DISCONTINUED OPERATIONS

9 Months Ended

Apr. 30, 2022

Discontinued Operations and Disposal Groups [Abstract]

As discussed in Note 1, on February 25, 2022 (the "Disposal Date"), the Company completed the disposition of IWCO Direct. The Company received no cash consideration for the disposition (the entire transaction being referred to as the “IWCO Direct Disposal”). As of the Disposal Date and subject to the terms and conditions of the Transaction Agreement, the parties entered into certain mutual releases as fully set forth in the Transaction Agreement. In addition, as part of the overall transaction, the Buyer issued a note in the principal amount of $6.9 million payable to the Company as consideration for intercompany obligations owed by IWCO Direct to the Company (the “Subordinated Note”). The Subordinated Note is subordinated to the obligations under the Financing Agreement (including any amendments or other modifications thereto) and matures on the date that is the earlier of (a) the later of (i) August 25, 2027 and (ii) the date that is six months after the maturity of the Financing Agreement, and (b) the date that is six months after repayment in full of the obligations under the Financing Agreement. Due to the subordinated nature of the Subordinated Note and the assessment of collectability, the Company determined the fair value of the Subordinated Note was zero. The foregoing description of the Transaction Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Transaction Agreement, a copy of which is filed as Exhibit 10.1 to this quarterly report on Form 10-Q.

The Company deconsolidated IWCO Direct as of the Disposal Date as the Company no longer held a controlling financial interest in IWCO Direct as of that date. The Company did not have any amounts included in accumulated other comprehensive loss associated with IWCO Direct at the time of deconsolidation. The disposal of IWCO Direct represents a strategic shift to exit the direct marketing business and its results are reported as discontinued operations for all periods presented.

The statement of operations data for IWCO Direct presented in the table below only include its financial results in periods prior to the Disposal Date. As a result the prior period results presented below may not be comparable to the current period.


	Three Months Ended April 30,				Nine Months Ended April 30,
	2022		2021		2022		2021
	(in thousands)
Net revenue	$	18,167	$	102,351	$	165,542	$	299,214
Cost of revenue	17,894		80,007		156,697		229,939
Gross profit	273		22,344		8,845		69,275
Operating expenses:
Selling, general and administrative	4,517		8,988		30,744		33,319
Amortization of intangible assets	1,218		4,182		9,303		16,076
Impairment of goodwill(a)	—		25,658		—		25,658
Total operating expenses	5,735		38,828		40,047		75,053
Operating loss	(5,462)		(16,484)		(31,202)		(5,778)
Other income (expense):
Gain upon deconsolidation of IWCO Direct	38,043		—		38,043		—
Interest income	—		—		—		3
Interest expense	(1,848)		(7,145)		(16,111)		(21,491)
Other losses, net	—		(1)		—		(38)
Total other expense, net	36,195		(7,146)		21,932		(21,526)
Loss from operations of discontinued operations before income taxes	30,733		(23,630)		(9,270)		(27,304)
Income tax benefit	(9,162)		(5,295)		(9,162)		(5,409)
Income (loss) from discontinued operations, net of tax	$	39,895	$	(18,335)	$	(108)	$	(21,895)

(a) During the three months ended April 30, 2021, the Company recorded a pre-tax goodwill impairment charge of $25,658 for the Direct Marketing reporting unit due to a decline in IWCO Direct’s fair value as a result of customer exits and decreasing demand for direct marketing products.

The major classes of assets and liabilities included in discontinued operations related to IWCO Direct are presented in the table below.


	July 31, 2021
	(in thousands)
ASSETS
Cash and cash equivalents	$	38,814
Accounts receivable, trade, net	33,258
Inventories, net	7,186
Other current assets	17,264
Current assets of discontinued operations	$	96,522

Property and equipment, net	54,247
Goodwill	231,470
Other intangible assets, net	115,005
Operating lease right-of-use assets	32,583
Other assets	1,116
Long-term assets of discontinued operations	$	434,421

LIABILITIES
Accounts payable	$	25,688
Accrued expenses	74,218
Current lease obligations	4,047
Current portion of long-term debt	5,602
Other current liabilities	13,837
Current liabilities of discontinued operations	$	123,392

Long-term debt, net of current portion	358,189
Lease obligations	30,207
Other long-term liabilities	6,675
Long-term liabilities of discontinued operations	$	395,071