Fair Value Measurements

3 Months Ended

Apr. 01, 2018

Fair Value Disclosures [Abstract]

Fair Value Measurements

3. Fair Value Measurements

The Company records its financial assets and liabilities in accordance with the framework for measuring fair value in accordance with GAAP. This framework establishes a fair value hierarchy that prioritizes the inputs used to measure fair value:

Level 1: Quoted prices for identical instruments in active markets.

Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

Level 3: Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

Fair value measurements of nonfinancial assets and nonfinancial liabilities are primarily used in the impairment analysis of goodwill, indefinite-lived intangible assets and long-lived assets, and in the valuation of store closure and exit costs.

The following tables present our fair value hierarchy for our financial assets and liabilities measured at fair value on a recurring basis as of April 1, 2018 and December 31, 2017:

April 1, 2018	Level 1		Level 2		Level 3		Total
Long-term debt	$	—	$	368,000	$	—	$	368,000
Total liabilities	$	—	$	368,000	$	—	$	368,000
Interest rate swap asset	$	—	$	3,415	$	—	$	3,415
Closed store reserves		—		—		764		764
Total assets	$	—	$	3,415	$	764	$	4,179

December 31, 2017	Level 1		Level 2		Level 3		Total
Long-term debt	$	—	$	348,000	$	—	$	348,000
Interest rate swap liability		—		1,064		—		1,064
Total liabilities	$	—	$	349,064	$	—	$	349,064
Closed store reserves	$	—	$	—	$	811	$	811
Total assets	$	—	$	—	$	811	$	811

The Company’s interest rate swaps are considered Level 2 in the hierarchy and are valued using an income approach. Expected future cash flows are converted to a present value amount based on market expectations of the yield curve on floating interest rates, which is readily available on public markets.

The determination of fair values of certain tangible and intangible assets for purposes of the Company’s goodwill impairment evaluation as described above is based upon Level 3 inputs. Closed store reserves are recorded at net present value to approximate fair value which is classified as Level 3 in the hierarchy. The estimated fair value of the closed store reserve is calculated based on the present value of the remaining lease payments and other charges using a weighted average cost of capital, reduced by estimated sublease rentals. The weighted average cost of capital is estimated using information from comparable companies and management’s judgment related to the risk associated with the operations of the stores.

Cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable and other accrued liabilities and, accrued salaries and benefits approximate fair value because of the short maturity of those instruments. Based on comparable open market transactions, the fair value of the long-term debt approximated carrying value as of April 1, 2018 and December 31, 2017.