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DERIVATIVES AND FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS DERIVATIVES AND FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS | 3 Months Ended
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Oct. 27, 2018
Fair Value Disclosures [Abstract] |
DERIVATIVES AND FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS | DERIVATIVES AND FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS Management of Interest Rate Risk The Company enters into interest rate swap contracts from time to time to mitigate its exposure to changes in market interest rates as part of its overall strategy to manage its debt portfolio to achieve an overall desired position of notional debt amounts subject to fixed and floating interest rates. Interest rate swap contracts 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 contracts are designated as cash flow hedges at October 27, 2018, except for one interest rate swap contract which matures on March 21, 2019 and is described in more detail below. Interest rate swap contracts are reflected at their fair values in the Condensed Consolidated Balance Sheets. Details of outstanding swap contracts as of October 27, 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
March 21, 2019(1) |  | $ | 300.0 |  |  | 2.0075 | % |  | One-Month LIBOR |  | Monthly
June 9, 2019(2) |  | $ | 50.0 |  |  | 0.8725 | % |  | One-Month LIBOR |  | Monthly
June 28, 2019(2) |  | $ | 50.0 |  |  | 0.7265 | % |  | One-Month LIBOR |  | Monthly
April 29, 2021(2) |  | $ | 25.0 |  |  | 1.0650 | % |  | One-Month LIBOR |  | Monthly
April 29, 2021(2) |  | $ | 25.0 |  |  | 0.9260 | % |  | One-Month LIBOR |  | Monthly
August 15, 2022(3) |  | $ | 66.0 |  |  | 1.7950 | % |  | One-Month LIBOR |  | Monthly
August 15, 2022(3) |  | $ | 44.0 |  |  | 1.7950 | % |  | One-Month LIBOR |  | Monthly
October 30, 2020(4) |  | $ | 100.0 |  |  | 2.8240 | % |  | One-Month LIBOR |  | Monthly
October 31, 2022(4) |  | $ | 100.0 |  |  | 2.8915 | % |  | One-Month LIBOR |  | Monthly
October 31, 2023(4) |  | $ | 100.0 |  |  | 2.9210 | % |  | One-Month LIBOR |  | Monthly
October 22, 2025(4) |  | $ | 50.0 |  |  | 2.9550 | % |  | One-Month LIBOR |  | Monthly
(1) | On October 22, 2018, as a result of the acquisition of Supervalu, the Company assumed a pay fixed and receive floating interest rate swap agreement originally entered into by Supervalu to effectively convert $300 million of its variable rate debt to a fixed rate by swapping the variable LIBOR rate component to a fixed rate of 2.0075%. The Company entered into a novation agreement with the counterparty to novate this agreement to the Company, keeping it in place through its scheduled maturity date of March 2019. This interest rate swap contract was kept in place to fix the underlying variability in expected interest payment cash outflows on $300 million notional amount of its LIBOR based debt. This interest rate swap contract is not designated as a hedging instrument as of October 27, 2018, and as such gains or losses resulting from the change in fair value of the contract are reported as Interest expense within the Condensed Consolidated Statements of Income.
(2) | In June 2016, the Company entered into four pay fixed and receive floating interest rate swap contracts to effectively fix the underlying variability in expected interest payment cash outflows on its LIBOR based debt. The agreements were effective in June 2016 and expire at varied dates between June 2019 and April 2021. These interest rate swap contracts have an aggregate notional principal amount of $150 million and require the Company to pay interest payments during the duration of the respective contracts at fixed annual rates between 0.7265% and 1.0650%, while receiving interest for the same respective contract periods at one-month LIBOR on the same aggregate notional principal amounts.
(3) | On January 23, 2015, the Company entered into two pay fixed and receive floating interest rate swap contracts with effective dates in August 2015, which expire in August 2022. The interest rate swap contracts have amortizing notional amounts which adjust down on a quarterly basis. These interest rate swap contracts require the Company to pay interest payments during the duration of the respective contracts at fixed annual rates of 1.7950%, while receiving interest for the same respective contract periods at one-month LIBOR on the same aggregate notional principal amounts.
(4) | On October 26, 2018, the Company entered into four pay fixed receive floating interest rate swap contracts to effectively fix the underlying variability in expected interest payment cash outflows on its LIBOR based debt. The agreements have an effective date of October 26, 2018 and expire at varied dates between October 2020 and October 2025. These interest rate swap contracts have an aggregate notional principal amount of $350 million and require the Company to pay interest payments during the duration of the respective contracts at fixed annual rates between 2.8240% and 2.9550%, while receiving interest for the same respective contract periods at one-month LIBOR on the same aggregate notional principal amounts.
The fair values of interest rate swap contracts are measured using Level 2 inputs. The interest rate swap contracts are valued using an income approach interest rate swap valuation model incorporating observable market inputs including interest rates, LIBOR swap rates and credit default swap rates. October 27, 2018, a 100 basis point increase in forward LIBOR interest rates would increase the fair value of the interest rate swaps by approximately $19.1 million; a 100 basis point decrease in forward LIBOR interest rates would decrease the fair value of the interest rate swaps by approximately $19.9 million. The Company performs an initial quantitative assessment of hedge effectiveness using the “Hypothetical Derivative Method” in the period in which the hedging transaction is entered. 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 Condensed Consolidated Statements of Income for interest rate swap contracts for each of the periods, presented on a pretax basis, are as follows:
|  | 13-Week Period Ended
|  | October 27, 2018 |  | October 28, 2017
(In thousands) |  | Interest Expense |  | Interest Expense
Total amounts of expense presented in the consolidated results of operations in which the effects of cash flow hedges are recorded |  | $ | 7,671 |  |  | $ | 3,667 |
Gain or (loss) on cash flow hedging relationships: |  |  |  |
Gain or (loss) reclassified from comprehensive income into income |  | $ | 551 |  |  | $ | (30 | )
Gain or (loss) on interest rate swap contracts not designated as hedging instruments: |  |  |  |
Gain or (loss) recognized as interest expense |  | $ | (88 | ) |  | $ | — |
Recurring Fair Value Measurements The following table provides the fair value for financial assets and liabilities under the fair value hierarchy that are measured on a recurring basis:
|  |  |  | Fair Value at October 27, 2018
(In thousands) |  | Balance Sheet Location |  | Level 1 |  | Level 2 |  | Level 3
Assets: |  |  |  |  |  |  |  |
Interest rate swaps designated as hedging instruments |  | Prepaid expenses and other current assets |  | $ | — |  |  | $ | 1,148 |  |  | $ | — |
Interest rate swap not designated as a hedging instrument |  | Prepaid expenses and other current assets |  | $ | — |  |  | $ | 570 |  |  | $ | — |
Mutual funds |  | Prepaid expenses and other current assets |  | $ | 1,541 |  |  | $ | — |  |  | $ | — |
Interest rate swaps designated as hedging instruments |  | Other Assets |  | $ | — |  |  | $ | 5,886 |  |  | $ | — |
Mutual funds |  | Other Assets |  | $ | 1,856 |  |  | $ | — |  |  | $ | — |
|  |  |  | Fair Value at July 28, 2018
(in thousands) |  | Balance Sheet Location |  | Level 1 |  | Level 2 |  | Level 3
Assets: |  |  |  |  |  |  |  |
Interest rate swaps designated as hedging instruments |  | Prepaid expenses and other current assets |  | $ | — |  |  | $ | 1,459 |  |  | $ | — |
Interest rate swaps designated as hedging instruments |  | Other Assets |  | $ | — |  |  | $ | 5,860 |  |  | $ | — |
Mutual Funds Mutual fund assets consist of balances held in investments to fund certain deferred compensation plans. The fair values of mutual fund assets are based on quoted market prices of the mutual funds held by the plan at each reporting period. Mutual funds traded in active markets are classified within Level 1 of the fair value hierarchy. Deferred compensation liabilities consist of obligations to participants in deferred compensation plans, and are determined based on the fair value of the related deferred compensation plan investments or designated phantom investments of the plan at each reporting period. Fair Value Estimates For certain of the Company’s financial instruments including cash and cash equivalents, restricted cash, receivables, accounts payable, accrued vacation, compensation and benefits, and other current assets and liabilities the fair values approximate carrying amounts due to their short maturities. The carrying amount of notes payable approximates fair value as interest rates on the ABL Credit Facility approximate current market rates (level 2 criteria). Notes receivable estimated fair value is determined by a discounted cash flow approach applying a market rate for similar instruments that is determined using Level 3 inputs. Long-term debt, including current portion, estimated fair value is determined by 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.
|  | October 27, 2018 |  | July 28, 2018
(In thousands) |  | Carrying Value |  | Fair Value |  | Carrying Value |  | Fair Value
Assets: |  |  |  |  |  |  |  |
Notes receivable |  | $ | 64,240 |  |  | $ | 64,240 |  |  | $ | — |  |  | $ | — |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Long-term debt and capital lease obligations, including current portion |  | $ | 2,654,622 |  |  | $ | 2,674,688 |  |  | $ | 150,150 |  |  | $ | 155,317 |
Subsequent Events On November 16, 2018, the Company entered into three pay fixed receive floating interest rate swap contracts to fix the underlying variability in expected interest payment cash outflows on its LIBOR based debt. The agreements have an effective date of November 16, 2018 and expire at varied dates between March 2023 and October 2025. These interest rate swap contracts have an aggregate notional principal amount of $250 million and require the Company to pay interest payments during the duration of the respective contracts at fixed annual rates between 2.8950% and 2.9590%, while receiving interest for the same respective contract periods at one-month LIBOR on the same aggregate notional principal amounts. On November 30, 2018, the Company entered into three pay fixed receive floating interest rate swap contracts to fix the underlying variability in expected interest payment cash outflows on its LIBOR based debt. The agreements have an effective date of November 30, 2018 and expire at varied dates between October 2021 and October 2024. These interest rate swap contracts have an aggregate notional principal amount of $250 million and require the Company to pay interest payments during the duration of the respective contracts at fixed annual rates between 2.8084% and 2.8480%, while receiving interest for the same respective contract periods at one-month LIBOR on the same aggregate notional principal amounts.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -URI http://asc.fasb.org/topic&trid=2155941 + Details
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