Discontinued Operations

6 Months Ended

Jul. 28, 2012

Discontinued Operations

12. Discontinued Operations

On May 18, 2012, the Company announced plans to exit the 77kids business, which includes all 22 stores and related e-commerce operations. Management determined that it is in the best interest of the Company and its shareholders to prioritize and focus its efforts on businesses with the highest return potential. Prior to the issuance of these Consolidated Financial Statements, the Company completed the sale of the 77kids business to a third party. The sale, which included store assets, the related on-line business, inventory and a temporary license to use the 77kids name through January 15, 2013, was effective on August 3, 2012. Therefore, these Consolidated Financial Statements reflect the results of 77kids as a discontinued operation for all periods presented.

Additionally, the third party purchaser has assumed certain liabilities associated with the 77kids business and paid the Company an amount equal to 65% of the cost of the acquired inventory. Therefore, 77kids inventory is presented as an asset held for sale for all periods on the Consolidated Balance Sheets.

Costs associated with exit or disposal activities are recorded when incurred. A summary of the exit and disposal costs recognized within Loss from Discontinued Operations on the Consolidated Income Statement are as follows:

	13 and 26 Weeks Ended
(In thousands)	July 28, 2012
Non-cash charges
Asset impairments	$	16,623
Cash charges
Inventory charges		7,768
Severence charges		3,439
Total charges	$	27,830

A rollforward of the liabilities recognized in the Consolidated Balance Sheet is as follows:

	July 28,
(In thousands)	2012
Accrued liability as of January 28, 2012	$	—
Add: Costs incurred, excluding non-cash charges		3,439
Less: Cash payments		(2,635	)
Accrued liability as of July 28, 2012 (1)	$	804

(1) Accrued liability at July 28, 2012 relates to severance and employee related charges recorded as a current liability within accrued compensation and payroll taxes.

The table below presents the significant components of 77kids’ results included in Loss from Discontinued Operations on the Consolidated Statement of Operations.

	13 Weeks Ended						26 Weeks Ended
(In thousands, except per share amounts)	July 28, 2012			July 30, 2011			July 28, 2012			July 30, 2011
Net sales	$	9,719		$	6,583		$	20,117		$	13,331
Loss from discontinued operations, before income taxes	$	(38,600	)	$	(8,781	)	$	(45,648	)	$	(14,522	)
Income tax benefit		14,781			3,358			17,491			5,553
Loss from discontinued operations, net of tax	$	(23,819	)	$	(5,423	)	$	(28,157	)	$	(8,969	)
Loss per common share from discontinued operations:
Basic	$	(0.12	)	$	(0.03	)	$	(0.14	)	$	(0.05	)
Diluted	$	(0.12	)	$	(0.03	)	$	(0.14	)	$	(0.05	)

The major classes of assets and liabilities included in the Consolidated Balance Sheets for 77kids are as follows:

(In thousands)	July 28, 2012		January 28, 2012		July 30, 2011
Current assets	$	10,189	$	12,296	$	15,526
Non-current assets		—		15,722		18,064
Total assets	$	10,189	$	28,018	$	33,590
Total current liabilities	$	9,034	$	5,838	$	6,100
Total non-current liabilities		2,597		2,646		2,873
Total liabilities	$	11,631	$	8,484	$	8,973

Refer to Note 13 to the Consolidated Financial Statements for additional information regarding the sale of 77kids.