Derivatives and Risk Management

12 Months Ended

Dec. 28, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Cash Flow Hedges. The primary risks managed by using derivative instruments are the fluctuations in global currencies that will ultimately be used by non-U.S. dollar functional currency subsidiaries to settle future payments of intercompany inventory transactions denominated in U.S. dollars. Specifically, the Company projects future intercompany purchases by its non-U.S. dollar functional currency subsidiaries generally over a period of up to 24 months. The Company enters into forward contracts generally for up to 85% of its forecasted purchases to manage fluctuations in global currencies that will ultimately be used to settle such U.S. dollar denominated inventory purchases. Additionally, the Company enters into forward contracts to manage fluctuations in Japanese yen exchange rates that will be used to settle future third-party inventory component purchases by a U.S. dollar functional currency subsidiary. Forward contracts represent agreements to exchange the currency of one country for the currency of another country at an agreed-upon settlement date and exchange rate. These forward contracts are designated as single cash flow hedges. Fluctuations in exchange rates will either increase or decrease the Company’s U.S. dollar equivalent cash flows from these inventory transactions, which will affect the Company’s U.S. dollar earnings. Gains or losses on the forward contracts are expected to offset these fluctuations to the extent the cash flows are hedged by the forward contracts.

These forward contracts meet the criteria for hedge accounting, which requires that they represent foreign currency-denominated forecasted transactions in which (i) the operating unit that has the foreign currency exposure is a party to the hedging instrument and (ii) the hedged transaction is denominated in a currency other than the hedging unit's functional currency.

At the inception of each forward contract designated as a cash flow hedge, the hedging relationship is expected to be highly effective in achieving offsetting cash flows attributable to the hedged risk. The Company assesses hedge effectiveness under the critical terms matched method at inception and at least quarterly throughout the life of the hedging relationship. If the critical terms (i.e., amounts, currencies and settlement dates) of the forward contract match the terms of the forecasted transaction, the Company concludes that the hedge is effective. Hedge accounting is discontinued if it is determined that the derivative is not highly effective.

For a derivative instrument that is designated and qualifies as a cash flow hedge, the gain or loss on the derivative is reported as a component of other comprehensive income (loss), net of taxes and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.

All derivative instruments are recognized as either assets or liabilities at fair value in the consolidated balance sheets. The Company records all forward contract hedge assets and liabilities on a gross basis as they do not meet the balance sheet netting criteria because the Company does not have master netting agreements established with the derivative counterparties that would allow for net settlement. Derivatives designated as cash flow hedges are recorded at fair value at each balance sheet date and the change in fair value is recorded to accumulated other comprehensive income (loss) within the equity section of the Company's consolidated balance sheets until such derivative's gains or losses become realized or the cash flow hedge relationship is terminated.

If the cash flow hedge relationship is terminated, the derivative's gains or losses that are recorded in accumulated other comprehensive income (loss) will be immediately recognized in earnings. There were no gains or losses reclassified into earnings for fiscal years 2019 or 2018 and a gain of $0.2 million for fiscal year 2017 was recognized as a result of the discontinuance of cash flow hedges.

As of December 28, 2019, the Company had the following outstanding forward contracts designated as cash flow hedges that were entered into to hedge the future payments of intercompany inventory transactions (in millions):



Functional Currency		Contract Currency
Type	Amount	Type	Amount
Euro	106.0	U.S. dollar	122.7
Canadian dollar	41.4	U.S. dollar	31.3
British pound	13.6	U.S. dollar	17.7
Japanese yen	1,320.5	U.S. dollar	12.4
Mexican peso	167.8	U.S. dollar	8.4
Australian dollar	6.7	U.S. dollar	4.6
U.S. dollar	18.7	Japanese Yen	1,985.0

Non-designated Hedges. The Company also periodically enters into forward contracts to manage exchange rate risks associated with certain intercompany transactions and for which the Company does not elect hedge accounting treatment. As of December 28, 2019, the Company had non-designated forward contracts of approximately $1.5 million on 22.6 million rand, and as of December 29, 2018, the Company had non-designated forward contracts of approximately $1.2 million on 17.5 million rand associated with a South African rand-denominated foreign subsidiary. Changes in the fair value of derivatives not designated as hedging instruments are recognized in earnings when they occur.

The effective portion of gains and losses on cash flow hedges that were recognized in other comprehensive income (loss), net of taxes during fiscal years 2019, 2018 and 2017 are set forth below (in thousands):



Fiscal Year	2019		2018		2017
Cash flow hedges:
Forward contracts	$	6,060	$	18,044	$	(25,088	)
Interest rate swaps	—		—		278
Total gain (loss) recognized in other comprehensive income (loss), net of taxes	$	6,060	$	18,044	$	(24,810	)

The following table illustrates the effective portion of gains and losses on derivative instruments recorded in other comprehensive income (loss), net of taxes during the term of the hedging relationship and reclassified into earnings, and gains and losses on derivatives not designated as hedging instruments recorded directly to earnings during fiscal years 2019, 2018 and 2017 (in thousands):



Derivative Instruments	Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) Location	Effect of Derivative Instruments	Fiscal Year 2019			Fiscal Year 2018			Fiscal Year 2017
Forward contracts designated as cash flow hedging instruments	Cost of sales ⁽¹⁾	Total gain (loss) reclassified from accumulated other comprehensive income (loss)	$	9,939		$	—		$	—
Forward contracts designated as cash flow hedging instruments	Other income (expense)-net	Total gain (loss) reclassified from accumulated other comprehensive income (loss)	$	1,720		$	(2,629	)	$	(4,297	)
Forward contracts not designated as hedging instruments	Other income (expense)-net	Total gain (loss) recognized in income	$	(88	)	$	244		$	(652	)
Interest rate swap designated as a cash flow hedging instrument	Interest expense	Total gain (loss) reclassified from accumulated other comprehensive income (loss)	$	—		$	—		$	(260	)
Interest rate swap not designated as a cash flow hedging instrument	Other income (expense)-net	Total gain (loss) recognized in income	$	—		$	67		$	—
Interest rate swap not designated as a cash flow hedging instrument	Other income (expense)-net	Total gain (loss) reclassified from accumulated other comprehensive income (loss)	$	—		$	—		$	195

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⁽¹⁾The adoption of ASU 2017-12 resulted in net gains being recorded in cost of sales for fiscal year 2019 which would have been recognized in other income (expense) - net under previous accounting guidance.

The following table discloses the fair value amounts for the Company's derivative instruments as separate asset and liability values, presents the fair value of derivative instruments on a gross basis, and identifies the line items in the consolidated balance sheets in which the fair value amounts for these categories of derivative instruments are included (in thousands):



	Asset Derivatives						Liability Derivatives
	December 28, 2019			December 29, 2018			December 28, 2019			December 29, 2018
	Consolidated Balance Sheets Location	Fair Value		Consolidated Balance Sheets Location	Fair Value		Consolidated Balance Sheets Location	Fair Value		Consolidated Balance Sheets Location	Fair Value
Forward contracts designated as cash flow hedging instruments	Prepaid expenses and other current assets	$	3,327	Prepaid expenses and other current assets	$	9,217	Accrued expenses-other	$	1,657	Accrued expenses-other	$	660
Forward contracts not designated as cash flow hedging instruments	Prepaid expenses and other current assets	—		Prepaid expenses and other current assets	15		Accrued expenses-other	63		Accrued expenses-other	—
Forward contracts designated as cash flow hedging instruments	Intangible and other assets-net	21		Intangible and other assets-net	453		Other long-term liabilities	104		Other long-term liabilities	70
Total		$	3,348		$	9,685		$	1,824		$	730

The following table summarizes the effects of the Company's derivative instruments on earnings (in thousands):



	Effect of Derivative Instruments
	Fiscal Year 2019				Fiscal Year 2018
	Cost of Sales		Other Income (Expense)-net		Cost of Sales		Other Income (Expense)-net
Total amounts of income and expense line items presented in the consolidated statements of income (loss) and comprehensive income (loss) in which the effects of cash flow hedges are recorded	$	1,118,274	$	26,984	$	1,201,351	$	(38	)
Gain (loss) on cash flow hedging relationships:
Forward contracts designated as cash flow hedging instruments:
Total gain (loss) reclassified from other comprehensive income (loss)	9,939		1,720		—		(2,629		)

At the end of fiscal year 2019, the Company had forward contracts designated as cash flow hedges with maturities extending through March 2021. As of December 28, 2019, an estimated net gain of $1.5 million is expected to be reclassified into earnings within the next twelve months at prevailing foreign currency exchange rates.