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v2.4.0.6
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.