Fair Value Measurements

12 Months Ended

Feb. 03, 2024

Authoritative guidance defines fair value 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 guidance establishes a fair value hierarchy, which prioritizes the inputs used in measuring fair value into three broad levels as follows:

•Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that can be accessed at the measurement date.

•Level 2—Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e. interest rates, yield curves, etc.) and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

•Level 3—Unobservable inputs that reflect assumptions about what market participants would use in pricing the asset or liability. These inputs would be based on the best information available, including the Company’s own data.

The following presents the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis (in thousands):


	Fair Value Measurements
	Feb 3, 2024								Jan 28, 2023
Recurring Fair Value Measures	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Foreign exchange currency contracts	$	—	$	2,278	$	—	$	2,278	$	—	$	2,219	$	—	$	2,219
2028 Bond Hedge	—		—		85,918		85,918		—		—		—		—
Interest rate swap	—		797		—		797		—		1,034		—		1,034

Total	$	—	$	3,075	$	85,918	$	88,993	$	—	$	3,253	$	—	$	3,253
Liabilities:
Foreign exchange currency contracts	$	—	$	1,702	$	—	$	1,702	$	—	$	16,704	$	—	$	16,704
Embedded derivative	—		—		16,390		16,390		—		—		—		—
Interest rate swap	—		—		—		—		—		—		—		—
Deferred compensation obligations	—		17,164		—		17,164		—		15,187		—		15,187
Total	$	—	$	18,866	$	16,390	$	35,256	$	—	$	31,891	$	—	$	31,891

Foreign exchange currency contracts may be entered into by the Company to hedge the future payment of inventory and intercompany transactions by non-U.S. subsidiaries. Periodically, the Company may also use foreign exchange currency contracts to hedge the translation and economic exposures related to its net investments in certain of its international subsidiaries. The fair values of the Company’s foreign exchange currency contracts

are based on quoted foreign exchange forward rates at the reporting date. The fair values of the interest rate swaps are based upon inputs corroborated by observable market data. Deferred compensation obligations to employees are adjusted based on changes in the fair value of the underlying employee-directed investments. Fair value of these obligations is based upon inputs corroborated by observable market data.

The Company included €7.1 million ($7.7 million) and €3.7 million ($4.0 million) in other assets in the Company’s consolidated balance sheets related to its investment in certain private equity funds for fiscal 2024 and fiscal 2023, respectively. As permitted in accordance with authoritative guidance, the Company uses net asset value per share as a practical expedient to measure the fair value of this investment and has not included this investment in the fair value hierarchy as disclosed above. During fiscal 2024 and fiscal 2023, the Company funded contributions of €5.0 million ($5.6 million) and €0.1 million ($0.1 million), respectively, in this investment. During fiscal 2024, the Company recorded €0.1 million ($0.1 million) unrealized loss in other income (expense) as a result of changes in the value of the private equity fund investment. During fiscal 2023 and fiscal 2022, the Company recorded immaterial and €0.1 million ($0.1 million), respectively, unrealized gain in other income (expense) as a result of changes in the value of the private equity investment. During fiscal 2024, the Company also recorded €4.4 million ($4.8 million) realized gain in other income (expense) resulted from a distribution of the private equity fund investment. As of February 3, 2024, the Company had an unfunded commitment to invest an additional €5.2 million ($5.6 million) in the private equity funds.

The fair values of the embedded derivative and the 2028 Bond Hedge related to the Additional 2028 Notes were initially measured at $16.2 million and $84.7 million, respectively, based on the observed transactions. Subsequent fair values are measured using a binomial lattice model utilizing observable inputs (e.g. the Company’s stock price) and unobservable inputs (e.g. the expected volatility and instrument specific credit spread) that cause the valuation measurements to be classified as Level 3. The following assumptions were used within the model:


Valuation Assumptions	Feb 3, 2024
Expected volatility	30		%
Risk-free interest rate	4.1		%
Credit spread	4.3		%
Dividend yield	5.2		%
Term to maturity	4.2 years
Stock price	$	22.86

As of February 3, 2024, if the expected volatility were increased to 40%, keeping all other inputs constant, the fair value of the embedded derivative would increase from $16.4 million to $20.9 million and the fair value of the 2028 Bond Hedge would increase from $85.9 million to $109.5 million. If the expected volatility were decreased to 20%, the fair value of the embedded derivative would decrease from $16.4 million to $11.7 million and the fair value of the 2028 Bond Hedge would decrease from $85.9 million to $61.4 million. If the credit spread increased from 4.3% to 5.3%, keeping all other inputs constant, the fair value of the embedded derivative would increase from $16.4 million to $17.0 million and the fair value of the 2028 Bond Hedge would increase from $85.9 million to $89.3 million. If the credit spread decreased from 4.3% to 3.3%, the fair value of the embedded derivative would decrease from $16.4 million to $15.7 million and the fair value of the 2028 Bond Hedge would decrease from $85.9 million to $82.3 million.

The following presents a reconciliation of the Company’s financial assets and liabilities measured at fair value as of February 3, 2024, using significant unobservable inputs (Level 3), and the change in fair value recorded in other income (expense), net in the consolidated statements of income (in thousands):


	Embedded Derivative		2028 Bond Hedge
Balance as of January 28, 2023	$	—	$	—
Initial bifurcation of embedded derivative	(16,155)		—
Purchase of Additional 2028 Bond Hedge	—		16,155
Reclassification of Initial 2028 Bond Hedge	—		68,530
Gain (loss) on fair value remeasurement	(235)		1,233
Balance as of February 3, 2024	$	(16,390)	$	85,918

The fair values of the Company’s debt instruments (see Note 8) are based on the amount of future cash flows associated with each instrument discounted using the Company’s incremental borrowing rate. As of February 3, 2024 and January 28, 2023, the carrying value of all financial instruments was not materially different from fair value, as the interest rates on the Company’s debt approximated rates currently available to the Company. The fair value of the Company’s Notes (see Note 10) is determined based on inputs that are observable in the market and have been classified as Level 2 in the fair value hierarchy.

The carrying amount of the Company’s remaining financial instruments, which principally include cash and cash equivalents, trade receivables, accounts payable and accrued expenses, approximates fair value due to the relatively short maturity of such instruments.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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