Interest Rate Derivative Agreement

12 Months Ended

Jan. 27, 2013

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Interest Rate Derivative Agreement

Interest Rate Derivative Agreement

In June 2012, the Company entered into an interest rate cap agreement with a $175 million notional amount and an upfront payment of $1.1 million. The agreement matures on February 22, 2016 and caps interest rates on one-month LIBOR at 1.00%.

The interest rate cap agreement has been designated as a cash flow hedge of interest rate risk and is recorded at estimated fair value as of January 27, 2013. 

The Company determined that the interest rate cap agreement is highly effective in offsetting future variable interest payments associated with the hedged portion of the Company’s term loans. No ineffectiveness was recorded during fiscal year 2013. The Company did not have any active interest contracts outstanding prior to June 2012.

The amount of unrealized losses on the interest rate cap recorded in other comprehensive loss at January 27, 2013 that is expected to be reclassified into interest expense in the next twelve months, if interest rates remain unchanged, is approximately $78,000.

The fair value of the interest rate cap at January 27, 2013 is determined based on assumptions that management believes market participants would use in pricing. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. Based on the inputs used in the valuation, the Company has determined that the derivative valuation is classified in Level 2 of the fair value hierarchy.