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Derivative Instruments and Hedging Activities | 3 Months Ended
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Jul. 29, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Instruments and Hedging Activities | Note 7. Derivative Instruments and Hedging Activities The Company is exposed to various market risks including, but not limited to, foreign currency exchange rates and market interest rates. The Company strives to control its exposure to these risks through our normal operating activities and, where appropriate, through the use of derivative financial instruments. Derivative financial instruments are measured at fair value on a recurring basis. For a designated cash flow hedge, the effective portion of the change in the fair value of the derivative financial instrument is recorded in accumulated other comprehensive income (“AOCI”) in the condensed consolidated balance sheets. When the underlying hedged transaction is realized, the gain or loss previously included in AOCI is recorded in earnings and reflected in the condensed consolidated statements of income on the same line as the gain or loss on the hedged item attributable to the hedged risk. The gain or loss associated with changes in the fair value of derivatives not designated as hedges are recorded immediately in the condensed consolidated statements of income on the same line as the associated risk. For a designated net investment hedge, the effective portion of the change in the fair value of the derivative financial instrument is recorded as a cumulative translation adjustment in AOCI in the condensed consolidated balance sheets. Net investment hedges The Company is exposed to the risk that adverse changes in foreign currency exchange rates could impact its net investment in non-U.S. subsidiaries. To manage this risk, the Company designates certain qualifying derivative and non-derivative instruments, including cross-currency swaps and foreign currency-denominated debt, as net investment hedges of certain non-U.S. subsidiaries. The Company had a variable-rate, cross-currency swap, with a notional value of $60.0 million (€54.8 million), that matured on August 31, 2023 with a gain of approximately $0.4 million. The cross-currency swap was designated as a hedge of the Company’s net investment in its euro-denominated subsidiaries. The gain will remain in AOCI until the hedged net investment is sold or substantially liquidated. Hedge effectiveness is assessed at the inception of the hedging relationship and quarterly thereafter, under the spot-to-spot method. The Company recognizes the impact of all other changes in fair value of the derivative, which represents the interest rate differential of the cross-currency swap, through interest expense. For the three months ended July 29, 2023 and July 30, 2022, the Company recorded gains of $0.7 million and $0.3 million, respectively, in interest expense, net in the condensed consolidated statements of income. The Company has also designated its euro-denominated long-term borrowings of $145.5 million under the Credit Agreement as a hedge of the Company's investment in its euro-denominated subsidiaries. The objective of the hedge is to protect the net investment in the foreign operation against adverse changes in the euro exchange rate. The change in the value of the euro-denominated long-term borrowings, which is due to changes in foreign exchange rates, is recorded as a cumulative translation adjustment in AOCI, net of tax. For the three months ended July 29, 2023, the transaction loss associated with this net investment hedge reported in AOCI was $0.2 million. Interest rate swaps The Company utilizes interest rate swaps to limit its exposure to market fluctuations on its variable-rate borrowings. The interest rate swaps effectively convert a portion of the Company's variable rate borrowings to a fixed rate based upon a determined notional amount. The Company has an interest rate swap, maturing on October 31, 2027, with a notional value of $145.5 million (€132.0 million) and had two interest rate swaps that matured on August 31, 2023, with a notional value of $100.0 million. The interest rate swaps are designated as cash flow hedges. Hedge effectiveness is assessed at the inception of the hedging relationship and quarterly thereafter. The effective portion of the periodic changes in fair value is recognized in AOCI in the condensed consolidated balance sheets. Subsequently, the accumulated gains and losses recorded in AOCI are reclassified to income in the period during which the hedged cash flow impacts earnings, which are expected to be immaterial over the next 12 months. No ineffectiveness was recognized in the three months ended July 29, 2023 and July 30, 2022. Derivatives not designated as hedges The Company uses short-term foreign currency forward contracts to reduce the earnings impact that exchange rate fluctuations have on non-functional currency balance sheet exposures. These forward contracts are not designated as hedging instruments. Gains and losses on these forward contracts are recognized in other income, net, along with the foreign currency gains and losses on monetary assets and liabilities, in the condensed consolidated statements of income. As of July 29, 2023 and April 29, 2023, the Company held foreign currency forward contracts with a notional value of $61.5 million and $59.9 million, respectively. During the three months ended July 29, 2023, the Company recognized a loss of $1.9 million related to foreign currency forward contracts in the condensed consolidated statements of income. During the three months ended July 30, 2022, a loss of $0.4 million was recognized in the condensed consolidated statements of income. Fair value of derivative instruments on the balance sheet The fair value of derivative instruments are classified as Level 2 within the fair value hierarchy and are recorded in the balance sheets as follows:
|  |  |  | Asset/(Liability) |
(in millions) |  | Financial Statement Caption |  | July 29, 2023 |  |  | April 29, 2023 |
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |
Net investment hedges |  | Other accrued liabilities |  | $ | (0.4 | ) |  | $ | (0.5 | )
Interest rate swaps |  | Prepaid expenses and other current assets |  | $ | 0.4 |  |  | $ | 1.6 |
Interest rate swaps |  | Other long-term liabilities |  | $ | (1.1 | ) |  | $ | — |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |
Foreign currency forward contracts |  | Prepaid expenses and other current assets |  | $ | — |  |  | $ | 0.1 |
Foreign currency forward contracts |  | Other accrued liabilities |  | $ | (0.1 | ) |  | $ | (0.1 | )
Effect of derivative instruments on comprehensive income (loss) Gross amounts recorded in other comprehensive income (loss) were as follows:
|  | Three Months Ended |
(in millions) |  | July 29, 2023 |  |  | July 30, 2022 |
Net investment hedges |  | $ | 0.1 |  |  | $ | 2.0 |
Interest rate swaps |  |  | (2.3 | ) |  |  | — |
Total |  | $ | (2.2 | ) |  | $ | 2.0 |

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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/disclosureRef -Topic 815 -SubTopic 40 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480237/815-40-50-5 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 5C -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480434/815-10-50-5C Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 815 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//815/tableOfContent + Details
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