Fair Value Measurements

6 Months Ended

Aug. 03, 2013

Fair Value Disclosures [Abstract]

Fair Value Measurements

FAIR VALUE MEASUREMENTS

The Company measures its financial assets and liabilities at fair value on a recurring basis and measures its nonfinancial assets and liabilities at fair value as required or permitted.

Fair value is defined as the price that would be received pursuant to the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. In order to determine the fair value of certain assets and liabilities, the Company applies the three-level hierarchy of valuation techniques based upon whether the inputs reflect assumptions other market participants would use based upon market data obtained from independent sources (observable inputs) or reflect the Company’s assumptions of market participant valuation (unobservable inputs) and requires the use of observable inputs if such data is available without undue cost and effort. The hierarchy is as follows:

• Level 1 — quoted prices for identical instruments in active markets.

• Level 2 — inputs other than Level 1 inputs, which are observable either directly or indirectly.

• Level 3 — unobservable inputs.

Level 3 assumptions are, by their nature, inherently uncertain and the effect of changes in estimates may result in a significantly lower or higher fair value measurement.

Recurring Fair Value Measurements

Derivative Liability

The Series B Preferred shares are required to be measured at fair value each reporting period. The fair value of the Series B Preferred shares was estimated using an option-pricing model that requires Level 3 inputs, which are highly subjective and determined using the following significant assumptions:

	August 3, 2013	May 4, 2013
Stock price	$4.47	$2.81
Conversion price	$1.75	$1.75
Expected volatility	70%	69%
Expected term (in years)	8.35	8.60
Risk free interest rate	2.32%	1.48%
Expected dividends	$—	$—

The following table presents the activity recorded for the derivative liability during the first half ended:

	August 3, 2013
	(In thousands)
Beginning balance as of February 2, 2013	$	20,082
Loss on change in fair value	9,290
Balance as of May 4, 2013	29,372
Loss on change in fair value	21,154
Ending balance as of August 3, 2013	$	50,526

The derivative liability is included in the accompanying Condensed Consolidated Balance Sheet. Changes in the fair value of the derivative liability are included in loss on derivative liability in the accompanying Condensed Consolidated Statement of Operations and Comprehensive Operations.

Non-Recurring Fair Value Measurements

On a non-recurring basis, using a discounted cash flow model, the Company measures certain of its long-lived assets at fair value based on Level 3 inputs including, but not limited to, moderate comparable store sales and margin growth, projected operating costs based primarily on historical trends, and an estimated weighted-average cost of capital rate. During the first half of fiscal 2013 and 2012 the Company recorded $1.4 million and $3.5 million of impairment charges, respectively, in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Operations.