Derivative Financial Instruments

9 Months Ended

Jul. 03, 2011

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

9. Derivative Financial Instruments

The Company maintains 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. Both interest rate swaps were designated as cash flow hedges.

In the third quarter of fiscal 2010, Harris Teeter entered into a series of purchased call options and written put options in order to limit the price variability in fuel purchases. The options effectively established the purchase price for 168,000 gallons of fuel at $2.09 to $2.60 per gallon and the purchase of 588,000 gallons between $2.12 and $2.60 per gallon, excluding shipping, handling and taxes. The options expired on October 31, 2010 and were deemed to be net purchase options which were designated as a cash flow hedge.

In the first quarter of fiscal 2011, Harris Teeter entered into a series of purchased call options and written put options in order to limit the price variability in fuel purchases. The options effectively established the purchase price for 1,092,000 gallons of fuel at $1.95 to $2.56 per gallon, excluding shipping, handling and taxes. The options expired on April 30, 2011 and were deemed to be net purchase options which were designated as a cash flow hedge.

In the second quarter of fiscal 2011, Harris Teeter entered into a series of purchased call options and written put options in order to limit the price variability in fuel purchases. The options effectively established the purchase price for 1,344,000 gallons of fuel at $2.43 to $2.80 per gallon, excluding shipping, handling and taxes. The options expire on November 30, 2011 and are deemed to be net purchase options which are designated as a cash flow hedge.

The following tables present the required fair value quantitative disclosures, on a combined basis, for the Company's financial instruments, designated as cash flow hedges (in thousands):

		Carrying Value			Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Fair Value Measurement at July 3, 2011:
Interest rate swaps (included with Other Long-Term Liabilities on the balance sheet)	$	(888	)	$	-	$	(888	)	$	-
Net purchase options (included with Prepaid Expenses and Other Current Assets on the balance sheet)		227			-		227			-
Fair Value Measurement at October 3, 2010:
Interest rate swaps (included with Other Long-Term Liabilities on the balance sheet)	$	(1,654	)	$	-	$	(1,654	)	$	-

There were no transfers into or out of Level 1 and Level 2 fair-value measurements during the periods ended July 3, 2011.

The pre-tax unrealized gain (loss) associated with the cash flow hedges for the reporting periods of fiscal 2011 and 2010 is as follows (in thousands):

		13 Weeks Ended						39 Weeks Ended
		July 3, 2011			June 27, 2010			July 3, 2011		June 27, 2010
Unrealized gain (loss) recognized in other comprehensive income	$	(292	)	$	(358	)	$	964	$	(895	)