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Derivative Instruments and Hedging Activities
 12 Months Ended
Jul. 31, 2020
Derivative Instruments and Hedging Activities [Abstract]  
Derivative Instruments and Hedging Activities
8. 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 was 3.00% and 1.00%, respectively, at July 31, 2020 and August 2, 2019.  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 31, 2020 is as follows:

 
Trade Date
 
Effective Date
  
Term
(in Years)
    
Notional Amount
    
Fixed
Rate
  
January 30, 2015
May 3, 2019
    
2.0
    
$
60,000
      
2.16
%
January 30, 2015
May 4, 2021
    
3.0
      
120,000
      
2.41
%
January 30, 2015
May 3, 2019
    
2.0
      
60,000
      
2.15
%
January 30, 2015
May 4, 2021
    
3.0
      
80,000
      
2.40
%
January 16, 2019
May 3, 2019
    
3.0
      
115,000
      
2.63
%
January 16, 2019
May 3, 2019
    
2.0
      
115,000
      
2.68
%
August 6, 2019
November 4, 2019
    
2.5
      
50,000
      
1.50
%
August 7, 2019
May 3, 2021
    
1.0
      
35,000
      
1.32
%
August 7, 2019
May 3, 2022
    
2.0
      
100,000
      
1.40
%
August 7, 2019
May 3, 2022
    
2.0
      
100,000
      
1.36
%


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

(See Note 5)
Balance Sheet Location
  
July 31, 2020
    
August 2, 2019
  
Interest rate swaps
Other current liabilities
  
$
3,886
    
$
—
  
Interest rate swaps
Long-term interest rate swap liability
    
23,860
      
10,483
  
Total liabilities
 
  
$
27,746
    
$
10,483
  


**These interest rate swap liabilities are recorded gross at both July 31, 2020 and August 2, 2019 since there were no offsetting assets under the Company’s master netting agreements.


The estimated fair values of the Company’s interest rate swap liabilities incorporate the Company’s non-performance risk (see Note 5).  The adjustment related to the Company’s non-performance risk at July 31, 2020 and August 2, 2019 resulted in reductions of $978 and $399, 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 income (loss) (“AOCIL”), net of the deferred tax assets, and will be reclassified into earnings over the term of the underlying debt.  As of July 31, 2020, the estimated pre-tax portion of AOCIL that is expected to be reclassified into earnings over the next twelve months is $5,886.  Cash flows related to the interest rate swaps are included in the interest expense line in the Consolidated Statements of Income (Loss) and in operating activities in the Consolidated Statements of Cash Flows.


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

 
  
Amount of Income (Loss) Recognized in AOCIL
on Derivatives (Effective Portion)
  
 
  
2020
    
2019
    
2018
  
Cash flow hedges:
                  
Interest rate swaps
  
$
(17,740
)
  
$
(15,466
)
  
$
13,103
  


The following table summarizes the changes in AOCIL, net of tax, related to the Company’s interest rate swaps for the years ended July 31, 2020, August 2, 2019 and August 3, 2018:

 
  
July 31,
2020
    
August 2,
2019
    
August 3,
2018
  
Beginning AOCIL balance
  
$
(6,913
)
  
$
4,685
    
$
(4,229
)
 
                        
Other comprehensive income (loss) before reclassifications
    
(12,559
)
    
(11,752
)
    
11,274
  
Amounts reclassified from AOCIL into earnings
    
(874
)
    
154
      
(2,360
)
Other comprehensive income (loss), net of tax
    
(13,433
)
    
(11,598
)
    
8,914
  
Ending AOCIL balance
  
$
(20,346
)
  
$
(6,913
)
  
$
4,685
  


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

Location of (Income) Loss
Reclassified from AOCIL into Income
(Effective Portion)
  
Amount of (Income) Loss Reclassified from
AOCIL into Income (Effective Portion)
  
 
 
  
2020
    
2019
    
2018
  
Cash flow hedges:
 
                  
Interest rate swaps
Interest expense
  
$
(1,165
)
  
$
(206
)
  
$
3,398
  


The following table summarizes the amounts reclassified out of AOCIL related to the Company’s interest rate swaps for the years ended July 31, 2020, August 2, 2019 and August 3, 2018:

 
                        
Details about AOCIL
  
July 31, 2020
    
August 2, 2019
    
August 3, 2018
  
Affected Line Item in
the Consolidated
Statement of Income
Loss on cash flow hedges:
                  
       
Interest rate swaps
  
$
(1,165
)
  
$
206
    
$
(3,398
)
Interest expense
Tax benefit
    
291
      
(52
)
    
1,038
  
Provision for income taxes
 
  
$
(874
)
  
$
154
    
$
(2,360
)
Net of tax
 

No gains or losses representing amounts excluded from the assessment of effectiveness were recognized in earnings in 2020.  No ineffectiveness has been recorded in 2019 and 2018.