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