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Financial Instruments and Risk Management | 3 Months Ended
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Mar. 30, 2024
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 has used cross-currency swap contracts to manage its exposures to movements in foreign exchange rates primarily related to the Australian dollar, Euro, Japanese Yen, Mexican peso and Canadian dollar and uses interest rate contracts to manage its exposures to movements in interest rates. The Company has also used 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 its European subsidiaries.
| Hedge Type |  | March 30, 2024 |  | December 30, 2023
U.S. dollar equivalent notional amount of derivative instruments: |  |  |  |  |
Forward foreign exchange contracts | Cash Flow and Mark to Market |  | $ | 272,313 |  |  | $ | 308,760 |
Interest rate contracts | Cash Flow |  | $ | 900,000 |  |  | $ | 900,000 |
Fair Values of Derivative Instruments The fair values of derivative instruments related to forward foreign exchange contracts and interest rate contracts recognized in the Condensed Consolidated Balance Sheets of the Company were as follows:
| Balance Sheet Location |  | Fair Value
| March 30, 2024 |  | December 30, 2023
Derivatives designated as hedging instruments: |  |  |  |  |
Forward foreign exchange contracts | Other current assets |  | $ | 2,354 |  |  | $ | 57 |
Interest rate contracts | Other current assets |  | 23 |  |  | 23 |
Forward foreign exchange contracts | Other noncurrent assets |  | 117 |  |  | — |
Interest rate contracts | Other noncurrent assets |  | 2,250 |  |  | — |
Derivatives not designated as hedging instruments: |  |  |  |  |
Forward foreign exchange contracts | Other current assets |  | 2,789 |  |  | 142 |
Total derivative assets |  |  | 7,533 |  |  | 222 |
Derivatives designated as hedging instruments: |  |  |  |  |
Forward foreign exchange contracts | Accrued liabilities |  | (454) |  |  | (2,508) |
Forward foreign exchange contracts | Other noncurrent liabilities |  | (3) |  |  | (290) |
Interest rate contracts | Other noncurrent liabilities |  | — |  |  | (5,929) |
Derivatives not designated as hedging instruments: |  |  |  |  |
Forward foreign exchange contracts | Accrued liabilities |  | (555) |  |  | (2,784) |
Total derivative liabilities |  |  | (1,012) |  |  | (11,511) |
Net derivative asset (liability) |  |  | $ | 6,521 |  |  | $ | (11,289) |
Cash Flow Hedges The Company uses forward foreign exchange contracts and has used 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. The Company also uses interest rate contracts to reduce the effect of the variability in future interest payments on variable-rate debt to lock in certainty of future cash flows. 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. These cross-currency swap contracts swapped 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. In February 2023, in connection with the redemption of the 3.5% Senior Notes, the Company unwound these cross-currency swap contracts, which had an original maturity date of June 15, 2024. The Company paid $30,935 to settle the cross-currency swap contracts, which was reported in “Net cash from operating activities” in the Condensed Consolidated Statements of Cash Flows in the quarter ended April 1, 2023. The remaining gain in AOCI of $1,254 was released into earnings at the time of settlement and is recorded in the “Interest expense, net” line in the Condensed Consolidated Statements of Operations in the quarter ended April 1, 2023. The Company had no cross-currency swap contracts designated as cash flow hedges as of March 30, 2024 or December 30, 2023. In March 2023, the Company entered into an interest rate contract with a total notional amount of $900,000, which amortizes down to $600,000 on March 31, 2025. The Company designated this interest rate contract, which matures on March 31, 2026, to hedge the variability in contractually specified interest rat es above 50 basis points a ssociated with future interest payments on a portion of the Company’s variable-rate term loans t o lock in certainty of future cash flows. The Company expects to reclassify into earnings during the next 12 months a net gain from AOCI of approximately $10,846. The Company is hedging exposure to the variability in future foreign currency-denominated cash flows for forecasted transactions over the next 14 months and the variability in future interest payments on debt over the next 24 months. The effect of derivative instruments designated as cash flow hedges on the Condensed Consolidated Statements of Operations and AOCI is as follows:
| Amount of Gain (Loss) Recognized in AOCI on Derivative Instruments |  |
| Quarters Ended |  |  |  |
| March 30, 2024 |  | April 1, 2023 |  |  |  |  |  |
Forward foreign exchange contracts | $ | 5,499 |  |  | $ | (72) |  |  |  |  |  |  |
Interest rate contracts | 10,275 |  |  | (14,674) |  |  |  |  |  |  |
Cross-currency swap contracts | — |  |  | (2,865) |  |  |  |  |  |  |
Total | $ | 15,774 |  |  | $ | (17,611) |  |  |  |  |  |  |
| Location of Gain (Loss) Reclassified from AOCI |  | Amount of Gain (Loss) Reclassified from AOCI into Net Income (Loss)
|  | Quarters Ended |  |
|  | March 30, 2024 |  | April 1, 2023 |  |  |  |
Forward foreign exchange contracts(1) | Cost of sales |  | $ | 2,543 |  |  | $ | 3,410 |  |  |  |  |
Interest rate contracts | Interest expense, net |  | 2,096 |  |  | 10 |  |  |  |  |
Cross-currency swap contracts(1) | Selling, general and administrative expenses |  | — |  |  | 973 |  |  |  |  |
Cross-currency swap contracts(1) | Interest expense, net |  | — |  |  | 581 |  |  |  |  |
Total |  |  | $ | 4,639 |  |  | $ | 4,974 |  |  |  |  |
(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. The following table presents the amounts in the Condensed Consolidated Statements of Operations in which the effects of cash flow hedges are recorded:
| Quarters Ended |  |
| March 30, 2024 |  | April 1, 2023 |  |  |  |
Cost of sales | $ | 695,274 |  |  | $ | 939,717 |  |  |  |  |
Selling, general and administrative expenses | $ | 408,821 |  |  | $ | 392,374 |  |  |  |  |
Interest expense, net | $ | 66,689 |  |  | $ | 58,452 |  |  |  |  |
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 its European subsidiaries. These cross-currency swap contracts, which had an original maturity date of May 15, 2024, swapped 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 was 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. In February 2023, in connection with the redemption of the 3.5% Senior Notes, the Company de-designated the remainder of the 3.5% Senior Notes in the European net investment hedge and unwound these cross-currency swap contracts. The Company received $18,942 to settle the cross-currency swap contracts, which was reported in “Net cash from investing activities” in the Condensed Consolidated Statements of Cash Flows in the quarter ended April 1, 2023. There was a cumulative gain of $5,525 from the designated portion of the 3.5% Senior Notes and a cumulative gain of $19,001 from the cross-currency swap contracts that will remain in cumulative translation adjustment, a component of AO CI, until the net investment in the Company’s EUR-functional subsidiaries is sold, liquidated, or substantially liquidated. The Company had no derivative or nonderivative financial instruments designated as net investment hedges as of March 30, 2024 or December 30, 2023. 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 are as follows:
| Amount of Gain (Loss) Recognized in AOCI
| Quarters Ended |  |
| March 30, 2024 |  | April 1, 2023 |  |  |  |
Euro-denominated long-term debt | $ | — |  |  | $ | (469) |  |  |  |  |
Cross-currency swap contracts | — |  |  | 531 |  |  |  |  |
Total | $ | — |  |  | $ | 62 |  |  |  |  |
The effect of derivative instruments designated as net investment hedges on the Condensed Consolidated Statements of Operations are as follows:
| Location of Gain (Loss) Reclassified from AOCI |  | Amount of Gain (Loss) Reclassified from AOCI into Net Income (Loss)
|  | Quarters Ended |  |
|  | March 30, 2024 |  | April 1, 2023 |  |  |  |
Cross-currency swap contracts (amounts excluded from effectiveness testing) | Interest expense, net |  | $ | — |  |  | $ | 960 |  |  |  |  |
The following table presents the amounts in the Condensed Consolidated Statements of Operations in which the effects of net investment hedges are recorded:
| Quarters Ended |  |
| March 30, 2024 |  | April 1, 2023 |  |  |  |
Interest expense, net (amounts excluded from effectiveness testing) | $ | 66,689 |  |  | $ | 58,452 |  |  |  |  |
Mark to Market Hedges Derivatives used in mark to market hedges are not designated as hedges under the accounting standards. 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. 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 instruments not designated as hedges on the Condensed Consolidated Statements of Operations is as follows:
| Location of Gain (Loss) |  | Amount of Gain (Loss) Recognized in Net Income (Loss)
| Quarters Ended |  |
| March 30, 2024 |  | April 1, 2023 |  |  |  |
Forward foreign exchange contracts | Cost of sales |  | $ | 4,021 |  |  | $ | (2,260) |  |  |  |  |
Forward foreign exchange contracts | Selling, general and administrative expenses |  | — |  |  | 848 |  |  |  |  |
Total |  |  | $ | 4,021 |  |  | $ | (1,412) |  |  |  |  |

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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://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 40 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480237/815-40-50-5 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 5C -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480434/815-10-50-5C Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 815 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//815/tableOfContent + Details
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