Facility Closure Reserves

9 Months Ended

Sep. 29, 2012

Facility Closure Reserves

2. Facility Closure Reserves

We conduct regular reviews of our real estate portfolio to identify underperforming facilities, and close those facilities that are no longer strategically or economically beneficial. We record a liability for the cost associated with a facility closure at its estimated fair value in the period in which the liability is incurred, primarily the location’s cease-use date. Upon closure, unrecoverable costs are included in facility closure reserves and include provisions for the present value of future lease obligations, less contractual or estimated sublease income. These facility closure charges are included in asset impairments and other operating expenses in the Consolidated Statements of Operations. Accretion expense is recognized over the life of the required payments and is included in operating, selling, and general and administrative expenses in the Consolidated Statements of Operations.

During the first nine months of 2012, we recorded facility closure charges of $26.9 million in our Retail segment of which $1.6 million was recorded in the third quarter related to a change in the estimated lease obligation of a previously closed domestic store, and $25.3 million was recorded in the first quarter primarily related to the closure of 15 underperforming domestic stores prior to the end of their lease terms. During the first nine months of 2011, we recorded facility closure charges of $5.6 million (all in the second quarter) in our Retail segment associated with closing six underperforming domestic stores prior to the end of their lease terms, of which $5.4 million was related to the lease liability and $0.2 million was related to asset impairments.

Facility closure reserve account activity during the first nine months of 2012 was as follows:

	Total
	(thousands)
Balance at December 31, 2011	$	49,075
Charges related to stores closed in 2012		26,907
Transfer of deferred rent and other balances		1,275
Cash payments		(15,282	)
Accretion		2,495
Balance at September 29, 2012	$	64,470

Reserve balances were classified in the Consolidated Balance Sheets as follows:

	September 29, 2012
	(thousands)
Accrued expenses and other current liabilities - Other	$	17,093
Other long-term liabilities		47,377
Total	$	64,470

The facilities closure reserve consisted of the following:

	September 29, 2012
	(thousands)
Estimated future lease obligations	$	118,105
Less: anticipated sublease income		(53,635	)
Total	$	64,470