Harris Teeter 2010 Annual Report Download - page 32

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obligation in such future periods. While management believes that its selections of values for the various
assumptions are appropriate, significant differences in actual experience or significant changes in the assumptions
may materially affect pension and other post-retirement obligations and future expense.
Recent Accounting Standards
In June 2009, the FASB issued an update to its authoritative literature for the consolidation of variable interest
entities (“VIE”). The guidance is incorporated in ASC Topic 810 and requires reporting entities to evaluate former
qualifying special purpose entities for consolidation, changes the approach to determining a VIE’s primary
beneficiary from a quantitative assessment to a qualitative assessment designed to identify a controlling financial
interest, and increases the frequency of required reassessments to determine whether a company is the primary
beneficiary of a VIE. It also clarifies, but does not significantly change, the characteristics that identify a VIE. The
new guidance also requires additional year-end and interim disclosures. The updated standards become effective
for the Company’s 2011 fiscal year beginning on October 4, 2010. Based upon preliminary evaluations, the
Company does not expect a significant impact on its consolidated financial statements upon adoption of the new
standards.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The Company does not utilize financial instruments for trading or other speculative purposes, nor does it
utilize leveraged financial instruments. The Company’s exposure to market risks results primarily from changes
in interest rates. Generally, the fair value of debt with a fixed interest rate will increase as interest rates fall, and
the fair value will decrease as interest rates rise. As of October 3, 2010, the Company had two interest rate swap
agreements accounted for as cash flow hedge derivatives and no significant foreign exchange exposure.
The table below presents principal cash flows and related weighted average interest rates by expected maturity
dates for the Company’s Senior Notes due at various dates through 2017 (which accounts for 94% of the Company’s
fixed interest debt obligations):
2011 2012 2013 2014 2015 Thereafter Total Fair Value
Senior Notes ................ $7,142 $— $— $— $— $100,000 $107,142 $133,751
Weighted average interest rate . . 6.48% ———— 7.64% 7.56%
For a more detail description of fair value, see Note 9 to the Consolidated Financial Statements in Item 8
hereof.
During fiscal 2009, the Company entered into two separate three-year interest rate swap agreements with an
aggregate notional amount of $80 million. The swap agreements effectively fixed the interest rate on $80 million
of the Company’s term loan, of which $40 million is at 1.81% and $40 million is at 1.80%, excluding the applicable
margin and associated fees. The fair value of these derivatives are recorded on the balance sheet at their respective
fair value and amounted to a liability of $1,654,000 as of October 3, 2010. For a more detail description of fair
value, see Note 8 to the Consolidated Financial Statements in Item 8 hereof.
27