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FINANCIAL INSTRUMENTS AND FAIR VALUE MEASURES | 6 Months Ended
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Oct. 01, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
DERIVATIVES AND FAIR VALUE MEASUREMENTS | 10. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS The Company manufactures, markets and sells its products globally. During the three and six months ended October 1, 2022, 28.8% and 29.6%, respectively, of the Company’s sales were generated outside the U.S. in local currencies. The Company also incurs certain manufacturing, marketing and selling costs in international markets in local currency. Accordingly, earnings and cash flows are exposed to market risk from changes in foreign currency exchange rates relative to the U.S. Dollar, the Company’s reporting currency. The Company has a program in place that is designed to mitigate the exposure to changes in foreign currency exchange rates. That program includes the use of derivative financial instruments to minimize, for a period of time, the impact on its financial results from changes in foreign exchange rates. The Company utilizes foreign currency forward contracts to hedge the anticipated cash flows from transactions denominated in foreign currencies, primarily the Japanese Yen and the Euro, and to a lesser extent the Swiss Franc, Chinese Yuan and the Mexican Peso. This does not eliminate the impact of the volatility of foreign exchange rates. However, because the Company generally enters into forward contracts one year out, rates are fixed for a one-year period, thereby facilitating financial planning and resource allocation. Designated Foreign Currency Hedge Contracts All of the Company’s designated foreign currency hedge contracts as of October 1, 2022 and April 2, 2022 were cash flow hedges under ASC 815, Derivatives and Hedging (“ASC 815”). The Company records the effective portion of any change in the fair value of designated foreign currency hedge contracts in other comprehensive income until the related third-party transaction occurs. Once the related third-party transaction occurs, the Company reclassifies the effective portion of any related gain or loss on the designated foreign currency hedge contracts to earnings. In the event the hedged forecasted transaction does not occur, or it becomes probable that it will not occur, the Company will reclassify the amount of any gain or loss on the related cash flow hedge to earnings at that time. The Company had designated foreign currency hedge contracts outstanding in the contract amount of $30.9 million as of October 1, 2022 and $67.3 million as of April 2, 2022. At October 1, 2022, a gain of $2.4 million, net of tax, will be reclassified to earnings within the next twelve months. Substantially all currency cash flow hedges outstanding as of October 1, 2022 mature within twelve months. Non-Designated Foreign Currency Contracts The Company manages its exposure to changes in foreign currency on a consolidated basis to take advantage of offsetting transactions and balances. It uses foreign currency forward contracts as a part of its strategy to manage exposure related to foreign currency denominated monetary assets and liabilities. These foreign currency forward contracts are entered into for periods consistent with currency transaction exposures, generally one month. They are not designated as cash flow or fair value hedges under ASC 815. These forward contracts are marked-to-market with changes in fair value recorded to earnings. The Company had non-designated foreign currency hedge contracts under ASC 815 outstanding in the contract amount of $45.2 million as of October 1, 2022 and $39.5 million as of April 2, 2022. Interest Rate Swaps Part of the Company’s interest rate risk management strategy includes the use of interest rate swaps to mitigate its exposure to changes in variable interest rates. The Company’s objective in using interest rate swaps is to add stability to interest expense and to manage and reduce the risk inherent in interest rate fluctuations. On June 15, 2018, the Company entered into the 2018 Credit Facilities, which provided for a $350.0 million term loan and a $350.0 million revolving credit facility. Under the terms of the 2018 Credit Facilities, interest was established using LIBOR plus the applicable rate ranging from 1.13% to 1.75% based on the Company's leverage ratio. In August 2018, the Company entered into two interest rate swap agreements to pay an average fixed rate of 2.80% plus the applicable rate on a total notional value of $241.9 million of debt, or 70% of the notional value of the unsecured term loan. The 2018 interest rate swaps mature on June 15, 2023. As a result of the refinancing in August 2022, the 2018 interest rate swaps were amended in September 2022 to align with the Term Secured Overnight Financing Rate (“SOFR”) rate rather than LIBOR (the “Amended Swaps”). The Company concluded that the Amended Swaps were still effective such that hedge accounting was continued on these swaps. On July 26, 2022, the Company entered into an amended and restated credit agreement to refinance the 2018 Credit Facilities and extend their maturity date through June 2025. The Revised Credit Facilities include a $280.0 million senior unsecured term loan and a $420.0 million senior unsecured revolving credit facility. Loans under the Revised Credit Facilities bear interest at an annual rate equal to the 1-month USD Term SOFR plus 0.10% and an applicable rate ranging from 1.125% to 1.750% based on the Company’s consolidated net leverage ratio. In September 2022, the Company entered into four additional interest rate swaps, which when combined with the Amended Swaps, result in an average blended fixed interest rate of 3.57% plus the applicable rate on 70% of the notional value of the unsecured term loan until mid-June 2023 and 4.12% plus the applicable rate thereafter on 80% of the notional until the maturity date in June 2025. The Company has concluded that each of these four additional interest rate swaps are effective and qualify for hedge accounting treatment. The Company held the following interest rate swaps as of October 1, 2022:
Hedged Item |  | Original Notional Amount |  | Notional Amount as of October 1, 2022 |  | Designation Date |  | Effective Date |  | Termination Date |  | Fixed Interest Rate |  | Estimated Fair Value Assets (Liabilities)
(In thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |
1-month USD Term SOFR |  | $ | 140,719 |  |  | $ | 85,500 |  |  | 9/23/2022 |  | 9/30/2022 |  | 6/15/2023 |  | 2.67% |  | $ | 502 |
1-month USD Term SOFR |  | 101,219 |  |  | 61,500 |  |  | 9/23/2022 |  | 9/30/2022 |  | 6/15/2023 |  | 2.76% |  | 348 |
1-month USD Term SOFR |  | 23,888 |  |  | 23,888 |  |  | 9/23/2022 |  | 9/30/2022 |  | 6/15/2023 |  | 4.44% |  | (78) |
1-month USD Term SOFR |  | 23,888 |  |  | 23,888 |  |  | 9/23/2022 |  | 9/30/2022 |  | 6/15/2023 |  | 4.46% |  | (82) |
1-month USD Term SOFR |  | 109,900 |  |  | — |  |  | 9/23/2022 |  | 6/15/2023 |  | 6/15/2025 |  | 4.08% |  | (237) |
1-month USD Term SOFR |  | 109,900 |  |  | — |  |  | 9/23/2022 |  | 6/15/2023 |  | 6/15/2025 |  | 4.15% |  | (315) |
Total |  | $ | 509,514 |  |  | $ | 194,776 |  |  |  |  |  |  |  |  |  |  | $ | 138 |
For the six months ended October 1, 2022, a gain of $3.2 million, net of tax, was recorded in accumulated other comprehensive loss to recognize the effective portion of the fair value of the Swaps that qualify as cash flow hedges. Trade Receivables In the ordinary course of business, the Company grants trade credit to its customers on normal credit terms. In an effort to reduce its credit risk, the Company (i) establishes credit limits for all customers, (ii) performs ongoing credit evaluations of customers’ financial condition, (iii) monitors the payment history and aging of customers’ receivables, and (iv) monitors open orders against an individual customer’s outstanding receivable balance. The Company’s allowance for credit losses is maintained for trade accounts receivable based on the expected collectability, the historical collection experience, the length of time an account is outstanding, the financial position of the customer and information provided by credit rating se rvices. To date, the Company has not experienced significant customer payment defaults, or identified other significant collectability concerns. The following is a roll forward of the allowance for credit losses:
| Three Months Ended |  | Six Months Ended
(In thousands) | October 1, 2022 |  | October 2, 2021 |  | October 1, 2022 |  | October 2, 2021
Beginning balance | $ | 2,495 |  |  | $ | 2,236 |  |  | $ | 2,475 |  |  | $ | 2,226 |
Credit loss | 59 |  |  | 504 |  |  | 204 |  |  | 532 |
Write-offs | (59) |  |  | (39) |  |  | (184) |  |  | (57) |
Ending balance | $ | 2,495 |  |  | $ | 2,701 |  |  | $ | 2,495 |  |  | $ | 2,701 |
Fair Value of Derivative Instruments The following table presents the effect of the Company’s derivative instruments designated as cash flow hedges and those not designated as hedging instruments under ASC 815 in its unaudited Condensed Consolidated Statements of Income and Comprehensive Income for the six months ended October 1, 2022:
(In thousands) |  | Amount of Gain Recognized in Accumulated Other Comprehensive Loss |  | Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Earnings |  | Location in Condensed Consolidated Statements of Income and Comprehensive Income |  | Amount of Gain Excluded from Effectiveness Testing |  | Location in Condensed Consolidated Statements of Income and Comprehensive Income
Designated foreign currency hedge contracts, net of tax |  | $ | 2,388 |  |  | $ | 2,923 |  |  | Net revenues, COGS and SG&A |  | $ | 282 |  |  | Interest and other expense, net
Non-designated foreign currency hedge contracts |  | $ | — |  |  | $ | — |  |  |  |  | $ | 2,463 |  |  | Interest and other expense, net
Designated interest rate swaps, net of tax |  | $ | 2,190 |  |  | $ | (1,030) |  |  | Interest and other expense, net |  | $ | — |  |  |
The Company did not have fair value hedges or net investment hedges outstanding as of October 1, 2022 or April 2, 2022. As of October 1, 2022, no material deferred taxes were recognized for designated foreign currency hedges. ASC 815 requires all derivative instruments to be recognized at their fair values as either assets or liabilities on the balance sheet. The Company determines the fair value of its derivative instruments using the framework prescribed by ASC 820, Fair Value Measurements and Disclosures, by considering the estimated amount it would receive or pay to sell or transfer these instruments at the reporting date and by taking into account current interest rates, currency exchange rates, current interest rate curves, interest rate volatilities, the creditworthiness of the counterparty for assets, and its creditworthiness for liabilities. In certain instances, the Company may utilize financial models to measure fair value. Generally, it uses inputs that include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; other observable inputs for the asset or liability; and inputs derived principally from, or corroborated by, observable market data by correlation or other means. As of October 1, 2022, the Company has classified its derivative assets and liabilities within Level 2 of the fair value hierarchy prescribed by ASC 815, as discussed below, because these observable inputs are available for substantially the full term of its derivative instruments. The following tables present the fair value of the Company’s derivative instruments as they appear in its Condensed Consolidated Balance Sheets as of October 1, 2022 and April 2, 2022:
(In thousands) |  | Location in Condensed Consolidated Balance Sheets |  | As of |  | As of
|  | October 1, 2022 |  | April 2, 2022
Derivative Assets: |  |  |  |  |  |
Designated foreign currency hedge contracts |  | Other current assets |  | $ | 4,228 |  |  | $ | 3,133 |
Non-designated foreign currency hedge contracts |  | Other current assets |  | 85 |  |  | 99 |
Designated interest rate swaps |  | Other current assets |  | 1,114 |  |  | — |
|  |  |  | $ | 5,427 |  |  | $ | 3,232 |
Derivative Liabilities: |  |  |  |  |  |
Designated foreign currency hedge contracts |  | Other current liabilities |  | $ | 296 |  |  | $ | 56 |
Non-designated foreign currency hedge contracts |  | Other current liabilities |  | 271 |  |  | 25 |
Designated interest rate swaps |  | Other current liabilities |  | 160 |  |  | 1,813 |
Designated interest rate swaps |  | Other long-term liabilities |  | 815 |  |  | — |
|  |  |  | $ | 1,542 |  |  | $ | 1,894 |
Other Fair Value Measurements Fair value is defined as the exit price that would be received from the sale of an asset or paid to transfer a liability, using assumptions that market participants would use in pricing an asset or liability. The fair value guidance establishes the following three-level hierarchy used for measuring fair value: •Level 1 — Inputs to the valuation methodology are quoted market prices for identical assets or liabilities. •Level 2 — Inputs to the valuation methodology are other observable inputs, including quoted market prices for similar assets or liabilities and market-corroborated inputs. •Level 3 — Inputs to the valuation methodology are unobservable inputs based on management’s best estimate of inputs market participants would use in pricing the asset or liability at the measurement date, including assumptions about risk. The Company’s money market funds carried at fair value are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices. Fair Value Measured on a Recurring Basis Financial assets and financial liabilities measured at fair value on a recurring basis consist of the following as of October 1, 2022 and April 2, 2022.
|  | As of October 1, 2022
(In thousands) |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets |  |  |  |  |  |  |  |
Money market funds |  | $ | 63,268 |  |  | $ | — |  |  | $ | — |  |  | $ | 63,268 |
Designated foreign currency hedge contracts |  | — |  |  | 4,228 |  |  | — |  |  | 4,228 |
Non-designated foreign currency hedge contracts |  | — |  |  | 85 |  |  | — |  |  | 85 |
Designated interest rate swaps |  | — |  |  | 1,114 |  |  | — |  |  | 1,114 |
|  | $ | 63,268 |  |  | $ | 5,427 |  |  | $ | — |  |  | $ | 68,695 |
Liabilities |  |  |  |  |  |  |  |
Designated foreign currency hedge contracts |  | $ | — |  |  | $ | 296 |  |  | $ | — |  |  | $ | 296 |
Non-designated foreign currency hedge contracts |  | — |  |  | 271 |  |  | — |  |  | 271 |
Designated interest rate swaps |  | — |  |  | 975 |  |  | — |  |  | 975 |
Contingent consideration |  | — |  |  | — |  |  | 779 |  |  | 779 |
|  | $ | — |  |  | $ | 1,542 |  |  | $ | 779 |  |  | $ | 2,321 |
|  | As of April 2, 2022
|  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets |  |  |  |  |  |  |  |
Money market funds |  | $ | 97,425 |  |  | $ | — |  |  | $ | — |  |  | $ | 97,425 |
Designated foreign currency hedge contracts |  | — |  |  | 3,133 |  |  | — |  |  | 3,133 |
Non-designated foreign currency hedge contracts |  | — |  |  | 99 |  |  | — |  |  | 99 |
|  | $ | 97,425 |  |  | $ | 3,232 |  |  | $ | — |  |  | $ | 100,657 |
Liabilities |  |  |  |  |  |  |  |
Designated foreign currency hedge contracts |  | $ | — |  |  | $ | 56 |  |  | $ | — |  |  | $ | 56 |
Non-designated foreign currency hedge contracts |  | — |  |  | 25 |  |  | — |  |  | 25 |
Designated interest rate swaps |  | — |  |  | 1,813 |  |  | — |  |  | 1,813 |
Contingent consideration |  | — |  |  | — |  |  | 33,675 |  |  | 33,675 |
|  | $ | — |  |  | $ | 1,894 |  |  | $ | 33,675 |  |  | $ | 35,569 |
Foreign currency hedge contracts - The fair value of foreign currency hedge contracts was measured using significant other observable inputs and valued by reference to over-the-counter quoted market prices for similar instruments. The Company does not believe that the fair value of these derivative instruments differs significantly from the amount that could be realized upon settlement or maturity, or that the changes in fair value will have a significant effect on its results of operations, financial condition or cash flows. Interest rate swaps - The fair values of interest rate swaps are measured using the present value of expected future cash flows using market-based observable inputs, including credit risk and interest rate yield curves. The Company does not believe that the fair values of these derivative instruments differ significantly from the amounts that could be realized upon settlement or maturity, or that the changes in fair value will have a significant effect on its results of operations, financial condition or cash flows. Contingent consideration - The fair value of contingent consideration liabilities is based on significant unobservable inputs, including management estimates and assumptions, and is measured based on the probability-weighted present value of the payments expected to be made. Accordingly, the fair value of contingent consideration has been classified as level 3 within the fair value hierarchy. The recurring level 3 fair value measurements of contingent consideration liabilities include the following significant unobservable inputs:
|  | Fair Value at |  | Valuation |  | Unobservable |  |
(In thousands) |  | October 1, 2022 |  | Technique |  | Input |  | Range
Revenue-based payments |  | $ | 779 |  |  | Discounted cash flow |  | Discount rate |  | 8.5%
|  |  | Projected year of payment |  | 2022 - 2023
The fair value of contingent consideration associated with acquisitions was $0.8 million at October 1, 2022 and was included in other liabilities. A reconciliation of the change in the fair value of contingent consideration is included in the following table:
(In thousands) |  |
Balance at April 2, 2022 |  | $ | 33,675 |
Change in fair value |  | (504) |
Payments |  | (32,293) |
Currency translation |  | (99) |
Balance at October 1, 2022 |  | $ | 779 |
Other Fair Value Disclosures The Term Loan, which is carried at amortized cost, accounts receivable and accounts payable approximate fa ir value. The fair value of the 2026 Notes as of October 1, 2022 was $399.2 million, which was determined by using the market price on the last trading day of the reporting period.

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