Note 14 - Risk Management and Derivatives

12 Months Ended

Feb. 01, 2020

Notes to Financial Statements

Derivative Instruments and Hedging Activities Disclosure [Text Block]

14.    RISK MANAGEMENT AND DERIVATIVES

General Risk Management

The Company maintains cash and cash equivalents and certain other financial instruments with various financial institutions.  The financial institutions are located throughout the world and the Company’s policy is designed to limit exposure to any one institution or geographic region.  The Company’s periodic evaluations of the relative credit standing of these financial institutions are considered in the Company’s investment strategy.

The Company’s Brand Portfolio segment sells to national chains, online retailers, department stores, mass merchandisers, independent retailers and catalogs in the United States, Canada and approximately 64 other countries.  Receivables arising from these sales are not collateralized.  However, a portion is covered by documentary letters of credit.  Credit risk is affected by conditions or occurrences within the economy and the retail industry.  The Company maintains an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers and historical trends.

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 and have varying maturities through May 2020.  Credit risk is managed through the continuous monitoring of exposures to such counterparties.

The Company principally uses foreign currency forward contracts as cash flow hedges to offset a portion of the effects of exchange rate fluctuations.  The Company’s cash flow exposures include anticipated foreign currency transactions, such as foreign currency denominated sales, costs, expenses and intercompany charges, as well as collections and payments.

The Company’s hedging strategy uses forward contracts as cash flow hedging instruments, which are recorded in the Company’s 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 ("OCL") and reclassified to earnings in the period that the hedged transaction is recognized in earnings.

As of February 1, 2020 and February 2, 2019, the Company had forward contracts maturing at various dates through May 2020 and January 2020, respectively.  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)	February 1, 2020		February 2, 2019
Financial Instruments
U.S. dollars (purchased by the Company’s Canadian division with Canadian dollars)	$	3,963	$	15,196
Euro		1,251		13,383
Chinese yuan		2,355		4,507
New Taiwanese dollars		—		461
Other currencies		69		382
Total financial instruments	$	7,638	$	33,929

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

($ in thousands)	Asset Derivatives			Liability Derivatives
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Foreign exchange forwards contracts:
February 1, 2020	Prepaid expenses and other current assets	$	—	Other accrued expenses	$	103
February 2, 2019	Prepaid expenses and other current assets	$	159	Other accrued expenses	$	745

During 2019 and 2018, the effect of derivative instruments in cash flow hedging relationships on the consolidated statements of earnings (loss) was as follows:

	2019						2018
Foreign exchange forward contracts: Income Statement Classification Gains (Losses)- Realized	Gain (Loss) Recognized in OCI on Derivatives			Gain (Loss) Reclassified from Accumulated OCL into Earnings			Loss Recognized in OCI on Derivatives			Loss Reclassified from Accumulated OCL into Earnings
Net sales	$	16		$	9		$	(55	)	$	(6	)
Cost of goods sold		439			(38	)		(1,004	)		(58	)
Selling and administrative expenses		(68	)		(227	)		(822	)		(90	)
Interest expense		—			—			—			—

All of the gains and losses currently included within accumulated other comprehensive loss associated with the Company’s foreign exchange forward contracts are expected to be reclassified into net earnings within the next 12 months. Additional information related to the Company’s derivative financial instruments are disclosed within Note 1 and Note 15 to the consolidated financial statements.