Derivative Financial Instruments

9 Months Ended

May 02, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

Derivative Financial Instruments

As discussed in more detail in Note 11, the interest rate under the Company’s Term Loan is based on a variable rate. Therefore, the Company has exposure to increases in the underlying interest rate. In order to protect against our interest rate exposure, we entered into an interest rate swap agreement in March 2019. We do not hold any derivative financial instruments for speculative or trading purposes.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges are recorded in the line item Accumulated other comprehensive loss on the Company’s condensed consolidated balance sheets and are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Amounts reported in Accumulated other comprehensive loss related to the Company’s derivative contracts will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. 

As of May 2, 2020, the Company had the following outstanding interest rate derivative that was designated as a cash flow hedge of interest rate risk:

Interest Rate Derivative	Number of Instruments	Notional Agreement Principal Amount	Interest Rate	Maturity Date
Interest rate swap	One	$600.0 Million	6.85%	March 31, 2021

The interest rate swap was recorded at its estimated fair value of $8.4 million and $6.3 million as of May 2, 2020 and August 3, 2019, respectively, based on Level 2 measurements. Amounts included in the condensed consolidated balance sheet as of May 2, 2020 include $8.4 million in Accrued expenses. Amounts included in the condensed consolidated balance sheet as of August 3, 2019 include $3.1 million in Accrued expenses and other current liabilities and $3.2 million in Other non-current liabilities. The amount of unrealized losses deferred to Accumulated other comprehensive loss before the effect of taxes was $8.4 million as of May 2, 2020 and $6.3 million as of August 3, 2019.

The amount of losses reclassified from Accumulated other comprehensive loss into earnings related to the Company’s derivative instrument during the three and nine months ended May 2, 2020 was $1.7 million and $2.6 million, respectively, and was classified within Interest expense in the condensed consolidated statements of operations. Based on current valuations, we

estimate $8.4 million will be reclassified from Accumulated other comprehensive loss into Interest expense during the next twelve months. There was no material ineffectiveness related to the interest rate swap agreement during the periods presented.