RISK MANAGEMENT AND DERIVATIVES

9 Months Ended

Oct. 31, 2020

RISK MANAGEMENT AND DERIVATIVES

RISK MANAGEMENT AND DERIVATIVES

Note 14  Risk Management and Derivatives

In the normal course of business, the Company’s financial results are impacted by currency rate movements in foreign currency denominated assets, liabilities and cash flows as it makes a portion of its purchases and sales in local currencies. The Company has established policies and business practices that are intended to mitigate a portion of the effect of these exposures. The Company uses derivative financial instruments, primarily forward contracts, to manage its currency exposures. These derivative financial instruments are viewed as risk

management tools and are not used for trading or speculative purposes. Derivatives entered into by the Company are designated as cash flow hedges of forecasted foreign currency transactions.

Derivative financial instruments expose the Company to credit and market risk. The market risk associated with these instruments resulting from currency exchange movements is expected to offset the market risk of the underlying transactions being hedged. The Company does not believe there is a significant risk of loss in the event of non-performance by the counterparties associated with these instruments because these transactions are executed with major international financial institutions. Credit risk is managed through the continuous monitoring of exposures to such counterparties.

The Company’s hedging strategy allows for the use of forward contracts as cash flow hedging instruments, which are recorded in the Company’s condensed consolidated balance sheets at fair value. The effective portion of gains and losses resulting from changes in the fair value of these hedge instruments are deferred in accumulated other comprehensive loss and reclassified to earnings in the period that the hedged transaction is recognized in earnings.

The Company had no forward contracts as of October 31, 2020. As of November 2, 2019, and February 1, 2020, the Company had forward contracts maturing through May 2020. The contract amounts in the following table represent the net notional amount of all purchase and sale contracts of a foreign currency.

(U.S. $equivalent in thousands)	October 31, 2020		November 2, 2019		February 1, 2020
Financial Instruments
U.S. dollars (purchased by the Company’s Canadian division with Canadian dollars)	$	—	$	3,235	$	3,963
Euro		—		5,763		1,251
Chinese yuan		—		2,905		2,355
New Taiwanese dollars		—		—		—
Other currencies		—		139		69
Total financial instruments	$	—	$	12,042	$	7,638

The classification and fair values of derivative instruments designated as hedging instruments included within the condensed consolidated balance sheets as of October 31, 2020, November 2, 2019 and February 1, 2020 are as follows:

	Asset Derivatives		Liability Derivatives
($ thousands)	Balance Sheet Location	Fair Value	Balance Sheet Location	Fair Value
Foreign Exchange Forward Contracts
October 31, 2020	Prepaid expenses and other current assets	—	Other accrued expenses	—
November 2, 2019	Prepaid expenses and other current assets	17	Other accrued expenses	325
February 1, 2020	Prepaid expenses and other current assets	—	Other accrued expenses	103

For the thirteen and thirty-nine weeks ended October 31, 2020 and November 2, 2019, the effect of derivative instruments in cash flow hedging relationships on the condensed consolidated statements of earnings (loss) was as follows:

	Thirteen Weeks Ended
($ thousands)	October 31, 2020					November 2, 2019
				Gain (Loss)
			Reclassified					Loss Reclassified
	Gain (Loss)			from		(Loss) Gain		from
	Recognized			Accumulated		Recognized		Accumulated
Foreign Exchange Forward Contracts: Income Statement	in OCL on			OCL into		in OCL on		OCL into
Classification Gains (Losses) – Realized	Derivatives			Earnings		Derivatives		Earnings
Net sales	$	—		$	—	$	69	$	2
Cost of goods sold		—			—		38		—
Selling and administrative expenses		—			—		(33)		2

	Thirty-Nine Weeks Ended
($ thousands)	October 31, 2020				November 2, 2019
			Loss				Loss
			Reclassified				Reclassified
	Gain		from		(Loss) Gain		from
	Recognized		Accumulated		Recognized		Accumulated
Foreign Exchange Forward Contracts: Income Statement	in OCL on		OCL into		in OCL on		OCL into
Classification Gains (Losses) – Realized	Derivatives		Earnings		Derivatives		Earnings
Net sales	$	23	$	—	$	(51)	$	(3)
Cost of goods sold		60		—		390		(38)
Selling and administrative expenses		33		(6)		(147)		(213)

Additional information related to the Company’s derivative financial instruments are disclosed within Note 15 to the condensed consolidated financial statements.