Derivatives and Hedging Activities

9 Months Ended

Oct. 25, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives and Hedging Activities

Derivatives and Hedging Activities

The Company is exposed to certain risk arising from both its business operations and economic conditions and principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company, on a routine basis and in the normal course of business, experiences expenses denominated in Swiss Franc ("CHF"), Canadian Dollar ("CAD") and Great British Pound ("GBP"). Such expenses expose the Company to exchange rate fluctuations between these foreign currencies and the U.S. Dollar ("USD"). The Company occasionally uses derivative financial instruments, in the form of forward contracts, to mitigate a portion of the risk associated with adverse movements in these foreign currency exchange rates during a twelve-month window. Currency forward contracts involve fixing the exchange rate for delivery of a specified amount of foreign currency on a specified date.

The Company’s accounting treatment for these instruments is based on whether or not the instruments are designated as a hedging instrument. The Company is currently applying hedge accounting to all foreign currency derivatives and has designated these hedges as cash flow hedges.

The Company's foreign exchange contracts had the following outstanding balances:

	Balance as of
(in thousands, except number of instruments data)	October 25, 2020					January 26, 2020
Foreign Exchange Contracts	Number of Instruments	Sell Notional Value		Buy Notional Value		Number of Instruments	Sell Notional Value		Buy Notional Value
Sell USD/Buy CAD Forward Contract	3	$	4,287	C$	6,000	—	$	—	C$	—
Sell USD/Buy GBP Forward Contract	3	$	2,255	£	1,800	—	$	—	£	—
Total	6					—

These contracts have been designated as cash flows hedges and the unrealized gains or losses, net of tax, are recorded as a component of "Accumulated other comprehensive income or loss" ("AOCI") in the Balance Sheets. The effective portions of the cash flow hedges are recorded in AOCI until the hedged item is recognized in "SG&A expense" in the Statements of Income once the foreign exchange contract matures, offsetting the underlying hedged expenses. Any ineffective portions of the cash flow hedges are recorded in "Non-operating expense, net" in the Statements of Income.

In the first quarter of fiscal year 2021, the Company entered into an interest rate swap agreement with a three-year term to hedge the variability of interest payments on the first $150.0 million of debt outstanding under the Company's Credit Facility. Interest payments on $150.0 million of the Company's debt are now fixed at a rate of 1.9775%, based on the Company's current leverage ratio. The interest rate swap agreement has been designated as a cash flow hedge and unrealized gains or losses, net of income tax, are recorded as a component of AOCI in the Balance Sheets. As the various settlements are made on a monthly basis, the realized gain or loss on the settlements are recorded in "Interest expense" in the Statements of Income. The realized loss on the interest rate swap agreement was not material for the three and nine months ended October 25, 2020.

The fair values of the Company's derivative assets and liabilities that qualify as cash flow hedges in the Balance Sheets were as follows:

	Balance as of
(in thousands)	October 25, 2020		January 26, 2020
Foreign currency forward contracts	$	377	$	—
Total other current assets	$	377	$	—
Interest rate swap agreement	$	813	$	—
Total accrued liabilities	$	813	$	—
Interest rate swap agreement	$	1,041	$	—
Total other long-term liabilities	$	1,041	$	—