Asset Impairments and Other Charges and Discontinued Operations

Asset Impairments and Other Charges

In accordance with Company policy, assets are determined to be impaired when the impairment indicators are identified and estimated future cash flows are insufficient to recover the carrying costs. Impairment charges represent the excess of the carrying value over the estimated fair value of those assets.

Asset impairment charges are reflected as a reduction of the net carrying value of property and equipment, and in asset impairment and other, net in the accompanying Consolidated Statements of Operations.

The Company recorded a pretax charge to earnings of $3.2 million in Fiscal 2019, including $4.2 million for retail store asset impairments, $0.3 million in legal and other matters and $0.1 million for hurricane losses, partially offset by a $(1.4) million gain related to Hurricane Maria.

The Company recorded a pretax charge to earnings of $7.8 million in Fiscal 2018, including a $5.2 million licensing termination expense, $1.7 million for retail store asset impairments and $0.9 million for hurricane losses.

The Company recorded a pretax gain to earnings of $(8.0) million in Fiscal 2017, including a gain of $(8.9) million for network intrusion expenses as a result of a litigation settlement and a gain of $(0.5) million for other legal matters, partially offset by $1.4 million for retail store asset impairments.

Discontinued Operations

On December 14, 2018, the Company entered into a definitive agreement for the sale of Lids Sports Group to FanzzLids Holdings (the "Purchaser"), a holding company controlled and operated by affiliates of Ames Watson Capital, LLC. The sale was completed on February 2, 2019 for $100.0 million cash, which remains subject to working capital and other adjustments. Because the effective date of closing was a Saturday and the cash proceeds were not received by the Company until February 4, 2019, the purchase price is reflected in accounts receivable at February 2, 2019.

As a result of the sale, the Company met the requirements of ASC 360 to report the results of Lids Sports Group as discontinued operations. The Company has presented operating results of Lids Sports Group and the loss on the sale of Lids Sports Group in (loss) earnings from discontinued operations, net on the Consolidated Statements of Operations for all periods presented. Certain corporate overhead costs and other allocated costs previously allocated to the Lids Sports Group business for segment reporting purposes did not qualify for classification within discontinued operations and have been reallocated to continuing operations whereas bank fees and certain legal fees related to the Lids Sports Group business segment previously excluded from segment earnings were reclassified to discontinued operations. The costs of the Lids Sports Group headquarters building, which was not included in the sale, was reclassified to corporate and other in segment earnings. In addition, the third quarter Fiscal 2018 goodwill impairment charge of $182.2 million and the third quarter Fiscal 2019 trademark impairment charge of $5.7 million related to the Lids Sports Group business segment, that were both previously excluded from the calculation of segment earnings, were reclassified to discontinued

Note 3

Asset Impairments and Other Charges and Discontinued Operations, Continued

operations. The related assets and liabilities of Lids Sports Group are presented as current and non-current assets and liabilities of discontinued operations in the Consolidated Balance Sheets as of February 3, 2018. The Company will provide various transition services to the Purchaser for a period of up to six months under a separate agreement after the closing.

As part of the Lids Sports Group sales transaction, the Purchaser has agreed to indemnify and hold the Company harmless in connection with continuing obligations and any guarantees of the Company in place as of February 2, 2019 in respect of post-closing or assumed liabilities or obligations of the Lids Sports Group business. The Purchaser has agreed to use commercially reasonable efforts to have any guarantees by, or continuing obligations of, the Company released. However, the Company is contingently liable in the event of a breach by the Purchaser of any such obligation to a third-party. In addition, the Company is a guarantor for 71 of Lids Sports Group leases with lease expirations through October of 2027 and estimated maximum future payments totaling $29.6 million as of February 2, 2019. The Company does not believe the fair value of the guarantees is material to the Company's Consolidated Financial Statements.

Components of amounts reflected in (loss) earnings from discontinued operations, net of tax on the Consolidated Statements of Operations for the years ended February 2, 2019, February 3, 2018 and January 28, 2017 are as follows (in thousands):



	Fiscal Year
	2019			2018			2017
Net sales	$	723,125		$	779,469		$	847,510
Cost of sales	348,038			374,730			405,903
Selling and administrative expenses	370,480			391,982			400,513
Goodwill and trademark impairment	5,736			182,211			—
Asset impairments and other, net	2,394			1,068			4,773
Loss on sale of Lids Sports Group	(126,321		)	—			—
Other components of net periodic benefit cost	(23		)	(128		)	(69		)
Gain on sale of Lids Team Sports	—			—			2,404
Provision for discontinued operations⁽¹⁾	(743		)	(552		)	(701		)
(Loss) earnings from discontinued operations before taxes	(130,610		)	(171,202		)	37,955
Income tax expense (benefit)	(27,456		)	(22,655		)	13,406
(Loss) earnings from discontinued operations, net of tax	$	(103,154	)	$	(148,547	)	$	24,549

⁽¹⁾ Expenses primarily for anticipated costs of environmental remedial alternatives related to former facilities operated by the Company (see additional disclosures below and Note 13).

Note 3

Asset Impairments and Other Charges and Discontinued Operations, Continued

During the fourth quarter of Fiscal 2019, the Company recorded a loss on the sale of Lids Sports Group of $98.3 million, net of tax, on the sale of these assets, representing the sales price less the value of the Lids Sports Group assets sold and other miscellaneous charges, including divestiture transaction costs, offset by a tax benefit on the loss. Included in the loss on the sale is a $48.7 million write-off of trademarks. The loss on the sale of Lids Sports Group is reflected in the table above. The tax benefit associated with discontinued operations differs from the effective rate due to the mix of earnings and loss in the various jurisdictions, the impact of permanent items and other factors.

Assets and liabilities of discontinued operations presented in the Consolidated Balance Sheets at February 3, 2018 are included in the following table. The sale of Lids Sports Group was completed on February 2, 2019, and, accordingly, the assets and liabilities are not included as of February 2, 2019.



(In thousands)	February 3, 2018
Assets
Accounts Receivable	$	9,678
Inventories	154,215
Prepaids and other current assets	13,203
Current assets - discontinued operations	$	177,096
Property and equipment, net	$	84,082
Trademarks	54,748
Other Intangibles	454
Long-term assets - discontinued operations	$	139,284
Liabilities
Accounts payable	$	17,675
Accrued employee compensation	1,870
Other accrued liabilities	21,697
Current liabilities - discontinued operations	$	41,242

Deferred rent and other long-term liabilities	$	25,907
Long-term liabilities - discontinued operations	$	25,907

Note 3

Asset Impairments and Other Charges and Discontinued Operations, Continued

The cash flows related to discontinued operations have not been segregated, and are included in the Consolidated Statements of Cash Flows. The following table summarizes depreciation and amortization, capital expenditures and the significant operating noncash items from discontinued operations for each period presented:



	Fiscal Year
(In thousands)	2019		2018		2017
Depreciation and amortization	$	24,778	$	26,793	$	25,825
Capital expenditures	15,450		29,244		19,045
Impairment of intangible assets	5,736		182,211		—
Impairment of long-lived assets	1,670		1,007		5,052

Discontinued Operations related to Environmental Matters

In Fiscal 2019, Fiscal 2018 and Fiscal 2017, the Company recorded an additional charge to earnings of $0.7 million, $0.6 million and $0.7 million, respectively, reflected in (loss) earnings from discontinued operations, net in the Consolidated Statements of Operations primarily for anticipated costs of environmental remedial alternatives related to former facilities operated by the Company (see Note 13).



Accrued Provision for Discontinued Operations
In thousands	Facility Shutdown Costs
Balance January 30, 2016	$	15,619
Additional provision Fiscal 2017	701
Charges and adjustments, net	(11,277		)
Balance January 28, 2017	5,043
Additional provision Fiscal 2018	552
Charges and adjustments, net	(1,986		)
Balance February 3, 2018	3,609
Additional provision Fiscal 2019	743
Charges and adjustments, net	(1,953		)
Balance February 2, 2019⁽¹⁾	2,399
Current provision for discontinued operations	553
Total Noncurrent Provision for Discontinued Operations	$	1,846

⁽¹⁾Includes a $1.8 million environmental provision, including $0.6 million in current provision for discontinued operations.