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Derivative Instruments and Hedging Activities | 12 Months Ended
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Feb. 01, 2020
Derivative Instruments And Hedging Activities Disclosure [Abstract] |
Derivative Instruments and Hedging Activities | 8. Derivative Instruments and Hedging Activities The Company accounts for derivatives and hedging activities in accordance with ASC Topic No. 815 “Derivatives and Hedging” (Topic No. 815). Topic No. 815 provides the disclosure requirements for derivatives and hedging activities with the intent to provide users of financial statements with an enhanced understanding of: (i) how and why an entity uses derivative instruments, (ii) how the entity accounts for derivative instruments and related hedged items, and (iii) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. Further, qualitative disclosures are required that explain the Company’s objectives and strategies for using derivatives, as well as quantitative disclosures about the fair value of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments. As required by Topic No. 815, the Company records all derivatives on the balance sheet at fair value and adjusts them to market on a quarterly basis. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting, and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply or the Company elects not to apply hedge accounting. The Company uses interest rate cap contracts and interest rate swap contracts to manage interest rate risk. The fair value of these contracts are determined using the market standard methodology of discounted future variable cash flows. The variable cash flows of the interest rate cap contracts are determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the caps in conjunction with the cash payments related to financing the premium of the interest rate caps. The variable cash flows of the interest rate swap contract are determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise or fall compared to current levels in conjunction with the fixed cash payments. The variable interest rates used in the calculation of projected receipts on the cap and swap contracts are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities. In addition, to comply with the provisions of Topic No. 820, credit valuation adjustments, which consider the impact of any credit enhancements to the contracts, are incorporated in the fair values to account for potential nonperformance risk. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered any applicable credit enhancements such as collateral postings, thresholds, mutual puts, and guarantees. In accordance with Topic No. 820, the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio. There is no impact of netting because the Company’s only derivatives are interest rate cap contracts and interest rate swap contracts that are with separate counterparties and are under separate master netting agreements. Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. However, as of February 1, 2020 and February 2, 2019, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustment is not significant to the overall valuation of its derivative portfolios. As a result, the Company classifies its derivative valuations in Level 2 of the fair value hierarchy. The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company uses derivative financial instruments to manage differences in the amount, timing, and duration of the Company’s known or expected cash payments principally related to the Company’s borrowings. Cash Flow Hedges of Interest Rate Risk The Company uses interest rate derivatives to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate caps and interest rate swaps as part of its interest rate risk management strategy. Interest rate caps designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. On April 24, 2015, the Company entered into two interest rate cap contracts, which were designated as cash flow hedges, and expired in May of 2019. On December 17, 2018, the Company entered into an interest rate swap contract, which was designated as a cash flow hedge, and became effective May 31, 2019. During Fiscal 2019, the Company’s derivatives were used to hedge the variable cash flows associated with existing (or anticipated) variable-rate debt. The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges are recorded in the line item “Accumulated other comprehensive loss” on the Company’s Consolidated Balance Sheets and are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Amounts reported in accumulated other comprehensive loss related to the Company’s derivative contracts will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. As of February 1, 2020, the Company estimates that $5.9 million will be reclassified into interest expense during the next twelve months. As of February 1, 2020, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:
Interest Rate Derivative |  | Number of Instruments |  | Notional Aggregate Principal Amount |  | Interest Cap/Swap Rate |  |  | Maturity Date
Interest rate swap contract |  | One |  | $ 450.0 million |  | 2.72% |  |  | December 29, 2023
Tabular Disclosure The tables below present the fair value of the Company’s derivative financial instruments on a gross basis, as well as their classification on the Company’s Consolidated Balance Sheets:
|  | (in thousands) |
|  | Fair Values of Derivative Instruments |
|  | February 1, 2020 |  |  | February 2, 2019 |
Derivatives Designated as Hedging Instruments |  | Balance Sheet Location |  | Fair Value |  |  | Balance Sheet Location |  | Fair Value |
Interest rate cap contracts |  | N/A |  | N/A |  |  | Prepaid and other current assets |  | $ | 2,213 |
Interest rate swap contract |  | Other liabilities |  | $ | 26,220 |  |  | Other liabilities |  | $ | 5,239 |
The following table presents the unrealized (losses) gains deferred to accumulated other comprehensive loss resulting from the Company’s derivative instruments designated as cash flow hedging instruments for each of the reporting periods.
|  | (in thousands) |
|  | Fiscal Year Ended |
|  | February 1, 2020 |  |  | February 2, 2019 |  |  | February 3, 2018 |
Interest Rate Derivatives: |  |  |  |  |  |  |  |  |  | (53 Weeks) |
Unrealized (losses) gains, before taxes |  | $ | (22,959 | ) |  | $ | (4,232 | ) |  | $ | 3,460 |
Income tax benefit (expense) |  |  | 6,353 |  |  |  | 1,152 |  |  |  | (1,718 | )
Unrealized (losses) gains, net of taxes |  | $ | (16,606 | ) |  | $ | (3,080 | ) |  | $ | 1,742 |
The following table presents information about the reclassification of losses from accumulated other comprehensive loss into earnings related to the Company’s derivative instruments designated as cash flow hedging instruments for each of the reporting periods.
|  | (in thousands) |
|  | Fiscal Year Ended |
|  | February 1, 2020 |  |  | February 2, 2019 |  |  | February 3, 2018 |
Component of Earnings: |  |  |  |  |  |  |  |  |  | (53 Weeks) |
Interest expense |  | $ | 1,733 |  |  | $ | 1,872 |  |  | $ | 5,931 |
Income tax expense |  |  | (474 | ) |  |  | (518 | ) |  |  | (2,369 | )
Net reclassification into earnings |  | $ | 1,259 |  |  | $ | 1,354 |  |  | $ | 3,562 |

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- References No definition available. + Details
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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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