FAIR VALUE MEASUREMENTS

The Company utilizes ASC 820, Fair Value Measurements and Disclosures ("ASC 820"), for financial assets and liabilities and for non-financial assets and liabilities that are recognized or disclosed at fair value on at least an annual basis. ASC 820 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes three levels of inputs that may be used to measure fair value:


•	Level 1 Inputs—Unadjusted quoted prices in active markets for identical assets or liabilities.

•

Level 2 Inputs—Inputs other than quoted prices included in Level 1 that are either directly or indirectly observable through correlation with market data. These include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and inputs to valuation models or other pricing methodologies that do not require significant judgment because the inputs used in the model, such as interest rates and volatility, can be corroborated by readily observable market data.

•

Level 3 Inputs—One or more significant inputs that are unobservable and supported by little or no market activity, and that reflect the use of significant management judgment. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques, and significant management judgment or estimation.

Hedging of Interest Rate Risk

The Company manages its debt portfolio with interest rate swaps to achieve an overall desired position of fixed and floating rates. Details of outstanding swap agreements as of July 28, 2018, which are all pay fixed and receive floating, are as follows:



Swap Maturity	Notional Value (in millions)		Pay Fixed Rate		Receive Floating Rate	Floating Rate Reset Terms
June 9, 2019	$	50.0	0.8725	%	One-Month LIBOR	Monthly
June 24, 2019	$	50.0	0.7265	%	One-Month LIBOR	Monthly
April 29, 2021	$	25.0	1.0650	%	One-Month LIBOR	Monthly
April 29, 2021	$	25.0	0.9260	%	One-Month LIBOR	Monthly
August 3, 2022	$	112.5	1.7950	%	One-Month LIBOR	Monthly

Interest rate swap agreements are entered into for periods consistent with related underlying exposures and do not constitute positions independent of those exposures. The Company’s interest rate swap agreements are designated as cash flow hedges at July 28, 2018.

The Company performs an initial quantitative assessment of hedge effectiveness using the “Hypothetical Derivative Method” described in ASC 815 in the period in which the hedging transaction is entered into. Under this method, the Company assesses the effectiveness of each hedging relationship by comparing the changes in cash flows of the derivative hedging instrument with the changes in cash flows of the designated hedged transactions. In future reporting periods the Company performs a qualitative analysis for quarterly prospective and retrospective assessments of hedge effectiveness. The Company also monitors the risk of counterparty default on an ongoing basis and noted that the counterparties are reputable financial institutions. The entire change in the fair value of the derivative is initially reported in other comprehensive income (outside of earnings) and subsequently reclassified to earnings in interest expense when the hedged transactions affect earnings.

The location and amount of gains or losses recognized in the Consolidated Statements of Income for cash flow hedging relationships for each of the periods, presented on a pretax basis, are as follows:



	Fiscal Year Ended
	July 28, 2018		July 29, 2017			July 30, 2016
(In thousands)	Interest Expense		Interest Expense			Interest Expense
Total amounts of income and expense line items presented in the consolidated results of operations in which the effects of cash flow hedges are recorded	$	16,471	$	17,114		$	16,259
Gain or (loss) on cash flow hedging relationships:
Gain or (loss) reclassified from Comprehensive Income into income	827		(1,462		)	(2,082		)

Financial Instruments

The following table provides the fair value hierarchy for financial assets and liabilities measured on a recurring basis as of July 28, 2018 and July 29, 2017:



	Fair Value at July 28, 2018				Fair Value at July 29, 2017
(In thousands)	Level 1	Level 2		Level 3	Level 1	Level 2			Level 3
Prepaid Expenses and Other Current Assets:
Interest Rate Swap	—	$	1,459	—	—	—			—
Other Assets:
Interest Rate Swap	—	5,860			—	$	2,491		—
Accrued Expenses and Other Current Liabilities:
Interest Rate Swap	—	—		—	—	(308		)	—

The fair value of the Company's other financial instruments including accounts receivable, notes receivable, accounts payable and certain accrued expenses are derived using Level 2 inputs and approximate carrying amounts due to the short-term nature of these instruments. The fair value of notes payable approximate carrying amounts as they are variable rate instruments. The carrying amount of notes payable approximates fair value as interest rates on the Existing ABL Facility approximates current market rates (level 2 criteria).

The following estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies taking into account the instruments' interest rate, terms, maturity date and collateral, if any, in comparison to the Company's incremental borrowing rate for similar financial instruments and are therefore deemed Level 2 inputs. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange.



	July 28, 2018				July 29, 2017
(In thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Liabilities
Long term debt, including current portion	$	150,150	$	155,317	$	161,991	$	169,058

Fuel Supply Agreements

From time to time the Company is a party to fixed price fuel supply agreements. During the fiscal year ended July 28, 2018, the Company did not enter in any such agreements. During the fiscal year ended July 29, 2017, the Company entered into several agreements which required it to purchase a portion of its diesel fuel each month at fixed prices through December 2016. These fixed price fuel agreements qualify for the "normal purchase" exception under ASC 815; therefore, the fuel purchases under these contracts are expensed as incurred and included within operating expenses.