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Derivative Instruments and Hedging Activities | 6 Months Ended
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Jul. 02, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Instruments and Hedging Activities | DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES Foreign Currency Option Contracts In September 2021, to economically hedge the foreign currency exposure associated with the planned payment of the euro-denominated purchase price for HRA Pharma, we entered into two non-designated currency option contracts with a total notional amount of $1.1 billion that were scheduled to mature in September 2022. In April 2022, due to market conditions, we unwound the two options and entered into two new undesignated options to economically hedge the purchase price for HRA Pharma for a total notional amount of $2.0 billion. All premiums associated with the HRA Pharma related currency options were settled in April 2022 for $37.1 million, and we recorded a loss within Other (income) expense of $12.7 million and $16.2 million for the three and six months ended July 2, 2022, respectively. Interest Rate Swaps Interest rate swap agreements are contracts to exchange fixed or floating rates over the life of the agreement without the exchange of the underlying notional amounts. The notional amounts of the interest rate swap agreements are used to measure interest to be paid or received and do not represent the amount of exposure to credit loss. The differential paid or received on the interest rate swap agreements is recognized as an adjustment to interest expense. In April 2022, to economically hedge the interest rate risk of the New Senior Secured Credit Facilities (as defined in Note 1 1), we entered into five variable-to-fixed interest rate swap agreements. Three of the interest rate swaps were designated as cash flow hedges to fix the interest rate on a substantial portion of the 2022 Term Loan B Facility (as defined in Note 11). The interest rate swaps cover an interest period ranging from June 1, 2022, through April 1, 2029, on notional balances that decline from $1.0 billion to $812.5 million over the term. The other two interest rate swaps were designated as cash flow hedges to fix the interest rate on a substantial portion of the 2022 Term Loan A Facility (as defined in Note 11). The interest rate swaps cover an interest period ranging from June 1, 2022, through April 1, 2027, on notional balances that decline from $487.5 million to $387.5 million over the term. As a designated cash flow hedge, gains and losses will be deferred in Accumulated Other Comprehensive Income (“AOCI”) and recognized within Interest expense, net when interest is paid on the New Senior Secured Credit Facilities. Cross-currency Swaps In April 2022, we entered into three fixed-for-fixed cross currency interest rate swaps designated as net investment hedge to hedge the EUR currency exposure of our investment in European operations. Over the term, we receive EUR interest payments and make USD interest payments followed by an exchange of notional currencies at the expiration of the contract. The following are the terms and notional amounts outstanding: •$300 million notional amount outstanding from April 20, 2022 through December 15, 2024; •$700 million notional amount outstanding from April 29, 2022 through March 15, 2026; and •$500 million notional amount outstanding from April 22, 2022 through June 15, 2030. As a designated net investment hedge, gains and losses related to the EUR spot exchange rate will be deferred within the Cumulative Translation Adjustment, a component of AOCI, and recognized in the Statement of Operations when the hedged EUR net investment is substantially liquidated. Gains and losses on excluded components (e.g. interest differentials) will be recorded in Interest expense, net on a systematic and rational basis. In August 2019, we entered into a cross-currency swap designated as a net investment hedge to hedge the EUR currency exposure of our net investment in European operations. This agreement is a contract to exchange floating-rate EUR payments for floating-rate USD payments through August 15, 2022. We terminated this cross-currency swap on January 28, 2022. Foreign Currency Forwards Foreign currency forward contracts were as follows (in millions):
|  | Notional Amount
|  | July 2, 2022 |  | December 31, 2021
British Pound (GBP) |  | $ | 232.2 |  |  | $ | 135.8 |
Swedish Krona (SEK) |  | 61.2 |  |  | 47.8 |
Danish Krone (DKK) |  | 49.6 |  |  | 37.5 |
European Euro (EUR) |  | 39.1 |  |  | 232.6 |
Chinese Yuan (CNH) |  | 37.7 |  |  | 37.7 |
Canadian Dollar (CAD) |  | 29.2 |  |  | 29.0 |
Polish Zloty (PLZ) |  | 15.3 |  |  | 21.0 |
Mexican Peso (MXN) |  | 12.8 |  |  | 1.0 |
United States Dollar (USD) |  | 9.3 |  |  | 22.9 |
Norwegian Krone (NOK) |  | 7.4 |  |  | 11.0 |
Brazilian Real (BRL) |  | 6.8 |  |  | — |
Australian Dollar (AUD) |  | 4.0 |  |  | 1.6 |
Turkish Lira (TRY) |  | 3.0 |  |  | 3.1 |
Romanian New Leu (RON) |  | 2.2 |  |  | 1.6 |
Switzerland Franc (CHF) |  | 1.2 |  |  | 1.9 |
Other |  | 7.0 |  |  | 3.6 |
Total |  | $ | 518.0 |  |  | $ | 588.1 |
The maximum term of our forward currency exchange contracts is 60 months. Effects of Derivatives on the Financial Statements The below tables indicate the effects of all derivative instruments on the Condensed Consolidated Financial Statements. All amounts exclude income tax effects. The balance sheet location and gross fair value of our derivative instruments were as follows (in millions):
|  |  | Asset Derivatives
|  |  | Fair Value
| Balance Sheet Location |  | July 2, 2022 |  | December 31, 2021
Designated derivatives: |  |  |  |  |
Foreign currency forward contracts | Prepaid expenses and other current assets |  | $ | 2.9 |  |  | $ | 3.5 |
Interest rate swap agreements | Prepaid expenses and other current assets |  | 4.8 |  |  | — |
Foreign currency forward contracts | Other non-current assets |  | 0.6 |  |  | 1.3 |
Cross-currency swap | Other non-current assets |  | 38.7 |  |  | — |
Total designated derivatives |  |  | $ | 47.0 |  |  | $ | 4.8 |
Non-designated derivatives: |  |  |  |  |
Foreign currency forward contracts | Prepaid expenses and other current assets |  | $ | 1.4 |  |  | $ | 0.9 |
Foreign currency options | Prepaid expenses and other current assets |  | — |  |  | 5.0 |
Total non-designated derivatives |  |  | $ | 1.4 |  |  | $ | 5.9 |
|  |  | Liability Derivatives
|  |  | Fair Value
| Balance Sheet Location |  | July 2, 2022 |  | December 31, 2021
Designated derivatives: |  |  |  |  |
Foreign currency forward contracts | Other accrued liabilities |  | $ | 0.4 |  |  | $ | 1.2 |
Cross-currency swap | Other accrued liabilities |  | — |  |  | 13.8 |
Interest rate swap agreements | Other non-current liabilities |  | 11.0 |  |  | — |
Total designated derivatives |  |  | $ | 11.4 |  |  | $ | 15.0 |
Non-designated derivatives: |  |  |  |  |
Foreign currency forward contracts | Other accrued liabilities |  | $ | 2.7 |  |  | $ | 1.2 |
The following tables summarize the effect of derivative instruments designated as hedging instruments in AOCI (in millions):
|  | Three Months Ended
|  | July 2, 2022
Instrument |  | Amount of Gain/(Loss) Recorded in OCI |  | Classification of Gain/(Loss) Reclassified from AOCI into Earnings |  | Amount of Gain/(Loss) Reclassified from AOCI into Earnings |  | Classification of Gain/(Loss) Recognized into Earnings Related to Amounts Excluded from Effectiveness Testing |  | Amount of Gain/(Loss) Recognized in Earnings on Derivatives Related to Amounts Excluded from Effectiveness Testing
Cash flow hedges: |  |  |  |  |  |  |  |  |  |
Interest rate swap agreements |  | $ | (6.2) |  |  | Interest expense, net |  | $ | (1.6) |  |  | Interest expense, net |  | $ | — |
Foreign currency forward contracts |  | 2.3 |  |  | Net sales |  | 0.3 |  |  | Net sales |  | (0.1) |
|  |  |  | Cost of sales |  | (0.9) |  |  | Cost of sales |  | (0.1) |
|  |  |  |  |  |  |  | Other (income) expense, net |  | (0.8) |
|  | $ | (3.9) |  |  |  |  | $ | (2.2) |  |  |  |  | $ | (1.0) |
Net investment hedges: |  |  |  |  |  |  |  |  |  |
Cross-currency swap |  | $ | 38.7 |  |  |  |  |  |  | Interest expense, net |  | $ | 3.6 |
|  | Six Months Ended
|  | July 2, 2022
Instrument |  | Amount of Gain/(Loss) Recorded in OCI(1) |  | Classification of Gain/(Loss) Reclassified from AOCI into Earnings |  | Amount of Gain/(Loss) Reclassified from AOCI into Earnings |  | Classification of Gain/(Loss) Recognized into Earnings Related to Amounts Excluded from Effectiveness Testing |  | Amount of Gain/(Loss) Recognized in Earnings on Derivatives Related to Amounts Excluded from Effectiveness Testing
Cash flow hedges: |  |  |  |  |  |  |  |  |  |
Interest rate swap agreements |  | (6.2) |  |  | Interest expense, net |  | (2.0) |  |  | Interest expense, net |  | — |
Foreign currency forward contracts |  | (4.9) |  |  | Net sales |  | 0.5 |  |  | Net sales |  | (0.2) |
|  |  |  | Cost of sales |  | (1.3) |  |  | Cost of sales |  | — |
|  |  |  |  |  |  |  | Other (income) expense, net |  | (0.7) |
|  | $ | (11.1) |  |  |  |  | $ | (2.8) |  |  |  |  | $ | (0.9) |
Net investment hedges: |  |  |  |  |  |  |  |  |  |
Cross-currency swap |  | $ | 34.1 |  |  |  |  |  |  | Interest expense, net |  | $ | 4.2 |
(1) Net gain of $6.4 million is expected to be reclassified out of AOCI into earnings during the next 12 months.
|  | Three Months Ended
|  | July 3, 2021
Instrument |  | Amount of Gain/(Loss) Recorded in OCI |  | Classification of Gain/(Loss) Reclassified from AOCI into Earnings |  | Amount of Gain/(Loss) Reclassified from AOCI into Earnings |  | Classification of Gain/(Loss) Recognized into Earnings Related to Amounts Excluded from Effectiveness Testing |  | Amount of Gain/(Loss) Recognized in Earnings on Derivatives Related to Amounts Excluded from Effectiveness Testing
Cash flow hedges: |  |  |  |  |  |  |  |  |  |
Interest rate swap agreements |  | $ | — |  |  | Interest expense, net |  | $ | (0.4) |  |  | Interest expense, net |  | $ | — |
Foreign currency forward contracts |  | 1.1 |  |  | Net sales |  | (1.0) |  |  | Net sales |  | — |
|  |  |  | Cost of sales |  | 0.9 |  |  | Cost of sales |  | 0.4 |
|  |  |  |  |  |  |  | Other (income) expense, net |  | 0.4 |
|  | $ | 1.1 |  |  |  |  | $ | (0.5) |  |  |  |  | $ | 0.8 |
Net investment hedges: |  |  |  |  |  |  |  |  |  |
Cross-currency swap |  | $ | (1.5) |  |  |  |  |  |  | Interest expense, net |  | $ | (1.1) |
|  | Six Months Ended
|  | July 3, 2021
Instrument |  | Amount of Gain/(Loss) Recorded in OCI |  | Classification of Gain/(Loss) Reclassified from AOCI into Earnings |  | Amount of Gain/(Loss) Reclassified from AOCI into Earnings |  | Classification of Gain/(Loss) Recognized into Earnings Related to Amounts Excluded from Effectiveness Testing |  | Amount of Gain/(Loss) Recognized in Earnings on Derivatives Related to Amounts Excluded from Effectiveness Testing
Cash flow hedges: |  |  |  |  |  |  |  |  |  |
Interest rate swap agreements |  | — |  |  | Interest expense, net |  | (0.9) |  |  | Interest expense, net |  | — |
Foreign currency forward contracts |  | (1.2) |  |  | Net sales |  | (1.9) |  |  | Net sales |  | — |
|  |  |  | Cost of sales |  | 2.8 |  |  | Cost of sales |  | 0.5 |
|  |  |  |  |  |  |  | Other Income/Expense |  | $ | 0.4 |
|  | $ | (1.2) |  |  |  |  | $ | — |  |  |  |  | $ | 0.9 |
Net investment hedges: |  |  |  |  |  |  |  |  |  |
Cross-currency swap |  | $ | (2.0) |  |  |  |  |  |  | Interest expense, net |  | $ | (2.2) |
The amounts of (income)/expense recognized in earnings related to our non-designated derivatives on the Condensed Consolidated Statements of Operations were as follows (in millions):
|  |  |  | Three Months Ended |  | Six Months Ended
Non-Designated Derivatives |  | Income Statement Location |  | July 2, 2022 |  | July 3, 2021 |  | July 2, 2022 |  | July 3, 2021
Foreign currency forward contracts |  | Other (income) expense, net |  | $ | 1.6 |  |  | $ | (3.1) |  |  | $ | 2.0 |  |  | $ | (5.9) |
|  | Interest expense, net |  | 0.8 |  |  | 0.4 |  |  | (0.4) |  |  | 0.9 |
|  |  |  | $ | 2.4 |  |  | $ | (2.7) |  |  | $ | 1.6 |  |  | $ | (5.0) |
Foreign currency options |  | Other (income) expense, net |  | $ | 12.7 |  |  | $ | — |  |  | $ | 16.2 |  |  | $ | — |
The classification and amount of gain/(loss) recognized in earnings on fair value and hedging relationships were as follows (in millions):
|  | Three Months Ended
|  | July 2, 2022
|  | Net Sales |  | Cost of Sales |  | Interest Expense, net |  | Other (Income) Expense, net
Total amounts of income and expense line items presented on the Condensed Consolidated Statements of Operations in which the effects of fair value or cash flow hedges are recorded |  | $ | 1,121.7 |  |  | $ | 749.6 |  |  | $ | 38.3 |  |  | $ | 53.8 |
The effects of cash flow hedging: |  |  |  |  |  |  |  |
Gain (loss) on cash flow hedging relationships |  |  |  |  |  |  |  |
Foreign currency forward contracts |  |  |  |  |  |  |  |
Amount of gain or (loss) reclassified from AOCI into earnings |  | $ | 0.3 |  |  | $ | (0.9) |  |  | $ | — |  |  | $ | — |
Amount excluded from effectiveness testing recognized using a systematic and rational amortization approach |  | $ | (0.1) |  |  | $ | (0.1) |  |  | $ | — |  |  | $ | (0.8) |
Interest rate swap agreements |  |  |  |  |  |  |  |
Amount of gain or (loss) reclassified from AOCI into earnings |  | $ | — |  |  | $ | — |  |  | $ | (1.6) |  |  | $ | — |
|  | Six Months Ended
|  | July 2, 2022
|  | Net Sales |  | Cost of Sales |  | Interest Expense, net |  | Other (Income) Expense, net
Total amounts of income and expense line items presented on the Condensed Consolidated Statements of Operations in which the effects of fair value or cash flow hedges are recorded |  | $ | 2,196.2 |  |  | $ | 1,486.3 |  |  | $ | 74.1 |  |  | $ | 52.7 |
The effects of cash flow hedging: |  |  |  |  |  |  |  |
Gain (loss) on cash flow hedging relationships |  |  |  |  |  |  |  |
Foreign currency forward contracts |  |  |  |  |  |  |  |
Amount of gain or (loss) reclassified from AOCI into earnings |  | $ | 0.5 |  |  | $ | (1.3) |  |  | $ | — |  |  | $ | — |
Amount excluded from effectiveness testing recognized using a systematic and rational amortization approach |  | $ | (0.2) |  |  | $ | — |  |  | $ | — |  |  | $ | (0.7) |
Treasury locks |  |  |  |  |  |  |  |
Amount of gain or (loss) reclassified from AOCI into earnings |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Interest rate swap agreements |  |  |  |  |  |  |  |
Amount of gain or (loss) reclassified from AOCI into earnings |  | $ | — |  |  | $ | — |  |  | $ | (2.0) |  |  | $ | — |
|  | Three Months Ended
|  | July 3, 2021
|  | Net Sales |  | Cost of Sales |  | Interest Expense, net |  | Other (Income) Expense, net
Total amounts of income and expense line items presented on the Condensed Consolidated Statements of Operations in which the effects of fair value or cash flow hedges are recorded |  | $ | 981.1 |  |  | $ | 632.1 |  |  | $ | 31.6 |  |  | $ | (0.4) |
The effects of cash flow hedging: |  |  |  |  |  |  |  |
Gain (loss) on cash flow hedging relationships |  |  |  |  |  |  |  |
Foreign currency forward contracts |  |  |  |  |  |  |  |
Amount of gain or (loss) reclassified from AOCI into earnings |  | $ | (1.0) |  |  | $ | 0.9 |  |  | $ | — |  |  | $ | — |
Amount excluded from effectiveness testing recognized using a systematic and rational amortization approach |  | $ | — |  |  | $ | 0.4 |  |  | $ | — |  |  | $ | 0.4 |
Interest rate swap agreements |  |  |  |  |  |  |  |
Amount of gain or (loss) reclassified from AOCI into earnings |  | $ | — |  |  | $ | — |  |  | $ | (0.4) |  |  | $ | — |
|  | Six Months Ended
|  | July 3, 2021
|  | Net Sales |  | Cost of Sales |  | Interest Expense, net |  | Other (Income) Expense, net
Total amounts of income and expense line items presented on the Condensed Consolidated Statements of Operations in which the effects of fair value or cash flow hedges are recorded |  | $ | 1,991.1 |  |  | $ | 1,273.7 |  |  | $ | 63.6 |  |  | $ | 1.9 |
The effects of cash flow hedging: |  |  |  |  |  |  |  |
Gain (loss) on cash flow hedging relationships |  |  |  |  |  |  |  |
Foreign currency forward contracts |  |  |  |  |  |  |  |
Amount of gain or (loss) reclassified from AOCI into earnings |  | $ | (1.9) |  |  | $ | 2.8 |  |  | $ | — |  |  | $ | — |
Amount excluded from effectiveness testing recognized using a systematic and rational amortization approach |  | $ | — |  |  | $ | 0.5 |  |  | $ | — |  |  | $ | 0.4 |
Interest rate swap agreements |  |  |  |  |  |  |  |
Amount of gain or (loss) reclassified from AOCI into earnings |  | $ | — |  |  | $ | — |  |  | $ | (0.9) |  |  | $ | — |

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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 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
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