ASSETS HELD-FOR-SALE-AND-DISCONTINED OPERATIONS

12 Months Ended

Feb. 03, 2018

Assets Held-for-sale-and-discontined Operations

ASSETS HELD-FOR-SALE-AND-DISCONTINED OPERATIONS

Note 2 – Assets Held-For-Sale and Discontinued Operations

As discussed in Note 1, during the fourth quarter of 2017, Fred’s Board of Directors approved a plan to actively market its specialty pharmacy business. Accordingly, the specialty pharmacy business met the criteria for “Assets Held-for-Sale” in accordance with ASC 360 as of February 3, 2018. The Specialty Pharmacy assets and liabilities are reflected as “held for sale” on the consolidated balance sheets in accordance with ASC 360 at February 3, 2018 and January 28, 2017. In addition, the results of operations for the specialty pharmacy business have been presented as discontinued operations in accordance with ASC 205-20 for all periods presented.

The results of the specialty pharmacy business were previously allocated to the Pharmacy segment within the sales mix. The specialty pharmacy recorded a loss from discontinued operations, net of the tax line item, of $10.9 million for 2017, and income of $1.6 million and $1.6 million for 2016 and 2015, respectively.

Certain corporate overhead and other costs previously allocated to the specialty pharmacy for segment reporting purposes did not qualify for classification within discontinued operations and have been reallocated to continuing operations. In addition, during the fourth quarter a charge of $0.6 million was recorded as an impairment of the trade name and $10.8 million was recorded as an impairment of the goodwill related to the specialty pharmacy.

As of May 4, 2018 no sale had been completed for the specialty pharmacy business and therefore no gain or loss has been recorded.

Summarized Discontinued Operations Financial Information

The following table provides a reconciliation of the carrying amounts of major classes of assets and liabilities which are included in assets and liabilities held for sale in the accompanying consolidated balance sheet for each of the periods presented:

(in thousands)	2017		2016
Current assets:
Accounts Receivable, net	$	15,983	$	11,613
Inventories		3,756		4,577
Other non-trade receivables		152		1,528
Prepaid expenses and other current assets		12		14
Total current assets held-for-sale	$	19,903	$	17,732
Property and equipment, less accumulated depreciation and amortization	$	1,036	$	634
Goodwill		30,609		41,403
Intangible assets, net		9,533		12,645
Other noncurrent assets, net		539		-
Total noncurrent assets held-for-sale	$	41,717	$	54,682
Current liabilities:
Accounts Payable	$	22,045	$	16,682
Accrued expenses and other		4,527		2,182
Total current liabilities held-for-sale:	$	26,572	$	18,864
Deferred income tax liabilities		-		-
Other noncurrent liabilities	$	48	$	167
Total noncurrent liabilities held-for-sale	$	48	$	167

The following table summarizes the results of discontinued operations for the years ended February 3, 2018, January 28, 2017, and January 30, 2016:

(in thousands)	2017			2016		2015
Revenues	$	275,952		$	239,183	$	205,551
Cost of Goods Sold		264,153			224,603		193,962
Gross Margin		11,799			14,580		11,589
Depreciation and amortization		2,630			3,013		2,552
Selling, general and administrative expenses		23,200			8,603		6,515
Income (Loss) from discontinued operations before income taxes		(14,031	)		2,964		2,522
Income tax expense		(3,113	)		1,371		949
Income (loss) from discontinued operations, net of tax	$	(10,918	)	$	1,593	$	1,573