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Derivative Instruments | 3 Months Ended
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Mar. 30, 2019
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, the Company recognizes derivative instruments as either assets or liabilities on the Consolidated Balance Sheets and measures them at fair value. The following table presents the fair value of its derivative instruments (in millions):
| Asset / (Liability)
|  |  | Fair Values as of
| Balance Sheet Classification |  | March 30, 2019 |  | December 31, 2018
Derivative instruments designated as hedges: |  |  |  |  |
Foreign exchange contracts | Prepaid expenses and other current assets |  | $ | 20 |  |  | $ | 15 |
Total derivative instruments designated as hedges |  |  | $ | 20 |  |  | $ | 15 |
Derivative instruments not designated as hedges: |  |  |  |  |
Foreign exchange contracts | Prepaid expenses and other current assets |  | $ | — |  |  | $ | 1 |
Forward interest rate swaps | Prepaid expenses and other current assets |  | 1 |  |  | 2 |
Forward interest rate swaps | Other long-term assets |  | — |  |  | 3 |
Foreign exchange contracts | Accrued liabilities |  | (1 | ) |  | — |
Forward interest rate swaps | Other long-term liabilities |  | (4 | ) |  | — |
Total derivative instruments not designated as hedges |  |  | (4 | ) |  | 6 |
Total net derivative asset |  |  | $ | 16 |  |  | $ | 21 |
The following table presents the (losses) gains from changes in fair values of derivatives that are not designated as hedges (in millions):
| (Loss) Gain Recognized in Income
|  |  | Three Months Ended
| Statements of Operations Classification |  | March 30, 2019 |  | March 31, 2018
Derivative instruments not designated as hedges: |  |  |  |  |
Foreign exchange contracts | Foreign exchange loss |  | $ | (2 | ) |  | $ | — |
Forward interest rate swaps | Interest expense, net |  | (8 | ) |  | 13 |
Total (loss) gain recognized in income |  |  | $ | (10 | ) |  | $ | 13 |
Activities related to derivative instruments are reflected within Net cash provided by operating activities within the Consolidated Statements of Cash Flows. 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 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 policies are designed to mitigate concentrations of credit risk with any single customer. 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. We elect to present the assets and liabilities of our derivative financial instruments on a net basis on the Consolidated Balance Sheets. If the derivative financial instruments had been presented gross on the Consolidated Balance Sheets, the asset and liability positions each would have been increased by $0 million and $1 million as of March 30, 2019 and December 31, 2018, respectively. 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 manages 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, as deemed appropriate. The Company manages the exchange rate risk of anticipated euro-denominated sales using forward contracts which typically mature within twelve months of execution. The Company designates these derivative contracts as cash flow hedges. Unrealized gains and losses on these contracts are deferred in Accumulated other comprehensive income (loss) (“AOCI”) on the Consolidated Balance Sheets until the contract is settled and the hedged sale is realized. The realized gain or loss is then recorded as an adjustment to Net sales on the Consolidated Statements of Operations. Realized gains (losses) reclassified to Net sales were $11 million and $(5) million for the three months ended March 30, 2019 and March 31, 2018, respectively. As of March 30, 2019, and December 31, 2018, the notional amounts of the Company’s foreign exchange cash flow hedges were €520 million and €496 million, respectively. The Company has reviewed its cash flow hedges for effectiveness and determined they are highly effective. The Company uses forward contracts, which are not designated as hedging instruments, to manage its balance sheet exposures related to net assets denominated in foreign currencies. These forward contracts typically mature within one month after execution. Monetary gains and losses on these forward contracts are recorded in income and are generally offset by the transaction gains and losses related to their net asset positions. The notional values and the net fair value of these outstanding contracts are as follows (in millions):
| March 30, 2019 |  | December 31, 2018
Notional balance of outstanding contracts: |  |  |
British Pound/U.S. Dollar | £ | 8 |  |  | £ | 1 |
Euro/U.S. Dollar | € | 33 |  |  | € | 45 |
British Pound/Euro | £ | — |  |  | £ | 6 |
Canadian Dollar/U.S. Dollar | C$ | 2 |  |  | C$ | 6 |
Australian Dollar/U.S. Dollar | A$ | 47 |  |  | A$ | 47 |
Japanese Yen/U.S. Dollar | ¥ | 220 |  |  | ¥ | 396 |
Singapore Dollar/U.S. Dollar | S$ | 7 |  |  | S$ | 7 |
Mexican Peso/U.S. Dollar | Mex$ | 120 |  |  | Mex$ | 225 |
Chinese Yuan/U.S. Dollar | ¥ | 71 |  |  | ¥ | 71 |
South African Rand/U.S. Dollar | R | 39 |  |  | R | 42 |
Net fair value of (liability) asset of outstanding contracts | $ | (1 | ) |  | $ | 1 |
The Company’s use of non-designated forward contracts to manage Euro currency exposure is limited, as Euro-denominated borrowings under the Revolving Credit Facility naturally hedge part of such risk. See Note 8, Long-Term Debt for further discussion of Euro-denominated borrowings. Interest Rate Risk Management The Company’s debt consists of borrowings under two term loans (“Term Loan A” and “Term Loan B”, also referred to collectively as the “Term Loans”), the Revolving Credit Facility and the Receivables Financing Facility which bear interest at variable rates plus an applicable margin. See Note 8, Long-Term Debt for further details about these borrowings. The Company manages its exposure to changes in interest rates by utilizing interest rate swaps to hedge this exposure and to achieve a desired proportion of fixed versus floating-rate debt, based on current and projected market conditions. In December 2017, the Company entered into a long-term forward interest rate swap agreement with a notional amount of $800 million to lock into a fixed LIBOR interest rate base for its debt facilities subject to monthly interest payments. Under the terms of the agreement, $800 million in variable-rate debt will be swapped for a fixed interest rate with net settlement terms due effective starting in December 2018 and ending in December 2022. This swap is not designated as a hedge and changes in fair value are recognized immediately as Interest expense, net on the Consolidated Statements of Operations. The Company also had interest rate swaps that were terminated in prior fiscal years, including certain swaps that were designated as cash flow hedges. The terminated swaps that were designated as cash flow hedges had approximately $2 million of pretax losses remaining in AOCI as of March 30, 2019, which will be reclassified into Interest expense, net, on the Consolidated Statements of Operations through June 2021.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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