XML 21 R11.htm IDEA: XBRL DOCUMENT
v3.23.1

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES | 6 Months Ended
--- | ---
Apr. 30, 2023
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES |
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES | 3. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES We are exposed to certain market risks relating to our ongoing business operations, including foreign currency risk, interest rate risk and credit risk. We manage our exposure to these and other market risks through regular operating and financing activities. Currently, the only risk that we manage through the use of derivative instruments is foreign currency risk, for which we enter into derivative instruments in the form of foreign currency forward exchange contracts with a major financial institution. We enter into these forward exchange contracts to reduce the potential effects of foreign exchange rate movements on our net equity investment in one of our foreign subsidiaries, to reduce the impact on gross profit and net earnings from sales and purchases denominated in foreign currencies, and to reduce the impact on our net earnings of foreign currency fluctuations on receivables and payables denominated in foreign currencies that are different than the subsidiaries’ functional currency. We are primarily exposed to foreign currency exchange rate risk with respect to transactions and net assets denominated in Euros, Pounds Sterling, Indian Rupee, Singapore Dollars, Chinese Yuan, Polish Zloty, and New Taiwan Dollars. We record all derivative instruments as assets or liabilities at fair value. Derivatives Designated as Hedging Instruments We enter into foreign currency forward exchange contracts periodically to hedge certain forecasted inter-company sales and purchases denominated in the following foreign currencies: the Pound Sterling, Euro and New Taiwan Dollar. The purpose of these instruments is to mitigate the risk that the U.S. dollar net cash inflows and outflows resulting from sales and purchases denominated in foreign currencies will be adversely affected by changes in exchange rates. These forward contracts have been designated as cash flow hedge instruments and are recorded in the Condensed Consolidated Balance Sheets at fair value in Derivative assets and Derivative liabilities. The effective portion of the gains and losses resulting from the changes in the fair value of these hedge contracts is deferred in Accumulated other comprehensive income (loss) and recognized as an adjustment to Cost of sales and service in the period that the corresponding inventory sold that is the subject of the related hedge contract is recognized, thereby providing an offsetting economic impact against the corresponding change in the U.S. dollar value of the inter-company sale or purchase being hedged. The ineffective portion of gains and losses resulting from the changes in the fair value of these hedge contracts is immediately reported in Other income (expense), net. We perform quarterly assessments of hedge effectiveness by verifying and documenting the critical terms of the hedge instrument and determining that forecasted transactions have not changed significantly. We also assess on a quarterly basis whether there have been adverse developments regarding the risk of a counterparty default. We had forward contracts outstanding as of April 30, 2023, denominated in Euros, Pounds Sterling and New Taiwan Dollars with set maturity dates ranging from May 2023 through April 2024. The contract amounts, expressed at forward rates in U.S. dollars at April 30, 2023, were $14.3 million for Euros, $6.1 million for Pounds Sterling and $22.2 million for New Taiwan Dollars. At April 30, 2023, we had approximately $1.0 million of loss, net of tax, related to cash flow hedges deferred in Accumulated other comprehensive income (loss). Included in this amount was $1.0 million of unrealized loss, net of tax, related to cash flow hedge instruments that remain subject to currency fluctuation risk. The majority of these deferred gains will be recorded as an adjustment to Cost of sales and service in periods through April 2024, when the corresponding inventory that is the subject of the related hedge contracts is sold, as described above. We are also exposed to foreign currency exchange risk related to our investment in net assets in foreign countries. To manage this risk, we entered into a forward contract with a notional amount of €3.0 million in November 2022. We designated this forward contract as a hedge of our net investment in Euro denominated assets. We selected the forward method under FASB guidance related to the accounting for derivative instruments and hedging activities. The forward method requires all changes in the fair value of the contract to be reported as a cumulative translation adjustment in Accumulated other comprehensive income (loss), net of tax, in the same manner as the underlying hedged net assets. This forward contract matures in November 2023. As of April 30, 2023, we had a realized gain of $1.3 million and an unrealized loss of $0.2 million, net of tax, recorded as cumulative translation adjustments in Accumulated other comprehensive income (loss) related to this forward contract. Derivatives Not Designated as Hedging Instruments We also enter into foreign currency forward exchange contracts to protect against the effects of foreign currency fluctuations on inter-company receivables, payables and loans denominated in foreign currencies. These derivative instruments are not designated as hedges under FASB guidance and, as a result, changes in their fair value are reported currently in Other income (expense), net in the Condensed Consolidated Statements of Operations consistent with the transaction gain or loss on the related receivables and payables denominated in foreign currencies. We had forward contracts outstanding as of April 30, 2023, denominated in Euros, Pounds Sterling, and New Taiwan Dollars with set maturity dates ranging from May 2023 through December 2023. The contract amounts, expressed at forward rates in U.S. dollars at April 30, 2023, totaled $53.2 million. Fair Value of Derivative Instruments We recognize the fair value of derivative instruments as assets and liabilities on a gross basis on our Condensed Consolidated Balance Sheets. As of April 30, 2023 and October 31, 2022, all derivative instruments were recorded at fair value on our Condensed Consolidated Balance Sheets as follows (in thousands): ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | April 30, 2023 | ​ | October 31, 2022 | ​
​ | ​ | Balance Sheet | ​ | Fair | ​ | Balance Sheet | ​ | Fair | ​
Derivatives |  | Location |  | Value |  | Location |  | Value |
Designated as Hedging Instruments: | ​ |  | ​ | ​ |  | ​ |  | ​ | ​ |  | ​
Foreign exchange forward contracts | ​ | Derivative assets | ​ | $ | 108 | ​ | Derivative assets | ​ | $ | 2,273 | ​
Foreign exchange forward contracts | ​ | Derivative liabilities | ​ | $ | 1,627 | ​ | Derivative liabilities | ​ | $ | 2,891 | ​
​ | ​ |  | ​ |  | ​ | ​ | ​ | ​ |  |  | ​
Not Designated as Hedging Instruments: | ​ |  | ​ |  | ​ | ​ | ​ | ​ | ​ |  | ​
Foreign exchange forward contracts | ​ | Derivative assets | ​ | $ | 64 | ​ | Derivative assets | ​ | $ | 242 | ​
Foreign exchange forward contracts | ​ | Derivative liabilities | ​ | $ | 650 | ​ | Derivative liabilities | ​ | $ | 741 | ​
​ Effect of Derivative Instruments on the Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Changes in Shareholders’ Equity and Condensed Consolidated Statements of Operations Derivative instruments had the following effects on our Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Changes in Shareholders’ Equity and Condensed Consolidated Statements of Operations, net of tax, during the three months ended April 30, 2023 and 2022 (in thousands): ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | Location of Gain | ​ | Amount of Gain
​ | ​ | Amount of Gain (Loss) | ​ | (Loss) Reclassified | ​ | (Loss) Reclassified
​ | ​ | Recognized in Other | ​ | from Other | ​ | from Other
​ | ​ | Comprehensive | ​ | Comprehensive | ​ | Comprehensive
Derivatives | ​ | Income (Loss) | ​ | Income (Loss) | ​ | Income (Loss)
​ | ​ | Three Months Ended | ​ | ​ | ​ | Three Months Ended
​ | ​ | April 30, | ​ | ​ | ​ | April 30,
​ |  | 2023 |  | 2022 |  | ​ |  | 2023 |  | 2022
Designated as Hedging Instruments: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
(Effective portion) |  | ​ |  | ​ | ​ | ​ | ​ |  | ​ | ​ |  |  | ​ | ​
Foreign exchange forward contracts – Intercompany sales/purchases | ​ | $ | (847) | ​ | $ | (41) | ​ | Cost of sales and service | ​ | $ | 50 |  | $ | (77)
Foreign exchange forward contract – Net investment | ​ | $ | (25) | ​ | $ | 152 | ​ |  | ​ |  |  |  |  |
​ We did not recognize any gains or losses as a result of hedges deemed ineffective for either of the three months ended April 30, 2023 or 2022. We recognized the following gains in our Condensed Consolidated Statements of Operations during the three months ended April 30, 2023 and 2022 on derivative instruments not designated as hedging instruments (in thousands): ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Location of Gain | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | (Loss) Recognized | ​ | Amount of Gain (Loss)
Derivatives |  | in Operations | ​ | Recognized in Operations
​ | ​ | ​ | ​ | Three Months Ended
​ | ​ | ​ | ​ | April 30,
​ | ​ | ​ |  | 2023 |  | 2022
Not Designated as Hedging Instruments: |  |  |  | ​ |  |  | ​ | ​
Foreign exchange forward contracts |  | Other income (expense), net | ​ | $ | (1,109) |  | $ | 581
​ The following table presents the changes in the components of Accumulated other comprehensive income (loss), net of tax, for the three months ended April 30, 2023 (in thousands): ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Foreign Currency | ​ | Cash Flow | ​ | ​ | ​
​ |  | Translation |  | Hedges |  | Total
Balance, January 31, 2023 | ​ | $ | (11,128) |  | $ | (514) | ​ | $ | (11,642)
Other comprehensive income (loss) before reclassifications | ​ |  | (470) | ​ |  | (847) | ​ |  | (1,317)
Reclassifications | ​ |  | — | ​ |  | (50) | ​ |  | (50)
Balance, April 30, 2023 | ​ | $ | (11,598) |  | $ | (1,411) | ​ | $ | (13,009)
​ ​ Derivative instruments had the following effects on our Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Changes in Shareholders’ Equity and Condensed Consolidated Statements of Operations, net of tax, during the six months ended April 30, 2023 and 2022 (in thousands): ​ ​ ​ ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | Location of Gain | ​ | Amount of Gain | ​
​ | ​ | Amount of Gain (Loss) | ​ | (Loss) Reclassified | ​ | (Loss) Reclassified | ​
​ | ​ | Recognized in Other | ​ | from Other | ​ | from Other | ​
​ | ​ | Comprehensive | ​ | Comprehensive | ​ | Comprehensive | ​
​ | ​ | Income (Loss) | ​ | Income (Loss) | ​ | Income (Loss) | ​
​ | ​ | Six Months Ended | ​ | ​ | ​ | Six Months Ended | ​
​ | ​ | April 30, | ​ | ​ | ​ | April 30, | ​
Derivatives |  | 2023 |  | 2022 |  | ​ |  | 2023 |  | 2022 |
Designated as Hedging Instruments: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
(Effective Portion) |  | ​ |  | ​ | ​ | ​ | ​ |  | ​ | ​ |  |  | ​ | ​ |
Foreign exchange forward contracts – Intercompany sales/purchases | ​ | $ | (1,013) | ​ | $ | 294 | ​ | Cost of sales and service | ​ | $ | 132 |  | $ | (226) | ​
Foreign exchange forward contract – Net investment | ​ | $ | (224) | ​ | $ | 221 | ​ |  | ​ |  |  |  |  |  | ​
​ We did not recognize any gains or losses as a result of hedges deemed ineffective for either of the six months ended April 30, 2023 or 2022. We recognized the following gains in our Condensed Consolidated Statements of Operations during the six months ended April 30, 2023 and 2022 on derivative instruments not designated as hedging instruments (in thousands): ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Location of Gain | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | (Loss) Recognized | ​ | Amount of Gain (Loss) | ​
Derivatives | ​ | in Operations | ​ | Recognized in Operations | ​
​ | ​ | ​ | ​ | Six Months Ended | ​
​ | ​ | ​ | ​ | April 30, | ​
Derivatives |  | ​ |  | 2023 |  | 2022 |
Not Designated as Hedging Instruments: |  |  |  | ​ |  |  | ​ | ​ |
Foreign exchange forward contracts |  | Other income (expense), net | ​ | $ | (1,464) |  | $ | 779 |
​ The following table presents the changes in the components of Accumulated other comprehensive income (loss), net of tax, for the six months ended April 30, 2023 (in thousands): ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Foreign | ​ | Cash | ​ | ​ | ​
​ | ​ | Currency | ​ | Flow | ​ | ​ | ​
​ |  | Translation |  | Hedges |  | Total
Balance, October 31, 2022 | ​ | $ | (21,259) |  | $ | (266) | ​ | $ | (21,525)
Other comprehensive income (loss) before reclassifications | ​ |  | 9,661 | ​ |  | (1,013) | ​ |  | 8,648
Reclassifications | ​ |  | — | ​ |  | (132) | ​ |  | (132)
Balance, April 30, 2023 | ​ | $ | (11,598) |  | $ | (1,411) | ​ | $ | (13,009)
​ ​ ​

X
- References No definition available. + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- 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
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | dtr-types:textBlockItemType
Balance Type: | na
Period Type: | duration