Dollar General 2010 Annual Report Download - page 155

10-K
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Derivative financial instruments (Continued)
affects earnings. Subsequent to the Merger, these transactions represent the only amounts reflected in
Accumulated other comprehensive income (loss) in the consolidated statements of shareholders’ equity.
During the year ended January 28, 2011, such derivatives were used to hedge the variable cash flows
associated with existing variable-rate debt. The ineffective portion of the change in fair value of the
derivatives is recognized directly in earnings.
As of January 28, 2011, the Company had three interest rate swaps with a combined notional value
of $1.05 billion that were designated as cash flow hedges of interest rate risk. Amounts reported in
Accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest
expense as interest payments are made on the Company’s variable-rate debt. The Company terminated
an interest rate swap in October 2008 due to the bankruptcy declaration of the counterparty bank. The
Company continues to report the net gain or loss related to the discontinued cash flow hedge in OCI
and such net gain or loss is being reclassified into earnings during the original contractual terms of the
swap agreement as the hedged interest payments are expected to occur as forecasted. During the next
52-week period, the Company estimates that an additional $27.2 million will be reclassified as an
increase to interest expense for all of its interest rate swaps.
Non-designated hedges of commodity risk
Derivatives not designated as hedges are not speculative and are used to manage the Company’s
exposure to commodity price risk but do not meet strict hedge accounting requirements. In February
2009, the Company entered into a commodity hedge related to diesel fuel to limit its exposure to
variability in diesel fuel prices and their effect on transportation costs. Changes in the fair value of
derivatives not designated in hedging relationships are recorded directly in earnings. As of January 28,
2011, the Company had no outstanding commodity hedges. During 2009, the Company entered into
one diesel fuel commodity swap hedging monthly usage of diesel fuel that was not designated as a
hedge in a qualifying hedging relationship, which expired prior to January 29, 2010.
The table below presents the fair value of the Company’s derivative financial instruments as well as
their classification on the consolidated balance sheets as of January 28, 2011 and January 29, 2010 (in
thousands):
Tabular Disclosure of Fair Values of Derivative Instruments
Asset Derivatives Liability Derivatives
Balance Sheet Balance Sheet
Classification Fair Value Classification Fair Value
Derivatives designated as hedging instruments
Interest rate swaps:
As of January 28, 2011 .................. Other liabilities $34,923
As of January 29, 2010 .................. Other liabilities $57,058
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