Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

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Fair Value Measurements
3 Months Ended
May 02, 2020
Fair Value Measurements  
Fair Value Measurements

16. 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

 

May 2, 2020—

    

    

    

    

Assets:

Derivative financial instruments

$

$

115

$

$

115

Liabilities:

Derivative financial instruments

$

$

42,910

$

$

42,910

May 4, 2019—

    

    

    

    

Assets:

Derivative financial instruments

$

$

1,693

$

$

1,693

Liabilities:

Derivative financial instruments

$

$

14,803

$

$

14,803

February 1, 2020—

Assets:

Derivative financial instruments

$

$

7

$

$

7

Liabilities:

Derivative financial instruments

$

$

34,586

$

$

34,586

At May 2, 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 condensed 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 condensed consolidated balance sheets. Derivative financial instruments in a liability position are included within accrued expenses and other current liabilities or noncurrent liabilities in the condensed consolidated balance sheets. Please see Note 17 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 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.  

In addition to the impairment charges described in Note 3, we also incurred asset impairment charges related to long-lived assets at our stores.  During the three months ended May 2, 2020, primarily as a result of COVID-19, we determined that certain long-lived assets at our stores were unable to recover their carrying amount reflecting the impact of the temporary store closures and the expectation that such impact will be significantly unfavorable to our business for at least the remainder of 2020.  As a result, for the three months ended May 2, 2020, we incurred $26.3 million of asset impairment charges which are included in a separate line on the condensed consolidated statement of (loss) earnings. During the three months ended May 4, 2019, we incurred $0.2 million of asset impairment charges related to underperforming stores.  

We estimated the fair value of the 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, which we classify as Level 3 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 our Term Loan and Senior Notes.  Management estimates that, as of May 2, 2020, May 4, 2019, and February 1, 2020, the carrying value of our financial instruments, other than our Term Loan and Senior Notes, 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 a Level 1 input within the fair value hierarchy.  The table below shows the fair value and carrying value of our long-term debt, including current portion (in thousands):

May 2, 2020

May 4, 2019

February 1, 2020

Carrying

Estimated

Carrying

Estimated

Carrying

Estimated

    

Amount(1)

Fair Value

Amount(1)

Fair Value

    

Amount(1)

    

Fair Value

 

Term Loan and Senior Notes, including current portion

$

1,049,064

$

400,652

$

1,111,696

$

1,076,471

$

1,053,398

$

896,851

(1) The carrying value of the Term Loan and Senior Notes, including current portion is net of deferred financing costs of $1.9 million, $3.0 million and $2.0 million as of May 2, 2020, May 4, 2019 and February 1, 2020, respectively.