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Assets and Liabilities of Businesses Held for Sale | 6 Months Ended
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Jun. 29, 2024
Discontinued Operations and Disposal Groups [Abstract] |
Assets and Liabilities of Businesses Held for Sale | Assets and Liabilities of Businesses Held for Sale Assets and liabilities of businesses classified as held for sale in the Condensed Consolidated Balance Sheets consist of the following:
| June 29, 2024 |  | December 30, 2023 |  | July 1, 2023
U.S. Sheer Hosiery business - continuing operations | $ | — |  |  | $ | — |  |  | $ | 623 |
Global Champion business - discontinued operations | 460,863 |  |  | 513,247 |  |  | 790,938 |
U.S.-based outlet store business - discontinued operations | — |  |  | 36,488 |  |  | 40,288 |
Current assets held for sale | $ | 460,863 |  |  | $ | 549,735 |  |  | $ | 831,849 |
Global Champion business - discontinued operations | $ | 899,796 |  |  | $ | 926,141 |  |  | $ | 940,218 |
U.S.-based outlet store business - discontinued operations | 5,676 |  |  | 19,667 |  |  | 18,674 |
Noncurrent assets held for sale | $ | 905,472 |  |  | $ | 945,808 |  |  | $ | 958,892 |
U.S. Sheer Hosiery business - continuing operations | $ | — |  |  | $ | — |  |  | $ | 623 |
Global Champion business - discontinued operations | 233,272 |  |  | 245,272 |  |  | 253,799 |
U.S.-based outlet store business - discontinued operations | 6,991 |  |  | 7,716 |  |  | 6,708 |
Current liabilities held for sale | $ | 240,263 |  |  | $ | 252,988 |  |  | $ | 261,130 |
Global Champion business - discontinued operations | $ | 114,190 |  |  | $ | 120,247 |  |  | $ | 122,369 |
U.S.-based outlet store business - discontinued operations | 4,361 |  |  | 7,446 |  |  | 7,153 |
Noncurrent liabilities held for sale | $ | 118,551 |  |  | $ | 127,693 |  |  | $ | 129,522 |
U.S. Sheer Hosiery Business - Continuing Operations In the fourth quarter of 2021, the Company reached the decision to divest its U.S. Sheer Hosiery business, including the L’eggs brand, as part of its strategy to streamline its portfolio under its Full Potential transformation plan and determined that this business met held-for-sale accounting criteria. The Company recorded a non-cash charge in the fourth quarter of 2021 against the net assets held for sale to write down the carrying value of the disposal group to the estimated fair value less costs of disposal. In 2022, the Company recorded a non-cash gain to adjust the valuation allowance primarily resulting from a decrease in carrying value due to changes in working capital. In the quarter and six months ended July 1, 2023, the Company recognized non-cash losses of $7,338 and $5,199, respectively, which were reflected in the “Selling, general and administrative expenses” line in the Condensed Consolidated Statements of Operations, to further adjust the valuation allowance resulting primarily from an increase in carrying value due to changes in working capital. The assets and liabilities of the U.S. Sheer Hosiery business were presented as held for sale as of July 1, 2023 in the Condensed Consolidated Balance Sheets and the operations of the U.S. Sheer Hosiery business were reported in Other for the quarter and six months ended July 1, 2023 in Note “Business Segment Information”. The Company completed the sale of its U.S. Sheer Hosiery business to AllStar Hosiery LLC (“AllStar”), an affiliate of AllStar Marketing Group, LLC, on September 29, 2023 for $3,300 in total proceeds, which included cash of $1,300 and a receivable of $2,000 to be paid by AllStar in 2024. The receivable due from AllStar of $1,400 and $2,000 at June 29, 2024 and December 30, 2023, respectively, is included in the “Other current assets” line in the Condensed Consolidated Balance Sheets. Discontinued Operations In September 2023, the Company announced that its Board of Directors and executive leadership team, with the assistance of financial and legal advisors, were undertaking an evaluation of strategic options for the global Champion business. As part of this process, the Company’s Board of Directors considered a broad range of alternatives to maximize shareholder value. In connection with, and as a result of, the potential sale of the global Champion business, management also undertook an evaluation of strategic alternatives for the Company’s U.S.-based outlet store business impacted by the sale of the Champion brand. In the first quarter of 2024, management presented a plan to the Company’s Board of Directors to pursue a sale of the majority of the Company’s U.S.-based outlet store business in connection with the pending sale of the global Champion business as one comprehensive plan to realign the Company’s core business. In the second quarter of 2024, the Company reached the decision to exit the global Champion and U.S.-based outlet store businesses. The Company determined that the exit of the global Champion and U.S.-based outlet store businesses represented multiple components of a single strategic plan that met held-for-sale and discontinued operations accounting criteria at the end of the second quarter of 2024. Accordingly, the Company began to separately report the results of the global Champion and U.S.-based outlet store businesses as discontinued operations in its Condensed Consolidated Statements of Operations and to present the related assets and liabilities as held for sale in its Condensed Consolidated Balance Sheets. These changes have been applied to all periods presented. Global Champion Business In the second quarter of 2024, the Company announced that it had reached an agreement to sell the global Champion business to Authentic. Under the agreement, Authentic will purchase the intellectual property and certain operating assets of, and will assume certain liabilities of, the global Champion business for an estimated transaction value of $1,200,000, subject to final adjustments, with the potential to reach up to $1,500,000 through additional contingent cash consideration of up to $300,000. The Company plans to use the estimated net sale proceeds of $900,000, including working capital adjustments and customary transaction costs and excluding any additional cash consideration, to pay down a portion of the Company’s outstanding term debt as required by the Senior Secured Credit Facility. The transaction is expected to close in the second half of 2024. After the closing of the transaction, the Company will provide certain transition services to Authentic and will continue to operate the Deferred Business. At the end of the transition period, Authentic will purchase from the Company the remaining inventory of the Deferred Business. The transaction excludes the net operating assets of the Champion business in Japan, which the Company will retain and continue to operate as a licensee of Authentic for a temporary period of time and ultimately transition the operations to Authentic after January 2025 pursuant to the terms of a license agreement to be entered into at the closing of the transaction. While the operations of the global Champion business were reflected within all reportable segments prior to its reclassification to discontinued operations, the U.S. Champion business made up the majority of the Company’s former Activewear segment. See Note “Business Segment Information” for additional discussion regarding realignment of the Company’s reportable segments. Certain expenses related to the operations of the global Champion business were included in general corporate expenses, restructuring and other action-related charges and amortization of intangibles, which were previously excluded from segment operating profit, and have been reclassified to discontinued operations beginning in the second quarter of 2024 and for all periods presented. U.S.-Based Outlet Store Business In the second quarter of 2024, the Company began actively marketing its U.S.-based outlet store business to prospective buyers. In July 2024, the Company entered into a purchase agreement with Restore and completed the exit of the U.S.-based outlet store business. Under the purchase agreement, the Company agreed to pay Restore $12,000 at closing and an additional $3,000 in January 2025 and to provide certain inventory to Restore, in exchange for Restore agreeing to assume the operations and certain liabilities of the Company’s U.S.-based outlet store business. The agreement with Restore does not include Champion-branded U.S. retail stores, which will be addressed in accordance with the purchase agreement governing the pending sale of the global Champion business to Authentic. The operations of the U.S.-based outlet store business were reported in Other in Note “Business Segment Information” prior to its reclassification to discontinued operations. Certain expenses related to the operations of the U.S.-based outlet store business were included in general corporate expenses, restructuring and other action-related charges and amortization of intangibles, which were previously excluded from segment operating profit, and have been reclassified to discontinued operations beginning in the second quarter of 2024 and for all periods presented. Upon meeting the criteria for held-for-sale classification in the second quarter of 2024, which qualified as a triggering event, the Company performed an impairment analysis of the goodwill associated with the Company’s U.S.-based outlet store business, which resulted in a non-cash impairment charge of $2,500 in the quarter and six months ended June 29, 2024. Additionally, the Company recorded a valuation allowance against the net assets held for sale, which were primarily current assets, to adjust the carrying value of the U.S.-based outlet store business to the estimated fair value less costs of disposal, resulting in a non-cash charge of $51,071 in the quarter and six months ended June 29, 2024. This non-cash charge is reported as "Loss on classification of assets held for sale - U.S.-based outlet store business" for the quarter and six months ended June 29, 2024 in the summarized discontinued operations financial information below. The operating results of the discontinued operations of the global Champion and U.S.-based outlet store businesses only reflect revenues and expenses that are directly attributable to the global Champion and U.S.-based outlet store businesses that will be eliminated from continuing operations. The Company allocated interest expense to discontinued operations of approximately $17,605 and $16,624 in the quarters ended June 29, 2024 and July 1, 2023, respectively, and $35,662 and $30,495 in the six months ended June 29, 2024 and July 1, 2023, respectively, resulting from the requirement to pay down a portion of the Company’s outstanding term debt under the Senior Secured Credit Facility with the estimated net sale proceeds from the pending sale of the global Champion business. Discontinued operations does not include any allocation of corporate overhead expense. The key components from discontinued operations related to the global Champion and U.S.-based outlet store businesses are as follows:
| Quarters Ended |  | Six Months Ended
| June 29, 2024 |  | July 1, 2023 |  | June 29, 2024 |  | July 1, 2023
Net sales | $ | 358,534 |  |  | $ | 403,976 |  |  | $ | 736,522 |  |  | $ | 909,356 |
Cost of sales | 306,796 |  |  | 278,032 |  |  | 533,172 |  |  | 616,098 |
Gross profit | 51,738 |  |  | 125,944 |  |  | 203,350 |  |  | 293,258 |
Selling, general and administrative expenses | 143,502 |  |  | 126,473 |  |  | 282,116 |  |  | 262,012 |
Impairment of goodwill | 2,500 |  |  | — |  |  | 2,500 |  |  | — |
Loss on classification of assets held for sale - U.S.-based outlet store business | 51,071 |  |  | — |  |  | 51,071 |  |  | — |
Operating income (loss) | (145,335) |  |  | (529) |  |  | (132,337) |  |  | 31,246 |
Other expenses | 1 |  |  | 24 |  |  | 43 |  |  | 57 |
Interest expense, net | 15,564 |  |  | 15,887 |  |  | 31,647 |  |  | 29,119 |
Income (loss) from discontinued operations before income taxes | (160,900) |  |  | (16,440) |  |  | (164,027) |  |  | 2,070 |
Income tax expense (benefit) | 935 |  |  | (2,826) |  |  | 6,320 |  |  | (506) |
Net income (loss) from discontinued operations, net of tax | $ | (161,835) |  |  | $ | (13,614) |  |  | $ | (170,347) |  |  | $ | 2,576 |
Assets and liabilities of the discontinued operations of the global Champion and U.S.-based outlet store businesses classified as held for sale in the Condensed Consolidated Balance Sheets as of June 29, 2024, December 30, 2023 and July 1, 2023 consist of the following:
| June 29, 2024 |  | December 30, 2023 |  | July 1, 2023
Cash and cash equivalents | $ | 18,934 |  |  | $ | 19,784 |  |  | $ | 18,417 |
Trade accounts receivable, net | 117,440 |  |  | 106,677 |  |  | 127,875 |
Inventories | 340,252 |  |  | 395,364 |  |  | 663,015 |
Other current assets | 28,106 |  |  | 27,910 |  |  | 21,919 |
Allowance to adjust net assets to estimated fair value, less costs of disposal - U.S.-based outlet store business - current | (43,869) |  |  | — |  |  | — |
Current assets held for sale - discontinued operations | 460,863 |  |  | 549,735 |  |  | 831,226 |
Property, net | 54,479 |  |  | 59,956 |  |  | 61,902 |
Right-of-use assets | 136,645 |  |  | 147,020 |  |  | 142,659 |
Trademarks and other identifiable intangibles, net | 267,610 |  |  | 275,853 |  |  | 279,270 |
Goodwill | 441,875 |  |  | 447,939 |  |  | 446,514 |
Deferred tax assets | 3,224 |  |  | 3,778 |  |  | 16,056 |
Other noncurrent assets | 8,841 |  |  | 11,262 |  |  | 12,491 |
Allowance to adjust net assets to estimated fair value, less costs of disposal - U.S.-based outlet store business - noncurrent | (7,202) |  |  | — |  |  | — |
Noncurrent assets held for sale - discontinued operations | 905,472 |  |  | 945,808 |  |  | 958,892 |
Total assets of discontinued operations | $ | 1,366,335 |  |  | $ | 1,495,543 |  |  | $ | 1,790,118 |
Accounts payable | $ | 138,887 |  |  | $ | 155,967 |  |  | $ | 167,009 |
Accrued liabilities | 62,851 |  |  | 56,871 |  |  | 59,688 |
Lease liabilities | 38,525 |  |  | 40,150 |  |  | 33,810 |
Current liabilities held for sale - discontinued operations | 240,263 |  |  | 252,988 |  |  | 260,507 |
Lease liabilities - noncurrent | 104,461 |  |  | 114,329 |  |  | 112,636 |
Pension and postretirement benefits | 905 |  |  | 799 |  |  | 892 |
Other noncurrent liabilities | 13,185 |  |  | 12,565 |  |  | 15,994 |
Noncurrent liabilities held for sale - discontinued operations | 118,551 |  |  | 127,693 |  |  | 129,522 |
Total liabilities of discontinued operations | $ | 358,814 |  |  | $ | 380,681 |  |  | $ | 390,029 |
The cash flows related to the discontinued operations of the global Champion and U.S.-based outlet store businesses have not been segregated and are included in the Condensed Consolidated Statements of Cash Flows. The following table presents cash flow and non-cash information related to the discontinued operations of the global Champion and U.S.-based outlet store businesses:
| Quarters Ended |  | Six Months Ended
| June 29, 2024 |  | July 1, 2023 |  | June 29, 2024 |  | July 1, 2023
Depreciation | $ | 3,565 |  |  | $ | 3,577 |  |  | $ | 6,757 |  |  | $ | 6,925 |
Amortization | $ | 2,721 |  |  | $ | 2,857 |  |  | $ | 5,453 |  |  | $ | 5,459 |
Capital expenditures | $ | 2,324 |  |  | $ | 1,758 |  |  | $ | 3,660 |  |  | $ | 20,526 |
Impairment of goodwill | $ | 2,500 |  |  | $ | — |  |  | $ | 2,500 |  |  | $ | — |
Loss on classification of assets held for sale - U.S.-based outlet store business | $ | 51,071 |  |  | $ | — |  |  | $ | 51,071 |  |  | $ | — |

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