Derivative Instruments

9 Months Ended

Oct. 28, 2017

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE INSTRUMENTS

DERIVATIVE INSTRUMENTS

The Company is exposed to risks associated with changes in foreign currency exchange rates and uses derivative instruments, primarily forward contracts, to manage the financial impacts of these exposures. The Company does not use forward contracts to engage in currency speculation and does not enter into derivative financial instruments for trading purposes.

The Company uses derivative instruments, primarily foreign currency exchange forward contracts designated as cash flow hedges, to hedge the foreign currency exchange rate exposure associated with forecasted foreign-currency-denominated intercompany inventory sales to foreign subsidiaries and the related settlement of the foreign-currency-denominated intercompany receivables. Fluctuations in foreign currency exchange rates will either increase or decrease the Company’s intercompany equivalent cash flows and affect the Company’s U.S. Dollar earnings. Gains or losses on the foreign currency exchange forward contracts that are used to hedge these exposures are expected to partially offset this variability. Foreign currency exchange forward contracts represent agreements to exchange the currency of one country for the currency of another country at an agreed upon settlement date. These foreign currency exchange forward contracts typically have a maximum term of twelve months. The sale of the inventory to the Company’s customers will result in the reclassification of related derivative gains and losses that are reported in accumulated other comprehensive loss (“AOCL”). Substantially all of the unrealized gains or losses related to designated cash flow hedges as of October 28, 2017 will be recognized in cost of sales, exclusive of depreciation and amortization, over the next twelve months.

The Company presents its derivative assets and derivative liabilities at their gross fair values on the Condensed Consolidated Balance Sheets. However, the Company's derivative contracts allow net settlements under certain conditions.

As of October 28, 2017, the Company had outstanding the following foreign currency exchange forward contracts that were entered into to hedge either a portion, or all, of forecasted foreign-currency-denominated intercompany inventory sales, the resulting settlement of the foreign-currency-denominated intercompany accounts receivable, or both:

(in thousands)	Notional Amount(1)
Euro	$	105,638
British pound	$	45,689
Canadian dollar	$	22,851
Japanese yen	$	8,476

⁽¹⁾  Amounts reported are the U.S. Dollar notional amounts outstanding as of October 28, 2017.

The Company also uses foreign currency exchange forward contracts to hedge certain foreign-currency-denominated net monetary assets/liabilities. Examples of monetary assets/liabilities include cash balances, receivables and payables. Fluctuations in foreign currency exchange rates result in transaction gains/(losses) being recorded in earnings, as U.S. GAAP requires that monetary assets/liabilities be remeasured at the spot exchange rate at quarter-end or upon settlement. The Company has chosen not to apply hedge accounting to these instruments because there are no differences in the timing of gain or loss recognition on the hedging instruments and the hedged items.

As of October 28, 2017, the Company had outstanding the following foreign currency exchange forward contracts that were entered into to hedge foreign-currency-denominated net monetary assets/liabilities:

(in thousands)	Notional Amount(1)
Euro	$	23,424
British pound	$	1,313

⁽¹⁾  Amounts reported are the U.S. Dollar notional amounts outstanding as of October 28, 2017.

The location and amounts of derivative fair values on the Condensed Consolidated Balance Sheets as of October 28, 2017 and January 28, 2017 were as follows:

(in thousands)	Location	October 28, 2017		January 28, 2017		Location	October 28, 2017		January 28, 2017
Derivatives designated as hedging instruments:
Foreign currency exchange forward contracts	Other current assets	$	894	$	5,920	Accrued expenses	$	3,553	$	486
Derivatives not designated as hedging instruments:
Foreign currency exchange forward contracts	Other current assets	$	362	$	122	Accrued expenses	$	—	$	6
Total	Other current assets	$	1,256	$	6,042	Accrued expenses	$	3,553	$	492

Refer to Note 3, “FAIR VALUE,” for further discussion of the determination of the fair value of derivative instruments.

The location and amounts of derivative gains and losses for the thirteen and thirty-nine weeks ended October 28, 2017 and October 29, 2016 on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) were as follows:

		Thirteen Weeks Ended				Thirty-nine Weeks Ended
		October 28, 2017		October 29, 2016		October 28, 2017		October 29, 2016
(in thousands)	Location	Gain/(Loss)		Gain/(Loss)		Gain/(Loss)		Gain/(Loss)
Derivatives not designated as hedging instruments:
Foreign currency exchange forward contracts	Other operating income, net	$	634	$	152	$	83	$	295

	Effective Portion											Ineffective Portion and Amount Excluded from Effectiveness Testing
	Amount of Gain (Loss) Recognized in AOCL on Derivative Contracts (1)					Location of Gain (Loss) Reclassified from AOCL into Earnings	Amount of Gain (Loss) Reclassified from AOCL into Earnings (2)					Location of Gain Recognized in Earnings on Derivative Contracts	Amount of Gain  Recognized in Earnings on Derivative Contracts (3)
	Thirteen Weeks Ended
(in thousands)	October 28, 2017			October 29, 2016			October 28, 2017			October 29, 2016			October 28, 2017		October 29, 2016
Derivatives in cash flow hedging relationships:
Foreign currency exchange forward contracts	$	1,775		$	4,986	Cost of sales, exclusive of depreciation and amortization	$	(3,544	)	$	450	Other operating income, net	$	975	$	695
	Thirty-nine Weeks Ended
(in thousands)	October 28, 2017			October 29, 2016			October 28, 2017			October 29, 2016			October 28, 2017		October 29, 2016
Derivatives in cash flow hedging relationships:
Foreign currency exchange forward contracts	$	(10,627	)	$	3,026	Cost of sales, exclusive of depreciation and amortization	$	536		$	2,551	Other operating income, net	$	2,136	$	1,308

⁽¹⁾  The amount represents the change in fair value of derivative contracts due to changes in spot rates.

⁽²⁾  The amount represents the reclassification from AOCL into earnings when the hedged item affects earnings, which is when merchandise is sold to the Company’s customers.

⁽³⁾  The amount represents the change in fair value of derivative contracts due to changes in the difference between the spot price and forward price that is excluded from the assessment of hedge effectiveness and, therefore, recognized in earnings.