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RESTRUCTURING AND IMPAIRMENT

9 Months Ended

Oct. 27, 2012

NOTE 3 — RESTRUCTURING AND IMPAIRMENT

In the third quarter of the transition period, we announced that, following an in-depth analysis of our store portfolio, the Board approved a plan to close approximately 100 stores, most of which were underperforming. Ultimately, 103 stores were identified for closure. This group of stores generated approximately $35 million of sales and store-level operating losses of approximately $11 million, which included approximately $7 million of non-cash impairment charges, on a trailing twelve-month basis through January 28, 2012.

Ninety of the 103 stores identified for closure were closed in the transition period. We closed eleven stores in the first quarter of fiscal 2012 and we closed two additional stores in the second quarter, which completed the store closures related to the restructuring initiative.

We recorded total restructuring and asset impairment charges of approximately $21.2 million in the second half of the transition period, consisting primarily of $11.4 million of non-cash asset impairment charges, $8.2 million of net expense related to lease termination liabilities, partially offset by the reduction of deferred obligations related to closed stores, and approximately $1.6 million of severance and miscellaneous other store closing costs. The lease termination liabilities consisted primarily of the costs of future contractual obligations related to closed store locations. Discounted liabilities for future lease costs and management’s estimated fair value of assumed subleases of closed locations were recorded when the stores were closed and these amounts have been subject to adjustments as liabilities are settled. In addition, management has also been negotiating with landlords to mitigate the amount of lease termination liabilities. As a result, actual settlements have varied substantially from recorded obligations.

In the first quarter of fiscal 2012, we recognized a net benefit of approximately $0.8 million related to restructuring and impairment costs. We recorded a non-cash benefit of approximately $1.4 million related to 18 stores where the amounts recorded for net lease termination liabilities exceeded the actual settlements negotiated with landlords. We recorded approximately $0.5 million of additional lease termination liabilities related to three stores closed in the first quarter of fiscal 2012. In addition, we recorded approximately $0.1 million of non-cash asset impairment charges related to five stores we plan to continue to operate.

In the second quarter of fiscal 2012, we recognized a net benefit of approximately $4.7 million related to restructuring and impairment costs. We recorded a non-cash benefit of approximately $4.9 million related to 35 stores where the amounts recorded for net lease termination liabilities exceeded the actual settlements negotiated with landlords. We recorded a nominal amount of additional lease termination liabilities related to stores closed in the second quarter of fiscal 2012. In addition, we recognized approximately $0.2 million of professional services in the second quarter related to the restructuring initiative.

In the third quarter of fiscal 2012, we recorded a charge of approximately $0.3 million related to restructuring costs which consisted of approximately $30,000 related to one store where the amount recorded for net lease termination liabilities was less than the actual settlement negotiated with the landlord and approximately $0.3 million related to professional services for lease terminations and renegotiations. In the third quarter of fiscal 2012, we also reclassified approximately $0.3 million of the remaining long-term portion of the lease termination liability to current accrued liabilities which relates to one store. We anticipate the lease termination negotiations related to this store will be finalized by the end of fiscal 2012.

The following table details restructuring activity for the transition period and the first nine months of fiscal 2012 (in thousands).

				Lease
	Severance			Termination			Asset
	Accrual			Obligations			Impairment			Other			Total
Balance, February 26, 2011	$	—		$	—		$	—		$	—		$	—

Asset impairment charge	—			—			11,445			—			11,445
Restructuring charges	1,168			8,225			—			345			9,738
Total charges	1,168			8,225			11,445			345			21,183

Non-cash charges	—			—			(11,445		)	(106		)	(11,551		)
Deferred lease obligations on closed stores	—			3,587			—			—			3,587
Cash payments	(310		)	—			—			(239		)	(549		)

Balance, January 28, 2012	858			11,812			—			—			12,670

Asset impairment charge	—			—			139			—			139
Non-cash adjustments	—			(6,263		)	—			—			(6,263		)
Restructuring charges	—			314			—			342			656
Total charges (credits)	—			(5,949		)	139			342			(5,468		)

Non-cash charges	—			—			(139		)	—			(139		)
Deferred lease obligations on closed stores	—			244			—			—			244
Cash payments	(858		)	(5,782		)	—			(342		)	(6,982		)

Balance, October 27, 2012	$	—		$	325		$	—		$	—		$	325

- Definition

The entire disclosure for restructuring and related activities. Description of restructuring activities such as exit and disposal activities, include facts and circumstances leading to the plan, the expected plan completion date, the major types of costs associated with the plan activities, total expected costs, the accrual balance at the end of the period, and the periods over which the remaining accrual will be settled.

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