Derivative Instruments and Hedging Activities

3 Months Ended

Nov. 02, 2012

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 (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 are fixed at the rates in the table below plus the Company's credit spread.  The Company's weighted average credit spread at November 2, 2012 was 1.75%.  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:

Trade Date	Effective Date	Term (in Years)		Notional Amount		Fixed Rate
May 4, 2006	August 3, 2006		7	$	525,000		5.57	%
August 10, 2010	May 3, 2013		2		200,000		2.73	%
July 25, 2011	May 3, 2013		2		50,000		2.00	%
July 25, 2011	May 3, 2013		3		50,000		2.45	%
September 19, 2011	May 3, 2013		2		25,000		1.05	%
September 19, 2011	May 3, 2013		2		25,000		1.05	%
December 7, 2011	May 3, 2013		3		50,000		1.40	%

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 November 2, 2012 and August 3, 2012 were as follows:

	Balance Sheet Location	November 2, 2012		August 3, 2012
Interest rate swap	Current interest rate swap liability	$	13,799	$	20,215
Interest rate swaps	Long-term interest rate swap liability		15,081		14,166
Total (See Note 2)		$	28,880	$	34,381

The estimated fair value of the Company's interest rate swap liabilities incorporates the Company's non-performance risk (see Note 2).  The adjustment related to the Company's non-performance risk at November 2, 2012 and August 3, 2012 resulted in reductions of $662 and $851, respectively, in the fair value of the interest rate swap liabilities.  The offset to the interest rate swap liabilities 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 November 2, 2012, the estimated pre-tax portion of AOCL that is expected to be reclassified into earnings over the next twelve months is $15,937.  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 quarter ended November 2, 2012 and the year ended August 3, 2012:

	Amount of Income Recognized in AOCL on Derivatives (Effective Portion)
	Quarter Ended		Year Ended
	November 2, 2012		August 3, 2012
Cash flow hedges:
Interest rate swaps	$	5,501	$	17,223

The following table summarizes the pre-tax effects of the Company's derivative instruments on income for the quarters ended November 2, 2012 and October 28, 2011:

	Location of Loss Reclassified from AOCL into Income (Effective Portion)	Amount of Loss Reclassified from AOCL into Income (Effective Portion)
		Quarter Ended
		November 2, 2012		October 28, 2011
Cash flow hedges:
Interest rate swaps	Interest expense	$	--	$	7,445

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 quarters ended November 2, 2012 and October 28, 2011.