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 revised estimated future cash flows are insufficient to recover the carrying costs. Impairment charges represent the excess of the carrying value over the fair value of those assets.

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

The Company recorded a pretax gain of $(0.7) million in the first quarter of Fiscal 2020, including a $(1.0) million gain for lease terminations, partially offset by a $0.3 million charge for retail store asset impairments.

The Company recorded pretax charges of $1.1 million in the first quarter of Fiscal 2019, including $1.0 million for retail store asset impairments and $0.2 million for legal and other matters, partially offset by a gain of $(0.1) million related to Hurricane Maria.

Discontinued Operations

On December 14, 2018, the Company entered into a definitive agreement for the sale of Lids Sports Group to FanzzLids Holdings, LLC (the "Purchaser"), a holding company controlled and operated by affiliates of Ames Watson Capital, LLC. The sale was completed on February 2, 2019 for $93.8 million cash which consisted of a sale price of $100.0 million and working capital adjustments of $6.2 million. 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 in loss from discontinued operations, net on the Condensed Consolidated Statements of Operations for the three months ended May 5, 2018. 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. The related assets and liabilities of Lids Sports Group are presented as current and non-current assets and liabilities of discontinued

Note 3

Asset Impairments and Other Charges and Discontinued Operations, Continued

operations in the Condensed Consolidated Balance Sheets as of May 5, 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 sale 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, absent a release of the Company by the counterparty, the Company is contingently liable in the event of a breach by the Purchaser of any such obligation to a third-party. The foregoing guarantees of the Company include 68 of Lids Sports Group leases with lease expirations through October of 2027 and estimated maximum future payments totaling $27.8 million as of May 4, 2019. The Company does not believe the fair value of the guarantees is material to the Company's Condensed Consolidated Financial Statements.

The Purchaser has also agreed to assume the defense of and indemnify the Company in the Shumate v. Genesco Inc., et al., Ward v. Hat World, Inc., and Stewart vs. Hat World, Inc., et al. litigation matters previously disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended February 2, 2019. In the event that the Purchaser fails to satisfy its defense and indemnification obligations, the Company could be liable for any of the liabilities or obligations ultimately determined to be due in connection with these matters.

Components of amounts reflected in loss from discontinued operations, net of tax on the Condensed Consolidated Statements of Operations for the three months ended May 5, 2018 are as follows:



	Three Months Ended
In Thousands	May 5, 2018
Net sales	$158,740
Cost of sales	74,918
Selling and administrative expenses	88,948
Asset impairments and other, net	434
Other components of net periodic benefit cost	(28	)
Provision for discontinued operations⁽¹⁾	(31	)
Loss from discontinued operations before taxes	(5,619	)
Income tax benefit	(1,432	)
Loss from discontinued operations, net of tax	$(4,187)

⁽¹⁾ Expenses primarily for anticipated costs of environmental remedial alternatives related to former facilities operated by the Company (see additional disclosures below and in Note 9).

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 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 Condensed Consolidated Balance Sheets at May 5, 2018 are included in the following table.



In Thousands	May 5, 2018
Assets
Accounts Receivable	$	9,263
Inventories	169,360
Prepaids and other current assets	14,522
Current assets - discontinued operations	$	193,145
Property and equipment, net	$	81,267
Trademarks	54,492
Other intangibles	374
Non-Current assets - discontinued operations	$	136,133
Liabilities
Accounts payable	$	39,643
Accrued employee compensation	2,480
Other accrued liabilities	16,960
Current liabilities - discontinued operations	$	59,083

Other long-term liabilities	$	24,802
Non-Current liabilities - discontinued operations	$	24,802

The cash flows related to discontinued operations have not been segregated, and are included in the Condensed Consolidated Statements of Cash Flows. The following table summarizes depreciation and amortization, capital expenditures and the significant operating noncash items from discontinued operations for the three months ended May 5, 2018:



	Three Months Ended
In Thousands	May 5, 2018
Depreciation and amortization	$6,444
Capital expenditures	4,490
Impairment of long-lived assets	249

Note 3

Asset Impairments and Other Charges and Discontinued Operations, Continued

Discontinued Operations related to Environmental Matters



Accrued Provision for Discontinued Operations
In Thousands	Facility Shutdown Costs
Balance February 3, 2018	$	3,609
Additional provision Fiscal 2019	743
Charges and adjustments, net	(1,953		)
Balance February 2, 2019	2,399
Additional provision Fiscal 2020	88
Charges and adjustments, net	(92		)
Balance May 4, 2019⁽¹⁾	2,395
Current provision for discontinued operations	484
Total Noncurrent Provision for Discontinued Operations	$	1,911

⁽¹⁾Includes a $1.8 million environmental provision, including $0.5 million in current provision for discontinued operations (see Note 9).