Note 15 — Impairment Charges and Lease Termination Costs

The components of impairment charges and lease termination costs are as follows:

	Year Ended
	January 31,			February 1,			February 2,
	2016			2015			2014
	(In thousands)
Impairment charges:
Impairment of long-lived assets - current period charges	$	4,886		$	901		$	-
Impairment of reacquired franchise rights		40			-			-
Total impairment charges		4,926			901			-
Lease termination costs:
Provision for termination costs		352			56			1,374
Less - reversal of previously recorded accrued rent expense		(555	)		(2	)		-
Total lease termination costs		(203			54			1,374
Total impairment charges and lease termination costs	$	4,723		$	955		$	1,374

We test long-lived assets for impairment when events or changes in circumstances indicate that their carrying value may not be recoverable. These events and changes in circumstances include store closing and refranchising decisions, the effects of changing costs on current results of operations, unfavorable observed trends in operating results, and evidence of changed circumstances observed as a part of periodic reforecasts of future operating results and as part of our annual budgeting process. When we conclude that the carrying value of long-lived assets is not recoverable (based on future projected undiscounted cash flows), we record impairment charges to reduce the carrying value of those assets to their estimated fair values. The fair values of these assets are estimated based on the present value of estimated future cash flows, on independent appraisals and, in the case of assets we currently are negotiating to sell, based on our negotiations with unrelated third-party buyers. Impairment charges related to our long-lived assets were $4.9 million and $901,000 in fiscal 2016 and fiscal 2015, respectively. Such charges relate to underperforming stores identified in the fourth quarter during our annual budgeting process, including both stores closed or likely to be closed and stores which management believes will not generate sufficient future cash flows to enable us to recover the carrying value of the stores' assets, but which management has not yet decided to close. The impaired store assets include real properties, the fair values of which were estimated based on independent appraisals or, in the case of any properties which we are negotiating to sell, based on our negotiations with unrelated third-party buyers; leasehold improvements, which are typically abandoned when the leased properties revert to the lessor; and doughnut-making and other equipment the fair values of which were estimated based on the replacement cost of the equipment, after considering refurbishment and transportation costs. We recorded no impairment charges in fiscal 2014.

Lease termination costs represent the estimated fair value of liabilities related to unexpired leases, after reduction by the amount of accrued rent expense, if any, related to the leases, and are recorded when the lease contracts are terminated or, if earlier, the date on which we cease use of the leased property. The fair value of these liabilities were estimated as the excess, if any, of the contractual payments required under the unexpired leases over the current market lease rates for the properties, discounted at a credit-adjusted risk-free rate over the remaining term of the leases. The provision for lease termination costs also includes adjustments to liabilities recorded in prior periods arising from changes in estimated sublease rentals and from settlements with landlords.

In November 2013, the Fairfax County, Virginia court entered a judgment against us in our dispute with the landlord of our former commissary in Lorton, Virginia. Following entry of the judgment, we recorded an additional lease termination charge of approximately $1.4 million related to the matter, and in the fourth quarter of fiscal 2014 settled with the landlord on all issues in exchange for a payment by us of $1.8 million.

The transactions reflected in the accrual for lease termination costs are summarized as follows:

	Year Ended
	January 31,			February 1,			February 2,
	2016			2015			2014
	(In thousands)
Balance at beginning of year	$	116		$	178		$	646
Provision for lease termination costs:
Provisions associated with store closings, net of estimated
sublease rentals		313			44			-
Adjustments to previously recorded provisions resulting from settlements
with lessors and adjustments of previous estimates		30			(5	)		1,351
Accretion of discount		9			17			23
Total provision		352			56			1,374
Payments on unexpired leases, including settlements with lessors		(190	)		(118	)		(1,842	)
Balance at end of year	$	278		$	116		$	178

Accrued lease termination costs are included in the consolidated balance sheet
as follows:
Accrued liabilities	$	278		$	94		$	74
Other long-term obligations and deferred credits		-			22			104
	$	278		$	116		$	178