Safeway 2010 Annual Report Download - page 65

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SAFEWAY INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Fair Value Hedges In December 2009, the Company effectively converted $800 million of its 5.80% fixed-rate debt
due 2012 to floating-rate debt through interest rate swap agreements. These interest rate swaps, under which the
Company agrees to pay variable rates of interest, are designated as fair value hedges of fixed-rate debt. The gain or loss
on the interest rate swap agreements, as well as the gain or loss on the debt being hedged, are recognized in current
earnings. Safeway includes the gain or loss on the fixed-rate debt in interest expense along with the offsetting loss or
gain on the related interest rate swap as follows (in millions):
2010 2009
Income statement classification
Gain on interest
rate swaps
Loss on
debt
Loss on interest
rate swaps
Gain on
debt
Interest expense $ 18.2 $ (18.2) $ (6.6) $ 6.6
The fair value and the balance sheet presentation of derivative instruments as of January 1, 2011 are as follows (in
millions):
Location in consolidated balance sheet Fair value
Derivative assets designated as hedges:
Interest rate swaps Other assets $ 11.6
Total derivative assets $ 11.6
The fair value and the balance sheet presentation of derivative instruments as of January 2, 2010 are as follows (in
millions):
Location in consolidated balance sheet Fair Value
Derivative liabilities designated as hedges:
Interest rate swaps Other long-term liabilities $ 6.6
Total derivative liabilities $ 6.6
Note F: Fair Value Measurements
The accounting guidance for fair value measurements prioritizes the inputs used in measuring fair value into the following
hierarchy:
Level 1 Quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 Inputs other than quoted prices included within Level 1 that are either directly or indirectly
observable;
Level 3 Unobservable 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.
49