Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

As of May 28,August 27, 2011, 44,507,03941,971,417 common shares were outstanding.

The accompanying condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q of the United States Securities and Exchange Commission (“SEC”) and reflect all adjustments and accruals of a normal recurring nature, which management believes are necessary to present fairly the financial position, results of operations and cash flows of Brown Shoe Company, Inc. (the “Company”). These statements, however, do not include all information and footnotes necessary for a complete presentation of the Company's consolidated financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries, after the elimination of intercompany accounts and transactions.

The Company’s business is seasonal in nature due to consumer spending patterns, with higher back-to-school and Christmas and Easter holiday season sales. Traditionally, the third fiscal quarter accounts for a substantial portion of the Company’s earnings for the year. Interim results may not necessarily be indicative of results which may be expected for any other interim period or for the year as a whole.

Certain prior period amounts in the condensed consolidated financial statements have been reclassified to conform to the current period presentation. These reclassifications did not affect net (loss) earnings attributable to Brown Shoe Company, Inc.

For further information, refer to the consolidated financial statements and footnotes included in the Company's Annual Report on Form 10-K for the year ended January 29, 2011.

On February 17, 2011, the Company entered into a Stock Purchase Agreement with American Sporting Goods Corporation (“ASG”) and ASG’s stockholders, pursuant to which a subsidiary of the Company acquired all of the outstanding capital stock of ASG (the “ASG Stock”) from the ASG stockholders on that date. The aggregate purchase price for the ASG Stock was $156.6 million in cash, including debt assumed by the Company of $11.6 million. In addition, the Company may be required to pay a $2.0 million cash earn-out contingent upon ASG’s achievement of certain financial targets. The operating results of ASG have been included in our financial statements since February 17, 2011, and are consolidated within our Wholesale Operations segment.

ASG is a designer, manufacturer and marketer of a broad range of athletic footwear with a strong presence in walking, fitness and basketball. It was founded in 1983 and is headquartered in Aliso Viejo, California.

The acquisition adds performance and lifestyle athletic and outdoor footwear brands to the Company’s portfolio, including Avia, rykä, AND 1, Nevados and Yukon, and complements the Company’s existing fitness and comfort offerings.

Effective February 17, 2011, the Loan Parties under the Company’s Credit Agreement exercised the $150.0 million designated event accordion feature to fund the majority of the purchase price for ASG, increasing the aggregate amount available under the Credit Agreement from $380.0 million to $530.0 million. The Credit Agreement continues to provide for access to an additional $150.0 million of optional availability pursuant to a separate accordion feature, subject to satisfaction of certain conditions and the willingness of existing or new lenders to assume the increase.

The Company incurred acquisition-relatedacquisition and integration costs of $1.7$0.7 million (on both a pre-tax and($0.4 million on an after-tax basis, or $0.01 per diluted share) during the second quarter of 2011, $2.4 million ($2.1 million on an after-tax basis, or $0.04 per diluted share) during the first quarterhalf of 2011 and $1.1 million ($0.7 million on an after-tax basis, or $0.02 per diluted share) during 2010. All costs are recorded as a component of restructuring and other special charges, net. In addition, induring the second quarter and first quarterhalf of 2011, the Wholesale Operations segment included an increase in cost of goods sold related to the impact of the inventory fair value adjustment in connection with the acquisition of ASG of $2.7$1.5 million ($1.60.9 million on an after-tax basis, or $0.04$0.02 per diluted share). and $4.2 million ($2.5 million on an after-tax basis, or $0.05 per diluted share), respectively.

The total consideration paid by the Company in connection with the acquisition of ASG was $156.6 million. The cost to acquire ASG has been allocated to the assets acquired and liabilities assumed according to estimated fair values. The allocation has resulted in acquired goodwill of $57.9$61.2 million and intangible assets related to trade names, licensing agreements and customer relationships of $46.7 million. The goodwill and intangible assets have been allocated to the Wholesale Operations segment.

The Company’s purchase price allocation contains uncertainties because it requires management to make assumptions and to apply judgment to estimate the fair value of acquired assets and liabilities. A single estimate of fair value results from a complex series of judgments about future events and uncertainties and relies heavily on estimates and assumptions. The judgments the Company has used in estimating the fair values assigned to each class of acquired assets and assumed liabilities could materially affect the results of its operations. Management estimates the fair value of assets and liabilities based upon quoted market prices, the carrying value of the acquired assets and widely accepted valuation techniques, including discounted cash flows. Unanticipated events or circumstances may occur which could affect the accuracy of the Company’s fair value estimates, including assumptions regarding industry economic factors and business strategies.

The Company has estimated the fair value of acquired receivables to be $21.1 million, with a gross contractual amount of $22.1 million. The Company does not expect to collect $1.0 million of the acquired receivables. The Company has also estimated the fair value of inventories based on the estimated selling price of the work-in-process and finished goods acquired at the closing date less the sum of the costs to complete the work-in-process, the costs of disposal and a reasonable profit allowance for our post acquisition selling efforts and current replacement cost for raw materials acquired at the closing date. In estimating the fair values for intangible assets other than goodwill, the Company relied in part upon a report of a third-party valuation specialist. With respect to other acquired assets and liabilities, the Company used all available information to make its best estimate of fair values at the business combination date.

Goodwill and intangible assets reflected above were determined to meet the criterion for recognition apart from tangible assets acquired and liabilities assumed. The goodwill recognized is primarily attributable to synergies and an assembled workforce and is not deductible for tax purposes.

The above unaudited pro forma financial information is presented for informational purposes only and does not purport to represent what our results of operations would have been had we completed the acquisition on the date assumed, nor is it necessarily indicative of the results of operations that may be expected in future periods.

During the period from the acquisition date of February 17, 2011 through AprilJuly 30, 2011, our condensed consolidated statement of earnings include net sales of ASG of $41.0$87.2 million (net of intercompany eliminations) and immaterial net earnings, which included an increase in cost of goods sold related to the impact of the inventory fair value adjustment in connection with the acquisition of ASG of $2.7$4.2 million ($1.62.5 million on an after-tax basis, or $0.04$0.05 per diluted share).

The Company uses the two-class method to compute basic and diluted (loss) earnings per common share attributable to Brown Shoe Company, Inc. shareholders. In periods of net loss, no effect is given to the Company’s participating securities since they do not contractually participate in the losses of the Company. The following table sets forth the computation of basic and diluted (loss) earnings per common share attributable to Brown Shoe Company, Inc. shareholdersshareholders:

Due to the net loss attributable to Brown Shoe Company, Inc. for the periodsthirteen weeks and twenty-six weeks ended AprilJuly 30, 2011, and May 1, 2010:

Comprehensive (loss) income includes changes in equity related to foreign currency translation adjustments and unrealized gains or losses from derivatives used for hedging activities.

The following table sets forth the reconciliation from net (loss) earnings to comprehensive income for the periods ended April 30, 2011 and May 1, 2010:

The following table sets forth the balance in accumulated other comprehensive income for the Company at April 30, 2011, May 1, 2010 and January 29, 2011:Company:

See additional information related to derivative instruments in Note 12 and Note 13 to the condensed consolidated financial statements and additional information related to pension and other postretirement benefits in Note 10 to the condensed consolidated financial statements.

On February 17, 2011, the Company entered into a Stock Purchase Agreement with ASG and ASG’s stockholders, pursuant to which a subsidiary of the Company acquired all of the outstanding capital stock of ASG from the ASG stockholders on that date. During the firstsecond quarter of 2011 and forthe first half of 2011, the Company incurred acquisition and integration costs totaling $0.7 million ($0.4 million on an after-tax basis, or $0.01 per diluted share) and $2.4 million ($2.1 million on an after-tax basis, or $0.04 per diluted share), respectively. For the full year of 2010, the Company incurred acquisition-relatedacquisition costs totaling $1.7 million (on both a pre-tax and after-tax basis, or $0.04 per diluted share) and $1.1 million ($0.7 million on an after-tax basis, or $0.02 per diluted share), respectively, to effect the acquisition of ASG.. All of the costs recorded during 2011 and 2010 were reflected within the Other segment and recorded as a component of restructuring and other special charges, net. See Note 3 to the condensed consolidated financial statements for further information.

During 2008, the Company began implementation of an integrated enterprise resource planning (“ERP”) information technology system provided by third-party vendors. The ERP information technology system replaced certain of the Company’s internally developed and certain other third-party applications and is expected to better support the Company’s business model. The Company expects the implementation will enhance its profitability through improved management and execution of its business operations, financial systems, supply chain efficiency and planning and employee productivity. Although the Company went live on the wholesale portion of its new ERP system in the fourth quarter of 2010, system transition efforts and alignment of existing business processes are expected to continue in 2011. The Company incurred expenses of $1.7$1.9 million ($1.21.3 million on an after-tax basis, or $0.03 per diluted share) and $3.6 million ($2.4 million on an after-tax basis, or $0.06 per diluted share) during the thirteen weeks and twenty-six weeks ended May 1,July 31, 2010, respectively, as a component of restructuring and other special charges, net, related to these initiatives. Of the $1.7$1.9 million in expenses recorded during the thirteen weeks ended May 1,July 31, 2010, $1.5$1.7 million was recorded in the Other segment and $0.2 million was recorded in the Wholesale Operations segment. Of the $3.6 million in expenses recorded during the twenty-six weeks ended July 31, 2010, $3.3 million was recorded in the Other segment and $0.3 million was recorded in the Wholesale Operations segment. During 2010, the Company incurred expenses of $6.8 million ($4.6 million on an after-tax basis, or $0.10 per diluted share) related to these initiatives. Of the $6.8 million in expenses recorded during 2010, $6.1 million was recorded in the Other segment, and the remaining expense was recorded in the Wholesale Operations segment. During 2009, the Company incurred expenses of $9.2 million ($5.8 million on an after-tax basis, or $0.14 per diluted share) related to these initiatives. Of the $9.2 million in expenses recorded during 2009, $8.9 million was recorded in the Other segment, and the remaining expense was recorded in the Wholesale Operations segment. During 2008, the Company incurred expenses of $3.7 million ($2.4 million on an after-tax basis, or $0.06 per diluted share), and these expenses were reflected within the Other segment. The expenses incurred through 2010 were recorded as a component of restructuring and other special charges, net.  Beginning in 2011, expenses incurred related to the ongoing enhancement of the ERP system have been charged as a component of selling and administrative expenses.

Applicable business segment information is as follows for the periods ended April 30, 2011 and May 1, 2010:

During the thirteen weeks and twenty-six weeks ended AprilJuly 30, 2011, operating earnings of the Wholesale Operations segment included an increase in cost of goods sold related to the impact of the inventory fair value adjustment in connection with the acquisition of ASG of $2.7$1.5 million and $4.2 million, respectively, and the operating loss of the Other segment included costs related to the Company’s acquisition and integration of ASG of $1.7 million.$0.7 million and $2.4 million, respectively.

During the thirteen weeks and twenty-six weeks ended May 1,July 31, 2010, operating earnings (loss)loss of the Other and Wholesale Operations segmentssegment included costs related to the Company’s information technology initiatives of $1.5$1.7 million and $3.3 million, respectively. During the thirteen weeks and twenty-six weeks ended July 31, 2010, operating earnings of the Company’s Wholesale Operations segment included costs related to the information technology initiatives of $0.2 million and $0.3 million, respectively.

Following is a reconciliation of operating earnings to (loss) earnings before income taxes:

The increase in the goodwill and intangible assets of the Wholesale Operations segment from January 29, 2011 to AprilJuly 30, 2011 reflects the Company’s purchase price allocation for the acquisition of ASG on February 17, 2011. The purchase price allocation is not yet finalized. The Company’s purchase price allocation has resulted in acquired goodwill of $57.9$61.2 million and identifiable intangible assets of $46.7 million. Amortization of the Company’s licensed and owned trademarks, licensing agreements and customer relationships partially offset the increase in the Wholesale Operations segment from January 29, 2011 to April 30, 2011. The decline in the intangible assets of the Company’s Wholesale Operations segment from May 1,July 31, 2010 to January 29, 2011 reflects amortization of its licensed and owned trademarks.

The intangible assets associated with our acquisition of ASG will be amortized on a straight-line basis over their estimated useful lives, ranging from four to 20 years, except for the Avia and rykä trademarks, for which an indefinite life has been assigned. A summary of the estimated useful life by intangible asset class as well as the total weighted-average estimated useful life is as follows:

During the firstsecond quarter of 2011, the Company granted 60,00026,000 stock options to certain employees with a weighted-average exercise price and grant date fair value of $15.20$10.19 and $8.71,$5.48, respectively. These options vest in four equal increments, with 25% vesting over each of the next four years. These options have a term of ten years. Share-based compensation expense is recognized on a straight-line basis separately for each vesting portion of the stock option award. 

The Company also granted 152,750 performance share awards during the first quarter of 201118,850 restricted shares to non-employee directors with a weighted-average grant date fair value of $15.20. Vesting$10.41 during the second quarter of performance-based awards is dependent upon2011. The restricted shares granted to non-employee directors during the financial performancesecond quarter of the Company2011 vest in one year and the attainment of certain financial goals over the next three years. The performance share awards may pay out at a maximum of 150% of the target number of shares.  Share-basedshare-based compensation expense is beingwill be recognized based on the fair value of the award on the date of grant and the anticipated number of shares to be awarded on a straight-line basis over the three-year serviceone-year period.

The Company also granted 416,500182,000 restricted shares to certain employees with a weighted-average grant date fair value of $15.20$12.16 during the firstsecond quarter of 2011. The restricted shares granted to employees vest in four years and share-based compensation expense will be recognized on a straight-line basis over the four-year period.

The Company recognized share-based compensation expense of $1.7$1.3 million and $1.4 million during the first quarter ofthirteen weeks and $3.0 million and $2.8 million during the twenty-six weeks ended July 30, 2011 and the first quarter ofJuly 31, 2010, respectively. The Company issued 417,952202,728 shares and 620,680 shares of common stock during the first quarter ofthirteen and twenty-six weeks ended July 30, 2011, respectively, for restricted stock grants and directors’ fees. During the first quarter ofthirteen and twenty-six weeks ended July 30, 2011, the Company cancelled restricted90,500 and 112,800 shares, respectively, of common stock awards of 22,300 shares as a result of forfeitures.forfeitures of restricted stock awards.

The Company also granted 1,18467,369 restricted stock units to non-employee directors with a weighted-average grant date fair value of $12.21$10.42 during the firstsecond quarter of 2011.  AllOf the 67,369 restricted stock units granted, during1,394 of the first quarter of 2011 immediatelyrestricted stock units vested and compensation expense was fully recognized.recognized during the second quarter of 2011 and 65,975 of the restricted stock units vest in one year and compensation expense will be recognized ratably over the one-year period based upon the fair value of the restricted stock units, as remeasured at the end of each period.

On January 7, 2011, the Company and certain of its subsidiaries (the “Loan Parties”) entered into a Third Amended and Restated Credit Agreement, which was further amended on February 17, 2011 (as so amended, the “Credit Agreement”). The Credit Agreement matures on January 7, 2016. The Credit Agreement provides for a revolving credit facility in an aggregate amount of up to $380.0 million, subject to the calculated borrowing base restrictions, and provides for an increase at the Company’s option (a) by up to $150.0 million from time to time during the term of the Credit Agreement (the “general purpose accordion feature”) and (b) by an additional $150.0 million on or before February 28, 2011 (the “designated event accordion feature”), in both instances subject to satisfaction of certain conditions and the willingness of existing or new lenders to assume the increase. Effective February 17, 2011, the Loan Parties exercised the $150.0 million designated event accordion feature to fund the acquisition of ASG, increasing the aggregate amount available under the Credit Agreement from $380.0 million to $530.0 million. On February 17, 2011, ASG and The Basketball Marketing Company, Inc.,TBMC, the sole domestic subsidiary of ASG, became borrowers under the Credit Agreement. See Note 3 to the condensed consolidated financial statements for further information on the acquisition of ASG. Borrowing availability under the Credit Agreement is limited to the lesser of the total commitments and the borrowing base, which is based on stated percentages of the sum of eligible accounts receivable and inventory, as defined, less applicable reserves. Under the Credit Agreement, the Loan Parties’ obligations are secured by a first-priority security interest in all accounts receivable, inventory and certain other collateral.

Interest on borrowings is at variable rates based on the London Inter-Bank Offer Rate (“LIBOR”) or the prime rate, as defined in the Credit Agreement, plus a spread. The interest rate and fees for letters of credit varies based upon the level of excess availability under the Credit Agreement. There is an unused line fee payable on the unused portion under the facility and a letter of credit fee payable on the outstanding face amount under letters of credit.

 

The Credit Agreement limits the Company’s ability to incur additional indebtedness, create liens, make investments or specified payments, give guarantees, pay dividends, make capital expenditures and merge or acquire or sell assets. In addition, certain additional covenants would be triggered if excess availability were to fall below specified levels, including fixed charge coverage ratio requirements. Furthermore, if excess availability falls below the greater of (i) 15.0% of the lesser of (x) the borrowing base or (y) the total commitments and (ii) $35.0 million for three consecutive business days, or an event of default occurs, the lenders may assume dominion and control over the Company’s cash (a “cash dominion event”) until such event of default is cured or waived or the excess availability exceeds such amount for 30 consecutive days.

 

The Credit Agreement contains customary events of default, including, without limitation, payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to other material indebtedness, certain events of bankruptcy and insolvency, judgment defaults in excess of a certain threshold, the failure of any guaranty or security document supporting the agreement to be in full force and effect and a change of control event. In addition, if the excess availability falls below the greater of (i) 12.5% of the lesser of (x) the borrowing base or (y) the total commitments and (ii) $35.0 million, and the fixed charge coverage ratio is less than 1.0 to 1.0, the Company would be in default under the Credit Agreement. The Credit Agreement also contains certain other covenants and restrictions. The Company was in compliance with all covenants and restrictions under the Credit Agreement as of AprilJuly 30, 2011.

At AprilJuly 30, 2011, the Company had $288.0$250.0 million in borrowings outstanding and $8.4$9.3 million in letters of credit outstanding under the Credit Agreement. Total additional borrowing availability was $212.8$270.7 million at AprilJuly 30, 2011.

On April 27, 2011, the Company announced that it had priced an offering of $200.0 million aggregate principal amount of 7⅛%7.125% Senior Notes due 2019 (the “2019 Senior Notes”) in a private placement.placement (the “Offering”). The offeringOffering closed on May 11, 2011. The 2019 Senior Notes are guaranteed on a senior unsecured basis by each of the subsidiaries of Brown Shoethe Company Inc. that is an obligor under the Credit Agreement. Interest on the 2019 Senior Notes is payable on May 15 and November 15 of each year beginning on November 15, 2011. The 2019 Senior Notes mature on May 15, 2019.  Prior to May 15, 2014, the Company may redeem some or all of the 2019 Senior Notes at a redemption price equal to the sum of the principal amount of the 2019 Senior Notes to be redeemed, plus accrued and unpaid interest, plus a “make whole” premium.  After May 15, 2014, the Company may redeem all or a part of the 2019 Senior Notes at the redemption prices (expressed as a percentage of principal amount) set forth below plus accrued and unpaid interest, if redeemed during the 12-month period beginning on May 15 of the years indicated below:

In addition, prior to May 15, 2014, the Company may redeem up to 35% of the 2019 Senior Notes with the proceeds from certain equity offerings at a redemption price of 107.125% of the principal amount of the 2019 Senior Notes to be redeemed, plus accrued and unpaid interest thereon, if any, to the redemption date.

The net proceeds from the offeringOffering were approximately $193.7 million after deducting the initial purchasers' discounts and other offeringOffering expenses. The Company used a portion of the net proceeds to purchase $99.2 million of the Company’s outstanding $150.0 million aggregate principal amount of its8.75% senior notes due in 2012 (the “2012 Senior NotesNotes”) that were tendered pursuant to the Offera cash tender offer (the “Tender Offer”) and pay other fees and expenses in connection with the Tender Offer. The Company has called for redemptionand redeemed the remaining $50.8 million aggregate principal amount of the outstanding 2012 Senior Notes. The Company used the remaining net proceeds for general corporate purposes, including repaying amounts outstanding under the Credit Agreement.

In the normal course of business, the Company’s financial results are impacted by currency rate movements in foreign currency denominated assets, liabilities and cash flows as it makes a portion of its purchases and sales in local currencies. The Company has established policies and business practices that are intended to mitigate a portion of the effect of these exposures. The Company uses derivative financial instruments, primarily forward contracts, to manage its currency exposures. These derivative instruments are viewed as risk management tools and are not used for trading or speculative purposes. Derivatives entered into by the Company are designated as cash flow hedges of forecasted foreign currency transactions.

Derivative financial instruments expose the Company to credit and market risk. The market risk associated with these instruments resulting from currency exchange movements is expected to offset the market risk of the underlying transactions being hedged. The Company does not believe there is a significant risk of loss in the event of non-performance by the counterparties associated with these instruments because these transactions are executed with major financial institutions and have varying maturities through AprilJuly 2012. Credit risk is managed through the continuous monitoring of exposures to such counterparties.

The Company principally uses foreign currency forward contracts as cash flow hedges to offset a portion of the effects of exchange rate fluctuations. The Company’s cash flow exposures include anticipated foreign currency transactions, such as foreign currency denominated sales, costs, expenses, intercompany charges, as well as collections and payments. The Company performs a quarterly assessment of the effectiveness of the hedge relationship and measures and recognizes any hedge ineffectiveness in the condensed consolidated statement of earnings. Hedge ineffectiveness is evaluated using the hypothetical derivative method, and the ineffective portion of the hedge is reported in the Company’s condensed consolidated statement of earnings. The amount of hedge ineffectiveness for the thirteen weeks and twenty-six weeks ended AprilJuly 30, 2011 and May 1,July 31, 2010 were not material.

The Company’s hedging strategy uses forward contracts as cash flow hedging instruments, which are recorded in the Company’s condensed consolidated balance sheet at fair value. The effective portion of gains and losses resulting from changes in the fair value of these hedge instruments are deferred in accumulated other comprehensive income and reclassified to earnings in the period that the hedged transaction is recognized in earnings.

As of AprilJuly 30, 2011, January 29, 2011 and May 1,July 31, 2010, the Company had forward contracts maturing at various dates through AprilJuly 2012, January 2012 and AprilJuly 2011, respectively. The contract amount represents the net amount of all purchase and sale contracts of a foreign currency.

For the thirteen weeks ended April 30, 2011 and May 1, 2010, theThe effect of derivative instruments in cash flow hedging relationships on the condensed consolidated statements of earnings was as follows:

All of the gains and losses currently included within accumulated other comprehensive income associated with the Company’s foreign exchange forward contracts are expected to be reclassified into net (loss) earnings within the next 12 months. Additional information related to the Company’s derivative financial instruments are disclosed within Note 13 to the condensed consolidated financial statements.

FASB guidance on fair value measurements and disclosures specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (“observable inputs”) or reflect the Company’s own assumptions of market participant valuation (“unobservable inputs”). In accordance with the fair value guidance, the hierarchy is broken down into three levels based on the reliability of the inputs as follows:

 

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value. Classification of the financial or non-financial asset or liability within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

The Company measures fair value as an exit price, the price to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date, using the procedures described below for all financial and non-financial assets and liabilities measured at fair value.

The Company has cash equivalents consisting of short-term money market funds backed by U.S. Treasury securities. The primary objective of these investing activities is to preserve its capital for the purpose of funding operations and it does not enter into money market funds for trading or speculative purposes. The fair value is based on unadjusted quoted market prices for the funds in active markets with sufficient volume and frequency (Level 1).

The Company maintains a non-qualified deferred compensation plan (the “Deferred Compensation Plan”) for the benefit of certain management employees. The investment funds offered to the participant generally correspond to the funds offered in the Company’s 401(k) plan, and the account balance fluctuates with the investment returns on those funds. The Deferred Compensation Plan permits the deferral of up to 50% of base salary and 100% of compensation received under the Company’s annual incentive plan. The deferrals are held in a separate trust, which has been established by the Company to administer the Deferred Compensation Plan. The assets of the trust are subject to the claims of the Company’s creditors in the event that the Company becomes insolvent. Consequently, the trust qualifies as a grantor trust for income tax purposes (i.e., a “Rabbi Trust”). The liabilities of the Deferred Compensation Plan are presented in other accrued expenses and the assets held by the trust are classified as trading securities within prepaid expenses and other current assets in the accompanying condensed consolidated balance sheets. Changes in deferred compensation are charged to selling and administrative expenses. The fair value is based on unadjusted quoted market prices for the funds in active markets with sufficient volume and frequency (Level 1).

Non-employee directors are eligible to participate in a deferred compensation plan, whereby deferred compensation amounts are valued as if invested in the Company’s common stock through the use of phantom stock units (“PSUs”).  Under the plan, each participating director’s account is credited with the number of PSUs that is equal to the number of shares of the Company’s common stock that the participant could purchase or receive with the amount of the deferred compensation, based upon the fair value (as determined based on the average of the high and low prices) of the Company’s common stock on the last trading day of the fiscal quarter when the cash compensation was earned.  Dividend equivalents are paid on PSUs at the same rate as dividends on the Company’s common stock, and are re-invested in additional PSUs at the next fiscal quarter-end.  The PSUs are payable in cash based on the number of PSUs credited to the participating director’s account, valued on the basis of the fair value at fiscal quarter-end on or following termination of the director’s service.  The liabilities of the plan are based on the fair value of the outstanding PSUs and are presented in other liabilities in the accompanying condensed consolidated balance sheets. Gains and losses resulting from changes in the fair value of the PSUs are reported in the Company’s condensed consolidated statement of earnings. The fair value of the liabilities is based on an unadjusted quoted market price for the Company’s common stock in an active market with sufficient volume and frequency (Level 1).

The Company uses derivative financial instruments, primarily foreign exchange contracts, to reduce its exposure to market risks from changes in foreign exchange rates. These foreign exchange contracts are measured at fair value using quoted forward foreign exchange prices from counterparties corroborated by market-based pricing (Level 2). Additional information related to the Company’s derivative financial instruments are disclosed within Note 12 to the condensed consolidated financial statements.

The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis at April 30, 2011, May 1, 2010 and January 29, 2011.basis. The Company did not have any transfers between Level 1 and Level 2 during 2010 or the thirteen weeks ended April 30,first half of 2011.