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Derivative Instruments and Hedging Activities | 9 Months Ended
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Aug. 04, 2017
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Instruments and Hedging Activities | Derivative Instruments and Hedging Activities The company is exposed to foreign currency exchange rate risk arising from transactions in the normal course of business, such as sales to third party customers, sales and loans to wholly owned foreign subsidiaries, foreign plant operations, and purchases from suppliers. The company’s primary currency exchange rate exposures are with the Euro, the Australian dollar, the Canadian dollar, the British pound, the Mexican peso, the Japanese yen, the Chinese Renminbi, and the Romanian New Leu against the U.S. dollar, as well as the Romanian New Leu against the Euro. To reduce its exposure to foreign currency exchange rate risk, the company actively manages the exposure of its foreign currency exchange rate risk by entering into various derivative instruments, authorized under company policies that place controls on these hedging activities, with counterparties that are highly rated financial institutions. The company’s policy does not allow the use of derivative instruments for trading or speculative purposes. The company also made an accounting policy election to use the portfolio exception with respect to measuring counterparty credit risk for derivative instruments, and to measure the fair value of a portfolio of financial assets and financial liabilities on the basis of the net open risk position with each counterparty. The company’s hedging activities primarily involve the use of forward currency contracts to hedge most foreign currency transactions, including forecasted sales and purchases denominated in foreign currencies. The company may also utilize forward currency contracts or cross currency swaps to offset intercompany loan exposures. The company uses derivative instruments only in an attempt to limit underlying exposure from foreign currency exchange rate fluctuations and to minimize earnings and cash flow volatility associated with foreign currency exchange rate fluctuations. Decisions on whether to use such derivative instruments are primarily based on the amount of exposure to the currency involved and an assessment of the near-term market value for each currency. Cash Flow Hedging Instruments The company recognizes all derivative instruments as either assets or liabilities at fair value on the Condensed Consolidated Balance Sheets and formally documents relationships between cash flow hedging instruments and the related hedged transactions, as well as its risk-management objective and strategy for undertaking cash flow hedging instruments. This process includes linking all cash flow hedging instruments to the forecasted transactions, such as sales to third parties, foreign plant operations, and purchases from suppliers. Changes in fair values of outstanding cash flow hedging instruments, except the ineffective portion, are recorded in other comprehensive income within accumulated other comprehensive loss ("AOCL") on the Condensed Consolidated Balance Sheets, until net earnings is affected by the variability of the cash flows of the hedged transaction. Gains and losses on the cash flow hedging instrument representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in net earnings. The Condensed Consolidated Statements of Earnings classification of effective cash flow hedge results is the same as that of the underlying exposure. Results of cash flow hedges of sales and foreign plant operations are recorded in net sales and cost of sales, respectively, when the underlying hedged transaction affects net earnings. The maximum amount of time the company hedges its exposure to the variability in future cash flows for forecasted trade sales and purchases is two years. Results of cash flow hedges of intercompany loans are recorded in other income, net as an offset to the remeasurement of the foreign loan balance. The company formally assesses, at the cash flow hedge’s inception, and on an ongoing basis, whether the cash flow hedging instruments have been highly effective in offsetting changes in the cash flows of the hedged transactions and whether those cash flow hedging instruments may be expected to remain highly effective in future periods. When it is determined that a derivative is not, or has ceased to be, highly effective as a cash flow hedge, the company discontinues cash flow hedge accounting prospectively. When the company discontinues cash flow hedge accounting because it is no longer probable, but it is still reasonably possible that the forecasted transaction will occur by the end of the originally expected period or within an additional two-month period of time thereafter, the gain or loss on the derivative remains in AOCL and is reclassified to net earnings when the forecasted transaction affects net earnings. However, if it is probable that a forecasted transaction will not occur by the end of the originally specified time period or within an additional two-month period of time thereafter, the gains and losses that were in AOCL are recognized immediately in net earnings. In all situations in which cash flow hedge accounting is discontinued and the derivative remains outstanding, the company carries the derivative at its fair value on the Condensed Consolidated Balance Sheets, recognizing future changes in the fair value in other income, net. For the third quarter of fiscal 2017, the company did not discontinue cash flow hedge accounting on any forward currency contracts designated as cash flow hedging instruments. For the nine months ended August 4, 2017, the company recognized immaterial gains on forward currency contracts reclassified into earnings as a result of the discontinuance of cash flow hedge accounting. As of August 4, 2017, the notional amount outstanding of forward contracts designated as cash flow hedging instruments was $125.8 million. Derivatives Not Designated as Cash Flow Hedging Instruments The company also enters into foreign currency contracts that include forward currency contracts to mitigate the remeasurement of specific assets and liabilities on the Condensed Consolidated Balance Sheets. These contracts are not designated as cash flow hedging instruments. Accordingly, changes in the fair value of hedges of recorded balance sheet positions, such as cash, receivables, payables, intercompany notes, and other various contractual claims to pay or receive foreign currencies other than the functional currency, are recognized immediately in other income, net, on the Condensed Consolidated Statements of Earnings together with the transaction gain or loss from the hedged balance sheet position. The following table presents the fair value of the company’s derivative instruments and Condensed Consolidated Balance Sheets location:
|  | Fair Value at |  | Fair Value at |  | Fair Value at
(Dollars in thousands) |  | August 4, 2017 |  | July 29, 2016 |  | October 31, 2016
Derivative assets: |  |  |  |  |  |  |  |  |
Derivatives designated as cash flow hedging instruments |  |  |  |  |  |  |  |  |
Prepaid expenses and other current assets |  |  |  |  |  |  |  |  |
Forward currency contracts |  | $ | 1,998 |  |  | $ | 114 |  |  | $ | 1,535 |
Derivatives not designated as cash flow hedging instruments |  |  |  |  |  |  |  |  |
Prepaid expenses and other current assets |  |  |  |  |  |  |  |  |
Forward currency contracts |  | 166 |  |  | 532 |  |  | 432 |
Total assets |  | $ | 2,164 |  |  | $ | 646 |  |  | $ | 1,967 |
Derivative liabilities: |  |  |  |  |  |  |  |  |
Derivatives designated as cash flow hedging instruments |  |  |  |  |  |  |  |  |
Accrued liabilities |  |  |  |  |  |  |  |  |
Forward currency contracts |  | $ | 5,173 |  |  | $ | 2,070 |  |  | $ | 973 |
Derivatives not designated as cash flow hedging instruments |  |  |  |  |  |  |  |  |
Accrued liabilities |  |  |  |  |  |  |  |  |
Forward currency contracts |  | 1,481 |  |  | 402 |  |  | 792 |
Total liabilities |  | $ | 6,654 |  |  | $ | 2,472 |  |  | $ | 1,765 |
The following tables present the impact of derivative instruments on the Condensed Consolidated Statements of Earnings for the company’s derivatives designated as cash flow hedging instruments for the three and nine months ended August 4, 2017 and July 29, 2016, respectively:
|  | Effective Portion |  | Ineffective Portion and Excluded from Effectiveness Testing
|  | Gain (Loss) Recognized in OCI on Derivatives |  | Location of Gain (Loss) Reclassified from AOCL into Income |  | Gain (Loss) Reclassified from AOCL into Income |  | Location of Gain (Loss) Recognized in Income on Derivatives |  | Gain (Loss) Recognized in Income on Derivatives
(Dollars in thousands) |  | August 4, 2017 |  | July 29, 2016 |  |  |  | August 4, 2017 |  | July 29, 2016 |  |  |  | August 4, 2017 |  | July 29, 2016
Three months ended |  |  |  |  |  |  |  |  |  |
Forward currency contracts |  | $ | (3,531 | ) |  | $ | 983 |  |  | Net sales |  | $ | 153 |  |  | $ | (192 | ) |  | Other income, net |  | $ | (179 | ) |  | $ | (69 | )
Forward currency contracts |  | 469 |  |  | (317 | ) |  | Cost of sales |  | 96 |  |  | (931 | ) |  |  |  |  |  |  |  |
Total derivatives designated as cash flow hedging instruments |  | $ | (3,062 | ) |  | $ | 666 |  |  | Total |  | $ | 249 |  |  | $ | (1,123 | ) |  | Total |  | $ | (179 | ) |  | $ | (69 | )
|  | Effective Portion |  | Ineffective Portion and Excluded from Effectiveness Testing
|  | Gain (Loss) Recognized in OCI on Derivatives |  | Location of Gain (Loss) Reclassified from AOCL into Income |  | Gain (Loss) Reclassified from AOCL into Income |  | Location of Gain (Loss) Recognized in Income on Derivatives |  | Gain (Loss) Recognized in Income on Derivatives
(Dollars in thousands) |  | August 4, 2017 |  | July 29, 2016 |  |  |  | August 4, 2017 |  | July 29, 2016 |  |  |  | August 4, 2017 |  | July 29, 2016
Nine months ended |  |  |  |  |  |  |  |  |  |
Forward currency contracts |  | $ | (3,685 | ) |  | $ | (1,647 | ) |  | Net sales |  | $ | 2,219 |  |  | $ | 1,809 |  |  | Other income, net |  | $ | 190 |  |  | $ | 162 |
Forward currency contracts |  | 2,585 |  |  | (537 | ) |  | Cost of sales |  | (1,227 | ) |  | (1,930 | ) |  |  |  |  |  |  |  |
Cross currency contracts |  | — |  |  | 255 |  |  | Other income, net |  | — |  |  | (94 | ) |  |  |  |  |  |  |  |
Total derivatives designated as cash flow hedging instruments |  | $ | (1,100 | ) |  | $ | (1,929 | ) |  | Total |  | $ | 992 |  |  | $ | (215 | ) |  | Total |  | $ | 190 |  |  | $ | 162 |
As of August 4, 2017, the company expects to reclassify approximately $2.4 million of losses from AOCL to earnings during the next twelve months. The following table presents the gain/(loss) of derivative instruments on the Condensed Consolidated Statements of Earnings for the company’s derivatives not designated as cash flow hedging instruments:
|  |  |  | Three Months Ended |  | Nine Months Ended
|  | Location of Gain (Loss) |  | August 4, 2017 |  | July 29, 2016 |  | August 4, 2017 |  | July 29, 2016
(Dollars in thousands) |  |  |  |  |
Forward currency contracts |  | Other income, net |  | $ | (4,513 | ) |  | $ | 788 |  |  | $ | (3,959 | ) |  | $ | (553 | )
Cross currency contracts |  | Other income, net |  | — |  |  | (8 | ) |  | — |  |  | (191 | )
Total derivatives not designated as cash flow hedging instruments |  |  |  | $ | (4,513 | ) |  | $ | 780 |  |  | $ | (3,959 | ) |  | $ | (744 | )
The company entered into an International Swap Dealers Association (“ISDA”) Master Agreement with each counterparty that permits the net settlement of amounts owed under their respective contracts. The ISDA Master Agreement is an industry standardized contract that governs all derivative contracts entered into between the company and the respective counterparty. Under these master netting agreements, net settlement generally permits the company or the counterparty to determine the net amount payable or receivable for contracts due on the same date or in the same currency for similar types of derivative transactions. The company records the fair value of its derivative contracts at the net amount in its Condensed Consolidated Balance Sheets. The following table shows the effects of the master netting arrangements on the fair value of the company’s derivative contracts that are recorded in the Condensed Consolidated Balance Sheets:
(Dollars in thousands) |  | August 4, 2017 |  | July 29, 2016 |  | October 31, 2016
Derivative assets: |  |  |  |  |  |  |  |  |
Forward currency contracts |  |  |  |  |  |  |  |  |
Gross amounts of recognized assets |  | $ | 2,164 |  |  | $ | 885 |  |  | $ | 2,264 |
Gross liabilities offset in the balance sheets |  | — |  |  | (239 | ) |  | (297 | )
Net amounts of assets presented in the Consolidated Balance Sheets |  | $ | 2,164 |  |  | $ | 646 |  |  | $ | 1,967 |
Derivative liabilities: |  |  |  |  |  |  |  |  |
Forward currency contracts |  |  |  |  |  |  |  |  |
Gross amounts of recognized liabilities |  | $ | (6,654 | ) |  | $ | (2,475 | ) |  | $ | (1,765 | )
Gross assets offset in the balance sheets |  | — |  |  | 3 |  |  | — |
Net amounts of liabilities presented in the Consolidated Balance Sheets |  | $ | (6,654 | ) |  | $ | (2,472 | ) |  | $ | (1,765 | )

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 45 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6441202&loc=d3e80720-113993 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4C -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5624171-113959 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=64837297&loc=d3e41620-113959 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4B -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5624163-113959 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5579240-113959 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4D -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5624177-113959 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=35736893&loc=d3e80784-113994 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=64837297&loc=d3e41641-113959 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1A -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5579245-113959 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4H -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5624258-113959 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=35736893&loc=d3e80748-113994 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4K -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5708775-113959 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4J -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5708773-113959 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4A -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5618551-113959 Reference 15: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1B -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5580258-113959 Reference 16: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4E -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5624181-113959 Reference 17: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 25 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6886632&loc=d3e76258-113986 Reference 18: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=64837297&loc=d3e41638-113959 Reference 19: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(n)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 + Details
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