Derivative Financial Instruments

3 Months Ended

Jul. 27, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

We are a party to certain offsetting and identical interest rate cap agreements entered into to fulfill certain covenants of the equipment finance contract sale agreements. The interest rate cap agreements also provide a credit enhancement feature for the financing contracts sold by PDC Funding and PDC Funding II to the commercial paper conduit.

The interest rate cap agreements are canceled and new agreements are entered into periodically to maintain consistency with the dollar maximum of the sale agreements and the maturity of the underlying financing contracts. As of July 27, 2019, PDC Funding had purchased an interest rate cap from a bank with a notional amount of $525,000 and a maturity date of July 2026. We sold an identical interest rate cap to the same bank. As of July 27, 2019, PDC Funding II had purchased an interest rate cap from a bank with a notional amount of $100,000 and a maturity date of December 2025. We sold an identical interest rate cap to the same bank.

These interest rate cap agreements do not qualify for hedge accounting treatment and, accordingly, we record the fair value of the agreements as an asset or liability and the change as income or expense during the period in which the change occurs.

In January 2014, we entered into a forward interest rate swap agreement with a notional amount of $250,000 and accounted for it as a cash flow hedge, in order to hedge interest rate fluctuations in anticipation of refinancing the 5.17% senior notes due March 25, 2015. These notes were repaid on March 25, 2015 and replaced with new $250,000 3.48% senior notes due March 24, 2025. A cash payment of $29,003 was made in March 2015 to settle the interest

rate swap. This amount is recorded in other comprehensive income (loss), net of tax, and is recognized as interest expense over the life of the related debt.

We utilize forward interest rate swap agreements to hedge against interest rate fluctuations that impact the amount of net sales we record related to our customer financing contracts. These interest rate swap agreements do not qualify for hedge accounting treatment and, accordingly, we record the fair value of the agreements as an asset or liability and the change as income or expense during the period in which the change occurs.

As of April 27, 2019, the remaining notional amount for these interest rate swap agreements was $553,719, with the latest maturity date in fiscal 2026. During the three months ended July 27, 2019, we entered into a forward interest rate swap agreement with a notional amount of $72,798. As of July 27, 2019, the remaining notional amount for all outstanding interest rate swap agreements was $565,756, with the latest maturity date in fiscal 2027.

Net cash payments of $122 were made during the three months ended July 27, 2019 to settle a portion of our liabilities related to these interest rate swap agreements. These payments are reflected as cash outflows in the consolidated statements of cash flows within net cash provided by (used in) operating activities.

The following presents the fair value of derivative instruments included in the condensed consolidated balance sheets:



Derivative type	Classification	July 27, 2019		April 27, 2019
Assets:
Interest rate contracts	Other non-current assets	$	149	$	380
Liabilities:
Interest rate contracts	Other accrued liabilities	2,486		1,034
Interest rate contracts	Other non-current liabilities	4,139		2,160
Total liability derivatives		$	6,625	$	3,194

The following tables present the pre-tax effect of derivative instruments on the condensed consolidated statements of income:



		Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion)
		Three Months Ended
Derivatives in cash flow hedging relationships	Income statement location	July 27, 2019			July 28, 2018
Interest rate contracts	Interest expense	$	(725	)	$	(733	)



		Amount of Gain (Loss) Recognized in Income on Derivatives
		Three Months Ended
Derivatives not designated as hedging instruments	Income statement location	July 27, 2019			July 28, 2018
Interest rate contracts	Other income, net	$	(3,785	)	$	—

There were no gains or losses recognized in OCI on cash flow hedging derivatives during the three months ended July 27, 2019 or July 28, 2018.

We recorded no ineffectiveness during the three month periods ended July 27, 2019 and July 28, 2018. As of July 27, 2019, the estimated pre-tax portion of accumulated other comprehensive loss that is expected to be reclassified into earnings over the next twelve months is $2,900, which will be recorded as an increase to interest expense.