Fair Value Measurements

12 Months Ended

Feb. 02, 2013

Fair Value Measurements

10.  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:

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

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

Ÿ 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:

	February 2, 2013			January 28, 2012
Conversion price	$	1.75		$	1.75
Expected volatility		68	%		64	%
Expected term (in years)		8.85			9.87
Risk free interest rate		2.04	%		1.93	%
Expected dividends	$	—		$	—

The following table presents the activity recorded for the derivative liability during the fiscal periods as follows:

	Fiscal Year Ended
	February 2, 2013		January 28, 2012
	(In thousands)
Beginning balance	$	20,076	$	—
Issuance of Series B Preferred Stock		—		15,037
Loss on change in fair value		6		5,039
Ending balance	$	20,082	$	20,076

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

Money Market Funds

As of February 2, 2013, the Company had no money market funds compared to $19.8 million held in money market funds at January, 28, 2012. The fair value of money market funds is determined based on “Level 1” inputs in accordance with ASC 820, which consist of quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets.

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 fiscal 2012, 2011 and 2010 the Company recorded $5.3 million, $14.8 million and $15.6 million of impairment charges in the accompanying Consolidated Statements of Operations and Comprehensive Operations.

Fair Value of Other Financial Instruments

The provisions of ASC 825, “Financial Instruments” (“ASC 825”), provide companies with an option to report selected financial assets and liabilities at fair value and establish presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. We have not elected to apply the fair value option to any specific financial assets or liabilities.

The table below details the fair values and carrying values for mortgage debt and the components of long-term debt as of February 2, 2013, and January 28, 2012. These fair value estimates are not necessarily indicative of the amounts that would be realized upon disposition of these financial instruments.

	February 2, 2013
	Carrying value			Fair value
	(In thousands)
Mortgage Debt	$	28,554		$	28,452
Term Loan		65,338			64,206
Term Loan discount		(13,746	)		(13,746	)
	$	80,146		$	78,912
	January 28. 2012
	Carrying value			Fair value
	(In thousands)
Mortgage Debt	$	29,093		$	28,997
Term Loan		60,650			59,589
Term Loan discount		(15,294	)		(15,294	)
	$	74,449		$	73,292

The carrying amounts of certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximated fair value due to their short maturities. The fair value of long-term debt is estimated based on discounting future cash flows utilizing current rates for debt of a similar type and remaining maturity.