Derivative Instruments and Hedging Activities

12 Months Ended

Jul. 28, 2017

Derivative Instruments and Hedging Activities [Abstract]

Derivative Instruments and Hedging Activities

6. Derivative Instruments and Hedging Activities

For each of the Company’s interest rate swaps, the Company has agreed to exchange with a counterparty the difference between fixed and variable interest amounts calculated by reference to an agreed-upon notional principal amount.  The interest rates on the portion of the Company’s outstanding debt covered by its interest rate swaps are fixed at the rates in the table below plus the Company’s credit spread.  The Company’s credit spread at July 28, 2017 and July 29, 2016 was 1.00% and 1.25%, respectively.  All of the Company’s interest rate swaps are accounted for as cash flow hedges.

A summary of the Company’s interest rate swaps at July 28, 2017 is as follows:

Trade Date	Effective Date	Term (in Years)		Notional Amount		Fixed Rate
March 18, 2013	May 3, 2015		3	$	50,000		1.51	%
April 22, 2013	May 3, 2015		3		25,000		1.30	%
April 25, 2013	May 3, 2015		3		25,000		1.29	%
June 18, 2014	May 3, 2015		4		120,000		2.51	%
June 24, 2014	May 3, 2015		4		90,000		2.51	%
July 1, 2014	May 5, 2015		4		90,000		2.43	%
January 30, 2015	May 3, 2019		2		80,000		2.15	%
January 30, 2015	May 3, 2019		2		60,000		2.16	%
January 30, 2015	May 4, 2021		3		120,000		2.41	%
January 30, 2015	May 3, 2019		2		60,000		2.15	%
January 30, 2015	May 4, 2021		3		80,000		2.40	%

The notional amount for the interest rate swap entered into on June 18, 2014 increases by $40,000 each May over the four-year term of the interest rate swap until the notional amount reaches $160,000 in May 2018.  The notional amounts for the interest rate swaps entered into on June 24, 2014 and July 1, 2014 increase by $30,000 each May over the four-year terms of the interest rate swaps until the notional amounts each reach $120,000 in May 2018.

The estimated fair values of the Company’s derivative instruments were as follows:

(See Note 3)	Balance Sheet Location	July 28, 2017		July 29, 2016
Interest rate swaps	Prepaid expenses and other current assets	$	32	$	--
Interest rate swaps	Other current liabilities	$	47	$	180
Interest rate swaps	Long-term interest rate swap liability		6,833		22,070
Total liabilities		$	6,880	$	22,250

*These interest rate swap assets and liabilities are recorded at gross at both July 28, 2017 and July 29, 2016 since there were no offsetting assets and liabilities under the Company’s master netting agreements.

The estimated fair values of the Company’s interest rate swap assets and liabilities incorporate the Company’s non-performance risk.  The adjustment related to the Company’s non-performance risk at July 28, 2017 and July 29, 2016 resulted in reductions of $103 and $1,035, respectively, in the total fair value of the interest rate swap assets and liabilities.  The offset to the interest rate swap assets and liabilities is recorded in accumulated other comprehensive loss (“AOCL”), net of the deferred tax assets, and will be reclassified into earnings over the term of the underlying debt.  As of July 28, 2017, the estimated pre-tax portion of AOCL that is expected to be reclassified into earnings over the next twelve months is $2,538.  Cash flows related to the interest rate swaps are included in interest expense and in operating activities.

The following table summarizes the pre-tax effects of the Company’s derivative instruments on AOCL for each of the three years:

	Amount of Income (Loss) Recognized in AOCL on Derivatives (Effective Portion)
	2017		2016			2015
Cash flow hedges:
Interest rate swaps	$	15,402	$	(16,188	)	$	1,641

The following table summarizes the changes in AOCL, net of tax, related to the Company’s interest rate swaps for the years ended July 28, 2017, July 29, 2016 and July 31, 2015:

	July 28, 2017			July 29, 2016			July 31, 2015
Beginning AOCL balance	$	(13,740	)	$	(3,725	)	$	(4,733	)
Other comprehensive income (loss) before reclassifications		12,082			(6,683	)		5,955
Amounts reclassified from AOCL into earnings		(2,571	)		(3,332	)		(4,947	)
Other comprehensive income (loss), net of tax		9,511			(10,015	)		1,008
Ending AOCL balance	$	(4,229	)	$	(13,740	)	$	(3,725	)

The following table summarizes the pre-tax effects of the Company’s derivative instruments on income for each of the three years:

	Location of Loss Reclassified from AOCL into Income (Effective Portion)	Amount of Loss Reclassified from AOCL into Income (Effective Portion)
		2017		2016		2015
Cash flow hedges:
Interest rate swaps	Interest expense	$	4,163	$	5,395	$	8,052

The following table summarizes the amounts reclassified out of AOCL related to the Company’s interest rate swaps for the years ended July 28, 2017, July 29, 2016 and July 31, 2015:

Details about AOCL	July 28, 2017			July 29, 2016			July 31, 2015			Affected Line Item in the Consolidated Statement of Income
Loss on cash flow hedges:
Interest rate swaps	$	(4,163	)	$	(5,395	)	$	(8,052	)	Interest expense
Tax benefit		1,592			2,063			3,105		Provision for income taxes
	$	(2,571	)	$	(3,332	)	$	(4,947	)	Net of tax

Any portion of the fair value of the interest rate swaps determined to be ineffective will be recognized currently in earnings.  No ineffectiveness has been recorded in 2017, 2016 and 2015.