ASSETS HELD-FOR-SALE AND DISCONTINUED OPERATIONS

6 Months Ended

Aug. 04, 2018

Assets Held-for-sale And Discontinued Operations

ASSETS HELD-FOR-SALE AND DISCONTINUED 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 were reflected as “held for sale” on the consolidated balance sheets in accordance with ASC 360 at February 3, 2018. 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 tax, of $9.4 million and $0.6 million for the second quarter of 2018 and 2017; respectively, and a loss from discontinued operations, net of tax, of $11.5 million and net income from operations of $0.7 million, for the first six months of 2018 and 2017; 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.

As discussed in Note 1: Basis of Presentation, on May 4, 2018, Fred’s entered into the Specialty Asset Purchase Agreement with the Specialty Buyer, pursuant to which, the Buyer agreed to purchase Entrust, consisting of three pharmacy locations, pharmaceutical inventory, and related intellectual property. The Buyer paid Fred’s $40.0 million for the purchased assets (plus up to an additional $5.5 million for inventory). On June 1, 2018, the sale of the specialty pharmacy assets was completed.

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:

	August 4,		February 3,
	2018		2018
(in thousands)		(unaudited)
Current assets:
Accounts Receivable, net	$	—	$	15,983
Inventories		0		3,756
Other non-trade receivables		0		152
Prepaid expenses and other current assets		0		12
Total current assets held-for-sale	$	—	$	19,903
Property and equipment, less accumulated depreciation and amortization	$	—	$	1,036
Goodwill		0		30,609
Intangible assets, net		0		9,533
Other noncurrent assets, net		0		539
Total noncurrent assets held-for-sale	$	0	$	41,717
Current liabilities:
Accounts payable	$	—	$	22,045
Accrued expenses and other		0		4,527
Total current liabilities held-for-sale	$	—	$	26,572
Deferred income taxes	$	—	$	—
Other noncurrent liabilities		—		48
Total noncurrent liabilities held-for-sale	$	—	$	48

The following table summarizes the results of discontinued operations for the thirteen and twenty six weeks ended August 4, 2018, and July 29, 2017:

	For the Thirteen Weeks Ended						For the Twenty Six Weeks Ended
	(unaudited)						(unaudited)
	August 4,			July 29,			August 4,			July 29,
(in thousands)	2018			2017			2018			2017
Revenues	$	20,266		$	69,310		$	90,112		$	137,458
Cost of Goods Sold		20,984			66,058			88,454			129,860
Gross Profit		(718	)		3,252			1,658			7,598
Depreciation and amortization		188			631			796			1,379
Selling, general and administrative expenses		8,474			3,094			12,398			5,660
Income (loss) from discontinued operations before Income taxes		(9,380	)		(473	)		(11,536	)		559
Income tax expense (benefit)		—			127			—			(150	)
Income (loss) from discontinued operations, net of tax		(9,380	)		(600	)		(11,536	)		709