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 12-month basis through January 28, 2012.  Ninety of the 103 stores identified for closure were closed in the transition period, with two closing in November 2011, seven closing in December 2011 and 81 closing in January 2012.  We closed five stores in February 2012, six stores in March 2012 and expect to close the remaining two stores before the end of fiscal 2012.  In addition to the store closures, we are seeking to restructure the occupancy costs of a majority of our remaining stores.

The Company recorded total restructuring and asset impairment charges of approximately $21.2 million in the transition period consisting of $11.4 million of non-cash asset impairment charges and $8.2 million of net expense related to lease termination liabilities partially offset by the reduction of deferred obligations related to closed stores. These charges consisted primarily of the costs of future obligations related to closed store locations.  Discounted liabilities for future lease costs and the fair value of related subleases of closed locations are recorded when the stores are closed and these amounts are subject to adjustments as liabilities are settled.  In assessing the discounted liabilities for future costs of obligations related to closed stores, the Company made assumptions regarding amounts of future subleases.  If these assumptions or their related estimates change in the future, the Company may be required to record additional exit costs or reduce exit costs previously accrued.  Management is also negotiating with landlords to mitigate the amount of lease termination liabilities.  As a result, actual settlements may vary substantially from recorded obligations.  We also recorded approximately $1.5 million of severance and miscellaneous other store closing costs in the transition period.

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 credit 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 also 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 recognized approximately $0.1 million of non-cash asset impairment charges related to five stores we plan to continue to operate.