Fair Value Measurements

12 Months Ended

Jan. 31, 2016

Note 19 — Fair Value Measurements

The accounting standards for fair value measurements define fair value as the price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. The accounting standards for fair value measurements establish a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

• Level 1 - Quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.

• Level 2 - Observable inputs other than quoted prices included within Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

• Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value measurement of the assets or liabilities. These include certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

Our financial instruments not measured at fair value on a recurring basis includes cash and cash equivalents, receivables, accounts payable and accrued liabilities and are reflected in the consolidated financial statements at cost which approximates fair value for these items due to their short term nature. We believe the fair value determination of these short-term financial instruments is a Level 1 measure.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table presents our assets and liabilities that are measured at fair value on a recurring basis at January 31, 2016 and February 1, 2015.

	January 31, 2016⁽¹⁾
	Level 1		Level 2		Level 3
	(In thousands)
Assets:
401(k) mirror plan assets	$	2,158	$	-	$	-


	February 1, 2015⁽¹⁾
	Level 1		Level 2		Level 3
	(In thousands)
Assets:
401(k) mirror plan assets	$	2,496	$	-	$	-
Liabilities:
Agricultural commodity futures contracts		874		-		-
Gasoline commodity futures contracts		937		-		-
Total liabilities	$	1,811	$	-	$	-


(1)	There were no transfers of financial assets or liabilities among the levels within the fair value hierarchy during the years ended January 31, 2016 or February 1, 2015.

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

The following table presents the nonrecurring fair value measurements recorded during fiscal 2016 and 2015. There were no material nonrecurring fair value measurements recorded in fiscal 2014.

	Year Ended January 31, 2016
	Level 1		Level 2		Level 3		Total gain (loss)
		(In thousands)
Long-lived assets	$	-	$	6,965	$	-	$	(4,886)
Lease termination liabilities		-		313		-		242


	Year Ended February 1, 2015
	Level 1		Level 2		Level 3		Total gain (loss)
	(In thousands)
Long-lived assets	$	-	$	270	$	-	$	(901)

Long-Lived Assets

During fiscal 2016, long-lived assets having an aggregate carrying value of $11.9 million were written down to their estimated fair value of $7.0 million, resulting in recorded impairment charges of $4.9 million as described in Note 15. The charges relate to underperforming stores, 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 stores' 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 in the stores, the fair values of which were estimated based on the replacement cost of the equipment, after considering refurbishment and transportation costs.

During fiscal 2015, long-lived assets associated with a company-owned shop having an aggregate carrying value of $1.2 million were written down to their estimated fair value of $270,000, resulting in recorded impairment charges of $901,000 as described in Note 15. The charge relates to a store which currently generates negative cash flows and which management believes is unlikely to generate sufficient future cash flows to enable us to recover the carrying value of the stores' assets. The $270,000 fair value of the asset group relates entirely to the portion of the equipment and fixtures in the store that we believe could be moved to a different shop in the event we decide to close the shop with respect to which the impairment charge was recorded; such amount was based on the replacement cost of the equipment and fixtures, after considering refurbishment and transportation costs. No significant value was ascribed to the shop's building constructed on leased land because the value of such improvements likely would revert to the landlord if we close the shop.

These inputs are classified as Level 2 within the valuation hierarchy.

Lease Termination Liabilities

During fiscal 2016, we recorded provisions for lease termination costs related to closed stores based upon the estimated fair values of the liabilities under unexpired leases as described in Note 15; such provisions were reduced by previously recorded accrued rent expense related to those stores. The fair value of these liabilities was computed 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. These inputs are classified as Level 2 within the valuation hierarchy. For the year ended January 31, 2016, $555,000 of previously recorded accrued rent expense related to store closures exceeded the $313,000 fair value of lease termination liabilities related to such stores, and such excess has been reflected as a credit to lease termination costs during the period.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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