XML 22 R14.htm IDEA: XBRL DOCUMENT
v3.22.4

Derivative Instruments and Hedging Activities | 6 Months Ended
--- | ---
Dec. 31, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Instruments and Hedging Activities | DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES The majority of the Company’s purchases of finished goods are denominated in U.S. dollars, which limits the Company’s exposure to the transactional effects of foreign currency exchange rate fluctuations. However, the Company is exposed to foreign currency exchange risk related to its sale of U.S. dollar inventory to foreign operating subsidiaries in local currency, as well as risk related to various cross-currency intercompany loans and payables, and translation risk. The Company is also exposed to foreign currency risk related to changes in the U.S. dollar value of its net investment in foreign subsidiaries. The Company uses derivative financial instruments to manage these risks. These derivative transactions are in accordance with the Company’s risk management policies. The Company does not enter into derivative transactions for speculative or trading purposes. The Company records all derivative contracts at fair value on the Condensed Consolidated Balance Sheets. The fair values of foreign currency derivatives are based on the forward curves of the specific indices upon which settlement is based and include an adjustment for the Company’s credit risk. Judgment is required of management in developing estimates of fair value. The use of different market assumptions or methodologies could affect the estimated fair value. For derivative instruments that qualify for hedge accounting, the changes in the fair value of these instruments are either (i) offset against the changes in fair value of the hedged assets or liabilities through earnings or (ii) recognized as a component of Accumulated other comprehensive income (loss) ("AOCI") until the hedged item is recognized in earnings, depending on whether the derivative is being used to hedge changes in fair value or cash flows. For derivative instruments that are designated as a net investment hedge, the changes in the fair value of the instruments are recognized as a component of AOCI, and upon discontinuation of the hedge remain in AOCI until the net investment is sold or liquidated. Each derivative instrument entered into by the Company that qualifies for hedge accounting is expected to be highly effective at reducing the risk associated with the exposure being hedged. For each derivative that is designated as a hedge, the Company documents the related risk management objective and strategy, including identification of the hedging instrument, the hedged item and the risk exposure, as well as how hedge effectiveness will be assessed over the term of the instrument. The extent to which a hedging instrument has been and is expected to remain highly effective in achieving offsetting changes in fair value or cash flows is assessed and documented by the Company on at least a quarterly basis. If it is determined that a derivative instrument has not been highly effective and will continue not to be highly effective in hedging the designated exposure, hedge accounting is discontinued, and further gains (losses) are recognized in earnings within foreign currency gains (losses). Upon discontinuance of hedge accounting, the cumulative change in fair value of cash flow derivatives previously recorded in AOCI is recognized in earnings when the related hedged item affects earnings, consistent with the original hedging strategy, unless the forecasted transaction is no longer probable of occurring, in which case the accumulated amount is immediately recognized in earnings within foreign currency gains (losses). As a result of the use of derivative instruments, the Company may be exposed to the risk that the counterparties to such contacts will fail to meet their contractual obligations. To mitigate this counterparty credit risk, the Company has a policy of only entering into contracts with carefully selected financial institutions based upon an evaluation of their credit ratings, among other factors. The fair values of the Company’s derivative instruments are recorded on its Condensed Consolidated Balance Sheets on a gross basis. For cash flow reporting purposes, the Company classifies proceeds received or amounts paid upon the settlement of a derivative instrument in the same manner as the related item being hedged, primarily within cash from operating activities. Hedging Portfolio The Company enters into forward currency contracts primarily to reduce its risks related to exchange rate fluctuations on foreign currency denominated inventory transactions, as well as various cross-currency intercompany loans and payables. To the extent its derivative contracts designated as cash flow hedges are highly effective in offsetting changes in the value of the hedged items, the related gains (losses) are initially deferred in AOCI and subsequently recognized in the Consolidated Statements of Operations as part of the cost of the inventory purchases being hedged within Cost of sales, when the related inventory is sold to a third party. Current maturity dates range from January 2023 to September 2024. Forward foreign currency exchange contracts designated as fair value hedges and associated with intercompany and other contractual obligations are recognized within foreign currency gains (losses) generally in the period in which the related balances being hedged are revalued. The maturity date of most instruments held as of December 31, 2022 are in February 2023, and such contracts are typically renewed upon maturity if the related balance has not been settled. The Company also enters into cross-currency swaps to reduce its risks related to exchange rate fluctuations on net investments in foreign subsidiaries. The related gains (losses) are deferred in AOCI until the net investment is sold or liquidated, and current maturity dates range from April 2025 to March 2032. The following tables provide information related to the Company's derivative instruments recorded on the Company's Condensed Consolidated Balance Sheets as of December 31, 2022 and July 2, 2022
|  | Notional Value |  | Derivative Assets |  | Derivative Liabilities
Designated Derivative Hedging Instruments |  |  |  |  |  |  |  | Fair Value |  |  |  | Fair Value
| December 31, 2022 |  | July 2, 2022 |  | Balance Sheet Classification |  | December 31, 2022 |  | July 2, 2022 |  | Balance Sheet Classification |  | December 31, 2022 |  | July 2, 2022
|  | (millions)
FC - Inventory purchases(1) |  | $ | 556.8 |  |  | $ | 41.5 |  |  | Other Current Assets |  | $ | 5.1 |  |  | $ | — |  |  | Accrued Liabilities |  | $ | 22.6 |  |  | $ | 2.7 |
FC - Intercompany liabilities and loans(2) |  | 299.2 |  |  | 274.1 |  |  | Other Current Assets |  | 0.6 |  |  | 0.4 |  |  | Accrued Liabilities |  | 2.7 |  |  | 0.5 |
CCS - Net investment hedges(3) |  | 1,200.0 |  |  | 1,200.0 |  |  | Other Assets |  | — |  |  | 47.8 |  |  | Other Liabilities |  | 94.5 |  |  | 44.0 |
Total Hedges |  | $ | 2,056.0 |  |  | $ | 1,515.6 |  |  |  |  | $ | 5.7 |  |  | $ | 48.2 |  |  |  |  | $ | 119.8 |  |  | $ | 47.2 |
(1)Represents forward foreign currency exchange contracts ("FC") designated as derivative instruments in cash flow hedging relationships. (2)Represents forward foreign currency exchange contracts ("FC") designated as derivative instruments in fair value hedging relationships. (3)Represents cross currency swap contracts ("CCS") designated as derivative instruments in net investment hedging relationships. The following tables provides the pretax impact of gains and losses from the Company's designated derivative instruments on its Condensed Consolidated Financial Statements as of December 31, 2022 and January 1, 2022:
|  | Amount of Gain (Loss) Recognized in OCI on Derivatives
|  | Six Months Ended
|  | December 31, 2022 |  | January 1, 2022 |  |
|  | (millions)
Cash flow hedges: |  |  |  |  |  |
Inventory purchases(1) |  | $ | (17.0) |  |  | $ | (2.1) |  |  |
Cash flow hedges, total |  | $ | (17.0) |  |  | $ | (2.1) |  |  |
Other: |  |  |  |  |  |
Net investment hedges |  | (69.9) |  |  | — |  |  |
Other, total |  | $ | (69.9) |  |  | $ | — |  |  |
Total hedges |  | $ | (86.9) |  |  | $ | (2.1) |  |  |
|  | Amount of Gain (Loss) Reclassified from Accumulated OCI into Income
|  | Statement of Operations Classification |  | Six Months Ended
|  | December 31, 2022 |  | January 1, 2022 |  |
|  |  |  | (millions)
Cash flow hedges: |  |  |  |  |  |  |  |
Inventory purchases(1) |  | Cost of Sales |  | $ | (2.8) |  |  | $ | (1.3) |  |  |
Total hedges |  |  |  | $ | (2.8) |  |  | $ | (1.3) |  |  |
(1)Represents forward foreign currency exchange contracts ("FC") designated as derivative instruments in cash flow hedging relationships. For forward foreign currency exchange contracts that are designated as fair value hedges, both the gain (loss) on the derivative as well as the offsetting gain (loss) on the hedged item attributable to the hedged risk are recorded within Other expense (income) on the Company's Condensed Consolidated Statement of Operations. The Company expects that $8.4 million of net derivative loss included in Accumulated other comprehensive income at December 31, 2022 will be reclassified into earnings within the next 12 months. This amount will vary due to fluctuations in foreign currency exchange rates. The Company assesses the cross-currency swaps used as net investment hedges under the spot method. This results in the cross-currency basis spread being excluded from the assessment of hedge effectiveness and recorded as incurred as a reduction in interest expense in the Company’s consolidated statements of operations. Accordingly, the Company recorded net interest income of $13.8 million and $0.0 million during six months December 31, 2022 and January 1, 2022, respectively.

X
- References No definition available. + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- 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 https://asc.fasb.org/topic&trid=2229140 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI https://asc.fasb.org/extlink&oid=126731327&loc=d3e90205-114008 + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | dtr-types:textBlockItemType
Balance Type: | na
Period Type: | duration