Derivative Financial Instruments and Risk Management

12 Months Ended

Jan. 31, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments and Risk Management

Note 10—Derivative Financial Instruments and Risk Management

On February 28, 2017, as part of the Prior Credit Agreement, we entered into a cross-currency interest rate swap to manage the interest rate risk and foreign currency exchange risk associated with the floating-rate foreign currency-denominated term loan borrowing by ANI ApS and an interest rate swap to manage the interest rate risk associated with our variable rate term loan borrowing (the “Swaps”). Both Swaps were designated as cash flow hedges of floating-rate borrowings.

Our cross-currency interest rate swap agreement effectively modified our exposure to interest rate risk and foreign currency exchange rate risk by converting our floating-rate debt denominated in U.S. Dollars on ANI ApS’s books to a fixed-rate debt denominated in Danish Kroner for the term of the loan, thus reducing the impact of interest-rate and foreign currency exchange rate changes on future interest expense and principal repayments. This swap involved the receipt of floating interest rate amounts in U.S. Dollars in exchange for fixed-rate interest payments in Danish Kroner, as well as exchanges of principal at the inception spot rate, over the life of the term loan.

Subsequently, concurrent with our borrowings to fund the payments for the Asset Purchase and License Agreement with Honeywell International, we entered into an interest rate swap agreement to modify our exposure to interest rate risk by effectively converting our floating-rate borrowings to fixed-rate debt over the term of the loan, thus reducing the impact of interest-rate changes on future interest expense. This swap involved the receipt of floating interest rate amounts in U.S. Dollars in exchange for fixed interest rate payments in U.S. dollars over the life of the term loan.

As a direct result of the terms of the Lender’s conditions for entry into the A&R Credit Agreement, on July 30, 2020, we terminated the two Swaps that we used to manage the interest rate and foreign currency exchange risks associated with our prior borrowings under the

Prior

Credit Agreement. The terms of the A&R Credit Agreement caused those swaps to cease to be effective hedges of the underlying exposures. The termination of the Swaps was contracted immediately prior to the end of the second quarter of fiscal 2021 at a cash cost of approximately $0.7 million, which was settled in the third quarter. Upon termination, the remaining balance of $58,000 in accumulated other comprehensive loss related to the cross-currency interest rate swap was reclassified into earnings as the forecasted foreign currency interest payments will not occur and such balance is included in other expense in the accompanying consolidated statements of income for the period ended January 31, 2021. The remaining balance in accumulated other comprehensive loss related to the interest rate swap of $ 0.1 million is being amortized into earnings through the original term of the hedge relationship as the underlying floating interest rate debt still exists.

The following table summarizes the notional amount and fair value of our derivative instruments:


Cash Flow Hedges (In thousands)	January 31, 2021						January 31, 2020
Cash Flow Hedges (In thousands)	Notional Amount		Fair Value Derivatives				Notional Amount		Fair Value Derivatives
	Notional Amount		Asset		Liability		Notional Amount		Asset		Liability

Cross-currency Interest Rate Swap	$	—	$	—	$	—	$	4,489	$	—	$	250
Interest Rate Swap	$	—	$	—	$	—	$	8,250	$	—	$	96

The following tables present the impact of the derivative instruments in our consolidated financial statements for the years ended January 31, 2021 and 2020:


	Years Ended
Cash Flow Hedge (In thousands)	Amount of Gain(Loss) Recognized in OCI on Derivative					Location of Gain (Loss) Reclassified from Accumulated OCI into Income		Amount of Gain (Loss) Reclassified from Accumulated OCI into Income
Cash Flow Hedge (In thousands)	January 31, 2021			January 31, 2020				January 31, 2021			January 31, 2020

Swap contracts	$	(301	)	$	159		Other Income	$	(248	)	$	338

At January 31, 2021, we expect to reclassify approximately $0.1 million of net gains on the swap contracts from accumulated other comprehensive loss to earnings during the next 12 months due to changes in foreign exchange rates and the payment of variable interest associated with the floating-rate debt.