Fair Value Measurements

3 Months Ended

Jul. 25, 2014

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, and is a market-based measurement based on assumptions of the market participants. As a basis for these assumptions, we classify fair value measurements under the following fair value hierarchy:


•	Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that are publicly accessible. Active markets have frequent transactions with enough volume to provide ongoing pricing information.


•	Level 2 inputs are other than level 1 inputs that are directly or indirectly observable. These can include unadjusted quoted prices for similar assets or liabilities in active markets, unadjusted quoted prices for identical assets or liabilities in inactive markets or other observable inputs.


•	Level 3 inputs are unobservable inputs.

The following tables present financial assets and liabilities measured at fair value on a recurring basis as of the periods presented (in thousands):



	July 25, 2014
	Total		Level 1		Level 2		Level 3
Assets
Cash and equivalents ⁽¹⁾	$	3,625	$	3,625	$	—	$	—
Short-term note receivable ⁽²⁾	18		—		18		—
Long-term note receivable ⁽³⁾	16,798		—		221		16,577
	$	20,441	$	3,625	$	239	$	16,577
Liabilities ⁽⁴⁾
Long-term debt ⁽⁵⁾	$	840	$	—	$	840	$	—



	April 25, 2014
	Total		Level 1		Level 2		Level 3
Assets
Cash and equivalents ⁽¹⁾	$	7,826	$	7,826	$	—	$	—
Short-term note receivable ⁽²⁾	18		—		18		—
Long-term note receivable ⁽³⁾	16,243		—		225		16,018
	$	24,087	$	7,826	$	243	$	16,018


⁽¹⁾	Cash and equivalents primarily represent cash deposits as well as credit card receivables that generally settle in less than three days.


⁽²⁾	Short-term note receivable is the current portion of a note receivable from the sale of land with an interest rate of seven percent.


⁽³⁾	Long-term note receivable includes a note receivable from the sale of land with an interest rate of seven percent (Level 2), and a promissory note from SWH Mimi’s Café Holding Company, LLC that is valued using a discounted cash flow model (Level 3).

The following table presents the activity related to level 3 fair value measurements for the periods presented (amounts in thousands):



	July 25, 2014
	Long-term note receivable
Carrying value at the beginning of the period	$	16,018
Plus:
Accretion ⁽¹⁾	445
Interest, net realized/unrealized gains ⁽¹⁾	114
Carrying value at the end of the period	$	16,577

	April 25, 2014
	Long-term note receivable
Carrying value at the beginning of the period	$	13,570
Plus:
Accretion ⁽¹⁾	1,918
Interest, net realized/unrealized gains ⁽¹⁾	530
Carrying value at the end of the period	$	16,018


⁽¹⁾	Reflected in the “Net interest expense (income)” line in the Consolidated Statements of Operations.

We use our weighted average cost of capital as the discount rate to value the promissory note from SWH Mimi’s Café Holding Company, LLC, which is an unobservable input. A reasonable change in this discount rate would not have a significant impact on the fair value of the promissory note.

In addition to the financial assets and liabilities that are measured at fair value on a recurring basis, we measure certain assets and liabilities at fair value on a nonrecurring basis, including, long-lived assets that have been reduced to fair value when they are held for sale and long-lived assets that are written down to fair value when they are impaired.

We evaluate the carrying amount of long-lived assets held and used in the business periodically and when events and circumstances warrant such a review to ascertain if any assets have been impaired. We also perform a semi-annual impairment analysis in the first and third quarters for long-lived assets associated with underperforming stores that have been open more than two years. A long-lived asset group is considered impaired when the carrying value of the asset group exceeds its fair value. The impairment loss recognized is the excess of carrying value above its fair value. The estimation of fair value requires significant estimates of factors that include future restaurant performance and real estate appraisals. To estimate fair value for locations where we own the land and building, we obtain quoted appraisals from third party real estate valuation firms. We use discounted future cash flows to estimate fair value for leased locations. Our weighted average cost of capital is used as the discount rate in our fair value measurements for leased locations, which is considered a Level 3 measurement. A reasonable change in this discount rate would not have a significant impact on these fair value measurements.

In the three months ended July 25, 2014, we incurred noncash asset impairment losses of $1,319 in the Bob Evans Restaurant segment, a result of adverse performance in the first quarter and a reassessment of expected future cash flows and fair value at five restaurant locations. These impairment losses are recorded in the S,G&A line on the Consolidated Statements of Operations. An additional $258 noncash asset impairment loss was recorded in the Bob Evans Restaurants segment on the "Impairment of assets held for sale" line on the Consolidated Statements of Operations. This charge related to one nonoperating location.

In the three months ended July 26, 2013, we recorded pretax noncash impairment charges in the Bob Evans Restaurants reporting segment of $1,180 on one operating property. The charge was recorded in the SG&A line in the Consolidated Statements of Operations. We also recorded pretax noncash assets held for sale impairment charges in the Bob Evans Restaurants reporting segment of $8,609, the result of a purchase agreement to sell 29 nonoperating properties for less than carrying value. These impairment charges are included in the “Impairment of assets held for sale” line in the Consolidated Statements of Operations. We closed on the sale of 28 of the 29 nonoperating properties in the prior year. The remaining property was moved out of held for sale assets during the fourth quarter of fiscal 2014 and we resumed depreciation for this location.

The following table represents noncash asset impairment charges for those assets remeasured to fair value on a non-recurring basis during the three months ended July 25, 2014, and July 26, 2013 (in thousands):



	Three Months Ended
	July 25, 2014			July 26, 2013
Bob Evans Restaurants
Assets held for use	$	1,319	⁽¹⁾	$	1,180	⁽²⁾
Assets held for sale	258		⁽³⁾	8,609		⁽⁴⁾

⁽¹⁾ $1,319 relates to impairment of five operating locations

⁽²⁾ $1,180 relates to impairment of one operating location

⁽³⁾ $258 relates to impairment of one nonoperating location

⁽⁴⁾ $8,609 relates to impairment of 29 nonoperating locations, of which one location is no longer classified as held for sale

To be consistent with current period presentation, we have reclassified the assets for three Bob Evans Restaurants nonoperating locations and the Richardson plant to the “Long-term assets held for sale” line in the Consolidated Balance Sheets as of April 25, 2014.

- 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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