Discontinued operations

12 Months Ended

Mar. 30, 2019

Discontinued Operations and Disposal Groups [Abstract]

17.	Discontinued operations

The Company considers a component to be classified as discontinued operations when it meets the criteria established under GAAP related to reporting discontinued operations and disclosures of disposals of components of the Company. The disposal of such components that represents a strategic shift that should have or will have a major effect on the Company’s operations and financial results qualify as discontinued operations. The results of discontinued operations are reported in discontinued operations in the consolidated statements of operations for current and prior periods commencing in the period in which the business meets the criteria of an asset held for sale and discontinued operation, and will include any gain or loss recognized on closing or adjustment of the carrying amount to fair value less cost to sell.

On August 11, 2017, the Company entered into a stock purchase agreement with Aurum to sell its wholly-owned subsidiary, Mayors, which operated in Florida and Georgia and is engaged primarily in luxury timepieces and jewelry retail activities. The sale was completed on October 23, 2017 for total consideration of $135.0 million (USD $106.8 million). Because the Company’s retail operations in the U.S market were a signification part of the Company’s operations and financial results, the Company has determined that the disposal of Mayors represents a strategic shift. Accordingly, the activities of Mayors have been segregated and classified as discontinued operations in the consolidated statements of operations and cash flows for all periods presented. In fiscal 2019, the Company incurred transaction related costs of approximately $0.9 million which have been allocated to the results of discontinued operations. Furthermore, in fiscal 2019, the Company recognized a net operating expense recovery of approximately $

0.5

million as part of the transition services agreement with Aurum (see below) which has been allocated to the results of discontinued operations. In fiscal 2018, legal and professional fees of approximately $3.8 million, as well as debt extinguishment charges of approximately $3.5 million were incurred as a result of the Aurum Transaction. These transaction fees along with the interest expense generated by the Company’s then outstanding credit facilities associated with Mayors were allocated to the results of the discontinued operations. In fiscal 2018, the results of the discontinued operations also included an obsolescence reserve on inventory of $2.7 million.

As a condition to the closing of the Aurum Transaction, the Company and Mayors entered into (i) an inventory purchase agreement whereby the Company purchased approximately $2.3 million (USD $1.8 million) in inventory from Mayors; (ii) a transition services agreement whereby the Company agreed to provide certain transition services to Mayors for a period of six months following the closing date of the transaction, subject to certain renewal rights; (iii) a services agreement whereby Mayors agreed to provide certain services to the Company for a period of twelve months following the closing date of the transaction, subject to certain renewal rights and; (iv) an authorized five-year dealer agreement with Mayors whereby Mayors will promote the sale of Birks branded products and trademarks at its existing locations in the United States.

The following table presents the net income from discontinued operations for the year ended March 30, 2019, March 31, 2018, and March 25, 2017:

	Fiscal Year Ended
	March 30, 2019			March 31, 2018*			March 25, 2017*
	(In thousands, except per share amounts)
Net sales	$	-		$	110,789		$	224,319
Cost of sales		-			72,615			143,194
Gross profit		-			38,174			81,125
Selling, general and administrative expenses		381			30,902			61,970
Restructuring charges		-			-			211
Depreciation and amortization		-			1,674			3,170
Total operating expenses		381			32,576			65,351
Operating (loss) income		(381	)		5,598			15,774
Interest and other financial costs		-			3,683			6,905
Debt extinguishment charges		-			3,415			-
(Loss) income before taxes		(381	)		(1,500	)		8,869
Income tax expense (benefit)		-			92			(7,065	)

(Loss) income from discontinued operations, net of taxes		(381	)		(1,592	)		15,934
Gain on disposal, net of taxes		-			37,682			-
Net (loss) income from discontinued operations	$	(381	)	$	36,090		$	15,934

Weighted average common shares outstanding:
Basic		17,961			17,961			17,961
Diluted		17,961			18,393			18,418
Net (loss) income from discontinued operations per common share:
Basic	$	(0.02	)	$	2.01		$	0.89
Diluted	$	(0.02	)	$	1.96		$	0.87

(*)	Recast (refer to note 1)

The table below presents the reconciliation of the gain on the sale of Mayors:

	October 23, 2017*
Cash proceeds on disposal	$	134,982
Legal and professional fees incurred as a result of the Aurum Transaction		(3,759	)
Cash		3,083
Accounts receivable		15,705
Inventory		89,101
Prepaid expenses		1,110
Property and equipment		11,176
Intangible assets		343
Other assets		244
Deferred income tax asset		6,705
Accounts payable		(27,207	)
Accrued expenses		(3,552	)
Long-term debt		(333	)
Other long-term liabilities		(2,834	)
Total identifiable net assets		93,541
Gain on disposal, net of taxes of nil	$	37,682

(*)	Recast (refer to note 1)