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 both July 29, 2016 and July 31, 2015 was 1.25%. 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 29, 2016 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 8, 2013 May 3, 2015 2 50,000 1.05 % April 15, 2013 May 3, 2015 2 50,000 1.03 % 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 80,000 2.51 % June 24, 2014 May 3, 2015 4 60,000 2.51 % July 1, 2014 May 5, 2015 4 60,000 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 29, 2016 July 31, 2015 Interest rate swaps Other assets $ -- $ 3,759 Interest rate swaps Current interest rate swap liability $ 180 $ 1,117 Interest rate swaps Long-term interest rate swap liability 22,070 8,704 Total liabilities $ 22,250 $ 9,821 The following table summarizes the offsetting of the Company’s derivative assets in the Consolidated Balance Sheets at July 29, 2016 and July 31, 2015: Gross Asset Amounts Liability Amount Offset Net Asset Amount Presented in the Balance Sheets (See Note 3) July 29, 2016 July 31, 2015 July 29, 2016 July 31, 2015 July 29, 2016 July 31, 2015 Interest rate swaps $ -- $ 3,878 $ -- $ (119 ) $ -- $ 3,759 The following table summarizes the offsetting of the Company’s derivative liabilities in the Consolidated Balance Sheets at July 29, 2016 and July 31, 2015: Gross Liability Amounts Asset Amount Offset Net Liability Amount Presented in the Balance Sheets (See Note 3) July 29, 2016 July 31, 2015 July 29, 2016 July 31, 2015 July 29, 2016 July 31, 2015 Interest rate swaps $ 22,250 $ 9,821 $ -- $ -- $ 22,250 $ 9,821 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 29, 2016 and July 31, 2015 resulted in reductions of $1,035 and $209, respectively, in the total fair value of the interest rate swap asset and liabilities. The offset to the interest rate swap asset 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 29, 2016, the estimated pre-tax portion of AOCL that is expected to be reclassified into earnings over the next twelve months is $3,227. 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 (Loss) Income Recognized in AOCL on Derivatives (Effective Portion) 2016 2015 2014 Cash flow hedges: Interest rate swaps $ (16,188 ) $ 1,641 $ 3,058 The following table summarizes the changes in AOCL, net of tax, related to the Company’s interest rate swaps for the years ended July 29, 2016, July 31, 2015 and August 1, 2014: July 29, 2016 July 31, 2015 August 1, 2014 Beginning AOCL balance $ (3,725 ) $ (4,733 ) $ (6,612 ) Other comprehensive (loss) income before reclassifications (6,683 ) 5,955 6,836 Amounts reclassified from AOCL into earnings (3,332 ) (4,947 ) (4,957 ) Other comprehensive (loss) income, net of tax (10,015 ) 1,008 1,879 Ending AOCL balance $ (13,740 ) $ (3,725 ) $ (4,733 ) 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) 2016 2015 2014 Cash flow hedges: Interest rate swaps Interest expense $ 5,395 $ 8,052 $ 8,068 The following table summarizes the amounts reclassified out of AOCL related to the Company’s interest rate swaps for the years ended July 29, 2016, July 31, 2015 and August 1, 2014: Details about AOCL July 29, 2016 July 31, 2015 August 1, 2014 Affected Line Item in the Consolidated Loss on cash flow hedges: Interest rate swaps $ (5,395 ) $ (8,052 ) $ (8,068 ) Interest expense Tax benefit 2,063 3,105 3,111 Provision for income taxes $ (3,332 ) $ (4,947 ) $ (4,957 ) 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 2016, 2015 and 2014. |