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Derivatives and Hedging
 6 Months Ended
Jan. 31, 2015
Derivatives and Hedging [Abstract]  
Derivatives and Hedging

NOTE 4 – Derivatives and Hedging

The Company has entered into two interest rate swaps to exchange its variable interest rate payments commitment for fixed interest rate payments through December 2015. The swaps are a designated effective cash flow hedge under ASC 815, Derivatives and Hedging. Each quarter, the Company measures hedge effectiveness using the “hypothetical derivative method” and records in earnings any hedge ineffectiveness with the effective portion of the change in fair value recorded in other comprehensive income or loss. The Company has reclassified $0.4 million and $0.6 million for the three months ended January 31, 2015 and 2014, respectively, and $0.9 million and $1.2 million for the six months ended January 31, 2015 and 2014, out of other comprehensive income into interest expense.

 

The hedge provided by the swaps could prove to be ineffective for a number of reasons, including early retirement of the variable interest rate debt, as is allowed under the variable interest rate debt, or in the event the counterparty to the interest rate swaps is determined in the future to not be creditworthy.

 

The interest rate swaps are classified within Level II of the fair value hierarchy as the derivatives are valued using observable inputs. The Company determines fair value of the derivative utilizing observable market data of swap rates and basis rates. These inputs are placed into a pricing model using a discounted cash flow methodology in order to calculate the mark-to-market value of the interest rate swaps. As of January 31, 2015 and July 31, 2014, the Company’s fair value of the interest rate swaps were $1.1 million and $1.7 million, respectively, and were classified as other liabilities in the consolidated balance sheets.