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DEBT AND FINANCING ARRANGEMENTS

9 Months Ended

Oct. 27, 2012

NOTE 7—DEBT AND FINANCING ARRANGEMENTS

The following are the components of debt and financing arrangements:

(dollar amounts in thousands)	October 27, 2012			January 28, 2012
7.5% Senior Subordinated Notes, due December 2014	$	—		$	147,565
Senior Secured Term Loan, due October 2013	—			147,557
Senior Secured Term Loan, due October 2018	200,000			—
Revolving Credit Agreement, through January 2016	—			—
Long-term debt	200,000			295,122
Current maturities	(2,000		)	(1,079		)
Long-term debt less current maturities	$	198,000		$	294,043

On October 11, 2012, the Company entered into the Second Amended and Restated Credit Agreement that (i) increased the size of the Company’s Senior Secured Term Loan (the “Term Loan”) to $200.0 million, (ii) extended the maturity of the Term Loan from October 27, 2013 to October 11, 2018, (iii) reset the interest rate under the Term Loan to the London Interbank Offered Rate (LIBOR), subject to a floor of 1.25%, plus 3.75% and (iv) added an additional 16 of the Company’s owned locations to the collateral pool securing the Term Loan. The amended and restated Term Loan is deemed to be substantially different than the prior Term Loan, and therefore the modification of the debt has been treated as a debt extinguishment. As of October 27, 2012, 142 stores collateralized the Term Loan. The Company recorded $6.4 million of deferred financing costs related to the Second Amended and Restated Credit Agreement.

Net proceeds from the amended and restated Term Loan together with cash on hand were used to settle the Company’s outstanding interest rate swap on the Term Loan as structured prior to its amendment and restatement and to satisfy and discharge all of the Company’s outstanding 7.5% Senior Subordinated Notes (“Notes”) due 2014. The settlement of the interest rate swap resulted in the reclassification of $7.5 million of accumulated other comprehensive loss to interest expense. In connection with the satisfaction and discharge of the Notes, the Company (i) prepaid the outstanding principal amount of the Notes together with $5.5 million in interest ($1.8 million of which was for the period from October 28, 2012 through December 15, 2012 and the remaining $3.7 million related to previously accrued interest) due through the redemption date by depositing such funds into an irrevocable escrow account with the trustee of the Notes and (ii) recognized, in interest expense, $1.9 million of deferred financing costs related to the Notes and the Term Loan as structured prior to its amendment and restatement. The interest payment and the swap settlement payment are presented within cash flows from operations on the consolidated statement of cash flows.

On October 11, 2012, the Company entered into two new interest rate swaps for a notional amount of $50.0 million each that together were designated as a cash flow hedge on the first $100.0 million of the Term Loan. The interest rate swaps convert the variable LIBOR portion of the interest payments due on the first $100.0 million of the Term Loan to a fixed rate of 1.855%.

The Company’s ability to borrow under its Revolving Credit Agreement is based on a specific borrowing base consisting of inventory and accounts receivable. The interest rate on this credit line is daily LIBOR plus 2.00% to 2.50% based upon the then current availability under the Revolving Credit Agreement. As of October 27, 2012, there were no outstanding borrowings under this agreement and $31.3 million of availability was utilized to support outstanding letters of credit. Taking this into account and the borrowing base requirements, as of October 27, 2012, there was $167.3 million of availability remaining under the Revolving Credit Agreement.

The Company’s debt agreements require compliance with covenants. The most restrictive of these covenants, an earnings before interest, taxes, depreciation and amortization (“EBITDA”) requirement, is triggered if the Company’s availability under its Revolving Credit Agreement plus unrestricted cash drops below $50.0 million. As of October 27, 2012, the Company was in compliance with all financial covenants contained in its debt agreements.

Interest rates that are currently available to the Company for issuance of debt with similar terms and remaining maturities are used to estimate fair value for debt obligations and are considered a level 2 measure under the fair value hierarchy. The estimated fair value of long-term debt including current maturities was $201.5 million and $293.6 million as of October 27, 2012 and January 28, 2012, respectively.

The Company has a vendor financing program with availability up to $175.0 million which is funded by various bank participants who have the ability, but not the obligation, to purchase account receivables owed by the Company directly from vendors. The Company, in turn, makes the regularly scheduled full vendor payments to the bank participants. There was an outstanding balance of $125.7 million and $85.2 million under the program as of October 27, 2012 and January 28, 2012, respectively.

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

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