5. Discontinued Operations

On April 1, 2016, the Company entered into a Unit Purchase Agreement (the “Initial Purchase Agreement”) with Alstyle Operations, LLC (the “Initial Buyer”) and, for the limited purpose set forth in such Initial Purchase Agreement, Steve S. Hong. Under the Initial Purchase Agreement, the Initial Buyer agreed to acquire Alstyle Apparel, LLC and its subsidiaries (the “Apparel Segment”) from the Company for an aggregate purchase price of $88.0 million, consisting of $76.0 million in cash to be paid at closing, subject to a working capital adjustment, and an additional $12.0 million to be paid pursuant to a capital lease covering certain equipment utilized by the Apparel Segment that was to have been retained by the Company. The Initial Purchase Agreement contemplated post-closing transition services for up to 18 months.

Under the Initial Purchase Agreement, the Company retained the right to terminate such agreement in the event that the Company received an unsolicited purchase offer for the Apparel Segment that was not matched by the Initial Buyer, which, in the judgment of the Board of Directors of the Company (the “Board”) in the exercise of its fiduciary duties on behalf of the Company’s shareholders, deemed such offer to be a superior offer to the transactions contemplated by the Initial Purchase Agreement.

On May 4, 2016, the Company received what the Board determined to be a superior offer from Gildan Activewear Inc. (“Gildan”). In connection therewith, the Company terminated the Initial Purchase Agreement and paid the required $3.0 million termination fee to the Initial Buyer. In connection with the superior offer, the Company and Gildan entered into a Unit Purchase Agreement, dated May 4, 2016 (the “Gildan Purchase Agreement”), pursuant to which on May 25, 2016 Gildan acquired the Apparel Segment from the Company for an all-cash purchase price of $110.0 million, subject to a working capital adjustment, customary indemnification arrangements, and the other terms of the Gildan Purchase Agreement. The Company is providing transition assistance to Gildan for certain administrative, financial, human resource, and information technology matters and is subleasing from Gildan a portion of real property located in Anaheim, California. As part of the purchase price, Gildan funded the Company’s payment of the $3.0 million termination fee payable to the Initial Buyer as result of the termination of the Initial Purchase Agreement.

 

Balance sheet information for the Apparel Segment presented as discontinued operations is summarized as follows (in thousands):

 

		February 29, 2016
Current assets:
Cash		$	2,468
Accounts receivable, net			18,325
Prepaid expenses and income taxes			3,859
Inventories			72,691
Deferred income taxes			3,151
Total current assets		$	100,494
Long-term assets:
Property, plant and equipment, net		$	30,543
Trademarks and trade names			9,170
Customer lists			5,499
Other assets			1,125
Total long-term assets		$	46,337
Current liabilities:
Accounts payable		$	8,050
Employee compensation and benefits			4,065
Other current liabilities			380
Total current liabilities		$	12,495

The operating results of these discontinued operations only reflect revenues and expenses that are directly attributable to the Apparel Segment and that will be eliminated from ongoing operations. The key components from discontinued operations related to the Apparel Segment were as follows (in thousands):

 

Sales price		$	110,000
Net book value of assets			(130,174	)
Expenses related to sales (1)			(4,365	)
Loss on sale before write-off of foreign currency translation adjustment			(24,539	)
Write-off of foreign currency translation adjustments recorded in other comprehensive income			(16,109	)
Loss on sale of sale of discontinued operations		$	(40,648	)

 

(1)	Included in this amount is the $3.0 million termination fee paid as a result of the termination of the Initial Purchase Agreement for the sale of the Apparel Segment.

		Three months ended May 31,
		2016				2015
Net sales		$	41,038			$	53,807
Income from discontinued operations before income taxes			3,873				648
Loss on sale of discontinued operations before income taxes			(40,648	)			—
Income (loss) on discontinued operations before income taxes			(36,775	)			648
Income tax expense (benefit)			(13,214	)			240
Net earnings (loss) from discontinued operations		$	(23,561	)		$	408