Restructuring and Related Impairment Charges |
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Restructuring and Related Activities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restructuring and Related Impairment Charges | Restructuring and Related Impairment Charges On March 31, 2020, the Company's Board of Directors approved a restructuring plan ("2020 restructuring plan") designed to rebalance the Company’s cost base to further improve profitability and cash flow generation. The Company identified further opportunities and on September 2, 2020, the Company’s Board of Directors approved a $75 million increase to the restructuring plan, resulting in an updated 2020 restructuring plan of approximately $550 million to $600 million of total estimated pre-tax restructuring and related charges. The restructuring and related charges primarily consist of up to approximately: •$219 million of cash restructuring charges, comprised of up to: $61 million in facility and lease termination costs, $30 million in employee severance and benefit costs, and $128 million in contract termination and other restructuring costs; and •$381 million of non-cash charges comprised of an impairment of $291 million related to the Company’s New York City flagship store and $90 million of intangibles and other asset related impairments. The Company recorded $472.7 million and $183.1 million of restructuring and related impairment charges for Fiscal 2020 and Fiscal 2018, respectively. There were no restructuring charges incurred during Fiscal 2019. The Company previously implemented a restructuring plan in 2018. The summary of the costs recorded during Fiscal 2020 as well as the Company's current estimates of the amount expected to be incurred in connection with the 2020 restructuring plan is as follows:
(1) Estimated restructuring and related impairment charges to be incurred reflect the high-end of the range of the estimated remaining charges expected to be recorded by the Company in connection with the restructuring plan. (2) Contract exit costs are primarily comprised of proposed lease exits of certain brand and factory house stores and office facilities, and proposed marketing and other contract exits. The lease term for the Company's New York City flagship store commenced on March 1, 2020 and an operating lease right-of-use ("ROU") asset and corresponding operating lease liability of $344.8 million was recorded on the Company's Consolidated Balance Sheet. In March 2020, as a part of the 2020 restructuring plan, the Company made the strategic decision to forgo the opening of its New York City flagship store and the property is actively being marketed for sublease. Accordingly, in the first quarter of Fiscal 2020, the Company recognized a ROU asset impairment of $290.8 million, reducing the carrying value of the lease asset to its estimated fair value. Fair value was estimated using an income-approach based on management's forecast of future cash flows expected to be derived from the property based on current sublease market rent. Rent expense or sublease income related to this lease will be recorded within other income (expense) on the Consolidated Statements of Operations. All restructuring and related impairment charges are included in the Company's Corporate Other non-operating segment, of which $397.6 million are North America related, $14.4 million are EMEA related, $14.9 million are Latin America related, $6.8 million are Asia-Pacific related and $4.6 million are Connected Fitness related for Fiscal 2020. These charges require the Company to make certain judgements and estimates regarding the amount and timing of restructuring and related impairment charges or recoveries. The estimated liability could change subsequent to its recognition, requiring adjustments to the expense and the liability recorded. On a quarterly basis, the Company conducts an evaluation of the related liabilities and expenses and revises its assumptions and estimates as appropriate as new or updated information becomes available. A summary of the activity in the restructuring reserve related to the Company's 2020 restructuring plan, as well as prior restructuring plans in 2018 and 2017 is as follows:
Latin America operating model change During the fourth quarter of Fiscal 2020, the Company determined to change to a distributor model in Chile, which is expected to be effective in early 2021. The Company determined that as of the end of Fiscal 2020, the Chile subsidiary met the criteria to be classified as held for sale under Accounting Standard Codification (ASC) 360, Property, Plant, and Equipment. Included within Total current assets and Total other long term assets on the Consolidated Balance Sheet as of the end of Fiscal 2020 are inventory with the carrying value of $1.2 million and property and equipment with the carrying value of $13.6 million, respectively, which represent assets held for sale.
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