5.	Derivative Instruments and Hedging Activities

The Company has interest rate risk relative to its outstanding borrowings (see Note 4 for information on the Company’s outstanding borrowings). The Company’s policy has been to manage interest cost using a mix of fixed and variable rate debt. To manage this risk in a cost-efficient manner, the Company uses derivative instruments, specifically interest rate swaps.

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 April 27, 2018 was 1.00%. 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 April 27, 2018 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 to $160,000 in May 2018. The notional amounts for the interest rate swaps entered into on June 24, 2014 and July 1, 2014 each increase to $120,000 in May 2018.

The Company does not hold or use derivative instruments for trading purposes. The Company also does not have any derivatives not designated as hedging instruments and has not designated any non-derivatives as hedging instruments.

Companies may elect to offset related assets and liabilities and report the net amount on their financial statements if the right of setoff exists. Under a master netting agreement, the Company has the legal right to offset the amounts owed to the Company against amounts owed by the Company under a derivative instrument that exists between the Company and a counterparty. When the Company is engaged in more than one outstanding derivative transaction with the same counterparty and also has a legally enforceable master netting agreement with that counterparty, its credit risk exposure is based on the net exposure under the master netting agreement. If, on a net basis, the Company owes the counterparty, the Company regards its credit exposure to the counterparty as being zero.

The estimated fair values of the Company’s derivative instruments as of April 27, 2018 and July 28, 2017 were as follows:

(See Note 2)	Balance Sheet Location	April 27, 2018		July 28, 2017
Interest rate swaps	Prepaid expenses and other current assets	$	5	$	32
Interest rate swaps	Other assets		5,963		--
Total assets		$	5,968	$	32

Interest rate swaps	Other current liabilities	$	--	$	47
Interest rate swaps	Other long-term obligations		37		6,833
Total liabilities		$	37	$	6,880

*These interest rate swap assets and liabilities are recorded at gross at both April 27, 2018 and July 28, 2017 since there were no offsetting assets and liabilities under the Company’s master netting agreements.

The estimated fair value of the Company’s interest rate swap assets and liabilities incorporates the Company’s non-performance risk (see Note 2). The adjustment related to the Company’s non-performance risk at April 27, 2018 and July 28, 2017 resulted in reductions of $198 and $103, respectively, in the fair value of the interest rate swap liabilities. The offset to the interest rate swap asset and liabilities is recorded in accumulated other comprehensive income (loss) (“AOCIL”), net of the deferred tax asset, and will be reclassified into earnings over the term of the underlying debt. As of April 27, 2018, the estimated pre-tax portion of AOCIL that is expected to be reclassified into earnings over the next twelve months is $153. 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 AOCIL for the nine months ended April 27, 2018 and the year ended July 28, 2017:

	Amount of Income Recognized in AOCIL on Derivatives (Effective Portion)
	Nine Months Ended April 27, 2018		Year Ended July 28, 2017
Cash flow hedges:
Interest rate swaps	$	12,779	$	15,402

The following table summarizes the pre-tax effects of the Company’s derivative instruments on income for the quarters and nine-month periods ended April 27, 2018 and April 28, 2017:

	Location of Loss Reclassified from AOCIL into Income (Effective Portion)	Amount of Loss Reclassified from AOCIL into Income (Effective Portion)
		Quarter Ended				Nine Months Ended
		April 27, 2018		April 28, 2017		April 27, 2018		April 28, 2017
Cash flow hedges:
Interest rate swaps	Interest expense	$	865	$	993	$	2,852	$	3,354

Any portion of the fair value of the swaps determined to be ineffective will be recognized currently in earnings. No ineffectiveness has been recorded in the nine-month periods ended April 27, 2018 and April 28, 2017.