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Note 5 - Derivative Financial Instruments

3 Months Ended

Aug. 01, 2020

Derivative Instruments and Hedging Activities Disclosure [Text Block]

5. DERIVATIVE FINANCIAL INSTRUMENTS

From time to time, we enter into aluminum swap contracts to partially mitigate our exposure to changes in the cost of aluminum cans. Such financial instruments are designated and accounted for as cash flow hedges. Accordingly, gains or losses attributable to the effective portion of the cash flow hedges are reported in Accumulated Other Comprehensive Income (Loss) (“AOCI”) and reclassified into cost of sales in the period in which the hedged transaction affects earnings. The ineffective portion of the change in fair value of our cash flow hedges was immaterial. The following summarizes the gains (losses) recognized in the Condensed Consolidated Statements of Income and AOCI relative to the cash flow hedge for the three months ended August 1, 2020 and July 27, 2019:

	(In thousands)
	2020			2019
Recognized in AOCI:
Gain (loss) before income taxes	$	5,080		$	(1,423	)
Less income tax provision (benefit)		1,215			(340	)
Net		3,865			(1,083	)
Reclassified from AOCI to cost of sales:
(Loss) before income taxes		(1,832	)		(1,444	)
Less income tax (benefit)		(438	)		(345	)
Net		(1,394	)		(1,099	)
Net change to AOCI	$	5,259		$	16

As of August 1, 2020, the notional amount of our outstanding aluminum swap contracts was $37.1 million and, assuming no change in commodity prices, $130,000 of unrealized losses before tax will be reclassified from AOCI and recognized in earnings over the next 12 months.

As of August 1, 2020, the fair value of the derivative asset was $1.0 million, which was included as a component of prepaid and other assets and the fair value of the derivative liability was $987,000 which was included as a component of accrued liabilities. At May 2, 2020, the fair value of the derivative liability was $6.9 million, which was included as a component of accrued liabilities. Such valuation does not entail a significant amount of judgment and the inputs that are significant to the fair value measurement are Level 2 as defined by the fair value hierarchy as they are observable market based inputs or unobservable inputs that are corroborated by market data.