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Financial Instruments and Risk Management | 6 Months Ended
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Jul. 03, 2021
Disclosure Financial Instruments and Risk Management [Abstract] |
Financial Instruments and Risk Management | Financial Instruments and Risk Management The Company uses forward foreign exchange contracts and cross-currency swap contracts to manage its exposures to movements in foreign exchange rates primarily related to the Euro, Australian dollar, Canadian dollar and Mexican peso. The Company also uses a combination of cross-currency swap contracts and long-term debt to manage its exposure to foreign currency risk associated with the Company’s net investment in certain European subsidiaries.
| Hedge Type |  | July 3, 2021 |  | January 2, 2021
U.S. dollar equivalent notional amount of derivative instruments: |  |  |  |  |
Forward foreign exchange contracts | Cash Flow and Mark to Market |  | $ | 355,633 |  |  | $ | 617,912 |
Cross-currency swap contracts | Cash Flow |  | $ | 352,920 |  |  | $ | — |
Cross-currency swap contracts | Net Investment |  | $ | 335,940 |  |  | $ | 335,940 |
Fair Values of Derivative Instruments The fair values of derivative financial instruments related to forward foreign exchange contracts and cross-currency swap contracts recognized in the Condensed Consolidated Balance Sheets of the Company were as follows:
| Balance Sheet Location |  | Fair Value
| July 3, 2021 |  | January 2, 2021
Derivatives designated as hedging instruments: |  |  |  |  |
Forward foreign exchange contracts | Other current assets |  | $ | 1,989 |  |  | $ | 1 |
Cross-currency swap contracts | Other current assets |  | 970 |  |  | 918 |
Forward foreign exchange contracts | Current assets of discontinued operations |  | 17 |  |  | 40 |
Forward foreign exchange contracts | Other noncurrent assets |  | 732 |  |  | — |
Cross-currency swap contracts | Other noncurrent assets |  | 1,723 |  |  | — |
Derivatives not designated as hedging instruments: |  |  |  |  |
Forward foreign exchange contracts | Other current assets |  | 1,545 |  |  | 2,459 |
Forward foreign exchange contracts | Current assets of discontinued operations |  | 24 |  |  | 198 |
Total derivative assets |  |  | 7,000 |  |  | 3,616 |
Derivatives designated as hedging instruments: |  |  |  |  |
Forward foreign exchange contracts | Accrued liabilities |  | (2,329) |  |  | (12,898) |
Cross-currency swap contracts | Accrued liabilities |  | (223) |  |  | — |
Forward foreign exchange contracts | Current liabilities of discontinued operations |  | (321) |  |  | (4,747) |
Forward foreign exchange contracts | Other noncurrent liabilities |  | — |  |  | (2,190) |
Cross-currency swap contracts | Other noncurrent liabilities |  | (9,300) |  |  | (16,526) |
Derivatives not designated as hedging instruments: |  |  |  |  |
Forward foreign exchange contracts | Accrued liabilities |  | (4,151) |  |  | (16,488) |
Forward foreign exchange contracts | Current liabilities of discontinued operations |  | (589) |  |  | (2,195) |
Total derivative liabilities |  |  | (16,913) |  |  | (55,044) |
Net derivative liability |  |  | $ | (9,913) |  |  | $ | (51,428) |
Cash Flow Hedges The Company uses forward foreign exchange contracts and cross-currency swap contracts to reduce the effect of fluctuating foreign currencies on foreign currency-denominated transactions, foreign currency-denominated investments and other known foreign currency exposures. Gains and losses on these contracts are intended to offset losses and gains on the hedged transaction in an effort to reduce the earnings volatility resulting from fluctuating foreign currency exchange rates. On April 1, 2021, in connection with a reduction in the amount of the 3.5% Senior Notes designated in the European net investment hedge discussed below, the Company entered into three pay-fixed rate, receive-fixed rate cross-currency swap contracts with a total notional amount of €300,000. The Company designated these cross-currency swap contracts to hedge the undesignated portion of the foreign currency cash flow exposure related to the Company’s 3.5% Senior Notes, which had a carrying amount of €500,000 as of July 3, 2021. These cross-currency swap contracts, which mature on June 15, 2024, swap Euro-denominated interest payments for U.S. dollar-denominated interest payments, thereby economically converting €300,000 of the Company’s €500,000 fixed-rate 3.5% Senior Notes to a fixed-rate 4.7945% USD-denominated obligation. The Company expects to reclassify into earnings during the next 12 months a net loss from AOCI of approximately $12,581. The Company is hedging exposure to the variability in future foreign currency-denominated cash flows for forecasted transactions over the next 15 months and for long-term debt over the next 36 months. The effect of cash flow hedge derivative instruments on the Condensed Consolidated Statements of Income and AOCI is as follows:
| Amount of Gain (Loss) Recognized in AOCI on Derivative Instruments
| Quarters Ended |  | Six Months Ended
| July 3, 2021 |  | June 27, 2020 |  | July 3, 2021 |  | June 27, 2020
Forward foreign exchange contracts | $ | (1,392) |  |  | $ | (7,051) |  |  | $ | 7,094 |  |  | $ | 13,029 |
Cross-currency swap contracts | 717 |  |  | — |  |  | 705 |  |  | — |
Total | $ | (675) |  |  | $ | (7,051) |  |  | $ | 7,799 |  |  | $ | 13,029 |
| Location of Gain (Loss) Reclassified from AOCI into Income |  | Amount of Gain (Loss) Reclassified from AOCI into Income
|  | Quarters Ended |  | Six Months Ended
|  | July 3, 2021 |  | June 27, 2020 |  | July 3, 2021 |  | June 27, 2020
Forward foreign exchange contracts(1) | Cost of sales |  | $ | (5,278) |  |  | $ | 1,758 |  |  | $ | (9,655) |  |  | $ | 4,627 |
Forward foreign exchange contracts(1) | Income (loss) from discontinued operations, net of tax |  | (1,543) |  |  | 1,399 |  |  | $ | (1,851) |  |  | $ | 3,547 |
Cross-currency swap contracts(1) | Selling, general and administrative expenses |  | 3,168 |  |  | — |  |  | $ | 2,611 |  |  | $ | — |
Cross-currency swap contracts(1) | Interest expense, net |  | (1,018) |  |  | — |  |  | $ | (1,018) |  |  | $ | — |
Total |  |  | $ | (4,671) |  |  | $ | 3,157 |  |  | $ | (9,913) |  |  | $ | 8,174 |
(1)The Company does not exclude amounts from effectiveness testing for cash flow hedges that would require recognition into earnings based on changes in fair value.
|  |  | Quarters Ended |  | Six Months Ended
|  |  | July 3, 2021 |  | June 27, 2020 |  | July 3, 2021 |  | June 27, 2020
Total cost of sales in which the effects of cash flow hedges are recorded |  |  | $ | 1,069,682 |  |  | $ | 1,029,221 |  |  | $ | 1,975,030 |  |  | $ | 1,814,123 |
Total selling, general and administrative expenses in which the effects of cash flow hedges are recorded |  |  | $ | 464,235 |  |  | $ | 311,729 |  |  | $ | 876,794 |  |  | $ | 681,944 |
Total interest expense, net in which the effects of cash flow hedges are recorded |  |  | $ | 42,440 |  |  | $ | 41,075 |  |  | $ | 86,900 |  |  | $ | 77,102 |
Total income (loss) from discontinued operations, net of tax in which the effects of cash flow hedges are recorded |  |  | $ | (19,187) |  |  | $ | 24,613 |  |  | $ | (410,853) |  |  | $ | 11,621 |
Net Investment Hedges In July 2019, the Company entered into two pay-fixed rate, receive-fixed rate cross-currency swap contracts with a total notional amount of €300,000 that were designated as hedges of a portion of the beginning balance of the Company’s net investment in certain European subsidiaries. These cross-currency swap contracts, which mature on May 15, 2024, swap U.S. dollar-denominated interest payments for Euro-denominated interest payments, thereby economically converting a portion of the Company’s fixed-rate 4.625% Senior Notes to a fixed-rate 2.3215% Euro-denominated obligation. In July 2019, the Company also designated the full amount of its 3.5% Senior Notes with a carrying value of €500,000, which is a nonderivative financial instrument, as a hedge of a portion of the beginning balance of the Company’s European net investment. As of April 1, 2021, the Company reduced the amount of its 3.5% Senior Notes designated in the European net investment hedge from €500,000 to €200,000. As of July 3, 2021 and January 2, 2021, the U.S. dollar equivalent carrying value of Euro-denominated long-term debt designated as a partial European net investment hedge was $237,304 and $610,724, respectively. The amount of after-tax gains (losses) included in AOCI in the Condensed Consolidated Balance Sheets related to derivative instruments and nonderivative financial instruments designated as net investment hedges and the amount of gains included in the “Interest expense, net” line in the Condensed Consolidated Statements of Income related to amounts excluded from the assessment of hedge effectiveness for derivative instruments designated as net investment hedges are as follows:
|  |  | Amount of Gain (Loss) Recognized in AOCI
|  |  | Quarters Ended |  | Six Months Ended
|  |  | July 3, 2021 |  | June 27, 2020 |  | July 3, 2021 |  | June 27, 2020
Euro-denominated long-term debt |  | $ | (1,544) |  |  | $ | (4,196) |  |  | $ | 17,756 |  |  | $ | (1,538) |
Cross-currency swap contracts |  | (2,066) |  |  | (1,004) |  |  | 5,307 |  |  | 10,728 |
Total |  | $ | (3,610) |  |  | $ | (5,200) |  |  | $ | 23,063 |  |  | $ | 9,190 |
| Location of Gain Recognized in Income |  | Amount of Gain Recognized in Income (Amount Excluded from Effectiveness Testing)
|  | Quarters Ended |  | Six Months Ended
|  | July 3, 2021 |  | June 27, 2020 |  | July 3, 2021 |  | June 27, 2020
Cross-currency swap contracts | Interest expense, net |  | $ | 1,715 |  |  | $ | 2,020 |  |  | $ | 3,614 |  |  | $ | 3,967 |
|  |  | Quarters Ended |  | Six Months Ended
|  |  | July 3, 2021 |  | June 27, 2020 |  | July 3, 2021 |  | June 27, 2020
Total interest expense, net in which the amounts excluded from effectiveness testing for net investment hedges are recorded |  | $ | 42,440 |  |  | $ | 41,075 |  |  | $ | 86,900 |  |  | $ | 77,102 |
Mark to Market Hedges A derivative used as a hedging instrument whose change in fair value is recognized to act as a hedge against changes in the values of the hedged item is designated as a mark to market hedge. The Company uses forward foreign exchange derivative contracts as hedges against the impact of foreign exchange fluctuations on existing accounts receivable and payable balances and intercompany lending transactions denominated in foreign currencies. Forward foreign exchange derivative contracts are recorded as mark to market hedges when the hedged item is a recorded asset or liability that is revalued in each accounting period. These contracts are not designated as hedges under the accounting standards and are recorded at fair value in the Condensed Consolidated Balance Sheets. Any gains or losses resulting from changes in fair value are recognized directly into earnings. Gains or losses on these contracts largely offset the net remeasurement gains or losses on the related assets and liabilities. The effect of derivative contracts not designated as hedges on the Condensed Consolidated Statements of Income is as follows:
| Location of Gain (Loss) Recognized in Income on Derivatives |  | Amount of Gain (Loss) Recognized in Income
| Quarters Ended |  | Six Months Ended
| July 3, 2021 |  | June 27, 2020 |  | July 3, 2021 |  | June 27, 2020
Forward foreign exchange contracts | Cost of sales |  | $ | 5,629 |  |  | $ | (16,081) |  |  | $ | 18,624 |  |  | $ | (9,532) |
Forward foreign exchange contracts | Selling, general and administrative expenses |  | 880 |  |  | 1,962 |  |  | 3,091 |  |  | 928 |
Forward foreign exchange contracts | Income (loss) from discontinued operations, net of tax |  | 1,314 |  |  | (3,026) |  |  | 3,953 |  |  | (3,451) |
Total |  |  | $ | 7,823 |  |  | $ | (17,145) |  |  | $ | 25,668 |  |  | $ | (12,055) |

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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 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 http://asc.fasb.org/extlink&oid=123477628&loc=d3e90205-114008 + Details
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