Discontinued Operations and Restructuring Charges

6 Months Ended

Sep. 30, 2011

Discontinued Operations and Restructuring Charges [Abstract]

DISCONTINUED OPERATIONS AND RESTRUCTURING CHARGES

(2) DISCONTINUED OPERATIONS AND RESTRUCTURING CHARGES

As previously disclosed, on May 24, 2011, the Company approved a plan to close its Cleo manufacturing facility located in Memphis, Tennessee, with an exit to be completed no later than the facility lease expiration date of December 31, 2011. During its fiscal year ending March 31, 2012, the Company expects to incur pre-tax expenses of up to $9,000,000 (inclusive of $5,540,000 and $364,000 expensed in the first and second quarters of fiscal 2012, respectively), which costs primarily relate to cash expenditures for facility and staff costs (approximately $7,100,000) and non-cash asset write-downs recognized in the first six months of fiscal 2012 (approximately $1,900,000). The Company expects to complete the restructuring plan by March 31, 2012. In connection with this restructuring plan, the Company recorded a restructuring reserve of $3,042,000 in the first quarter of fiscal 2012 primarily related to severance of 573 employees. During the second quarter of fiscal 2012, there was an increase in the restructuring reserve of $1,334,000 primarily related to facility costs and a non-cash reduction of $177,000 related to severance that is less than originally estimated. During the quarter and six months ending September 30, 2011, the Company made payments of $2,474,000 and $2,501,000, respectively. As of September 30, 2011, the remaining liability of $1,698,000 was classified in current liabilities of discontinued operations in the accompanying condensed consolidated balance sheet. The Company expects to pay the remaining amount of approximately $4,599,000 during the remainder of fiscal 2012. In addition, the Company expects to incur $985,000 in cash spending during fiscal 2012 relating to this plan which was expensed in fiscal 2011. These amounts remain subject to change due to uncertainty as to the final amount of facility exit and staff costs and other costs related to the closure of this manufacturing facility.

Selected information relating to the aforementioned restructuring follows (in thousands):

	Employee
	Termination			Facility and
	Costs			Other Costs			Total
Initial accrual	$	3,015		$	27		$	3,042
Additional charges		235			1,099			1,334
Cash paid		(1,425	)		(1,076	)		(2,501	)
Non-cash adjustments		(177	)		—			(177	)
Restructuring reserve as of September 30, 2011	$	1,648		$	50		$	1,698

On September 9, 2011, the Company and Cleo entered into and consummated the transaction contemplated by an agreement for the sale of the Cleo Christmas gift wrap business and certain Cleo assets to Impact. Under this agreement, Impact acquired the Christmas gift wrap portion of Cleo’s business and certain of Cleo’s assets relating to such business, including certain equipment, contract rights, customer lists, intellectual property and other intangible assets. Cleo’s remaining assets, including accounts receivable and inventory, were excluded from the sale. Under this agreement, Cleo retained the right and obligation to fulfill all customer orders for Cleo Christmas gift wrap products for Christmas 2011. It is the Company’s intention to sell such inventory in the normal course of business through the Christmas 2011 season and collect all related accounts receivable. Cleo will retain the proceeds from the sale of the inventory and collection of accounts receivable. The purchase price was $7,500,000, of which $2,000,000 was paid to Cleo in cash at closing. The remainder of the purchase price was paid through the issuance by Impact of an unsecured subordinated promissory note, which provides for quarterly payments of interest at 7% and principal payments as follows: $500,000 on March 1, 2012; $2,500,000 on March 1, 2013; and all remaining principal and interest on March 1, 2014. As of September 30, 2011, $500,000 of this note receivable was recorded in other current assets and $5,000,000 of this note receivable was recorded in other long term assets in the accompanying condensed consolidated balance sheet. This transaction resulted in a pre-tax gain of $5,849,000. During the fourth quarter of fiscal 2011, the Company recorded a non-cash impairment charge of $11,051,000 as it determined that the fair value of the Cleo asset group was less than the carrying value.

Also in the second quarter of fiscal 2012, the Company sold most of the remaining equipment located in Cleo’s Memphis, Tennessee manufacturing facility to a third party for $825,000. The Company received these proceeds during the second quarter. These proceeds are included as an offset within the $9,000,000 of pre-tax expenses the Company expects to incur in its fiscal year ending March 31, 2012.

The effective tax rates used to determine the income tax expense (benefit) of discontinued operations were based on the statutory tax rates in effect during the respective periods, adjusted for permanent differences related to the assets and liabilities not being transferred to Impact. The effective tax rates used in the calculations for each period were as follows:

Three Months Ended September 30,						Six Months Ended September 30,
2011			2010			2011			2010
	35.0	%		34.9	%		35.0	%		34.9	%

As a result of the sale of its Cleo Christmas gift wrap business, the Company has reported these operations, including the operating income (loss) of the business and all exit activities, as discontinued operations, as shown in the following table (in thousands):

	Three Months Ended						Six Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Operating income (loss) (A)	$	2,436		$	(3,163	)	$	861		$	(3,787	)
Exit costs		(1,157	)		—			(4,199	)		—
Exit costs — equipment sale		825			—			825			—
Gain on sale of business to Impact		5,849			—			5,849			—
Discontinued operations, before income taxes		7,953			(3,163	)		1,614			(3,787	)
Income tax expense (benefit)		2,782			(1,104	)		565			(1,322	)
Discontinued operations, net of tax	$	5,171		$	(2,059	)	$	1,049		$	(2,465	)

(A) During the quarter ended June 30, 2011, the Company recorded a write down of inventory to net realizable value of $2,498,000 which was included in cost of sales of the discontinued operation. During the quarter ended September 30, 2011, the Company was able to sell certain of the inventory written down during the quarter ended June 30, 2011 for amounts greater than its adjusted carrying value resulting in higher gross profit of $563,000 of the discontinued operation for the quarter ended September 30, 2011.

The following table presents the carrying values of the major accounts of discontinued operations that are included in the September 30, 2011 condensed consolidated balance sheet (in thousands):

	September 30,		March 31,		September 30,
	2011		2011		2010
Cash	$	—	$	1,830	$	58
Accounts receivable, net		23,543		204		21,048
Inventories		13,837		11,674		33,132
Other current assets		481		1,206		1,763
Total current assets	$	37,861	$	14,914	$	56,001
Property, plant and equipment, net	$	—	$	—	$	8,686
Other		—		—		8
Total long-term assets	$	—	$	—	$	8,694
Total assets attributable to discontinued operations	$	37,861	$	14,914	$	64,695
Customer programs		1,095		447		2,194
Restructuring reserve		1,698		—		—
Other current liabilities		6,592		3,463		14,546
Total current liabilities	$	9,385	$	3,910	$	16,740
Total liabilities associated with discontinued operations	$	9,385	$	3,910	$	16,740