1. Exiting the Disney Store North America Business
The Company has decided to exit the Disney Store North America ("DSNA") business after a thorough review of the operation, its potential for earnings growth, its capital needs and its ability to fund such needs from its own resources. The DSNA business is conducted by the Company's subsidiaries Hoop Holdings LLC and Hoop Holding Canada, Inc. under a license from The Walt Disney Company.
The Company and Hoop are actively pursuing alternatives for immediately implementing the exit from the DSNA business. These include a possible disposition by Hoop of a substantial portion of the business or other means to terminate its operations. The Company and Hoop are in an advanced phase of discussions with The Walt Disney Company regarding the terms under which Disney might regain ownership and control of approximately two-thirds of the existing stores. Hoop and the Company intend to disclose the arrangements for exiting the DSNA business in the very near term.
In addition to costs that will be incurred by the Hoop subsidiaries in connection with exiting the DSNA business, at this time the Company expects that it may incur pre-tax cash exit costs in the range of $50 million to $100 million, payable over a period of time. Reflecting its decision to exit the business, the Company recognized a pre-tax asset impairment charge of $80.3 million in the fourth quarter of fiscal 2007, as described below.
Unrelated to the Company's decision to exit the business, Hoop recently received notices of several material breaches under its license agreement with The Walt Disney Company. Hoop believes it has cured some of the asserted breaches and intends to cure or to assert defenses to other asserted breaches.