Quarterly report pursuant to Section 13 or 15(d)

Derivative Financial Instruments

v3.19.2
Derivative Financial Instruments
6 Months Ended
Aug. 03, 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 August 3, 2019, the notional amount totaled $320.0 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 August 3, 2019, the notional amount totaled $390.0 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, $5.3 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 August 3, 2019, the notional amount of the British pound and Euro instruments totaled $21.2 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, $2.0 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.  We have not elected to apply hedge accounting to these derivative instruments. At August 3, 2019, the notional amount of these instruments totaled $6.5 million. Amounts related to these transactions were immaterial to our condensed consolidated financial statements.  

Also, during the second quarter of 2019, we entered into a foreign currency forward hedge for our corporate apparel business to hedge our exposure to exchange rate risk related to the British pound for a notional amount of $56.0 million. We have not elected to apply hedge accounting to this derivative instrument. For the three and six months ended August 3, 2019, we recorded an unrealized gain of $1.3 million within SG&A in the condensed consolidated statement of earnings.

The following table provides details on our derivative instruments recorded in the condensed consolidated balance sheets as of August 3, 2019, August 4, 2018 and February 2, 2019 (in thousands):

August 3, 2019

August 4, 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

$

Other current assets

$

1,478

Other current assets

$

1,610

Interest rate contracts

Other assets

Other assets

5,430

Other assets

1,355

Foreign exchange contracts

Other current assets

2,787

Other current assets

1,332

Other current assets

109

Total assets

$

2,787

$

8,240

$

3,074

Interest rate contracts

Accrued expenses and other current liabilities

$

5,304

Accrued expenses and other current liabilities

$

1,735

Accrued expenses and other current liabilities

$

1,625

Interest rate contracts

Deferred taxes, net and other liabilities

24,949

Deferred taxes, net and other liabilities

Deferred taxes, net and other liabilities

7,605

Foreign exchange contracts

Accrued expenses and other current liabilities

464

Accrued expenses and other current liabilities

197

Accrued expenses and other current liabilities

77

Total liabilities

$

30,717

$

1,932

$

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 and six months ended August 3, 2019 and August 4, 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

    

August 3, 2019

    

August 4, 2018

August 3, 2019

    

August 4, 2018

Derivatives in Cash Flow Hedging Relationships:

    

    

    

    

Interest rate contracts

$

(12,943)

$

(255)

Interest expense

$

99

$

153

Foreign exchange contracts

955

798

Cost of sales

(176)

473

Total

$

(11,988)

$

543

$

(77)

$

626

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 Six Months Ended

For the Six Months Ended

    

August 3, 2019

    

August 4, 2018

August 3, 2019

    

August 4, 2018

Derivatives in Cash Flow Hedging Relationships:

    

    

    

    

Interest rate contracts

$

(18,138)

$

785

Interest expense

$

113

$

307

Foreign exchange contracts

1,052

1,845

Cost of sales

(706)

1,032

Total

$

(17,086)

$

2,630

$

(593)

$

1,339