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Derivative Financial Instruments

6 Months Ended

Aug. 03, 2019

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