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Note 8 - Dispositions and Discontinued Operations
 6 Months Ended
Jul. 02, 2011
Disposal Groups, Including Discontinued Operations, Disclosure [Text Block]
Note 8 – Dispositions and Discontinued Operations

The Company continually reviews its portfolio of labels, business lines, and divisions to evaluate whether they meet profitability and performance requirements and are in line with the Company’s business strategy. As a part of this review, the Company has disposed and discontinued operations of certain divisions as outlined below.

On May 5, 2011, in two separate transactions, the Company sold certain assets of Hampshire Designers for a total purchase price of $12.0 million, plus inventory valued at approximately $2.4 million, and certain assets of Item-Eyes for a total purchase price of $0.3 million, plus inventory valued at approximately $0.8 million, both subject to post closing adjustments to third-party buyers. Inventory in transit, valued at $1.6 million and $0.4 million for Hampshire Designers and Item-Eyes, respectively, was also purchased by each buyer and will be payable upon delivery. As part of the sale transactions, the Company transferred and assigned certain assets, primarily the divisions’ trademark labels, to each respective buyer.

As part of the sale transactions, the Company agreed to provide to each respective buyer certain transitional services for fixed fees and for a limited period of time following closing. In light of the disposition of the women’s businesses, the Company will evaluate the need to record a potentially material non-cash charge for the lease expense associated with any excess leased real estate. Further, in connection with the sale transactions, the Company entered into a separation and release agreement with the president of the Company’s now former women’s division, effective May 6, 2011, that entitled him to separation pay of $0.6 million.

In addition, each buyer assumed outstanding vendor and customer purchase orders and outstanding orders for shipments of goods-in-transit and the Item-Eyes buyer assumed certain open letters of credit. In each case, the Company retained ownership of its accounts receivable relating to the inventory sales made prior to the closing date and accounts payable relating to the inventory sold. The Company recognized a pre-tax gain of $11.2 million on the sale of Hampshire Designers and a pre-tax loss of $0.3 million on the sale of Item-Eyes net of, among other things, severance and transaction related costs. The Company believes its net operating loss carryforwards will offset any tax liability resulting from the net gain. The funds from the sale of assets and the liquidation of the remaining assets are being used to fund operations and other general corporate purposes.

In accordance with GAAP, these unaudited condensed consolidated financial statements reflect the results of operations and financial position of the aforementioned divisions separately as discontinued operations. The assets and liabilities of the discontinued operations are presented in the unaudited condensed consolidated balance sheets under the captions Assets of discontinued operations and Liabilities of discontinued operations. 

The underlying assets and liabilities of the discontinued operations at July 2, 2011 and December 31, 2010 were as follows:   

 (In thousands)
July 2,
2011
 
December 31,
2010
 
Accounts receivable, net
  $ —     $ 2,881  
Inventories, net
    —       4,837  
Other receivables
    6,596       1,438  
Other current assets
    7       372  
Assets of discontinued operations
  $ 6,603     $ 9,528  
                 
Accounts payable
  $ 559     $ 5,328  
Accrued expenses and other liabilities
    2,470       854  
Liabilities of discontinued operations
  $ 3,029     $ 6,182  

At July 2, 2011, approximately $5.1 million classified in Other receivables relate to inventory purchased from factories by the Company during the transition period for each respective buyer.

At July 2, 2011 and December 31, 2010, approximately $0.2 million and $0.5 million, respectively, remains accrued in Accrued expenses and other liabilities relating to divisions disposed and discontinued prior to 2010.

The operating results for the discontinued operations for the three and six month periods ended July 2, 2011 and July 3, 2010 were as follows:

   
Three Months Ended
   
Six Months Ended
 
(In thousands)
 
July 2, 2011
   
July 3, 2010
   
July 2, 2011
   
July 3, 2010
 
Net sales   $ 2,989     $ 12,419     $ 16,311     $ 30,309  
                                 
Gross profit (loss)   $ (497 )   $ 3,644     $ (3,303 )   $ 7,628  
                                 
Gain on sale of discontinued operations   $ 10,848     $ —     $ 10,848     $ —  
                                 
Income (loss) on discontinued operations before income taxes   $ 10,386     $ (85 )    $ 9,084     $ (627 )
                                 
Income tax provision   $ —     $ —     $ —     $ —  
                                 
Income (loss) from discontinued operations, net of taxes   $ 10,386     $ (85   )   $ 9,084      $ (627  )