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Derivative Instruments | 9 Months Ended
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Oct. 01, 2016
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Instruments | Derivative Instruments In the normal course of business, the Company is exposed to global market risks, including the effects of changes in foreign currency exchange rates and interest rates. The Company uses derivative instruments to manage its exposure to such risks and may elect to designate certain derivatives as hedging instruments under ASC 815, “Derivatives and Hedging.” The Company formally documents all relationships between designated hedging instruments and hedged items as well as its risk management objectives and strategies for undertaking hedge transactions. The Company does not hold or issue derivatives for trading or speculative purposes. In accordance with ASC 815, “Derivative and Hedging,” the Company recognizes derivative instruments as either assets or liabilities on the consolidated balance sheet and measures them at fair value. The following table presents the fair value of its derivative instruments (in millions):
| Asset (Liability) Derivatives
| Balance Sheet Classification |  | Fair Value
|  |  | October 1, 2016 |  | December 31, 2015
Derivative instruments designated as hedges: |  |  |  |  |
Foreign exchange contracts | Prepaid expenses and other current assets |  | $ | — |  |  | $ | 2 |
Foreign exchange contracts | Accrued liabilities |  | (5 | ) |  | — |
Forward interest rate swaps | Accrued liabilities |  | (4 | ) |  | (1 | )
Forward interest rate swaps | Other long-term liabilities |  | (23 | ) |  | (14 | )
Total derivative instruments designated as hedges |  |  | $ | (32 | ) |  | $ | (13 | )
Derivative instruments not designated as hedges: |  |  |  |  |
Foreign exchange contracts | Prepaid expenses and other current assets |  | $ | — |  |  | $ | 5 |
Foreign exchange contracts | Accrued liabilities |  | (3 | ) |  | — |
Forward interest rate swaps | Accrued liabilities |  | (3 | ) |  | (2 | )
Forward interest rate swaps | Other long-term liabilities |  | (7 | ) |  | (9 | )
Total derivative instruments not designated as hedges |  |  | (13 | ) |  | (6 | )
Total Net Derivative Liability |  |  | $ | (45 | ) |  | $ | (19 | )
See also Note 4 - Fair Value Measurements. The following table presents the gains (losses) from changes in fair values of derivatives that are not designated as hedges (in millions):
| Gain (Loss) Recognized in Income
|  | Three Months Ended |  | Nine Months Ended
| Statement of Operations Classification | October 1, 2016 |  | October 3, 2015 |  | October 1, 2016 |  | October 3, 2015
Derivative instruments not designated as hedges: |  |  |  |  |  |  |  |
Foreign exchange contracts | Foreign exchange (loss) gain | $ | (3 | ) |  | $ | 3 |  |  | $ | (6 | ) |  | $ | 6 |
Forward interest rate swaps | Interest expense, net | — |  |  | 3 |  |  | 2 |  |  | 3 |
Total (loss) gain recognized in income |  | $ | (3 | ) |  | $ | 6 |  |  | $ | (4 | ) |  | $ | 9 |
Credit and Market Risk Management Financial instruments, including derivatives, expose the Company to counterparty credit risk of nonperformance and to market risk related to currency exchange rate and interest rate fluctuations. The Company manages its exposure to counterparty credit risk by establishing minimum credit standards, diversifying its counterparties, and monitoring its concentrations of credit. The Company’s credit risk counterparties are commercial banks with expertise in derivative financial instruments. The Company evaluates the impact of market risk on the fair value and cash flows of its derivative and other financial instruments by considering reasonably possible changes in interest rates and currency exchange rates. The Company continually monitors the creditworthiness of the 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. Foreign Currency Exchange Risk Management The Company conducts business on a multinational basis in a wide variety of foreign currencies. Exposure to market risk for changes in foreign currency exchange rates arises from euro denominated external revenues, cross-border financing activities between subsidiaries, and foreign currency denominated monetary assets and liabilities. The Company realizes its objective of preserving the economic value of non-functional currency denominated cash flows by initially hedging transaction exposures with natural offsets to the fullest extent possible and, once these opportunities have been exhausted, through foreign exchange forward and option contracts. The Company manages the exchange rate risk of anticipated euro denominated sales using put options, forward contracts, and participating forwards, all of which typically mature within twelve months of execution. The Company designates these derivative contracts as cash flow hedges. Gains and losses on these contracts are deferred in accumulated other comprehensive loss until the contract is settled and the hedged sale is realized. The deferred gain or loss is then reported as an increase or decrease to net sales. As of October 1, 2016 and December 31, 2015, the notional amounts of the Company’s foreign exchange cash flow hedges were €409 million and €193 million, respectively. 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. The Company uses forward contracts, which are not designated as hedging instruments, to manage its exposures related to its Brazilian Real, British Pound, Canadian Dollar, Czech Koruna, Euro, Malaysian Ringgit, Australian Dollar and Swedish Krona denominated net assets. These forward contracts typically mature within three months after execution. Monetary gains and losses on these forward contracts are recorded in income each quarter and are generally offset by the transaction gains and losses related to their net asset positions. The notional values of these outstanding contracts are as follow:
| October 1, 2016 |  | December 31, 2015
Notional balance of outstanding contracts (in millions): |  |  |
British Pound/US dollar | £ | 4 |  |  | £ | 5 |
Euro/US dollar | € | 128 |  |  | € | 133 |
British Pound/Euro | £ | 7 |  |  | £ | 7 |
Canadian Dollar/US dollar | $ | 7 |  |  | $ | 5 |
Czech Koruna/US dollar | Kč | 181 |  |  | Kč | 140 |
Brazilian Real/US dollar | R$ | 39 |  |  | R$ | 28 |
Malaysian Ringgit/US dollar | RM | 110 |  |  | RM | 13 |
Australian Dollar/US dollar | $ | 25 |  |  | $ | — |
Swedish Krona/US dollar | kr | 16 |  |  | kr | — |
Net fair value of outstanding contracts (in millions) | $ | — |  |  | $ | 1 |
Interest Rate Risk Management In October 2014, the Company entered into a credit agreement, which provides for a term loan (“Term Loan”) of $2.2 billion and a revolving credit facility (“Revolving Credit Facility”) of $250.0 million. See Note 11 Long-Term Debt. Borrowings under the Term Loan bear interest at a variable rate plus an applicable margin. As a result, the Company is exposed to market risk associated with the variable interest rate payments on the Term Loan. The Company has entered into forward interest rate swaps to hedge a portion of this interest rate risk. Certain of the forward interest rate swaps, each with a term of 1 year, are designated as cash flow hedges. The notional amount of these designated swaps effective in each year of the cash flow hedge does not exceed the principal amount of the Term Loan which is hedged. The changes in fair value of the swaps designated as cash flow hedges are recognized in accumulated other comprehensive loss, with any ineffectiveness immediately recognized in earnings. At October 1, 2016, the Company estimated that approximately $16 million in losses on the forward interest rate swaps designated as cash flow hedges will be reclassified from accumulated other comprehensive loss into earnings during the next 4 quarters. 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. The following table presents the gross fair values and related offsetting counterparty fair values as well as the net fair value amounts at October 1, 2016 (in millions):
| Gross Fair Value |  | Counterparty Offsetting |  | Net Fair Value in the Consolidated Balance Sheets
Counterparty A | $ | 18 |  |  | $ | 11 |  |  | $ | 7 |
Counterparty B | 7 |  |  | 3 |  |  | 4
Counterparty C | 7 |  |  | 3 |  |  | 4
Counterparty D | 13 |  |  | 6 |  |  | 7
Counterparty E | 6 |  | 2 |  | 4
Counterparty F | 7 |  |  | 3 |  |  | 4
Counterparty G | 7 |  |  | — |  |  | 7
Total | $ | 65 |  |  | $ | 28 |  |  | $ | 37 |

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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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