Pier 1 2009 Annual Report Download - page 59

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4—COSTS ASSOCIATED WITH EXIT ACTIVITIES
As part of the ordinary course of business, the Company terminates leases prior to their expiration
when certain stores or distribution center facilities are closed or relocated as deemed necessary by the
evaluation of its real estate portfolio. These decisions are based on store profitability, lease renewal
obligations, relocation space availability, local market conditions and prospects for future profitability.
In connection with these lease terminations, the Company has recorded estimated liabilities in
accordance with SFAS No. 146, ‘‘Accounting for Costs Associated with Exit or Disposal Activities.’’ At
the time of closure, neither the write-off of fixed assets nor the write-down of inventory related to such
stores was material. Additionally, employee severance costs associated with these closures were not
significant. The estimated liabilities were recorded based upon the Company’s remaining lease
obligations less estimated subtenant rental income. Revisions during the periods presented relate to
changes in estimated buyout terms or subtenant receipts expected on closed facilities. Expenses related
to lease termination obligations are included in selling, general and administrative expenses in the
Company’s consolidated statements of operations. The write-off of fixed assets and associated
intangible assets related to Pier 1 Imports store closures, excluding clearance and Pier 1 Kids stores,
was approximately $56,000, $751,000 and $370,000 in fiscal 2009, 2008 and 2007, respectively. The
following table represents a rollforward of the liability balances for the three fiscal years ended
February 28, 2009 (in thousands):
Lease
Termination
Obligations
Balance at February 25, 2006 ................... $ 2,859
Original charges ........................... 4,245
Revisions ................................ (242)
Cash payments ........................... (4,426)
Balance at March 3, 2007 ..................... 2,436
Original charges ........................... 11,573
Revisions ................................ (1,133)
Cash payments ........................... (7,248)
Balance at March 1, 2008 ..................... 5,628
Original charges ........................... 5,591
Revisions ................................ 483
Cash payments ........................... (6,704)
Balance at February 28, 2009 ................... $ 4,998
Included in the table above are lease termination costs related to the closure of all of the
Company’s clearance and Pier 1 Kids stores and the direct to consumer channel. These concepts were
closed during fiscal 2008 since their aggregate performance was not in line with the Company’s
profitability targets. Lease termination costs associated with these closures were $258,000, or less than
$0.01 per share, during fiscal 2009 and $7,973,000, or $0.09 per share, during fiscal 2008. Cash outflows
related to these lease terminations were $2,889,000 and $5,138,000 during fiscal 2009 and 2008,
respectively. The net write-off of fixed assets, write-down of inventory and employee severance costs
associated with these closures was not material.
An outside firm has been hired to assist the Company in negotiating with landlords to achieve
reductions in rental rates across its store portfolio. In certain cases, if appropriate rental reductions
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