FAIR VALUE MEASUREMENTS AND DERIVATIVES

9 Months Ended

Oct. 27, 2012

FAIR VALUE MEASUREMENTS AND DERIVATIVES

FAIR VALUE MEASUREMENTS AND DERIVATIVES

NOTE 14—FAIR VALUE MEASUREMENTS AND DERIVATIVES

The Company’s fair value measurements consist of (a) financial assets and liabilities that are recognized or disclosed at fair value in the Company’s financial statements on a recurring basis (at least annually) and (b) all non-recurring non-financial assets and liabilities.

Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. There is a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available in the circumstances. The hierarchy is broken down into three levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs include quoted prices for similar assets or liabilities in active markets. Level 3 inputs are unobservable inputs for the asset or liability. Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The following table provides information by level for assets and liabilities that are measured at fair value, on a recurring basis:

(dollar amounts in thousands)	Fair Value at		Fair Value Measurements Using Inputs Considered as
Description	October 27, 2012		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	78,667	$	78,667	$	—	$	—
Collateral investments (1)	17,276		17,276		—		—
Rabbi trust assets (1)	3,654		—		3,654		—
Liabilities:
Other liabilities
Derivative liability (2)	2,266		—		2,266		—

(dollar amounts in thousands)	Fair Value at		Fair Value Measurements Using Inputs Considered as
Description	January 28, 2012		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	58,244	$	58,244	$	—	$	—
Collateral investments (1)	17,276		17,276		—		—
Rabbi trust assets (1)	3,576		—		3,576		—
Liabilities:
Other liabilities
Derivative liability (2)	12,540		—		12,540		—

(1) included in other long-term assets

(2) included in other long-term liabilities

As of January 28, 2012 the Company invested $17.3 million in restricted accounts as collateral for its retained liabilities included within existing insurance programs in lieu of previously outstanding letters of credit.

On October 11, 2012, the Company settled its interest rate swap designated as a cash flow hedge on $145.0 million of the Company’s Term Loan prior to its amendment and restatement. The swap was used to minimize interest rate exposure and overall interest costs by converting the variable component of the total interest rate to a fixed rate of 5.036%. Since February 1, 2008, this swap was deemed to be fully effective and all adjustments in the interest rate swap’s fair value have been recorded to accumulated other comprehensive loss. The settlement of this swap resulted in an interest charge of $7.5 million, which was previously recorded within accumulated other comprehensive loss.

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 amended and restated 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 table below shows the effect of the Company’s interest rate swaps on the consolidated financial statements for the periods indicated:

(dollar amounts in thousands)	Amount of Gain/(Loss) in Other Comprehensive Income (Effective Portion)			Earnings Statement Classification	Amount of Loss Recognized in Earnings (Effective Portion) (a)
Thirteen weeks ended October 27, 2012	$	(170	)	Interest expense	$	(1,201	)
Thirteen weeks ended October 29, 2011	$	890		Interest expense	$	(1,751	)
Thirty-nine weeks ended October 27, 2012	$	1,734		Interest expense	$	(4,540	)
Thirty-nine weeks ended October 29, 2011	$	1,538		Interest expense	$	(5,242	)

(a) represents the effective portion of the loss reclassified from accumulated other comprehensive loss

The fair value of the derivatives was $2.3 million and $12.5 million payable at October 27, 2012 and January 28, 2012, respectively. Of the $10.2 million decrease in the fair value during the thirty-nine weeks ended October 27, 2012, $1.7 million net of tax was recorded to accumulated other comprehensive loss on the consolidated balance sheet.

Non-financial assets measured at fair value on a non-recurring basis:

Certain assets are measured at fair value on a non-recurring basis, that is, the assets are subject to fair value adjustments in certain circumstances such as when there is evidence of impairment. These measures of fair value, and related inputs, are considered level 2 or level 3 measures under the fair value hierarchy.