Fair Value Measurements

12 Months Ended

Jan. 28, 2012

Fair Value Measurements [Abstract]

FAIR VALUE MEASUREMENTS

10.  FAIR VALUE MEASUREMENTS

The Company applies the provisions of ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) to its financial assets and liabilities measured at fair value on a recurring basis and to its nonfinancial assets and liabilities that are not required or permitted to be measured at fair value on a recurring basis.

ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. ASC 820 also specifies a 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.

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 as follows:

Ÿ the conversion price, which is initially equal to $1.75 per share of underlying common stock;

Ÿ the expected volatility of the Company’s common stock price, which the Company determines based on the historical volatility of the Company’s common stock;

Ÿ expected dividends, which are zero, as the Company does not currently anticipate declaring dividends;

Ÿ the expected term of the Series B Preferred, which is estimated to approximate the contractual term of the conversion right; and

Ÿ the risk free interest rate, which is based on observed interest rates (zero coupon U.S. Treasury debt securities) appropriate for the expected holding period.

The following table presents the activity recorded for derivatives using Level 3 inputs during the reporting period (in thousands):

Balance at January 29, 2011	$	—
Issuance of Series B Preferred Stock		15,037
Loss on derivative re-measurement		(5,039	)
Balance at January 28, 2012	$	20,076

During fiscal 2011, the Company recorded the initial fair value of the derivative liability of $15.0 million on the date the shares were issued. The initial fair value was recorded as an offset to long-term debt. The derivative liability is included in other current liabilities in the accompanying consolidated balance sheet. Subsequent to the initial transaction date, the Company re-measured the derivative liability and recognized a loss of $5.0 million, which is included in loss on derivative liability in the accompanying consolidated statement of operations and comprehensive operations.

Money Market Funds

As of January 28, 2012 and January 29, 2011, the Company had approximately $19.8 million and $36.3 million held in money market funds. 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, the Company measures certain of its long-lived assets at fair value based on Level 3 inputs consisting of, but not limited to projected sales growth, estimated gross margins, projected operating costs and an estimated weighted-average cost of capital rate. During fiscal 2011, 2010 and 2009 the Company recorded $14.8 million, $15.6 million and $27.0 million of impairment charges in the accompanying consolidated statements of operations and comprehensive operations.

On a non-recurring basis, the Company recorded certain liabilities related to store closure activities at fair value in accordance with ASC 420, Exit or Disposal Obligations (“ASC 420”) based on Level 3 inputs consisting of, but not limited to the contract terms. During fiscal 2011, the Company recorded $13.2 million of 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 January 28, 2012 and January 29, 2011. These fair value estimates are not necessarily indicative of the amounts that would be realized upon disposition of these financial instruments.

	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
	January 29. 2011
	Carrying value			Fair value
	(In thousands)
Mortgage Debt	$	29,599		$	29,509

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.