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Derivative Instruments | 3 Months Ended
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Apr. 02, 2016
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Instruments | Derivative Instruments The Company conducts business on a multinational basis in a wide variety of foreign currencies; as such, the Company manages these risks using derivative financial instruments. The exposure to market risk for changes in foreign currency exchange rates arises from cross-border financing activities between subsidiaries and foreign currency denominated monetary assets and liabilities. The objective is to preserve the economic value of non-functional currency denominated cash flows. Therefore, the goal is to hedge transaction exposures with natural offsets to the fullest extent possible, and once these opportunities have been exhausted, through foreign exchange forward and option contracts with third parties. The Company entered into a credit agreement which provides for a term loan of $2.2 billion (“Term Loan”) and a revolving credit facility of $250.0 million (“Revolving Credit Facility”). See Note 12 Long-Term Debt. As such, the Company has exposure to market risk for changes in interest expense calculated off of variable interest rates on the term facility that was used to fund the Acquisition. The Company entered into forward interest rate swaps to hedge a portion of the interest rate risk associated with the Term Loan. The fair value of the forward starting interest rate swap contracts is estimated using market quoted forward interest rates for the London Interbank Offered Rate (“LIBOR”) at the balance sheet date and the application of such rates subject to the interest rate swap terms. In accordance with ASC 815, “Derivative and Hedging,” the Company recognizes derivative instruments as either assets or liabilities on the balance sheet and measures them at fair value. Gains and losses resulting from changes in fair value are accounted for depending on the use of the derivative and whether it is designated as and qualifies for hedge accounting. The Company’s master netting and other similar arrangements with the respective counterparties allow for net settlement under certain conditions, which are designed to reduce credit risk by permitting net settlement with the same counterparty. Credit and Market Risk Financial instruments, including derivatives, expose the Company to counterparty credit risk for nonperformance and to market risk related to interest and currency exchange rates. The Company manages its exposure to counterparty credit risk through specific minimum credit standards, diversification of counterparties, and procedures to monitor concentrations of credit risk. Its counterparties in derivative transactions are commercial banks with significant experience using derivative instruments. The Company monitors the impact of market risk on the fair value and cash flows of its derivative and other financial instruments considering reasonably possible changes in interest rates and currency exchange rates and restricts the use of derivative financial instruments to hedging activities. The Company continually monitors the creditworthiness of its customers to which it grants credit terms in the normal course of business. The terms and conditions of the Company’s credit sales are designed to mitigate or eliminate concentrations of credit risk with any single customer. Fair Value of Derivative Instruments The Company has determined that derivative instruments for hedges that have traded but have not settled are considered Level 1 in the fair value hierarchy, and hedges that have not traded are considered Level 2 in the fair value hierarchy. Derivative instruments are used to manage risk and are not used for trading or other speculative purposes, nor does the Company use leveraged derivative financial instruments. The foreign currency exchange contracts are valued using broker quotations or market transactions, in either the listed or over-the-counter markets. Non-Designated Foreign Currency Derivatives The Company uses forward contracts to manage exposure related to its British Pound, Canadian Dollar, Czech Koruna, Brazilian Real, Malaysian Ringgit, and Euro denominated net assets. Forward contracts typically mature within three months after execution of the contracts. The Company records monetary gains and losses on these contracts and options in income each quarter along with the transaction gains and losses related to its net asset positions, which would ordinarily offset each other. Summary financial information related to these activities included in the Company’s consolidated statements of operations as other (expense) income is as follows (in millions):
| Three Months Ended
| April 2, 2016 Restated |  | April 4, 2015
Realized (loss) gain from foreign exchange derivatives | $ | (5 | ) |  | $ | 1 |
Gain (loss) on net foreign currency assets | 7 |  |  | (28 | )
Foreign exchange gain (loss) | $ | 2 |  |  | $ | (27 | )
| April 2, 2016 |  | December 31, 2015
Notional balance of outstanding contracts (in millions): |  |  |
British Pound/US dollar | £ | 7 |  |  | £ | 5 |
Euro/US dollar | € | 125 |  |  | € | 133 |
British Pound/Euro | £ | — |  |  | £ | 7 |
Canadian Dollar/US dollar | $ | 3 |  |  | $ | 5 |
Czech Koruna/US dollar | Kč | 240 |  |  | Kč | 140 |
Brazilian Real/US dollar | R$ | 10 |  |  | R$ | 28 |
Malaysian Ringgit/US dollar | RM | 52 |  |  | RM | 13 |
Net fair value of outstanding contracts | $ | — |  |  | $ | 1 |
Hedging of Anticipated Sales The Company manages the exchange rate risk of anticipated Euro denominated sales using put options, forward contracts, collars and participating forwards. The Company designates these contracts as cash flow hedges which mature within twelve months after the execution of the contracts. Gains and losses on these contracts are deferred in other comprehensive income until the contracts are settled and the hedged sales are realized. The deferred gain or loss will then be reported as an increase or decrease to sales. At the end of the fourth quarter of 2015, the Company expanded its hedging activities to manage the exposure from the Enterprise segment related to fluctuations of foreign currency exchange rates. The impact is reflected in the consolidated statements of comprehensive loss. Summary financial information related to the cash flow hedges within comprehensive (loss) income is as follows (in millions):
| Three Months Ended
| April 2, 2016 |  | April 4, 2015
Change in unrealized (loss) gain on anticipated sales hedging: |  |  |
Gross | $ | (19 | ) |  | $ | 2 |
Income tax (benefit) expense | (4 | ) |  | — |
Net | $ | (15 | ) |  | $ | 2 |
Summary financial information related to the cash flow hedges of future revenues is as follows (in millions, except percentages):
| April 2, 2016 |  | December 31, 2015
Notional balance of outstanding contracts versus the dollar | € | 523 |  |  | € | 193 |
Hedge effectiveness | 100 | % |  | 100 | %
| Three Months Ended
| April 2, 2016 |  | April 4, 2015
Net (loss) gain included in revenue | $ | (2 | ) |  | $ | 6 |
The Company records its foreign exchange contracts at fair value on its consolidated balance sheets as a current asset or liability, depending upon the fair value calculation as detailed in Note 4 Fair Value Measurements. The amounts recorded on the consolidated balance sheets are as follows (in millions):
| April 2, 2016 |  | December 31, 2015
Assets: |  |  |
Prepaid expenses and other current assets | $ | — |  |  | $ | 7 |
Total | $ | — |  |  | $ | 7 |
Liabilities: |  |  |  |
Accrued liabilities | $ | 23 |  |  | $ | — |
Total | $ | 23 |  |  | $ | — |
Forward Interest Rate Swaps The forward interest rate swaps hedge the interest rate risk associated with the variable interest payments on the Company’s Term Loan. In June 2014, the Company entered into a commitment letter for a new variable rate credit facility to fund the Acquisition and also entered into 2 tranches of floating-to-fixed forward interest rate swaps (“Original Swaps”). These Original Swaps were used to economically hedge interest rate risk associated with the variable rate commitment until July 30, 2014, and as such, changes in their fair value were recognized in earnings in other (expense) income. Effective July 30, 2014, the Original Swaps were designated as cash flow hedges of interest rate exposure associated with variability in future cash flows on the variable rate commitment. On October 27, 2014, the variable rate commitment was funded and the Company entered into a Term Loan that accrues interest at a variable rate of LIBOR (subject to a floor of 0.75% per annum) plus a margin of 4.0%. On October 30, 2014, the Company discontinued hedge accounting for the Original Swaps due to the syndication of the Original Swaps to a group of commercial banks (“Syndicated Swaps”), which resulted in their termination. The changes in fair value of the Original Swaps between July 30, 2014 and their termination were included in other comprehensive (loss) income and any ineffectiveness was insignificant. The amounts included in other comprehensive (loss) income will be amortized to earnings in other (expense) income as the interest payments under the Term Loan affect earnings. The Syndicated Swaps were not designated as hedges and the changes in fair value are recognized in earnings in other (expense) income. On November 20, 2014, the Company entered into additional floating-to-fixed forward starting interest rate swaps (“New Swaps”) and designated these as cash flow hedges of interest rate exposure associated with variability in future cash flows on its Term Loan. To offset the impact to earnings of the changes in fair value of the Syndicated Swaps, the Company also entered into fixed-to-floating forward starting interest rate swaps (“Offsetting Swaps”), which were not designated in a hedging relationship and the changes in the fair value are recognized in earnings in other income (expense). Changes in fair value of the New Swaps that are designated as cash flow hedges and are effective at offsetting variability in the future cash flows on the Company’s Term Loan are recognized in other comprehensive (loss) income. Any ineffectiveness is immediately recognized in earnings. The balance sheet position of the New Swaps designated in a hedge relationship is as follows (in millions, except percentages):
| April 2, 2016 |  | December 31, 2015
Accrued liabilities | $ | 1 |  |  | $ | 1 |
Other long-term liabilities | $ | 25 |  |  | $ | 14 |
Hedge effectiveness | 100 | % |  | 100 | %
The forward interest rate swaps not designated in a hedging relationship are recorded in a net liability position of $9 million as of April 2, 2016 and $11 million as of December 31, 2015 in the consolidated balance sheets. The gross fair values and related offsetting counterparty fair values as well as the net fair value amounts at April 2, 2016 were as follows (in millions):
| Gross Fair Value |  | Counterparty Offsetting |  | Net Fair Value in the Consolidated Balance Sheets
Counterparty A | $ | 18 |  |  | $ | 10 |  |  | $ | 8 |
Counterparty B | 6 |  |  | 3 |  |  | 3 |
Counterparty C | 6 |  |  | 3 |  |  | 3 |
Counterparty D | 12 |  |  | 5 |  |  | 7 |
Counterparty E | 6 |  |  | 2 |  |  | 4 |
Counterparty F | 6 |  |  | 3 |  |  | 3 |
Counterparty G | 7 |  |  | — |  |  | 7 |
Total | $ | 61 |  |  | $ | 26 |  |  | $ | 35 |
The New Swaps, each with a term of 1 year, are designated as cash flow hedges of interest rate exposure associated with variability in future cash flows on the Term Loan. The notional amount of the designated New Swaps effective in each year of the cash flow hedge relationships does not exceed the principal amount of the Term Loan which is hedged. The New Swaps have the following notional amounts per year (in millions):
| April 2, 2016
Year 2016 | $ | 1,010 |
Year 2017 | 697 |
Year 2018 | 544 |
Year 2019 | 544 |
Year 2020 | 272 |
Year 2021 | 272 |
Notional balance of outstanding contracts | $ | 3,339 |
The gain recognized on the forward interest rate swaps not designated in a hedge relationship is combined with interest expense and other, net in the consolidated statements of operations is as follows (in millions):
| Three Months Ended
| April 2, 2016 |  | April 4, 2015
Interest income on forward interest rate swaps | $ | 1 |  |  | $ | 2 |
The loss recognized in other comprehensive unrealized loss on the forward interest rate swaps designated in a hedging relationship is as follows (in millions):
| Three Months Ended
| April 2, 2016 |  | April 4, 2015
Change in unrealized loss on forward interest rate swap hedging: |  |  |
Gross | $ | (10 | ) |  | $ | (12 | )
Income tax benefit | (3 | ) |  | (5 | )
Net | $ | (7 | ) |  | $ | (7 | )
A loss of $1 million was reclassified from accumulated other comprehensive loss into interest expense and other, net on the forward interest rate swaps designated in a hedging relationship during the three month period ended April 2, 2016. There were no significant reclassifications during the three month period ended April 4, 2015. At April 2, 2016, the Company expects that approximately $14 million in losses on the forward interest rate swaps designated in a hedging relationship that will be reclassified from accumulated other comprehensive loss into earnings during the next 4 quarters.

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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/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 45 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6441202&loc=d3e80720-113993 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4C -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5624171-113959 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=56946850&loc=d3e41620-113959 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4B -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5624163-113959 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5579240-113959 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4D -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5624177-113959 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=35736893&loc=d3e80784-113994 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=56946850&loc=d3e41641-113959 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1A -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5579245-113959 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4H -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5624258-113959 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=35736893&loc=d3e80748-113994 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4K -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5708775-113959 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4J -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5708773-113959 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4A -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5618551-113959 Reference 15: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1B -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5580258-113959 Reference 16: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4E -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5624181-113959 Reference 17: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 25 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6886632&loc=d3e76258-113986 Reference 18: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=56946850&loc=d3e41638-113959 Reference 19: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(n)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 + Details
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