Lease Termination and Impairment Charges

9 Months Ended

Nov. 30, 2019

Lease Termination and Impairment Charges

Lease Termination and Impairment Charges

5. Lease Termination and Impairment Charges

Lease termination and impairment charges consist of amounts as follows:

	Thirteen Week Period				Thirty-Nine Week Period
	Ended				Ended
	November 30,			December 1,	November 30,			December 1,
	2019		2018		2019		2018
Impairment charges	$	121	$	727	$	1,533	$	34,572
Lease termination charges		—		1,901		—		17,524
Facility exit charges		45		—		582		—
	$	166	$	2,628	$	2,115	$	52,096

Impairment Charges

These amounts include the write-down of long-lived assets at locations that were assessed for impairment because of management’s intention to relocate or close the location or because of changes in circumstances that indicated the carrying value of an asset may not be recoverable.

The Company utilizes the three-level valuation hierarchy for the recognition and disclosure of fair value measurements. The categorization of assets and liabilities within this hierarchy is based upon the lowest level of input that is significant to the measurement of fair value. The three levels of the hierarchy consist of the following:

● Level 1—Inputs to the valuation methodology are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

● Level 2—Inputs to the valuation methodology are quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active or inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the instrument.

● Level 3—Inputs to the valuation methodology are unobservable inputs based upon management’s best estimate of inputs market participants could use in pricing the asset or liability at the measurement date, including assumptions about risk.

Non-Financial Assets Measured on a Non-Recurring Basis

Long-lived non-financial assets are measured at fair value on a nonrecurring basis for purposes of calculating impairment using Level 2 and Level 3 inputs as defined in the fair value hierarchy. The fair value of long-lived assets using Level 2 inputs is determined by evaluating the current economic conditions in the geographic area for similar use assets. The fair value of long-lived assets using Level 3 inputs is determined by estimating the amount and timing of net future cash flows (which are unobservable inputs) and discounting them using a risk-adjusted rate of interest (which is Level 1). The Company estimates future cash flows based on its experience and knowledge of the market in which the store is located. Significant increases or decreases in actual cash flows may result in valuation changes. During the thirty-nine week period ended November 30, 2019, long-lived assets from continuing operations with a carrying value of $1,533, primarily store assets, were written down to their fair value of $0, resulting in an impairment charge of $1,533 of which $121 relates to the thirteen week period ended November 30, 2019. During the thirty-nine week period ended December 1, 2018, long-lived assets from continuing operations with a carrying value of $41,755, primarily store assets, were written down to their fair value of $7,183, resulting in an impairment charge of $34,572 of which $727 relates to the thirteen week period ended December 1, 2018. If our actual future cash flows differ from our projections materially, certain stores that are either not impaired or partially impaired in the current period may be further impaired in future periods.

The following table presents fair values for those assets measured at fair value on a non-recurring basis at November 30, 2019 and December 1, 2018:

							Fair Values		Total
							as of		Charges
	Level 1		Level 2		Level 3		Impairment Date		November 30, 2019
Long-lived assets held for use	$	—	$	—	$	—	$	—	$	(1,533)
Long-lived assets held for sale	$	—	$	—	$	—	$	—	$	—
Total	$	—	$	—	$	—	$	—	$	(1,533)

							Fair Values		Total
							as of		Charges
	Level 1		Level 2		Level 3		Impairment Date		December 1, 2018
Long-lived assets held for use	$	—	$	—	$	5,891	$	5,891	$	(34,290)
Long-lived assets held for sale	$	—	$	1,292	$	—	$	1,292	$	(282)
Total	$	—	$	1,292	$	5,891	$	7,183	$	(34,572)

The above assets reflected in the caption Long-lived assets held for sale are separate and apart from the Assets to be Sold and due to their immateriality have not been reclassified to assets held for sale.

Lease Termination and Facility Exit Charges

As part of the Company's ongoing business activities, the Company assesses stores and distribution centers for potential closure or relocation. Decisions to close or relocate stores or distribution centers in future periods would result in lease termination charges, lease exit costs and inventory liquidation charges, as well as impairment of assets at these locations. When a store or distribution center is closed, the Company records an expense for unrecoverable costs and accrues a liability equal to the present value at current credit adjusted risk-free interest rates of any anticipated executory costs which are not included within the store or distribution center's respective lease liability under Topic 842. Other store or distribution center closing and liquidation costs are expensed when incurred.

The following table reflects the closed store and distribution center charges that relate to new closures, changes in assumptions and interest accretion:

	Thirteen Week Period				Thirty-Nine Week Period
	Ended				Ended
	November 30,		December 1,		November 30,		December 1,
	2019		2018		2019		2018
Balance—beginning of period	$	6,341	$	122,188	$	124,046	$	133,290
Existing Topic 420 liabilities eliminated by recording a reduction to the ROU asset		—		—		(112,288)		—
Provision for present value of noncancellable lease payments of closed stores		—		—		—		11,331
Changes in assumptions about future sublease income, terminations and changes in interest rates		—		(475)		—		(1,189)
Interest accretion		—		2,356		—		7,596
Cash payments, net of sublease income		(3,132)		(11,391)		(8,549)		(38,350)
Balance—end of period	$	3,209	$	112,678	$	3,209	$	112,678