Risk Management And Derivatives

6 Months Ended

Aug. 03, 2013

Risk Management And Derivatives [Abstract]

Risk Management And Derivatives

Note 12 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 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 financial institutions and have varying maturities through August 2014. 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, intercompany charges, as well as collections and payments. The Company performs a quarterly assessment of the effectiveness of the hedge relationship and measures and recognizes any hedge ineffectiveness in the condensed consolidated statement of earnings. Hedge ineffectiveness is evaluated using the hypothetical derivative method, and the ineffective portion of the hedge is reported in the Company’s condensed consolidated statement of earnings. The amount of hedge ineffectiveness for the thirteen weeks and twenty-six weeks ended August 3, 2013 and July 28, 2012 was not material.

The Company’s hedging strategy uses forward contracts as cash flow hedging instruments, which are recorded in the Company’s condensed consolidated balance sheet 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) income and reclassified to earnings in the period that the hedged transaction is recognized in earnings.

As of August 3, 2013,  July 28, 2012 and February 2, 2013, the Company had forward contracts maturing at various dates through August 2014,  August 2013 and January 2014, respectively. The contract amount represents the net amount of all purchase and sale contracts of a foreign currency.

	Contract Amount
(U.S. $ equivalent in thousands)	August 3, 2013		July 28, 2012		February 2, 2013
Financial Instruments
U.S. dollars (purchased by the Company’s Canadian division with Canadian dollars)	$	20,397	$	19,937	$	18,442
Chinese yuan		15,128		28,403		15,544
Euro		7,064		6,626		3,459
Japanese yen		1,370		1,392		1,665
New Taiwanese dollars		684		884		734
Great Britain pounds sterling		–		210		63
Other currencies		728		1,335		729
Total financial instruments	$	45,371	$	58,787	$	40,636

The classification and fair values of derivative instruments designated as hedging instruments included within the condensed consolidated balance sheet as of August 3, 2013,  July 28, 2012 and February 2, 2013 are as follows:

	Asset Derivatives			Liability Derivatives
($ thousands)	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Foreign exchange forward contracts:
August 3, 2013	Prepaid expenses and other current assets	$	467	Other accrued expenses	$	194
July 28, 2012	Prepaid expenses and other current assets		78	Other accrued expenses		1,151
February 2, 2013	Prepaid expenses and other current assets		380	Other accrued expenses		373

For the thirteen weeks ended August 3, 2013 and July 28, 2012, the effect of derivative instruments in cash flow hedging relationships on the condensed consolidated statements of earnings was as follows:

	Thirteen Weeks Ended				Thirteen Weeks Ended
($ thousands)	August 3, 2013				July 28, 2012
Foreign exchange forward contracts: Income Statement Classification Gains (Losses) - Realized		Gain (Loss) Recognized in OCI on Derivatives		Gain (Loss) Reclassified from Accumulated OCI into Earnings		Gain (Loss) Recognized in OCI on Derivatives		Gain (Loss) Reclassified from Accumulated OCI into Earnings
Net sales	$	108	$	94	$	(34)	$	(14)
Cost of goods sold		460		6		(531)		86
Selling and administrative expenses		368		130		(252)		(19)
Interest expense		9		–		2		–

	Twenty-six Weeks Ended				Twenty-six Weeks Ended
($ in thousands)	August 3, 2013				July 28, 2012
Foreign exchange forward contracts: Income Statement Classification Gains (Losses) - Realized		Gain (Loss) Recognized in OCI on Derivatives		Gain (Loss) Reclassified from Accumulated OCI into Earnings		Gain (Loss) Recognized in OCI on Derivatives		Gain (Loss) Reclassified from Accumulated OCI into Earnings
Net sales	$	117	$	148	$	21	$	(14)
Cost of goods sold		545		27		(876)		78
Selling and administrative expenses		210		187		(471)		(29)
Interest expense		10		–		(8)		–

All of the gains and losses currently included within accumulated other comprehensive income 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 13 to the condensed consolidated financial statements.