Kroger 2012 Annual Report Download - page 110

A-52
NO T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S , CO N T I N U E D
As of January 28, 2012, the Company maintained 24 forward-starting interest rate swap derivatives with
maturity dates between May 2012 and April 2013 with an aggregate notional amount totaling $1,200. The
Company entered into the forward-starting interest rate swaps in order to lock in fixed interest rates on its
forecasted issuances of debt in fiscal years 2012 and 2013. Accordingly, the forward-starting interest rate
swaps were designated as cash-flow hedges as defined by GAAP. As of January 28, 2012, the fair value of the
interest rates swaps was recorded in other long-term liabilities for $41 and accumulated other comprehensive
loss for $26 net of tax.
During 2012, the Company terminated 14 forward-starting interest rate swap agreements with maturity
dates of May 2012 with an aggregate notional amount totaling $700. These forward-starting interest rate swap
agreements were hedging the variability in future benchmark interest payments attributable to changing
interest rates on the forecasted issuance of fixed-rate debt issued in 2012. As discussed in Note 5, the
Company issued $850 of senior notes in 2012. Since these forward-starting interest rate swap agreements
were classified as cash flow hedges, the unamortized loss of $27 has been deferred net of tax in accumulated
other comprehensive income (“AOCI”) and will be amortized to earnings as the interest payments are made.
The following table summarizes the effect of the Company’s derivative instruments designated as cash
flow hedges for 2012 and 2011:
Year-To-Date
Derivatives in Cash Flow Hedging
Relationships
Amount of Gain/(Loss)
in AOCI on Derivative
(Effective Portion)
Amount of Gain/(Loss)
Reclassified from AOCI
into Income (Effective
Portion) Location of Gain/(Loss)
Reclassified into Income
(Effective Portion)2012 2011 2012 2011
Forward-Starting Interest Rate
Swaps, net of tax* . . . . . . . . . $(14) $(30) $(3) $(1) Interest expense
* The amounts of Gain/(Loss) in AOCI on derivatives include unamortized proceeds and payments from
forward-starting interest rate swaps once classified as cash flow hedges that were terminated prior to
end of 2012.
Commodity Price Protection
The Company enters into purchase commitments for various resources, including raw materials utilized
in its manufacturing facilities and energy to be used in its stores, warehouses, manufacturing facilities and
administrative offices. The Company enters into commitments expecting to take delivery of and to utilize
those resources in the conduct of normal business. Those commitments for which the Company expects to
utilize or take delivery in a reasonable amount of time in the normal course of business qualify as normal
purchases and normal sales.
7. F A I R VA L U E M E A S U R E M E N T S
GAAP establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The three
levels of the fair value hierarchy defined in the standards are as follows:
Level 1 – Quoted prices are available in active markets for identical assets or liabilities;
Level 2 – Pricing inputs are other than quoted prices in active markets included in Level 1, which are
either directly or indirectly observable;
Level 3 – Unobservable pricing inputs in which little or no market activity exists, therefore requiring an
entity to develop its own assumptions about the assumptions that market participants would use in pricing
an asset or liability.