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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 2, 2011

OR

o              TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                                  to                                

Commission file number:  001-32568

MAIDENFORM BRANDS, INC.

(Exact name of registrant as specified in its charter)

(732) 621-2500

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

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INDEX

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

MAIDENFORM BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

(unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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MAIDENFORM BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except share and per share amounts)

(unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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MAIDENFORM BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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MAIDENFORM BRANDS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts)

(unaudited)

1.                                      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

Maidenform Brands, Inc. and its subsidiaries (the “Company,” “we,” “us” or “our”) design, source and market an extensive range of intimate apparel products, including bras, panties and shapewear. We sell our products through multiple distribution channels, including department stores and national chain stores (including third party distributors and independent stores), mass merchants (including warehouse clubs), and other (including specialty retailers, off-price retailers and licensees). In addition, we operated 74 retail outlet stores and eight kiosks and carts as of July 2, 2011 and 74 retail outlet stores and one kiosk as of July 3, 2010, and sold products on our websites.

In our opinion, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to state fairly our financial position at July 2, 2011, the results of our operations for the three and six-month periods ended July 2, 2011 and July 3, 2010, and cash flows for the six months ended July 2, 2011 and July 3, 2010. These adjustments consist of normal recurring adjustments. Operating results for the three and six-month periods ended July 2, 2011 are not necessarily indicative of the results that may be expected for any other future interim period or for a full fiscal year. The condensed consolidated balance sheet at January 1, 2011 has been derived from our audited consolidated financial statements at that date, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”).

These condensed consolidated financial statements have been prepared in accordance with Article 10 of Regulation S-X promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, certain information and disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. The financial statements included herein should be read in conjunction with our Annual Report on Form 10-K for the year ended January 1, 2011.

We consider all highly liquid investments that have original maturities of three months or less to be cash equivalents. Cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are reflected at fair value because of the short-term maturity of these instruments. The carrying amount of long-term debt at July 2, 2011 and January 1, 2011 approximates fair value as a result of the variable interest rates being accrued and paid on our debt.

2.                                      DEBT

At July 2, 2011, we had $69,600 outstanding under our term loan, and $0 outstanding under our revolving loan with approximately $49,325 available for borrowings, after giving effect to $675 of outstanding letters of credit. We use the letters of credit as collateral for our workers’ compensation insurance programs and bonds issued on our behalf to secure our obligation to pay customs duties. Principal payments on the term loan are payable in quarterly installments of $275 with all remaining amounts due in 2014. We are permitted to voluntarily prepay all or part of the principal balance of the term loan with such prepayments applied to scheduled principal payments in inverse order of their maturity. In addition, subject to specified exceptions and limitations and reinvesting options, partial prepayments of outstanding loans may be required with the proceeds of asset sales, sales of equity and debt securities, and with certain insurance and condemnation proceeds.

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MAIDENFORM BRANDS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except share and per share amounts)

(unaudited)

Payments due on long-term debt during each of the five years subsequent to July 2, 2011, are as follows:

3.                                      STOCKHOLDERS’ EQUITY

4.                                      STOCK REPURCHASE PROGRAM

Our stock repurchase program allows us to repurchase our shares from time to time pursuant to existing rules and regulations and other parameters approved by the Board of Directors. At January 1, 2011, we had $17,648 remaining available under our $50,000 stock repurchase program authorized in February 2010. During March 2011, we repurchased $1,961 of common stock at an average price per share of $26.72.

5.                                      STOCK-BASED COMPENSATION

On May 26, 2011, at our annual meeting of stockholders, our stockholders approved the amendment of the plan. In connection with the amendment, the shares set aside and reserved for issuance under the plan were increased by 2,150,000 shares to 4,300,000 shares. The plan provides for a variety of vesting dates with the majority of the awards vesting in annual increments of 25% of the number of awards granted over the first four years of the grant and expiring between seven to ten years after the date of grant. At July 2, 2011, a total of 2,395,076 shares were available for future grants under the plan.

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MAIDENFORM BRANDS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except share and per share amounts)

(unaudited)

6.                                      COMPREHENSIVE INCOME

The changes in comprehensive income are as follows:

(a)                                  No tax benefit has been provided on the foreign currency translation adjustment due to management’s decision to reinvest the earnings of our foreign subsidiaries indefinitely.

(b)                                 Deferred income tax liabilities of $23 and $17 provided for the three-month periods ended July 2, 2011 and July 3, 2010, respectively. Deferred income tax liabilities of $45 and $34 provided for the six-month periods ended July 2, 2011 and July 3, 2010, respectively.

7.                                      INCOME TAXES

We review our annual effective tax rate on a quarterly basis and we make necessary changes if information or events warrant such changes. The annual effective tax rate is forecasted quarterly using actual historical information and forward-looking estimates. The estimated annual effective tax rate may fluctuate due to changes in forecasted annual operating income and changes to actual or forecasted permanent book to tax differences.  The annual effective tax rate could also be impacted by discrete events that may occur on a quarterly basis.  Examples of such discrete events are changes in valuation allowances, future tax settlements with state, federal or foreign tax authorities or impacts from state, federal or foreign tax law changes.

Our effective income tax rate for the three and six-month periods ended July 2, 2011 was 34.7% and 36.4%, respectively, as compared to an effective income tax rate for the three and six-month periods ended July 3, 2010 of 39.5% and 40.1%, respectively. The lower effective income tax rate in the three and six-month periods ended July 2, 2011 was primarily due to a discrete income tax benefit related to a New Jersey tax law change.  The higher effective rate for the six-months ended July 3, 2010 included non-deductible expenses in connection with the sale of our common stock by one our stockholders.

8.                                      SEGMENT INFORMATION

We identified our two reportable segments as ‘‘wholesale’’ and ‘‘retail.’’ Our wholesale sales are to department stores and national chain stores (including third party distributors servicing similar customers and independent stores), mass merchants (including warehouse clubs), specialty retailers, and off-price retailers, while our retail segment reflects our operations from our retail outlet stores, kiosk and carts, and internet operations. Royalty income is also included in our wholesale segment. Within our reportable segments, wholesale includes corporate-related assets. Each segment’s results include the costs directly related to the segment’s net sales and all other costs allocated based on the relationship to consolidated net sales to support each segment’s net sales. Intersegment sales and transfers are recorded at cost and treated as a transfer of inventory.

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MAIDENFORM BRANDS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except share and per share amounts)

(unaudited)

Information on segments and reconciliation to income before provision for income taxes, are as follows:

(a)    Includes a litigation settlement of $6,750 expense recorded in the second quarter of 2011. See Item 1, “Legal Proceedings”, for additional information regarding the settlement.

(b)    International net sales are identified as international based on the location of the customer.

At July 2, 2011 and January 1, 2011, our five largest uncollateralized receivables represented approximately 58% and 53% of total accounts receivable.

For the three-month period ended July 2, 2011, we had two customers, Wal-Mart and Kohl’s, that each accounted for more than 10% of our consolidated net sales. For the three-month period ended July 3, 2010, we had three customers, Wal-Mart, Kohl’s and Macy’s, that each accounted for more than 10% of our consolidated net sales. For the six-month periods ended July 2, 2011 and July 3, 2010, we had two customers, Wal-Mart and Kohl’s, that each accounted for more than 10% of our consolidated net sales.

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MAIDENFORM BRANDS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except share and per share amounts)

(unaudited)

9.                                      EARNINGS PER SHARE

The following is a reconciliation of basic number of common shares outstanding to diluted common and common equivalent shares outstanding:

For the three-month periods ended July 2, 2011 and July 3, 2010, approximately 13,000 and 36,000 equity awards, respectively, were not included in the computation of diluted earnings per share because of their anti-dilutive effect. For the six-month periods ended July 2, 2011 and July 3, 2010, approximately 8,000 and 81,000 equity awards, respectively, were not included in the computation of diluted earnings per share because of their anti-dilutive effect.

10.                               COMMITMENTS AND CONTINGENCIES

Purchase commitments

In the normal course of business, we enter into purchase commitments for both finished goods and raw materials. At July 2, 2011, we had purchase commitments of $104,357 and believe that we have adequate reserves for any expected losses arising from all purchase commitments.

Litigation

We entered into a settlement agreement with Times Three Clothier, LLC (“Times Three”) of litigation in the Southern District of New York. The settlement ends patent infringement and invalidity lawsuits that we had filed against each other.  In connection with the settlement, we paid Times Three $6,750 ($4,115 after tax) and agreed not to assist any third party that may seek to invalidate or render unenforceable the patents.

On March 2, 2010, we filed suit against Times Three in the U.S. District Court for the Southern District of New York, seeking a declaratory judgment that the Company’s Flexees® Fat Free Dressing Tank Top does not infringe U.S. Design Patent No. D606,285 (“the 285 patent”) and/or that the 285 patent is invalid. Times Three filed a counterclaim for infringement of the 285 patent and related U.S. Design Patents Nos. D616,627, D622,477 and D623,377. In response, we filed counterclaims seeking a declaration of non-infringement and/or invalidity/unenforceability with respect to each of these patents. We also filed a motion for summary judgment seeking invalidity/unenforceability with respect to each of these patents.

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MAIDENFORM BRANDS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except share and per share amounts)

(unaudited)

We are a party to various legal actions arising in the ordinary course of business.  Based on information presently available to us, we believe that we have adequate legal defenses, reserves and/or insurance coverage for these actions and that the ultimate outcome of these actions will not have a material adverse effect on our consolidated statements of financial position, results of operations or cash flows.

11.                               ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Other accrued expenses and current liabilities include, among other items, freight, accrued severance, trade promotion, inventory return accrual and professional fees.

12.                               RECENTLY ISSUED ACCOUNTING STANDARDS

In June 2011, the Financial Accounting Standards Board (“FASB”) issued guidance on the presentation of comprehensive income. This guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. The guidance allows two presentation alternatives: (1) present items of net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income; or (2) in two separate, but consecutive, statements of net income and other comprehensive income. This guidance is effective as of the beginning of a fiscal year that begins after December 15, 2011. Early adoption is permitted, but full retrospective application is required under both sets of accounting standards. The adoption of this guidance will have no impact on our consolidated financial position or results of operations.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis in conjunction with our financial statements and related notes included elsewhere in this report. This report contains forward-looking statements relating to future events and our future performance within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, without limitation, statements regarding our expectations, beliefs, intentions or future strategies that are signified by the words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “potential,” “predicts,” “projects” or similar words or phrases, although not all forward-looking statements contain such identifying words.  All forward-looking statements included in this report are based on information available to us on the date hereof. It is routine for our internal projections and expectations to change as the year or each quarter in the year progress, and therefore it should be clearly understood that the internal projections and beliefs upon which we base our expectations may change prior to the end of each quarter or the year. Although these expectations may change, we assume no obligation to update or revise publicly any forward-looking statements whether as a result of new information, future events or otherwise. Actual events or results may differ materially from those contained in the projections or forward-looking statements. Factors that could cause or contribute to such differences include those discussed below and elsewhere in this report, particularly in the section captioned “PART II — OTHER INFORMATION, Item 1A — Risk Factors.”

Management Overview

We are a global intimate apparel company with a portfolio of established, well-known brands, top-selling products and an iconic heritage. We design, source and market an extensive range of intimate apparel products, including bras, panties and shapewear. We sell our products through multiple distribution channels, including department stores and national chain stores (including third party distributors and independent stores), mass merchants (including warehouse clubs), other (including specialty retailers, off-price retailers and licensees), our company-operated outlet stores, kiosks and carts, and our websites.

We sell our products under some of the most recognized brands in the intimate apparel industry. Our Maidenform, Control It!, Maidenform’s Charmed, Flexees, Lilyette and Luleh brands are sold in department stores and national chain stores. Our Bodymates, Inspirations, Self Expressions and Sweet Nothings brands are distributed through mass merchants. These mass merchant brands leverage our product technology, but are separate brands with distinctly different logos. In addition to our owned brands, we also supply private brands to certain retailers. We also sell the Donna Karan and DKNY licensed brands in the department stores and chains channel, domestically and internationally, as a result of our license agreement. This agreement grants us the rights to design, source and market a full collection of Donna Karan and DKNY women’s intimate apparel products.

Trends in our business

We operate in two segments, wholesale and retail. Our wholesale segment includes both our domestic and international wholesale markets. Our retail segment includes our company-operated outlet stores, kiosks and carts, and our websites.

We have identified near-term opportunities for growth and operational improvements, as well as challenges, including general macro-economic conditions that may affect our customers and our business. In particular, management believes that there are many factors influencing the intimate apparel industry, including but not limited to: consistent demand for foundation garments, consumer demand for innovative and leading brands, sourcing and supply chain efficiencies, continued growth of the mass merchant channel, pressure from retailers brought about by the consolidation in the retail industry, increases in the cost of the raw materials used in intimate apparel products and uncertainty surrounding import restrictions.

We believe we are well-positioned to capitalize on or address these trends by, among other things:

·                  continuing to launch innovative products and new brands, including Maidenform’s Charmed;

·                  increasing our presence in department stores and national chain stores through the use of Maidenform, Control It!, Maidenform’s Charmed, Flexees, Lilyette and Luleh brands;

·                  expanding distribution of our Donna Karan and DKNY licensed brands;

·                  expanding shapewear awareness;

·                  increasing our presence in the mass merchant channel through the use of Bodymates, Inspirations, Self Expressions and Sweet Nothings brands;

·                  expanding our international presence;

·                  increasing consumer identification with our brands through further marketing investments;

·                  marketing, rather than manufacturing our brands;

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·                  making selective acquisitions, entering into license agreements, and developing and marketing new products that will complement our existing products or distribution channels; and

·                  merchandising, marketing and selling private brand products to selected retailers.

Wholesale segment

The following trends are among the key variables that will affect our wholesale segment:

Department stores and national chain stores. The department stores and national chain stores (including third party distributors and independent stores) are where we generally sell the Maidenform, Control It!, Maidenform’s Charmed, Flexees, Lilyette and Luleh brands. We plan to continue to invest in increasing our net sales with department store customers, which we believe is important to our long-term positioning in the channel. There has been a trend toward consolidation of department stores. We expect the rate of our future net sales growth with department stores to be moderated by the reduction in both the number of department store customers and the number of doors (distinct locations operated by a particular retailer) operated by these customers. We have grown our market share meaningfully in the past several years with national chain stores. We have customers located outside the United States that purchase our Maidenform, Control It!, Maidenform’s Charmed, Flexees, Lilyette and Luleh brands. The majority of these net sales are included in the department stores and national chain stores channel. We also sell the Donna Karan and DKNY brands in this channel, domestically and internationally, as a result of our license agreement. This agreement grants us the rights to design, source and market a full collection of Donna Karan and DKNY women’s intimate apparel products.

Mass merchants. The mass merchant channel includes both mass merchants and warehouse clubs. We intend to improve our penetration with mass merchants through the use of our brands Bodymates, Inspirations, Self Expressions and Sweet Nothings. We have experienced meaningful growth in this channel over the past several years and expect to achieve meaningful growth in the future as we are able to increase both the floor space and number of doors in which our products are sold, both domestically and internationally. We expect that both our net sales to this channel and our net sales to this channel as a percentage of our total net sales are likely to increase over time. The volume and mix of net sales of our brands in the mass merchant channel can vary from period to period based upon strategic changes that our customers may implement from time to time. Net sales to customers in the mass channel that are located outside the United States are included in this channel.

Other. Net sales from other channels include sales to specialty retailers, off-price retailers and royalty income from licensees. We supply private brands to specialty retailers as opportunities present themselves and we continually evaluate this channel for opportunities. The volume and mix of net sales of private label in the other channel can vary significantly from period to period based upon new product introductions. Net sales to customers in the other channel that are located outside the United States are included in this channel.

We selectively target strategic acquisitions, licensing opportunities or brand start-ups to grow our consumer base and would utilize any acquired companies and licenses to complement our current products, channels and geographic scope. We believe that acquisitions and licenses can enhance our product offerings to retailers and provide growth opportunities. We believe we can leverage our core competencies such as product development, brand management, logistics and marketing to create significant value from the acquired businesses and licenses as we did with the intimate apparel license agreement for the Donna Karan and DKNY brands.

We also generate net sales from licensing our brand names to qualified partners for natural line extensions in the intimate apparel market such as girls bras, swimwear and bra accessories. Licensing royalties account for less than 1% of our total net sales. Our licensed products are sold at department stores, national chains and mass merchants, at our company-operated outlet stores and through our websites. We believe that we can potentially expand our licensing activities beyond our current offerings.

Retail segment

We believe our retail sales volume is driven by our ability to service our existing consumers and obtain new consumers, as well as overall general macro-economic conditions that can affect our consumers and ultimately their levels of overall spending and choice of retail channel for their purchases. Additionally, identifying optimal retail outlet locations, favorable leasing arrangements, and improving our store productivity are factors important to growing our retail segment’s net sales. We also sell our products through our websites, www.maidenform.com and www.maidenform.co.uk. Although we currently do not generate a significant amount of net sales as a percentage of total Company net sales through these sites, we do expect it to continue to grow.

Our objectives in our retail segment are to continue to increase the productivity of our portfolio of stores through effective merchandising and focused advertising, as well as selectively closing less productive locations and potentially opening new stores in more productive locations. Even in those situations where we selectively close less productive outlet stores and do not open a new store in that region, we believe those consumers still purchase many of our Maidenform brands from our other outlet stores, our websites or our wholesale

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segment customers that carry these brands. Our company-operated outlet stores reduce our dependence on off-price retailers and increase brand awareness through direct-to-consumer sale of our products.

Definitions

In reviewing our operating performance, we evaluate both the wholesale and retail segments by focusing on each segment’s operating income, cash flows from operations and inventory turns.

Net sales. Our net sales are derived from two operating segments, wholesale and retail. Net sales from our wholesale segment are recognized when the customer takes possession and are recorded net of cooperative advertising allowances, sales returns, sales discounts, and markdown allowances provided to our customers. Net sales in our retail segment are recognized at the time the customer takes possession of the merchandise at the point-of-sale in our stores and kiosks and carts, and for our internet sales, net sales are recognized when the products are shipped and title passes to the customer.

Cost of sales. We outsource all manufacturing of the products we sell and, therefore, the principal elements of our cost of sales are for finished goods inventories purchased from our sourced vendors. Included in cost of sales and affecting our overall gross margins are freight expenses from the manufacturers to our distribution centers in situations where such expenses are charged separately. Also included in cost of sales is the cost of warehousing, labor and overhead related to receiving and warehousing at our distribution centers, and depreciation of assets related to our receiving and warehousing in our distribution centers. Direct labor, cost of fabrics, as well as raw materials for fabrics, are the primary components driving the overall cost of our sourced finished goods inventories from our sourcing vendors.

Selling, general and administrative expenses (“SG&A”). Our SG&A includes all of our marketing, product development, selling, distribution and general and administrative expenses for both the wholesale and retail segments (which include our retail outlet store payroll and related benefits). General and administrative expenses include management payroll, benefits, travel, information systems, accounting, distribution, rent, insurance and legal costs. Additionally, depreciation related to the shipping function in our distribution centers and our corporate office assets such as furniture, fixtures, equipment and technology, as well as amortization of intellectual property, are included in SG&A.

Income taxes. We account for income taxes using the liability method, which recognizes the amount of income tax payable or refundable for the current year and recognizes deferred tax liabilities and assets for the future tax consequences of the events that have been recognized in the financial statements or tax returns. For those uncertain tax positions where it is “more likely than not” that a tax benefit will be sustained, we have recorded the tax benefit. For those income tax positions where it is not “more likely than not” that a tax benefit will be sustained, no tax benefit has been recognized. Where applicable, associated interest and penalties are recorded. We routinely evaluate all deferred tax assets to determine the likelihood of their realization and record a valuation allowance if it is “more likely than not” that a deferred tax asset will not be realized. For more information, see notes to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Net operating loss carryforwards (“NOLs”) enable a company to apply NOLs incurred during a current period against a future period’s profits in order to reduce cash tax liabilities in those future periods. In periods when a company is generating operating losses, its NOLs will increase. The tax effect of the NOLs is recorded as a deferred tax asset. If the company does not believe that it is “more likely than not” that it will be able to utilize the NOLs, it records a valuation allowance against the deferred tax asset. Additionally, Section 382 of the Internal Revenue Code (“Section 382”) imposes limitations on a corporation’s ability to utilize its NOLs if it experiences an “ownership change.” In general terms, an ownership change results from transactions increasing the ownership of certain existing stockholders and, or, new stockholders in the stock of a corporation by more than 50 percentage points during a three year testing period. Any unused annual limitation may be carried over to later years, and the amount of the limitation may, under certain circumstances, be increased to reflect both recognized and deemed recognized “built-in gains” that occur during the sixty-month period after the ownership change. Our NOLs are subject to Section 382 limitations. At January 1, 2011, we had approximately $23.5 million of federal and state NOLs available for utilization in the years from 2011 through 2023.

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Results of Operations

Included in this presentation are discussions and reconciliations of SG&A, operating income and net income in accordance with generally accepted accounting principles (“GAAP”) to SG&A, operating income and net income excluding a litigation settlement. Each of these adjustments was selected because our management uses these non-GAAP measures in discussing and analyzing our results of operations and because we believe the non-GAAP measures provide investors with greater transparency by helping to illustrate the underlying financial and business trends relating to our results of operations, financial condition and comparability between current and prior periods.

(a) See Item 1, “Legal Proceedings”, for additional information regarding the settlement.

Our net sales are derived from two segments, wholesale and retail. Our net sales within the wholesale segment are grouped by channel, based upon the brands we sell and the customers to whom we sell, as follows: (1) department stores and national chain stores (including third party distributors and independent stores), (2) mass merchants (including warehouse clubs) and (3) other.

Our department stores and national chain stores channel primarily consists of sales of our Maidenform, Control It!, Maidenform’s Charmed, Flexees, Lilyette and Luleh brands on a worldwide basis to customers within this category. Within the mass merchant channel, we sell Bodymates, Inspirations, Self Expressions and Sweet Nothings brands that are primarily dedicated to specific customers. These brands are all sold on a worldwide basis to mass merchants and, to a lesser degree, warehouse clubs. Our remaining sales are grouped within a channel designated as other and include private brand products sold to specialty retailers and all brand sales to off-price retail stores on a worldwide basis. In addition, we include licensing income in our other channel.