Annual report pursuant to Section 13 and 15(d)

FAIR VALUE MEASUREMENTS

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FAIR VALUE MEASUREMENTS
12 Months Ended
Feb. 01, 2020
FAIR VALUE MEASUREMENTS  
FAIR VALUE MEASUREMENTS

18.  FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The authoritative guidance for fair value measurements establishes a three-tier fair value hierarchy, categorizing the inputs used to measure fair value. The hierarchy can be described as follows: Level 1- observable inputs such as quoted prices in active markets; Level 2 - inputs other than the quoted prices in active markets that are observable either directly or indirectly; and Level 3- unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

Assets and Liabilities that are Measured at Fair Value on a Recurring Basis

Fair Value Measurements at Reporting Date 

 

Using

 

Quoted Prices

 

in Active

Significant

 

Markets for

Other

Significant

 

Identical

Observable

Unobservable

 

Instruments

Inputs

Inputs

 

(in thousands)

    

(Level 1)

    

(Level 2)

    

(Level 3)

    

Total

 

February 1, 2020—

    

    

    

    

Assets:

Derivative financial instruments

$

$

7

$

$

7

Liabilities:

Derivative financial instruments

$

$

34,586

$

$

34,586

February 2, 2019—

Assets:

Derivative financial instruments

$

$

2,965

$

$

2,965

Liabilities:

Derivative financial instruments

$

$

9,307

$

$

9,307

At February 1, 2020, derivative financial instruments are comprised of interest rate swap agreements to minimize our exposure to interest rate changes on our outstanding indebtedness and foreign currency forward exchange contracts primarily entered into related to our direct sourcing programs, specifically related to the Canadian dollar.

These derivative financial instruments are recorded in the consolidated balance sheets at fair value based upon observable market inputs, primarily pricing models based on current market rates. Derivative financial instruments in an asset position are included within other current assets or other assets in the consolidated balance sheets. Derivative financial instruments in a liability position are included within accrued expenses and other current liabilities or noncurrent liabilities in the consolidated balance sheets. See Note 19 for further information regarding our derivative instruments.

Assets and Liabilities that are Measured at Fair Value on a Non-Recurring Basis

Long-lived assets, such as property and equipment, operating lease right-of-use assets, goodwill and identifiable intangibles, are periodically evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the asset carrying amount exceeds its fair value, an impairment charge is recognized in the amount by which the carrying amount exceeds the fair value of the asset.

As discussed in Note 1, during fiscal 2019, 2018 and 2017, we incurred $3.4 million, $1.0 million and $3.5 million, respectively, of asset impairment charges, which is included within SG&A expenses in our consolidated statement of (loss) earnings, primarily related to underperforming stores.  The estimated fair value of the impaired long-lived assets was $1.4 million, $0.6 million and $0.7 million, respectively.  In addition, during fiscal 2019, we recognized a writeoff of $2.9 million of rental product related to the closure of a Canadian distribution center, which is included within cost of sales in our consolidated statement of (loss) earnings. We estimated the fair value of these long-lived assets based on an income approach using projected future cash flows discounted using a weighted-average cost of capital analysis that reflects current market conditions.  The fair values of long-lived assets are based on our own judgments about the assumptions that market participants would use in pricing the asset and on observable market data, when available. We classify these measurements as Level 3 within the fair value hierarchy.  

During fiscal 2017, we recorded a goodwill impairment charge related to MW Cleaners totaling $1.5 million. We estimated the fair value of the MW Cleaners business based on an estimate provided to us by a market participant, which we classified as Level 2 within the fair value hierarchy.

Fair Value of Financial Instruments

Our financial instruments consist of cash, accounts receivable, accounts payable, accrued expenses and other current liabilities and long-term debt. Management estimates that, as of February 1, 2020 and February 2, 2019, the carrying value of cash, accounts receivable, accounts payable and accrued expenses and other current liabilities approximated their fair value due to the highly liquid or short-term nature of these instruments.  We believe that the borrowings under our ABL Facility approximate their fair value because interest rates are adjusted on a short-term basis.

The fair values of our Term Loan were valued based upon observable market data provided by a third party for similar types of debt, which we classify as a Level 2 input within the fair value hierarchy.   The fair value of our Senior Notes is based on quoted prices in active markets, which we classify as Level 1 input within the fair value hierarchy.  The table below shows the fair value and carrying value of our Term Loan and Senior Notes (in thousands):

February 1, 2020

February 2, 2019

Carrying

Estimated

Carrying

Estimated

 

Amount(1)

    

Fair Value

    

Amount(1)

    

Fair Value

Term Loan and Senior Notes, including current portion

$

1,053,398

$

896,851

$

1,116,361

$

1,120,296

(1) The carrying value of the Term Loan and Senior Notes, including current portion is net of deferred financing costs of $2.0 million and $3.2 million as of February 1, 2020 and February 2, 2019, respectively.