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Derivative Financial Instruments | 3 Months Ended
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Apr. 29, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments | Derivative Financial Instruments Hedging Strategy Foreign Exchange Currency Contracts The Company operates in foreign countries, which exposes it to market risk associated with foreign currency exchange rate fluctuations. The Company has entered into certain forward contracts to hedge the risk of foreign currency rate fluctuations. The Company has elected to apply the hedge accounting rules in accordance with authoritative guidance for certain of these hedges. The Company’s primary objective is to hedge the variability in forecasted cash flows due to the foreign currency risk. Various transactions that occur primarily in Europe, Canada, South Korea, China, Hong Kong and Mexico are denominated in U.S. dollars, British pounds and Russian roubles and thus are exposed to earnings risk as a result of exchange rate fluctuations when converted to their functional currencies. These types of transactions include U.S. dollar-denominated purchases of merchandise and U.S. dollar- and British pound-denominated intercompany liabilities. In addition, certain operating expenses, tax liabilities and pension-related liabilities are denominated in Swiss francs and are exposed to earnings risk as a result of exchange rate fluctuations when converted to the functional currency. Further, there are certain real estate leases that are denominated in a currency other than the functional currency of the respective entity that entered into the agreement (primarily Swiss francs, Russian roubles and Polish zloty). As a result, the Company may be exposed to volatility related to unrealized gains or losses on the translation of present value of future lease payment obligations when translated at the exchange rate as of a reporting period-end. The Company enters into derivative financial instruments, including forward exchange currency contracts, to offset some, but not all, of the exchange risk on certain of these anticipated foreign currency transactions. Periodically, the Company may also use foreign exchange currency contracts to hedge the translation and economic exposures related to its net investments in certain of its international subsidiaries. Interest Rate Swap Agreements The Company is exposed to interest rate risk on its floating-rate debt. The Company has entered into interest rate swap agreements for certain of these agreements to effectively convert its floating-rate debt to a fixed-rate basis. The principal objective of these contracts is to eliminate or reduce the variability of the cash flows in interest payments associated with the Company’s floating-rate debt, thus reducing the impact of interest rate changes on future interest payment cash flows. The Company has elected to apply the hedge accounting rules in accordance with authoritative guidance for certain of these contracts. Refer to Note 9 for further information. The impact of the credit risk of the counterparties to the derivative contracts is considered in determining the fair value of the foreign exchange currency contracts and interest rate swap agreements. As of April 29, 2023, credit risk has not had a significant effect on the fair value of the Company’s foreign exchange currency contracts and interest rate swap agreements. Hedge Accounting Policy Foreign Exchange Currency Contracts U.S. dollar forward contracts are used to hedge forecasted merchandise purchases over specific months. Changes in the fair value of these U.S. dollar forward contracts, designated as cash flow hedges, are recorded as a component of accumulated other comprehensive income (loss) within stockholders’ equity and are recognized in cost of product sales in the period that approximates the time the hedged merchandise inventory is sold. The Company has also used U.S. dollar forward contracts to hedge the net investments of certain of the Company’s international subsidiaries over specific months. Changes in the fair value of these U.S. dollar forward contracts, designated as net investment hedges, are recorded in foreign currency translation adjustment as a component of accumulated other comprehensive income (loss) within stockholders’ equity and are not recognized in earnings (loss) until the sale or liquidation of the hedged net investment. The Company also has foreign exchange currency contracts that are not designated as hedging instruments for accounting purposes. Changes in fair value of foreign exchange currency contracts not designated as hedging instruments are reported in net earnings (loss) as part of other income (expense). Interest Rate Swap Agreements Interest rate swap agreements are used to hedge the variability of the cash flows in interest payments associated with the Company’s floating-rate debt. Changes in the fair value of interest rate swap agreements designated as cash flow hedges are recorded as a component of accumulated other comprehensive income (loss) within stockholders’ equity and are amortized to interest expense over the term of the related debt. Periodically, the Company may also enter into interest rate swap agreements that are not designated as hedging instruments for accounting purposes. Changes in the fair value of interest rate swap agreements not designated as hedging instruments are reported in net earnings (loss) as part of other income (expense). Summary of Derivative Instruments The fair value of derivative instruments in the condensed consolidated balance sheets is (in thousands):
| Fair Value at Apr 29, 2023 |  | Fair Value at Jan 28, 2023 |  | Derivative Balance Sheet Location
ASSETS: |  |  |  |  |
Derivatives designated as hedging instruments: |  |  |  |  |
Cash flow hedges: |  |  |  |  |
Foreign exchange currency contracts | $ | 310 |  |  | $ | 1,073 |  |  | Other current assets
Interest rate swap | 922 |  |  | 1,034 |  |  | Other assets
Total derivatives designated as hedging instruments | 1,232 |  |  | 2,107 |  |  |
Derivatives not designated as hedging instruments: |  |  |  |  |
Foreign exchange currency contracts | 357 |  |  | 1,146 |  |  | Other current assets
Total | $ | 1,589 |  |  | $ | 3,253 |  |  |
LIABILITIES: |  |  |  |  |
Derivatives designated as hedging instruments: |  |  |  |  |
Cash flow hedges: |  |  |  |  |
Foreign exchange currency contracts | $ | 12,179 |  |  | $ | 12,930 |  |  | Accrued expenses/ Other long-term liabilities
Total derivatives designated as hedging instruments | 12,179 |  |  | 12,930 |  |  |
Derivatives not designated as hedging instruments: |  |  |  |  |
Foreign exchange currency contracts | 3,817 |  |  | 3,774 |  |  | Accrued expenses
Total | $ | 15,996 |  |  | $ | 16,704 |  |  |
Derivatives Designated as Hedging Instruments Foreign Exchange Currency Contracts Designated as Cash Flow Hedges During the three months ended April 29, 2023, the Company purchased U.S. dollar forward contracts in Europe totaling US$30.0 million that were designated as cash flow hedges. As of April 29, 2023, the Company had forward contracts outstanding for its European operations of US$221.0 million to hedge forecasted merchandise purchases, which are expected to mature over the next 16 months. As of April 29, 2023, accumulated other comprehensive income (loss) related to foreign exchange currency contracts included an $8.6 million net unrealized loss, net of tax, of which $6.8 million will be recognized in cost of product sales over the following 12 months, at the then current values on a pre-tax basis, which can be different than the current quarter-end values. At January 28, 2023, the Company had forward contracts outstanding for its European operations of US$253.0 million that were designated as cash flow hedges. Interest Rate Swap Agreement Designated as Cash Flow Hedge As of April 29, 2023, accumulated other comprehensive income (loss) related to the interest rate swap agreement included a net unrealized gain of $0.7 million, net of tax, which will be recognized in interest expense over the following 12 months, at the then current values on a pre-tax basis, which can be different than the current quarter-end values. The following summarizes the gains (losses) before income taxes recognized on derivative instruments designated as cash flow hedges in OCI and net earnings (loss) (in thousands):
| Gains (Losses) Recognized in OCI |  | Location of Gain (Loss) Reclassified from Accumulated OCI into Earnings (Loss) |  | Gains (Losses) Reclassified from Accumulated OCI into Earnings (Loss)
| Apr 29, 2023 |  | Apr 30, 2022 |  |  |  | Apr 29, 2023 |  | Apr 30, 2022
| Three Months Ended
Derivatives designated as cash flow hedges: |  |  |  |  |  |  |  |  |
Foreign exchange currency contracts | $ | (1,072) |  |  | $ | 7,826 |  |  | Cost of product sales |  | $ | 5,893 |  |  | $ | 1,674 |
Interest rate swap | 15 |  |  | 777 |  |  | Interest expense |  | 128 |  |  | (61) |
The following summarizes net after income tax derivative activity recorded in accumulated other comprehensive income (loss) (in thousands):
|  |  | Three Months Ended
|  |  |  |  | Apr 29, 2023 |  | Apr 30, 2022
Beginning balance gain (loss) |  |  |  |  | $ | (1,584) |  |  | $ | 7,280 |
Net gains (losses) from changes in cash flow hedges |  |  |  |  | (942) |  |  | 7,563 |
Net gains reclassified into earnings (loss) |  |  |  |  | (5,343) |  |  | (1,443) |
Ending balance gain (loss) |  |  |  |  | $ | (7,869) |  |  | $ | 13,400 |
Foreign Exchange Currency Contracts Not Designated as Hedging Instruments As of April 29, 2023, the Company had euro foreign exchange currency contracts to purchase US$68.0 million expected to mature over the next 12 months. As of January 28, 2023, the Company had euro foreign exchange currency contracts to purchase US$83.5 million. The following summarizes the gains before income taxes recognized on derivative instruments not designated as hedging instruments in other income (expense) (in thousands):
| Location of Gains (Losses) Recognized in Earnings (Loss) |  |  |  |  |  | Gains (Losses) Recognized in Earnings (Loss)
|  |  |  | Three Months Ended
|  |  |  |  |  | Apr 29, 2023 |  | Apr 30, 2022
Foreign exchange currency contracts | Other expense |  |  |  |  |  | $ | (625) |  |  | $ | 1,580 |

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI https://asc.fasb.org/topic&trid=2229140 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI https://asc.fasb.org/extlink&oid=126731327&loc=d3e90205-114008 + Details
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