NOTE 9—DERIVATIVES

Management of Interest Rate Risk

The Company enters into interest rate swap contracts from time to time to mitigate its exposure to changes in market interest rates as part of its overall strategy to manage its debt portfolio to achieve an overall desired position of notional debt amounts subject to fixed and floating interest rates. Interest rate swap contracts are entered into for periods consistent with related underlying exposures and do not constitute positions independent of those exposures. The Company’s interest rate swap contracts are designated as cash flow hedges at August 3, 2019. Interest rate swap contracts are reflected at their fair values in the Consolidated Balance Sheets. Refer to Note 8—Fair Value Measurements of Financial Instruments for further information on the fair value of interest rate swap contracts.

Details of outstanding swap contracts as of August 3, 2019, which are all pay fixed and receive floating, are as follows:



Swap Maturity	Notional Value (in millions)		Pay Fixed Rate		Receive Floating Rate	Floating Rate Reset Terms
April 29, 2021⁽¹⁾	$	25.0	1.0650	%	One-Month LIBOR	Monthly
April 29, 2021⁽²⁾	25.0		0.9260	%	One-Month LIBOR	Monthly
August 15, 2022⁽³⁾	60.0		1.7950	%	One-Month LIBOR	Monthly
August 15, 2022⁽⁴⁾	40.0		1.7950	%	One-Month LIBOR	Monthly
October 31, 2020⁽⁵⁾	100.0		2.8240	%	One-Month LIBOR	Monthly
October 31, 2022⁽⁵⁾	100.0		2.8915	%	One-Month LIBOR	Monthly
October 31, 2023⁽⁵⁾	100.0		2.9210	%	One-Month LIBOR	Monthly
October 22, 2025⁽⁵⁾	50.0		2.9550	%	One-Month LIBOR	Monthly
March 31, 2023⁽⁶⁾	150.0		2.8950	%	One-Month LIBOR	Monthly
October 22, 2025⁽⁶⁾	50.0		2.9580	%	One-Month LIBOR	Monthly
October 22, 2025⁽⁶⁾	50.0		2.9590	%	One-Month LIBOR	Monthly
October 29, 2021⁽⁷⁾	100.0		2.8084	%	One-Month LIBOR	Monthly
September 30, 2023⁽⁷⁾	50.0		2.8315	%	One-Month LIBOR	Monthly
October 31, 2024⁽⁷⁾	100.0		2.8480	%	One-Month LIBOR	Monthly
October 31, 2022⁽⁸⁾	50.0		2.4678	%	One-Month LIBOR	Monthly
March 28, 2024⁽⁸⁾	100.0		2.4770	%	One-Month LIBOR	Monthly
October 31, 2024⁽⁸⁾	100.0		2.5010	%	One-Month LIBOR	Monthly
April 29, 2021⁽⁹⁾	50.0		2.5500	%	One-Month LIBOR	Monthly
October 31, 2022⁽⁹⁾	50.0		2.5255	%	One-Month LIBOR	Monthly
March 31, 2023⁽⁹⁾	50.0		2.5292	%	One-Month LIBOR	Monthly
March 28, 2024⁽⁹⁾	100.0		2.5420	%	One-Month LIBOR	Monthly
October 31, 2024⁽¹⁰⁾	50.0		2.5210	%	One-Month LIBOR	Monthly
October 22, 2025⁽¹⁰⁾	50.0		2.5558	%	One-Month LIBOR	Monthly
April 15, 2022⁽¹¹⁾	100.0		2.3645	%	One-Month LIBOR	Monthly
December 13, 2019⁽¹²⁾	100.0		2.4925	%	One-Month LIBOR	Monthly
May 15, 2020⁽¹²⁾	100.0		2.4490	%	One-Month LIBOR	Monthly
June 30, 2021⁽¹³⁾	100.0		2.2520	%	One-Month LIBOR	Monthly
June 30, 2022⁽¹³⁾	100.0		2.2170	%	One-Month LIBOR	Monthly
June 30, 2021⁽¹⁴⁾	50.0		2.2290	%	One-Month LIBOR	Monthly
June 30, 2022⁽¹⁴⁾	50.0		2.1840	%	One-Month LIBOR	Monthly
	$	2,200.0

(1)

On June 7, 2016, the Company entered into a pay fixed and receive floating interest rate swap contract to effectively fix the underlying variability in expected interest payment cash outflows on its LIBOR based debt. The agreement has an effective date of June 9, 2016 and expires in April 2021. The interest rate swap contract has a notional principal amount of $25 million and requires the Company to pay interest payments during the duration of the contract at a fixed annual rate of 1.0650%, while receiving interest for the same contract period at one-month LIBOR on the same notional principal amount.

(2)

On June 24, 2016, the Company entered into a pay fixed and receive floating interest rate swap contract to effectively fix the underlying variability in expected interest payment cash outflows on its LIBOR based debt. The agreement has an effective date of June 24, 2016 and expires in April 2021. The interest rate swap contract has a notional principal amount of $25 million and requires the Company to pay interest payments during the duration of the contract at a fixed annual rate of 0.9260%, while receiving interest for the same contract period at one-month LIBOR on the same notional principal amount.

(3)

On January 23, 2015, the Company entered into a pay fixed and receive floating interest rate swap contract to effectively fix the underlying variability in expected interest payment cash outflows on its LIBOR based debt. The agreement has an effective date of August 3, 2015 and expires in August 2022. On March 31, 2015, the Company amended the original contract to reduce the beginning notional principal amount from $140 million to $84 million. The interest rate swap contract has an amortizing notional principal amount which adjusts down on a quarterly basis and requires the Company to pay interest payments during the duration of the contract at a fixed annual rate of 1.7950%, while receiving interest for the same respective contract period at one-month LIBOR on the same notional principal amount.

(4)

On March 31, 2015, the Company entered into a pay fixed and receive floating interest rate swap contract to effectively fix the underlying variability in expected interest payment cash outflows on its LIBOR based debt. The agreement has an effective date of August 3, 2015 and expires in August 2022. The interest rate swap contract has an amortizing notional principal amount which adjusts down on a quarterly basis and requires the Company to pay interest payments during the duration of the contract at a fixed annual rate of 1.7950%, while receiving interest for the same respective contract period at one-month LIBOR on the same notional principal amount.

(5)

On October 26, 2018, the Company entered into four pay fixed receive floating interest rate swap contracts to effectively fix the underlying variability in expected interest payment cash outflows on its LIBOR based debt. The agreements have an effective date of October 26, 2018 and expire at varied dates between October 2020 and October 2025. These interest rate swap contracts have an aggregate notional principal amount of $350 million and require the Company to pay interest payments during the duration of the respective contracts at fixed annual rates between 2.8240% and 2.9550%, while receiving interest for the same respective contract periods at one-month LIBOR on the same aggregate notional principal amounts.

(6)

On November 16, 2018, the Company entered into three pay fixed receive floating interest rate swap contracts to effectively fix the underlying variability in expected interest payment cash outflows on its LIBOR based debt. The agreements have an effective date of November 16, 2018 and expire at varied dates between March 2023 and October 2025. These interest rate swap contracts have an aggregate notional principal amount of $250 million and require the Company to pay interest payments during the duration of the respective contracts at fixed annual rates between 2.8950% and 2.9590%, while receiving interest for the same respective contract periods at one-month LIBOR on the same aggregate notional principal amounts.

(7)

On November 30, 2018, the Company entered into three pay fixed receive floating interest rate swap contracts to effectively fix the underlying variability in expected interest payment cash outflows on its LIBOR based debt. The agreements have an effective date of November 30, 2018 and expire at varied dates between October 2021 and October 2024. These interest rate swap contracts have an aggregate notional principal amount of $250 million and require the Company to pay interest payments during the duration of the respective contracts at fixed annual rates between 2.8084% and 2.8480%, while receiving interest for the same respective contract periods at one-month LIBOR on the same aggregate notional principal amounts.

(8)

On January 11, 2019, the Company entered into three pay fixed receive floating interest rate swap contracts to effectively fix the underlying variability in expected interest payment cash outflows on its LIBOR based debt. The agreements have an effective date of January 11, 2019 and expire at varied dates between October 2022 and October 2024. These interest rate swap contracts have an aggregate notional principal amount of $250 million and require the Company to pay interest payments during the duration of the respective contracts at fixed annual rates between 2.4678% and 2.5010%, while receiving interest for the same respective contract periods at one-month LIBOR on the same aggregate notional principal amounts.

(9)

On January 23, 2019, the Company entered into four pay fixed receive floating interest rate swap contracts to effectively fix the underlying variability in expected interest payment cash outflows on its LIBOR based debt. The agreements have an effective date of January 23, 2019 and expire at varied dates between April 2021 and March 2024. These interest rate swap contracts have an aggregate notional principal amount of $250 million and require the Company to pay interest payments during the duration of the respective contracts at fixed annual rates between 2.5255% and 2.5500%, while receiving interest for the same respective contract periods at one-month LIBOR on the same aggregate notional principal amounts.

(10)

On January 24, 2019, the Company entered into two pay fixed receive floating interest rate swap contracts to effectively fix the underlying variability in expected interest payment cash outflows on its LIBOR based debt. The agreements have an effective date of January 24, 2019 and expire at varied dates between October 2024 and October 2025. These interest rate swap contracts have an aggregate notional principal amount of $100 million and require the Company to pay interest payments during the duration of the respective contracts at fixed annual rates between 2.5210% and 2.5558%, while receiving interest for the same respective contract periods at one-month LIBOR on the same aggregate notional principal amounts.

(11)

On March 18, 2019, the Company entered into a pay fixed and receive floating interest rate swap contract to effectively fix the underlying variability in expected interest payment cash outflows on its LIBOR based debt. The agreement has an effective date of March 21, 2019 and expires in April 2022. The interest rate swap contract has a notional principal amount of $100.0 million and requires the Company to pay interest payments during the duration of the contract at a fixed annual rate of 2.3645%, while receiving interest for the same contract period at one-month LIBOR on the same notional principal amount.

(12)

On March 21, 2019, the Company entered into two pay fixed receive floating interest rate swap contracts to effectively fix the underlying variability in expected interest payment cash outflows on its LIBOR based debt. The agreements have an effective date of March 21, 2019 and expire at varied dates between December 2019 and May 2020. These interest rate swap contracts have an aggregate notional principal amount of $200 million and require the Company to pay interest payments during the duration of the respective contracts at fixed annual rates between 2.4490% and 2.4925%, while receiving interest for the same respective contract periods at one-month LIBOR on the same aggregate notional principal amounts.

(13)

On April 2, 2019, the Company entered into two pay fixed receive floating interest rate swap contracts to effectively fix the underlying variability in expected interest payment cash outflows on its LIBOR based debt. The agreements have an effective date of April 2, 2019 and expire at varied dates between June 2021 and June 2022. These interest rate swap contracts have an aggregate notional principal amount of $200 million and require the Company to pay interest payments during the duration of the respective contracts at fixed annual rates between 2.2170% and 2.2520%, while receiving interest for the same respective contract periods at one-month LIBOR on the same aggregate notional principal amounts.

(14)

On April 2, 2019, the Company entered into two pay fixed receive floating interest rate swap contracts to effectively fix the underlying variability in expected interest payment cash outflows on its LIBOR based debt. The agreements have an effective date of June 10, 2019 and June 28, 2019 and expire at varied dates between June 2021 and June 2022. These interest rate swap contracts have an aggregate notional principal amount of $100 million and require the Company to pay interest payments during the duration of the respective contracts at fixed annual rates between 2.1840% and 2.2290%, while receiving interest for the same respective contract periods at one-month LIBOR on the same aggregate notional principal amounts.

The Company performs an initial quantitative assessment of hedge effectiveness using the “Hypothetical Derivative Method” in the period in which the hedging transaction is entered. Under this method, the Company assesses the effectiveness of each hedging relationship by comparing the changes in cash flows of the derivative hedging instrument with the changes in cash flows of the designated hedged transactions. In future reporting periods, the Company performs a qualitative analysis for quarterly prospective and retrospective assessments of hedge effectiveness. The Company also monitors the risk of counterparty default on an ongoing basis and noted that the counterparties are reputable financial institutions. The entire change in the fair value of the derivative is initially reported in Other comprehensive income (outside of earnings) in the Consolidated Statements of Comprehensive Income and subsequently reclassified to earnings in Interest expense, net in the Consolidated Statements of Operations when the hedged transactions affect earnings.

The location and amount of gains or losses recognized in the Consolidated Statements of Operations for interest rate swap contracts for each of the periods, presented on a pretax basis, are as follows:



	Interest Expense, net
(In thousands)	2019		2018		2017
Total amounts of expense line items presented in the Consolidated Statements of Operations in which the effects of cash flow hedges are recorded	$	179,963	$	16,025	$	16,754
Gain or (loss) on cash flow hedging relationships:
Gain or (loss) reclassified from comprehensive income into income	$	13	$	827	$	(1,462	)
Gain or (loss) on interest rate swap contracts not designated as hedging instruments:
Gain or (loss) recognized as interest expense	$	51	$	—	$	—