Note 4. Derivative Financial Instruments

12 Months Ended

Feb. 02, 2013

Derivative Instruments and Hedging Activities Disclosure [Text Block]

4.            Derivative financial instruments

Foreign exchange contracts are recognized either as assets or as liabilities on the balance sheet at fair value at the end of each reporting period.  Changes in fair value of the derivatives are recorded as operating expenses or other income (expense) or as accumulated other comprehensive income, or OCI.

We currently use and expect to continue to use foreign currency derivatives such as forward and option contracts as hedges against certain anticipated transactions denominated in Israeli shekels, or NIS.  For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of OCI and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.  Gains and losses on derivatives representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings.

Beginning in the first quarter of fiscal 2012, we elected to discontinue assessing new derivative contracts that are used in managing NIS denominated transactions for hedge effectiveness and thus such contracts do not qualify for hedge accounting.  As a result of this change, we recognize all gains and losses from changes in the fair value of these derivate contracts immediately into earnings rather than deferring any such amounts in OCI.  For hedge transactions entered into prior to January 30, 2011, which continued to be effective, the gains and losses incurred prior to January 30, 2011 continued to be recorded in OCI and were reclassified into earnings when those hedge transactions matured.

All existing foreign exchange contracts were entered into subsequent to January 29, 2011, and are treated as foreign exchange contracts not designated as cash flow hedges.  In fiscal years 2013, 2012 and 2011, we recognized gains of approximately $0.4 million, $0.2 million and $0.3 million, respectively, as a result of foreign exchange contracts.  As of February 2, 2013, we had foreign exchange contracts to sell up to approximately $10.4 million for a total amount of approximately NIS 42.3 million, that mature on or before December 23, 2013.  As of January 28, 2012, we had foreign exchange contracts to sell up to approximately $10.2 million for a total amount of approximately NIS 37.0 million, that matured on or before December 27, 2012.

The following table presents the fair value of our outstanding derivative instruments (in thousands):

Derivative Assets	Balance Sheet Location	February 2, 2013		January 28, 2012
Foreign exchange contracts not designated as cash flow hedges	Prepaid expenses and other current assets (accrued liabilities)	$	438	$	(121	)
Total fair value of derivative instruments		$	438	$	(121	)

The effects of derivative instruments on income and accumulated other comprehensive income for fiscal 2013 and 2012 are summarized below (in thousands):

	Gains (Losses) Recognized in Accumulated Other Comprehensive Income on Derivatives (Effective Portion)		Gains Reclassified from Accumulated Other Comprehensive Income into Earnings			Gains (Losses) Recognized in Earnings on Derivatives (Including Ineffective Portion)
Derivatives instruments	Amount		Amount		Location	Amount		Location
Fiscal 2013 foreign exchange contracts	$	-	$	-	Operating expenses and cost of revenue	$	447	Interest and other income, net
Fiscal 2012 foreign exchange contracts	$	-	$	85	Operating expenses and cost of revenue	$	153	Interest and other income, net

There was no impact from ineffective portions on designated cash flow derivative contracts for fiscal 2013 and 2012.