Financial instruments

3 Months Ended

Mar. 31, 2024

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Foreign currency forward contracts

We use derivative instruments for risk management purposes. Foreign currency forward contracts designated as cash flow hedges are used to manage foreign currency transaction exposure. Foreign currency forward contracts not designated as hedges for accounting purposes are used to manage exposure related to near term foreign currency denominated monetary assets and liabilities. We enter into the non-designated foreign currency forward contracts for periods consistent with our currency translation exposures, which generally approximate one month. For the three months ended March 31, 2024, we recognized a gain of $3.6 million related to non-designated foreign currency forward contracts. For the three months ended April 2, 2023, we did not recognize any gain or loss related to non-designated foreign currency forward contracts.

The total notional amount for all open foreign currency forward contracts designated as cash flow hedges as of March 31, 2024 and December 31, 2023 was $318.6 million and $234.1 million, respectively. The total notional amount for all open non-designated foreign currency forward contracts as of March 31, 2024 and December 31, 2023 was $181.5 million and $195.0 million, respectively. All open foreign currency forward contracts as of March 31, 2024 have durations of 12 months or less.

Cross-currency interest rate swaps

During 2019, we entered into cross-currency swap agreements with five different financial institution counterparties to hedge against the effect of variability in the U.S. dollar to euro exchange rate (the "2019 Cross-currency swaps"). Under the terms of the cross-currency swap agreements, we notionally exchanged $250 million at an annual interest rate of 4.88% for €219.2 million at an annual interest rate of 2.46%. The swap agreements are designed as net investment hedges. On February 26, 2024, the agreements related to our 2019 Cross-currency swap with an original maturity date of March 4, 2024 were terminated resulting in $12.1 million in cash settlement proceeds.

On February 26, 2024, we executed two new separate term cross-currency swap agreements that expire on February 26, 2027 and February 28, 2029, respectively, to hedge against the effect of variability in the U.S. dollar to euro exchange rate. The cross-currency swap agreements expiring in 2027 include five different financial institution counterparties and notionally exchanged $250 million at an annual interest rate of 4.25% for €230.6 million at an annual interest rate of 2.78%. The cross-currency swap agreements expiring in 2029 include four different financial institution counterparties and notionally exchanged $250 million at an annual interest rate of 4.25% for €230.4 million at an annual interest rate of 2.89%. Each of the swap agreements is designated as a net investment hedge. During the second quarter, in response to changes in market conditions, we terminated the two cross-currency swaps executed in February of 2024 and replaced them with new agreements featuring similar terms and the same U.S. dollar notional amounts. The impact of replacing the cross-currency swaps is expected to be immaterial to our financial condition, results of operations and cash flows.

During 2023, we executed cross-currency swap agreements with six different financial institution counterparties to hedge against the effect of variability in the U.S. dollar to euro exchange rate, (the "2023 Cross-currency swaps"). Under the terms of the cross-currency swap agreements, we have notionally exchanged $500 million at an annual

interest rate of 4.63% for €474.7 million at an annual interest rate of 3.05%. The swap agreements are designated as net investment hedges and expire on October 4, 2025.

In 2023, we entered into a zero cost foreign exchange collar contract that aligns with the notional amount and expiration date of the 2023 Cross-currency swaps. We sold a put option with a lower strike price and bought a call option with a higher strike price to manage the foreign exchange risk related to the final settlement of the $500 million notional cross currency swaps. Upon the execution of the zero cost foreign exchange collar contract, we have de-designated the 2023 Cross-currency swaps and re-designated the combined $500 million notional cross currency swaps and zero cost collar into a new hedging instrument. At redesignation, the existing $500 million notional cross-currency swaps were off-market due to changes in foreign exchange rates and interest rates. The off-market value due to interest rates will be amortized ratably into earnings through October 2025 and the off-market value due to foreign exchange rates will remain in accumulated other comprehensive income until the underlying net investment is sold. The combined cross-currency swaps and zero cost collar have been designated as a net investment hedge for accounting purposes.

The swap agreements described above require an exchange of the notional amounts upon expiration or earlier termination of the agreements. We and the counterparties have agreed to effect the exchange through a net settlement.

The cross-currency swaps are marked to market at each reporting date and any changes in fair value are recognized as a component of accumulated other comprehensive income (loss) ("AOCI"). The following table summarizes the foreign exchange gains and losses recognized within AOCI and the interest benefit recognized within interest expense related to cross currency swap for the three months ended March 31, 2024 and April 2, 2023:


	Three Months Ended
	March 31, 2024		April 2, 2023
Foreign exchange gain (loss)	$	8,893	$	(10,031)
Interest benefit	3,720		5,108

Balance sheet presentation

The following table presents the locations in the condensed consolidated balance sheet and fair value of derivative financial instruments as of March 31, 2024 and December 31, 2023:


	March 31, 2024		December 31, 2023
	Fair Value
Asset derivatives:
Designated foreign currency forward contracts	$	3,512	$	1,629
Non-designated foreign currency forward contracts	475		937
Cross-currency interest rate swaps	18,873		16,883
Prepaid expenses and other current assets	22,860		19,449


Total asset derivatives	$	22,860	$	19,449
Liability derivatives:
Designated foreign currency forward contracts	$	1,334	$	1,866
Non-designated foreign currency forward contracts	546		1,340
Other current liabilities	1,880		3,206
Cross-currency interest rate swaps	32,532		32,097
Other liabilities	32,532		32,097
Total liability derivatives	$	34,412	$	35,303

See Note 10 for information on the location and amount of gains and losses attributable to derivatives that were reclassified from AOCI to expense (income), net of tax. There was no ineffectiveness related to our cash flow hedges during the three months ended March 31, 2024 and April 2, 2023.

Trade receivables

The allowance for credit losses as of March 31, 2024 and December 31, 2023 was $9.3 million and $9.5 million, respectively. The current portion of the allowance for credit losses, which was $5.6 million and $5.5 million as of March 31, 2024 and December 31, 2023, respectively, was recognized as a reduction of accounts receivable, net.