Quarterly report pursuant to Section 13 or 15(d)

Derivative Financial Instruments

v3.19.2
Derivative Financial Instruments
3 Months Ended
May 04, 2019
Derivative Financial Instruments  
DERIVATIVE FINANCIAL INSTRUMENTS

15.  Derivative Financial Instruments

 

Effective February 3, 2019, we adopted ASU 2017-12, Derivatives and Hedging:  Targeted Improvements to Accounting for Hedging Activities.  The adoption of ASU 2017-12 did not have an impact on our financial position, results of operations or cash flows.

 

In April 2017, we entered into an interest rate swap contract on an initial notional amount of $260.0 million that matures in June 2021 with periodic interest settlements. At May 4, 2019, the notional amount totaled $330.0 million. Under this interest rate swap contract, we receive a floating rate based on 1-month LIBOR and pay a fixed rate of 5.31% (including the applicable margin of 3.25%) on the outstanding notional amount.

 

In June 2018, we entered into an interest rate swap contract on an initial notional amount of $320.0 million that matures in April 2025 with periodic interest settlements. At May 4, 2019, the notional amount totaled $380.0 million. Under this interest rate swap contract, we receive a floating rate based on 1-month LIBOR and pay a fixed rate of 6.18% (including the applicable margin of 3.25%) on the outstanding notional amount.

We have designated each interest rate swap as a cash flow hedge of the variability of interest payments under the Term Loan due to changes in the LIBOR benchmark rate and the fair value of the swaps is reported as a component of accumulated other comprehensive (loss) income.  For both swaps, changes in fair value are reclassified from accumulated other comprehensive (loss) income into earnings in the same period that the hedged item affects earnings.  Over the next 12 months, $0.9 million of the amounts related to the interest rate swaps is expected to be reclassified from accumulated other comprehensive (loss) income into earnings within interest expense. 

 

We also utilize derivative instruments to hedge our foreign exchange risk, specifically related to the British pound and Euro.  At May 4, 2019, the notional amount of the British pound and Euro instruments totaled $24.7 million and $7.8 million, respectively, and mature at various times through December 2019. We have designated these instruments as cash flow hedges of the variability in exchange rates for those foreign currencies.  The fair value of these hedges is reported as a component of accumulated other comprehensive (loss) income and changes in fair value are reclassified from accumulated other comprehensive (loss) income into earnings in the same period that the hedged item affects earnings. Over the next 12 months, $0.7 million of the amounts related to these cash flow hedges is expected to be reclassified as expense into cost of sales from accumulated other comprehensive (loss) income.

 

In addition, we are exposed to market risk associated with foreign currency exchange rate fluctuations as a result of our direct sourcing programs, specifically related to the Canadian dollar.  As a result, from time to time, we may enter into derivative instruments to hedge this foreign exchange risk.  At May 4, 2019, the notional amount of these instruments totaled $5.7 million. We have not elected to apply hedge accounting to these derivative instruments. Amounts related to these transactions were immaterial to our condensed consolidated financial statements.

 

The following table provides details on our derivative instruments recorded in the condensed consolidated balance sheets as of May 4, 2019, May 5, 2018 and February 2, 2019 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

May 4, 2019

 

May 5, 2018

 

February 2, 2019

 

 

 

Balance

 

Estimated

 

Balance

 

Estimated

 

Balance

 

Estimated

 

 

    

Sheet Location

    

Fair Value

    

Sheet Location

    

Fair Value

    

Sheet Location

    

Fair Value

 

Interest rate contracts

 

Other current assets 

 

$

1,154

 

Other current assets 

 

$

1,018

 

Other current assets 

 

$

1,610

 

Interest rate contracts

 

Other assets

 

 

489

 

Other assets

 

 

4,341

 

Other assets

 

 

1,355

 

Foreign exchange contracts

 

Other current assets 

 

 

221

 

Other current assets 

 

 

280

 

Other current assets 

 

 

109

 

Total assets

 

 

 

 

$

1,864

 

 

 

 

$

5,639

 

 

 

 

$

3,074

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

Accrued expenses and other current liabilities

 

$

2,084

 

Accrued expenses and other current liabilities

 

$

 —

 

Accrued expenses and other current liabilities

 

$

1,625

 

Interest rate contracts

 

Deferred taxes, net and other liabilities

 

 

12,719

 

Deferred taxes, net and other liabilities

 

 

 —

 

Deferred taxes, net and other liabilities

 

 

7,605

 

Foreign exchange contracts

 

Accrued expenses and other current liabilities

 

 

 —

 

Accrued expenses and other current liabilities

 

 

83

 

Accrued expenses and other current liabilities

 

 

77

 

Total liabilities

 

 

 

 

$

14,803

 

 

 

 

$

83

 

 

 

 

$

9,307

 

 

 

 

 

The following table provides details on our derivative instruments recorded in the condensed consolidated statements of earnings and comprehensive (loss) income for the three months ended May 4, 2019 and May 5, 2018 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount of Gain/(Loss) Recognized in Other Comprehensive Loss, net of tax

 

Location of Gain/(Loss) Reclassified from Accumulated Other Comprehensive Loss into Earnings

Amount of Gain/(Loss) Reclassified from Accumulated Other Comprehensive Loss into Earnings

 

 

For the Three Months Ended

 

 

For the Three Months Ended

 

    

May 4, 2019

    

May 5, 2018

 

 

May 4, 2019

    

May 5, 2018

Derivatives in Cash Flow Hedging Relationships:

 

 

    

 

 

    

 

 

 

    

 

 

    

Interest rate contracts

 

$

(5,195)

 

$

1,040

 

Interest expense

$

14

 

$

154

Foreign exchange contracts

 

 

97

 

 

1,047

 

Cost of sales

 

(530)

 

 

559

Total

 

$

(5,098)

 

$

2,087

 

 

$

(516)

 

$

713