strategically shift its business away from locations where the Company does not have the ability or where it is not feasible to sell and/or service RVs at a sufficient capacity (the “Outdoor Lifestyle Locations”). Of the Outdoor Lifestyle Locations in the RV and Outdoor Retail segment operating at September 3, 2019, the Company has closed or divested 39 Outdoor Lifestyle Locations, two distribution centers, and 20 specialty retail locations relating to the 2019 Strategic Shift. As of December 31, 2020, the Company had completed the store closures and divestitures relating to the 2019 Strategic Shift. During the year ended December 31, 2021, the Company completed its analysis of its retail product offerings that are not RV related.

As of December 31, 2021, the activities under the 2019 Strategic Shift were completed with the exception of certain lease termination costs and other associated costs relating to the leases of previously closed locations under the 2019 Strategic Shift. The process of identifying subtenants and negotiating lease terminations has been delayed, which initially was in part due to the COVID-19 pandemic, and these delays are expected to continue. The timing of these negotiations will vary as both subleases and terminations are contingent on landlord approvals.

The Company currently estimates the total restructuring costs associated with the 2019 Strategic Shift to be in the range of $122.7 million to $131.3 million. The breakdown of the estimated restructuring costs are as follows:

● one-time employee termination benefits relating to retail store or distribution center closures/divestitures of $1.2 million, all of which was incurred through December 31, 2020;

● lease termination costs of $20.0 million to $27.0 million, of which $19.4 million has been incurred through September 30, 2023;

● incremental inventory reserve charges of $57.4 million, all of which was incurred through December 31, 2021; and

● other associated costs of $44.1 million to $45.7 million, of which $44.1 million has been incurred through September 30, 2023.

Through September 30, 2023, the Company has incurred $44.1 million of such other associated costs primarily representing labor, lease, and other operating expenses incurred during the post-close wind-down period for the locations related to the 2019 Strategic Shift. The additional amount of up to $1.6 million represents similar costs that may be incurred through the year ending December 31, 2023 for locations that continue in a wind-down period, primarily comprised of lease costs accounted for under ASC 842, Leases, prior to lease termination. The Company expects that certain of the remaining leases under the 2019 Strategic Shift will be under contract to sublease or terminated by December 31, 2023. The remaining ongoing other associated costs, net of associated sublease income, are expected to be immaterial in periods after December 31, 2023. The foregoing lease termination cost estimate represents the expected cash payments to terminate certain leases but does not include the gain or loss from derecognition of the related operating lease assets and liabilities, which is dependent on the particular leases that will be terminated.

The following table details the costs incurred during the three and nine months ended September 30, 2023 and 2022 associated with the 2019 Strategic Shift (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
2019 Strategic Shift restructuring costs:
Lease termination costs(1)	$	—	$	—	$	—	$	1,122
Other associated costs(2)		926		1,671		3,073		5,548
Total 2019 Strategic Shift restructuring costs	$	926	$	1,671	$	3,073	$	6,670

(1) These costs were included in lease termination charges in the condensed consolidated statements of operations. This reflects termination fees paid, net of any gain from derecognition of the related operating lease assets and liabilities.

(2) Other associated costs primarily represent lease and other operating expenses incurred during the post-close wind-down period for the locations related to the 2019 Strategic Shift for the periods presented and were included in selling, general, and administrative expenses in the condensed consolidated statements of operations.

The following table details changes in the restructuring accrual associated with the 2019 Strategic Shift (in thousands):

	One-time		Lease		Other
	Termination		Termination		Associated
	Benefits		Costs (1)		Costs (2)		Total
Balance at June 30, 2019	$	—	$	—	$	—	$	—
Charged to expense		1,239		13,532		31,840		46,611
Paid or otherwise settled		(1,239)		(13,532)		(30,914)		(45,685)
Balance at December 31, 2021		—		—		926		926
Charged to expense		—		2,023		5,548		7,571
Paid or otherwise settled		—		(2,023)		(5,639)		(7,662)
Balance at September 30, 2022		—		—		835		835
Charged to expense		—		4,074		1,478		5,552
Paid or otherwise settled		—		(4,074)		(1,444)		(5,518)
Balance at December 31, 2022		—		—		869		869
Charged to expense		—		—		3,073		3,073
Paid or otherwise settled		—		—		(2,858)		(2,858)
Balance at September 30, 2023	$	—	$	—	$	1,084	$	1,084

(1) Lease termination costs exclude the $7.6 million, $0.9 million and $3.9 million of gains from the derecognition of the operating lease assets and liabilities relating to the terminated leases as part of the 2019 Strategic Shift for the 2.5 years ended December 31, 2021, for the nine months ended September 30, 2022, and for the three months ended December 31, 2022, respectively.

(2) Other associated costs primarily represent labor, lease and other operating expenses incurred during the post-close wind-down period for the locations related to the 2019 Strategic Shift.

The Company evaluated the requirements of ASC No. 205-20, Presentation of Financial Statements – Discontinued Operations relative to the 2019 Strategic Shift and determined that discontinued operations treatment is not applicable. Accordingly, the results of operations of the locations impacted by the 2019 Strategic Shift are reported as part of continuing operations in the accompanying condensed consolidated financial statements.

Restructuring – Active Sports

On March 1, 2023, management of the Company determined to implement plans (the “Active Sports Restructuring”) to exit and restructure operations of its indirect subsidiary, Active Sports, LLC, a specialty products retail business (“Active Sports”) as part of its review of underperforming assets and business lines. Upon liquidating a significant amount of inventory and exiting the related distribution centers, the Company reevaluated its exit plan and concluded instead that it would integrate the remaining operations into its existing distribution and fulfillment infrastructure while maintaining lower inventory levels and a smaller fixed cost structure. These plans have resulted in a much smaller operation and included the closure of the specialty retail location.

The activities under the Active Sports Restructuring are expected to be substantially completed by December 31, 2023. The total restructuring costs associated with the Active Sports Restructuring are estimated

to be in the range of $5.2 million to $5.5 million. The breakdown of the estimated restructuring costs are as follows:

● one-time employee termination benefits relating to the specialty retail store and distribution center closures of $0.2 million, all of which has been incurred through September 30, 2023;

● incremental inventory reserve charges of $3.9 million, all of which has been incurred through September 30, 2023;

● lease termination charges of $0.4 million, all of which has been incurred through September 30, 2023; and

● other associated costs of $0.7 million to $1.0 million, of which $0.7 million has been incurred through September 30, 2023.

The incremental inventory reserve charges are based, in part, on the Company’s estimates of the discounting necessary to liquidate the Active Sports inventory. However, additional incremental inventory reserve charges may be recorded in future periods if discounting in excess of those estimates is necessary.

The following table details the costs incurred during the three and nine months ended September 30, 2023 and 2022 associated with the Active Sports Restructuring (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Active Sports Restructuring costs:
One-time termination benefits(1)	$	—	$	—	$	193	$	—
Incremental inventory reserve charges(1)		1,250		—		3,896		—
Lease termination costs (2)		375		—		375		—
Other associated costs(3)		299		—		719		—
Total Active Sports Restructuring costs	$	1,924	$	—	$	5,183	$	—

(1) These costs were included in costs applicable to revenues – products, service and other in the condensed consolidated statements of operations.

(2) These costs were included in lease termination charges in the condensed consolidated statements of operations. As there were no termination fees paid, this represents the non-cash loss associated with the derecognition of the related operating lease assets and liabilities.

(3) Other associated costs primarily represent labor, lease and other operating expenses incurred during the post-close wind-down period for the Active Sports Restructuring for the periods presented and were included primarily in selling, general, and administrative expenses in the condensed consolidated statements of operations.

The following table details changes in the restructuring accrual associated with the Active Sports Restructuring (in thousands):

	One-time		Other
	Termination		Associated
	Benefits		Costs (1)		Total
Balance at March 31, 2023	$	—	$	—	$	—
Charged to expense		193		719		912
Paid or otherwise settled		(193)		(719)		(912)
Balance at September 30, 2023	$	—	$	—	$	—

(1) Other associated costs primarily represent labor, lease and other operating expenses incurred during the post-close wind-down period for the specialty retail location and distribution centers related to the Active Sports Restructuring.

Long-Lived Asset Impairment

During the three months ended March 31, 2023, the Company recorded an impairment charge totaling $6.6 million related to the Active Sports Restructuring, of which $4.5 million related to intangible assets, and $2.1 million related to other long-lived asset categories.

During the three and nine months ended September 30, 2023 and the nine months ended September 30, 2022, the Company had indicators of impairment of the long-lived assets for certain locations based on the Company’s review of location performance in the normal course of business, which included the determination to close certain locations. Certain of these location closures are expected to occur during the three months ended December 31, 2023. As a result of updating certain assumptions in the long-lived asset impairment analysis for these locations, the Company determined that the fair value of certain long-lived assets were below their carrying value and were impaired.

The long-lived asset impairment charges were calculated as the amount that the carrying value of these locations exceeded the estimated fair value, except that individual assets cannot be impaired below their individual fair values when that fair value can be determined without undue cost and effort. Estimated fair value is typically based on estimated discounted future cash flows, while property appraisals or market rent analyses are utilized for determining the fair value of certain assets related to properties and leases.

The following table details long-lived asset impairment charges by type of long-lived asset and by restructuring activity, all of which relate to the RV and Outdoor Retail segment (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Long-lived asset impairment charges by type of long-lived asset:
Leasehold improvements	$	1,117	$	—	$	1,857	$	2,557
Operating lease right of use assets		631		887		1,107		887
Furniture and equipment		—		—		329		61
Software		—		—		1,362		—
Construction in progress and software in development		—		—		113		—
Intangible assets		—		—		4,501		—
Total long-lived asset impairment charges	$	1,748	$	887	$	9,269	$	3,505
Long-lived asset impairment charges by restructuring activity:
2019 Strategic Shift	$	—	$	—	$	—	$	887
Active Sports Restructuring		—		—		6,648		—
Unrelated to restructuring activities		1,748		887		2,621		2,618
Total long-lived asset impairment charges	$	1,748	$	887	$	9,269	$	3,505