Dollar General 2007 Annual Report Download - page 54

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52
variables remain the same, the annualized effect of a one percentage point change in variable
interest rates would have a pretax impact on our earnings and cash flows of approximately $7.9
million.
The interest rate swaps are accounted for in accordance with SFAS No. 133 “Accounting
for Derivative Instruments and Hedging Activities”, as amended and interpreted (collectively,
“SFAS 133”). SFAS 133 establishes accounting and reporting standards for derivative
instruments and hedging activities. SFAS 133 requires that all derivatives be recognized as either
assets or liabilities at fair value. Beginning October 12, 2007, we are accounting for the swaps
described above as cash flow hedges and record the effective portion of changes in fair value of
the swaps within accumulated other comprehensive income.
Subsequent to the 2007 fiscal year end, we entered into a $350.0 million step-down
interest rate swap which became effective February 28, 2008 in order to mitigate an additional
portion of the variable rate interest exposure under the New Credit Facilities. We entered into
the swap with Wachovia Capital Markets and we swapped one month LIBOR rates for fixed
interest rates, which will result in the payment of a fixed rate of 5.58% on a notional amount of
$350.0 million for the first year and $150.0 million for the second year.