DISCONTINUED OPERATIONS

12 Months Ended

Jul. 31, 2021

Discontinued Operations and Disposal Groups [Abstract]

As discussed in Note 1, on February 25, 2022, 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, or (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 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.

A summary of the results of the discontinued operations is as follows:


	Fiscal Year Ended July 31,
	2021		2020
Net revenue	$	387,510	$	444,360
Cost of revenue	305,601		345,173
Gross profit	81,909		99,187
Operating expenses:
Selling, general and administrative	47,254		58,992
Amortization of intangible assets(a)	20,258		27,255
Impairment of goodwill(b)	25,658		—
Total operating expenses(c)	93,170		86,247
Operating (loss) income	(11,261)		12,940
Other income (expense):
Interest income	3		2
Interest expense	(28,524)		(31,978)

Total other expense, net	(28,521)		(31,976)
Loss from discontinued operations before income taxes	(39,782)		(19,036)
Income tax benefit	7,226		9,748

Loss from discontinued operations, net of tax	$	(32,556)	$	(9,288)

(a) During the fiscal year ended July 31, 2021 and 2020, the Company recorded $20.3 million and $27.3 million of amortization expense for the Direct Marketing reporting unit.

(b) During the fiscal year ended July 31, 2021, the Company recorded a pre-tax goodwill impairment charge of $25.7 million 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.

(c) During the year ended July 31, 2022, the Company recorded $3.7 million of restructuring expenses for IWCO Direct as a resutl of its Competitive Improvement Plan.

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


	July 31, 2021		July 31, 2020
	(in thousands)
ASSETS
Cash and cash equivalents	$	38,814	$	17,571
Accounts receivable, trade, net	33,258		43,215
Inventories, net	7,186		4,836
Other current assets	17,264		16,117
Current assets of discontinued operations	$	96,522	$	81,739

Property and equipment, net	54,247		72,736
Goodwill(a)	231,470		257,128
Other intangible assets, net(b)	115,005		135,263
Operating lease right-of-use assets	32,583		33,951
Other assets	1,116		3,658
Long-term assets of discontinued operations	$	434,421	$	502,736

LIABILITIES
Accounts payable	$	25,688	$	23,834
Accrued expenses	74,218		76,546
Current lease obligations	4,047		3,997
Current portion of long-term debt	5,602		5,527
Other current liabilities	13,837		9,053
Current liabilities of discontinued operations	$	123,392	$	118,957

Long-term debt, net of current portion(c)	358,189		365,468
Lease obligations	30,207		31,356
Other long-term liabilities	6,675		4,180
Long-term liabilities of discontinued operations	$	395,071	$	401,004

(a) The Company performed an interim impairment test of Direct Marketing's goodwill and other long-lived assets as of April 30, 2021. The Company determined that the goodwill was impaired, and recorded a non-cash impairment charge of $25.7 million classified in Loss from discontinued operations, net of tax, for the three months ended April 30, 2021. This amount also represents the Company's accumulated goodwill impairment loss as of July 31, 2021.

(b) The Company performed a qualitative assessment of whether it was more likely than not that its other intangibles assets were impaired as of July 31, 2021. The Company reviewed its previous forecasts and assumptions based on the Company's current projections, that are subject to various risks and uncertainties, including forecasted revenues, expenses and cash flows, including the duration and extent of impact to our businesses from the COVID-19 pandemic. Based upon that assessment, the Company concluded it was not more likely than not that the other intangible assets were impaired as of July 31, 2021.