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11. Derivative Financial Instruments
We are exposed to market risk associated with foreign currency exchange rate fluctuations as a result of our direct sourcing programs and our operations in foreign countries. In connection with our direct sourcing programs, we may enter into merchandise purchase commitments that are denominated in a currency different from the functional currency of the operating entity. Our risk management policy is to hedge a significant portion of forecasted merchandise purchases for our direct sourcing programs that bear foreign exchange risk using foreign exchange forward contracts. The Company has not elected to apply hedge accounting to these transactions denominated in a foreign currency.
Our derivative financial instruments are recorded in the condensed consolidated balance sheet at fair value determined by comparing the cost of the foreign currency to be purchased under the contracts using the exchange rates obtained under the contracts (adjusted for forward points) to the hypothetical cost using the spot rate at period end.
The tables below disclose the fair value of the derivative financial instruments included in the condensed consolidated balance sheets as of April 28, 2012, January 28, 2012 and April 30, 2011 (in thousands):
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Asset Derivatives |
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Liability Derivatives |
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Balance Sheet
Location |
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Fair Value |
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Balance Sheet
Location |
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Fair Value |
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Derivatives not designated as hedging instruments: |
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At April 28, 2012- |
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Other current |
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Accrued expenses and |
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Foreign exchange forward contracts |
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assets |
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$ |
— |
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other current liabilities |
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$ |
548 |
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At January 28, 2012- |
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Other current |
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Accrued expenses and |
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Foreign exchange forward contracts |
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assets |
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$ |
14 |
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other current liabilities |
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$ |
142 |
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At April 30, 2011- |
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Other current |
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Accrued expenses and |
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Foreign exchange forward contracts |
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assets |
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$ |
207 |
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other current liabilities |
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$ |
1,371 |
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At April 28, 2012, we had 12 contracts to purchase euros for an aggregate notional amount of US$1.4 million maturing in various increments at various dates through August 2012, 11 contracts to purchase United States dollars (“USD”) for an aggregate notional amount of Canadian dollars (“CAD”) $5.0 million maturing in various increments at various dates through August 2012 and 15 contracts to purchase USD for an aggregate notional amount of pounds Sterling (“GBP”) £10.9 million maturing in various increments at various dates through August 2012. For the quarter ended April 28, 2012, we recognized a net pre-tax loss of $0.8 million in cost of sales in the condensed consolidated statement of earnings for our derivative financial instruments not designated as cash flow hedges.
At January 28, 2012, we had 10 contracts maturing in varying increments to purchase euros for an aggregate notional amount of US$1.7 million maturing at various dates through June 2012, nine contracts maturing in varying increments to purchase USD for an aggregate notional amount of CAD $5.9 million maturing at various dates through June 2012 and 22 contracts maturing in varying increments to purchase USD for an aggregate notional amount of GBP £10.5 million maturing at various dates through May 2012.
At April 30, 2011, we had six contracts to purchase euros for an aggregate notional amount of US$3.0 million maturing in various increments at various dates through October 2011, two contracts to purchase USD for an aggregate notional amount of CAD $0.2 million maturing in various increments at various dates through May 2011 and 60 contracts to purchase USD for an aggregate notional amount of GBP £21.7 million maturing in various increments at various dates through November 2011. For the quarter ended April 30, 2011, we recognized a net pre-tax loss of $0.8 million in cost of sales in the condensed consolidated statement of earnings for our derivative financial instruments not designated as cash flow hedges.
We had no derivative financial instruments with credit-risk-related contingent features underlying the agreements as of April 28, 2012, January 28, 2012 or April 30, 2011, respectively.
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