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Foreign Currency Exchange Risk
+Added: Translation Risk .
The functional currency of our international subsidiaries is generally the applicable local currency.
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dollar affect the reported amounts of net revenue, expenses, assets, and liabilities.
+Added: As a result of the fluctuation in exchange rates compared to the U.S.
+Added: dollar our revenue was $21.8 million lower in the first quarter of 2024 in comparison to the first quarter of 2023.
Foreign currency exchange differences which arise on translation of our international subsidiaries' balance sheets into U.S.
dollars are recorded as other comprehensive income (loss), net of tax in accumulated other comprehensive income or loss within stockholders' equity.
+Added: A significant portion of our net assets are held by our Canadian dollar subsidiary.
+Added: We enter into forward currency contracts in order to hedge a portion of the foreign currency exposure associated with the translation of our net investment in our Canadian subsidiary.
+Added: The impact to other comprehensive loss of translation of our Canadian subsidiaries was an increase in the loss of $22.8 million, inclusive of net investment hedge gains.
+Added: Transaction Risk .
We also have exposure to changes in foreign currency exchange rates associated with transactions which are undertaken by our subsidiaries in currencies other than their functional currency.
−Removed: Such transactions include intercompany
−Removed: transactions and inventory purchases denominated in currencies other than the functional currency of the purchasing entity.
−Removed: As a result, we have been impacted by changes in foreign currency exchange rates and may be impacted for the foreseeable future.
−Removed: The potential impact of currency fluctuation increases as our international expansion increases.
−Removed: As of October 29, 2023, we had certain forward currency contracts outstanding in order to hedge a portion of the foreign currency exposure that arises on translation of a Canadian subsidiary into U.S.
−Removed: We also had certain forward currency contracts outstanding in an effort to reduce our exposure to the foreign currency exchange revaluation gains and losses that are recognized by our Canadian and Chinese subsidiaries on U.S.
−Removed: dollar denominated monetary assets and liabilities.
−Removed: Please refer to Note 8.
−Removed: Derivative Financial Instruments included in Item 1 of Part I of this report for further information, including details of the notional amounts outstanding.
+Added: Such transactions include intercompany transactions and inventory purchases denominated in currencies other than the functional currency of the purchasing entity.
+Added: We also hold cash and cash equivalents and other monetary assets in currencies that are different to the functional currency of our subsidiaries.
+Added: As of April 28, 2024, we had certain forward currency contracts outstanding in order to economically hedge the foreign currency revaluation gains and losses recognized by our foreign subsidiaries, including our Canadian and Chinese subsidiaries, on their monetary assets and liabilities denominated in currencies other than their functional currency.
+Added: We perform a sensitivity analysis to determine the market risk exposure associated with the fair values of our forward currency contracts.
+Added: The net fair value of outstanding derivatives as of April 28, 2024 was an asset of $2.7 million.
+Added: As of April 28, 2024, a 10% depreciation in the U.S.
+Added: dollar against the hedged currencies would have resulted in the net fair value of outstanding derivatives depreciating by $29.8 million.
+Added: The hypothetical change in the fair value of the forward currency contracts would have been substantially offset by a corresponding but directionally opposite change in the underlying hedged items.
In the future, in an effort to reduce foreign currency exchange risks, we may enter into further derivative financial instruments including hedging additional currency pairs.
We do not, and do not intend to, engage in the practice of trading derivative securities for profit.
−Removed: We currently generate a significant portion of our net revenue and incur a significant portion of our expenses in Canada.
−Removed: We also hold a significant portion of our net assets in Canada.
−Removed: The reporting currency for our consolidated financial statements is the U.S.
−Removed: A strengthening of the U.S.
−Removed: dollar against the Canadian dollar results in:
−Removed: • the following impacts to the consolidated statements of operations:
−Removed: – a decrease in our net revenue upon translation of the sales made by our Canadian operations into U.S.
−Removed: dollars for the purposes of consolidation;
−Removed: – a decrease in our selling, general and administrative expenses incurred by our Canadian operations upon translation into U.S.
−Removed: dollars for the purposes of consolidation;
−Removed: – foreign currency exchange revaluation gains by our Canadian subsidiaries on U.S.
−Removed: dollar denominated monetary assets and liabilities;
−Removed: – derivative valuation losses on forward currency contracts not designated in a hedging relationship;
−Removed: • the following impacts to the consolidated balance sheets:
−Removed: – a decrease in the foreign currency translation adjustment which arises on the translation of our Canadian subsidiaries' balance sheets into U.S.
−Removed: – net investment hedge losses from derivative valuation losses on forward currency contracts, entered into as net investment hedges of a Canadian subsidiary.
−Removed: During the first three quarters of 2023, the change in the relative value of the U.S.
−Removed: dollar against the Canadian dollar resulted in a $54.5 million increase in accumulated other comprehensive loss within stockholders' equity.
−Removed: During the first three quarters of 2022, the change in the relative value of the U.S.
−Removed: dollar against the Canadian dollar resulted in a $83.0 million increase in accumulated other comprehensive loss within stockholders' equity.
−Removed: A 10% appreciation in the relative value of the U.S.
−Removed: dollar against the Canadian dollar compared to the foreign currency exchange rates in effect for the first three quarters of 2023 would have resulted in lower income from operations of approximately $46.0 million.
−Removed: This assumes a consistent 10% appreciation in the U.S.
−Removed: dollar against the Canadian dollar over the first three quarters of 2023.
−Removed: The timing of changes in the relative value of the U.S.
−Removed: dollar combined with the seasonal nature of our business, can affect the magnitude of the impact that fluctuations in foreign currency exchange rates have on our income from operations.
+Added: Please refer to Note 7.
+Added: Derivative Financial Instruments included in Item 1 of Part I of this report for further details on the nature of our financial instruments.
Interest Rate Risk
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Because our revolving credit facilities bear interest at a variable rate, we will be exposed to market risks relating to changes in interest rates, if we have a meaningful outstanding balance.
−Removed: As of October 29, 2023, aside from letters of credit and guarantee of $6.6 million, there were no borrowings outstanding under these credit facilities.
+Added: As of April 28, 2024, aside from letters of credit of $6.3 million, there were no borrowings outstanding under these credit facilities.
We currently do not engage in any interest rate hedging activity and currently have no intention to do so.
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Our cash and cash equivalent balances are held in the form of cash on hand, bank balances, and short-term deposits with original maturities of three months or less, and in money market funds.
−Removed: We do not believe interest rate risk currently poses a material exposure to our business and results of operations.
+Added: As of April 28, 2024, we held cash and cash equivalents of $1.9 billion.
+Added: Interest generated on cash balances is subject to variability as interest rates increase or decrease.
Credit Risk .
−Removed: We have cash on deposit with what we believe are various large, reputable financial institutions and have invested in AAA-rated money market funds, which include investments in government bonds.
+Added: We have cash on deposit with various large, reputable financial institutions and have invested in AAA-rated money market funds.
The amount of cash and cash equivalents held with certain financial institutions exceeds government-insured limits.
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The credit risk amount is our unrealized gains on our derivative instruments, based on foreign currency rates at the time of nonperformance.
−Removed: We have not experienced any losses related to these items, and we do not believe credit risk currently poses a material exposure to our business or results of operations.
+Added: We have not experienced any losses related to
+Added: these items, and we believe credit risk to be minimal.
We seek to minimize our credit risk by entering into transactions with investment grade credit worthy and reputable financial institutions and by monitoring the credit standing of the financial institutions with whom we transact.
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Inflationary factors such as increases in the cost of our product, as well as overhead costs and capital expenditures may adversely affect our operating results.
−Removed: During 2022 and the first three quarters of 2023, our operating margin was impacted by increased wage rates.
−Removed: During the three quarters of 2022, our gross margin was impacted by higher air freight costs as a result of global supply chain disruption.
Sustained increases in transportation costs, wages, and raw material costs, or other inflationary pressures in the future may have an adverse effect on our ability to maintain current levels of operating margin if the selling prices of our products do not increase with these increased costs, or we cannot identify cost efficiencies.
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.