Note 2 – Exit Costs

In 2011, the Company announced that, as part of its efforts to optimize the performance of its Payless and Stride Rite store fleet, it would close approximately 475 under-performing and low-volume, non-strategic stores in the next three years. During 2011, the Company closed 352 stores, of which 298 were Payless locations in the U.S., Canada and Puerto Rico and 54 were Stride Rite Children’s locations. During the first six months of 2012, the Company closed five Payless stores in the United States and Canada and two Stride Rite Children’s locations as a part of this announced plan.

Costs associated with this plan, which consist of lease termination costs, employee severance and other exit costs, are recorded at fair value. The Company estimates that these costs will total $20 million to $25 million; however, the ultimate financial impact of this plan is dependent upon the actual exit transactions. The lease termination costs are recorded within cost of sales on the Condensed Consolidated Statement of Earnings (Loss) on the earlier of the date that the store is closed or lease buyouts are negotiated with the landlords. Employee severance costs consist of severance payments made to certain terminated associates and are recorded ratably over the associate’s required service period from the date the termination has been communicated to the associate. The employee severance costs are recorded within selling, general and administrative expenses on the Condensed Consolidated Statement of Earnings (Loss) and are recorded within accrued expenses on the Condensed Consolidated Balance Sheet.


(dollars in millions)	Accrual Balance as of January 28, 2012		Costs Incurred		Cash Payments			Accrual Balance as of July 28, 2012		Total Charges to Date
Lease termination costs ⁽¹⁾	$	5.8	$	2.0	$	(3.9	)	$	3.9	$	12.6
Employee severance and other exit costs		1.7		0.7		(2.4	)		—		3.1

Total	$	7.5	$	2.7	$	(6.3	)	$	3.9	$	15.7

⁽¹⁾

The accrual balance as of January 28, 2012 was changed from $1.6 (disclosed in the prior period) to $5.8, as the previously-disclosed prior period amount did not include a $4.2 accrual as of January 29, 2011 related to lease costs incurred and recorded prior to the commencement of the exit activities.

Of the $12.6 million of lease termination costs recorded to date, $10.6 million are recorded in the Payless Domestic reporting segment, $1.2 million are recorded in the Payless International reporting segment and $0.8 million are recorded in the PLG Retail reporting segment. Of the $3.1 million of employee severance and other costs recorded to date, $2.6 million are recorded in the Payless Domestic reporting segment, $0.3 million are recorded in the PLG Retail reporting segment and $0.2 million are recorded in the Payless International reporting segment.