Quarterly report pursuant to Section 13 or 15(d)

Derivative Financial Instruments

v3.20.2
Derivative Financial Instruments
3 Months Ended
May 02, 2020
Derivative Financial Instruments  
Derivative Financial Instruments

17. Derivative Financial Instruments

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 2, 2020, the notional amount totaled $270.0 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 2, 2020, the notional amount totaled $435.0 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.  For both swaps, changes in fair value are reclassified from accumulated other comprehensive loss into earnings in the same period that the hedged item affects earnings.  Over the next 12 months, $11.7 million of the amounts related to the interest rate swaps is expected to be reclassified from accumulated other comprehensive loss into earnings within interest expense.  

Historically, we also utilized derivative instruments to hedge our foreign exchange risk, specifically related to the British pound and Euro.  As a result of the sale of our corporate apparel business, these instruments were cancelled during the third quarter of 2019.

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 May 2, 2020, the notional amount of these instruments totaled $2.6 million. 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 2, 2020, May 4, 2019 and February 1, 2020 (in thousands):

May 2, 2020

May 4, 2019

February 1, 2020

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

$

1,154

Other current assets

$

Interest rate contracts

Other assets

Other assets

489

Other assets

Foreign exchange contracts

Other current assets

115

Other current assets

50

Other current assets

7

Total assets

$

115

$

1,693

$

7

Interest rate contracts

Accrued expenses and other current liabilities

$

42,910

Accrued expenses and other current liabilities

$

2,084

Accrued expenses and other current liabilities

$

7,701

Interest rate contracts

Deferred taxes, net and other liabilities

Deferred taxes, net and other liabilities

12,719

Deferred taxes, net and other liabilities

26,885

Total liabilities

$

42,910

$

14,803

$

34,586

The following table provides details on our derivative instruments recorded in the condensed consolidated statements of (loss) earnings and comprehensive loss for the three months ended in May 2, 2020 and May 4, 2019 (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 2, 2020

    

May 4, 2019

May 2, 2020

    

May 4, 2019

Derivatives in Cash Flow Hedging Relationships:

    

    

    

    

Interest rate contracts

$

(10,434)

$

(5,195)

Interest expense

$

2,109

$

14