Derivative Instruments and Hedging Activities
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Apr. 27, 2012
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Derivative Instruments and Hedging Activities [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Instruments and Hedging Activities | 5. Derivative Instruments and Hedging Activities The Company has interest rate risk relative to its outstanding borrowings, which bear interest at the Company's election either at the prime rate or LIBOR plus a percentage point spread based on certain specified financial ratios under the Credit Facility (see Note 4). The Company's policy has been to manage interest cost using a mix of fixed and variable rate debt. To manage this risk in a cost efficient manner, the Company uses derivative instruments, specifically interest rate swaps. For each of the Company's interest rate swaps, the Company has agreed to exchange with a counterparty the difference between fixed and variable interest amounts calculated by reference to an agreed-upon notional principal amount. The interest rates on the portion of the Company's outstanding debt covered by its interest rate swaps is fixed at the rates in the table below plus the Company's credit spread. The Company's weighted average credit spread at April 27, 2012 was 2.00%. All of the Company's interest rate swaps are accounted for as cash flow hedges. A summary of the Company's interest rate swaps is as follows:
The notional amount of the Company's interest rate swap entered into on May 4, 2006 decreases to $525,000 from May 3, 2012 throughout the remainder of its term. The Company does not hold or use derivative instruments for trading purposes. The Company also does not have any derivatives not designated as hedging instruments and has not designated any non-derivatives as hedging instruments. The estimated fair values of the Company's derivative instruments as of April 27, 2012 and July 29, 2011 were as follows:
The estimated fair value of the Company's interest rate swap liability incorporates the Company's non-performance risk (see Note 2). The adjustment related to the Company's non-performance risk at April 27, 2012 and July 29, 2011 resulted in reductions of $976 and $1,546, respectively, in the fair value of the interest rate swap liability. The offset to the interest rate swap liability is recorded in accumulated other comprehensive loss ("AOCL"), net of the deferred tax asset, and will be reclassified into earnings over the term of the underlying debt. As of April 27, 2012, the estimated pre-tax portion of AOCL that is expected to be reclassified into earnings over the next twelve months is $26,943. Cash flows related to the interest rate swap are included in interest expense and in operating activities. The following table summarizes the pre-tax effects of the Company's derivative instruments on AOCL for the nine-month period ended April 27, 2012 and the year ended July 29, 2011:
The following table summarizes the pre-tax effects of the Company's derivative instruments on income for the quarters and nine-month periods ended April 27, 2012 and April 29, 2011:
Any portion of the fair value of the swaps determined to be ineffective will be recognized currently in earnings. No ineffectiveness has been recorded in the nine-month periods ended April 27, 2012 and April 29, 2011. |