EXIT AND DISPOSAL ACTIVITIES

12 Months Ended

Jan. 28, 2017

Restructuring and Related Activities [Abstract]

EXIT AND DISPOSAL ACTIVITIES

NOTE 12 – EXIT AND DISPOSAL ACTIVITY

Fixed Assets

The Company’s policy is to review the carrying value of all long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. We measure impairment losses of fixed assets and leasehold improvements as the amount by which the carrying amount of a long-lived asset exceeds its fair value as prescribed by FASB ASC 360, "Impairment or Disposal of Long-Lived Assets." If a long-lived asset is found to be impaired, the amount recognized for impairment is equal to the difference between the carrying value and the asset’s fair value. The fair value is based on estimated market values for similar assets or other reasonable estimates of fair market value based upon a discounted cash flow model.

In 2015, the Company recorded an additional charge of $0.3 million for fixed assets and leasehold improvements related to the 2014 store closures and $0.5 million of impairment charges for 2015 planned store closures. In 2016, the Company utilized $0.5 million of the impairment charges related to the 2015 store closures and utilized $0.2 million related to the 2014 store closures, leaving $0.5 million of impairment charges for fixed assets recorded pertaining to fiscal 2014 store closures and none related to 2015 store closures as of January 28, 2017.

During fiscal 2016, a decision was made to close approximately 40 underperforming stores in fiscal year 2017, which included 18 underperforming pharmacies. As a result, the Company recorded charges in the amount of $2.0 million in selling, general and administrative expense for the impairment of fixed assets associated with the closing stores and pharmacies and $2.3 million for the accelerated recognition of amortization of intangible assets associated with the closing pharmacies of which $0.1 million was utilized during 2016. Additional impairment charges of $3.6 million were for fixed asset impairments related to the corporate headquarters.

Inventory

We adjust inventory values on a consistent basis to reflect current market conditions. In accordance with FASB ASC 330, "Inventories," we write down inventory to net realizable value in the period in which conditions giving rise to the write-downs are first recognized.

In the fourth quarter of 2015, in association with the planned closure of five identified stores that were not meeting the Company's operational performance targets, we recorded a below-cost inventory adjustment of $0.7 million to value inventory at the lower of cost or market. These stores were closed by the end of the second quarter of fiscal 2016 and the full amount of this charge was utilized in the second quarter of fiscal 2016.

In the third quarter of 2016, we recorded a below-cost inventory adjustment of approximately $3.2 million (including $1.3 million for the accelerated recognition of freight capitalization expense) to value inventory at the lower of cost or market in approximately 40 stores that are planned for closure in 2017. In the fourth quarter of 2016, an additional below-cost inventory adjustment was recorded in the amount of $1.1 million and $0.2 million of the acceleration recognition of freight cap expense was utilized.

Lease Termination

For lease obligations related to closed stores, we record the estimated future liability associated with the rental obligation on the cease use date (when the stores were closed). The lease obligations are established at the cease use date for the present value of any remaining operating lease obligations, net of estimated sublease income, and at the communication date for severance and other exit costs, as prescribed by FASB ASC 420, “Exit or Disposal Cost Obligations.” Key assumptions in calculating the liability include the timeframe expected to terminate lease agreements, estimates related to the sublease potential of closed locations, and estimates of other related exit costs. If actual timing and potential termination costs or realization of sublease income differ from our estimates, the resulting liabilities could vary from recorded amounts. These liabilities are reviewed periodically and adjusted when necessary.

A lease obligation of less than $0.1 million for some store closures that occurred in 2014 existed as of January 30, 2016. During fiscal 2016, we added $0.5 million of lease liability for stores closed between 2014 and 2016 and utilized $0.3 million of the lease liability for the store closures, leaving a liability of $0.2 million reserve at January 28, 2017.

The following table illustrates the impairment charges for fixed assets and inventory related to planned closures and inventory strategic initiatives along with the lease liability related to the planned store closures discussed in the previous paragraphs (in millions):

	Balance at  January 30, 2016		Additions		Utilization			Ending Balance January 28, 2017
Impairment charge for the disposal of fixed assets for 2016 planned closures	$	-	$	2.2	$	(0.2	)	$	2.0
Impairment charge for the disposal of intangible assets for 2016 planned closures		-		2.3		(0.1	)		2.2
Impairment charge for the disposal of fixed assets for corporate office		-		3.6		-			3.6
Impairment charge for the disposal of fixed assets for 2014 planned closures		0.7		-		(0.2	)		0.5
Impairment charge for the disposal of fixed assets for 2015 planned closures		0.5		-		(0.5	)		-
Inventory markdowns for 2014 discontinuance of exit categories		0.3		-		(0.3	)		-
Inventory markdowns for 2015 planned closures		0.7		-		(0.7	)		-
Inventory markdowns for 2016 planned closures		-		3.0		-			3.0
Inventory provision for freight capitalization expense, 2016 planned closures		-		1.3		(0.2	)		1.1
Subtotal	$	2.2	$	12.4	$	(2.2	)	$	12.4
Lease contract termination liability, 2014-2016 closures		-		0.5		(0.3	)		0.2
Total	$	2.2	$	12.9	$	(2.5	)	$	12.6