Discontinued Operations and Goodwill Impairment

12 Months Ended

Feb. 25, 2017

Business Combinations [Abstract]

Discontinued Operations and Goodwill Impairment

Discontinued Operations and Goodwill Impairment

On February 24, 2017 (the “Acquisition Date”), the Company completed the sale of its JackRabbit division to affiliates of CriticalPoint Capital, LLC (the “Buyers”). The transaction took the form of a sale by the Company of its entire membership interest in its affiliated company, which owns JackRabbit, and a payment of $10.1 million, of which $1.8 million was held back and is payable based on certain conditions that need to be met by the Buyers. Included in the $10.1 million payment to the Buyers is an estimated net working capital adjustment of $1.1 million, which was included in the $1.8 million payment held back discussed above. The purchase price is subject to working capital and other customary adjustments set forth in the purchase agreement. The Buyers acquired all JackRabbit assets, inventory, leasehold interests, customary liabilities, intellectual property, and the JackRabbit trademark and name pursuant to the Agreement.

The Company recorded a loss on sale of $33.5 million, which represented the total cash payments to the Buyers of $10.1 million, net assets assumed by the Buyers of $18.3 million, and one-time costs of approximately $5.1 million associated with the transaction.

The following table presents key financial results of JackRabbit included in “Net loss from discontinued operations, net of tax” for each of the following fiscal years (in thousands):

	Year Ended
	February 25, 2017			February 27, 2016			February 28, 2015
Net sales	$	89,739		$	89,906		$	69,879
Cost of sales (including occupancy costs)	68,495			62,936			54,419
Gross profit	21,244			26,970			15,460
Selling, general, and administrative expenses	30,488			33,824			27,447
Impairment charges and store closing costs	44,202			5,055			1,888
Loss on sale of discontinued operations	33,500			—			—
Loss from discontinued operations before income tax benefit	(86,946		)	(11,909		)	(13,875		)
Income tax benefit	33,582			4,783			4,518
Net loss from discontinued operations, net of tax	$	(53,364	)	$	(7,126	)	$	(9,357	)

The following table presents the major classes of assets and liabilities presented as held for sale as of February 27, 2016 related to JackRabbit (in thousands):

ASSETS
Current Assets:
Accounts receivable, net	$	1,745
Merchandise inventories, net	28,540
Other	1,239
Total current assets	31,524
Property and equipment:
Building	103
Leasehold improvements	4,341
Furniture, fixtures, and equipment	2,586
Construction in progress	18
	7,048
Less accumulated depreciation	2,722
Total property and equipment, net	4,326
Goodwill	44,029
Other assets, net	916
Total assets	$	80,795

LIABILITIES
Current Liabilities:
Accounts payable	$	7,601
Employee compensation	1,237
Accrued property and sales tax	485
Other liabilities and accrued expenses	3,958
Total current liabilities	13,281
Deferred credits from landlords	1,824
Other long-term liabilities	80
Total liabilities	$	15,185

During fiscal 2017, the Company determined that it was more likely than not that the fair value of JackRabbit was less than its carrying value, and upon completion of an impairment analysis, that goodwill was impaired during the Company’s third fiscal quarter. The decrease in JackRabbit’s fair value from the Company’s prior year impairment analysis was the result of preliminary indications of interest for JackRabbit that indicated that the fair value was below its carrying value. Fair value of the JackRabbit reporting unit was determined using preliminary bids from interested parties. As a result of the second step of the goodwill impairment test, JackRabbit’s goodwill had no implied fair value and was written down to zero. This resulted in a pretax non-cash goodwill impairment charge of $44.0 million that is reflected in asset impairment charges in discontinued operations for the year ended February 25, 2017.

During fiscal 2016, the Company completed one immaterial acquisition for total consideration of $8.9 million. The entity from which the assets were acquired operated four specialty running stores in New York. In connection with this acquisition, the Company recorded goodwill of $9.1 million. Goodwill is deductible for U.S. federal income tax purposes.

The Company allocated the aggregated purchase price for the acquisition based upon the tangible and intangible assets acquired, net of liabilities. The allocation of the purchase price is detailed below (in thousands):

	Allocation of Purchase Price
Goodwill	$	9,147
Tangible assets, net of liabilities	(216		)
Total purchase price	$	8,931

The following table provides a reconciliation of the Company’s goodwill for each of the following fiscal years (in thousands):

	2017			2016
Beginning balance	$	44,029		$	34,719
Acquisitions	—			9,147
Other	—			163
Impairment	(44,029		)	—
Ending balance	$	—		$	44,029