Derivatives and Risk Management

12 Months Ended

Jan. 01, 2022

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.

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.

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 as a result of the discontinuance of cash flow hedges for fiscal years 2021, 2020 or 2019.

As of January 1, 2022, 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	40.5	U.S. dollar	49.1
Canadian dollar	9.5	U.S. dollar	7.6
British pound	3.3	U.S. dollar	4.6
Mexican peso	36.8	U.S. dollar	1.8
Japanese yen	573.4	U.S. dollar	5.3
Australian dollar	4.0	U.S. dollar	3.0
U.S. dollar	3.8	Japanese Yen	415.0

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 January 1, 2022, the Company did not have any non-designated forward contracts. As of January 2, 2021, the Company had non-designated forward contracts of $1.4 million on 21.9 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 2021, 2020 and 2019 are set forth below (in thousands):


Fiscal Year	2021		2020		2019
Cash flow hedges:
Forward contracts	$	5,868	$	2,217	$	6,060

Total gain (loss) recognized in other comprehensive income (loss), net of taxes	$	5,868	$	2,217	$	6,060

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 2021, 2020 and 2019 (in thousands):


Derivative Instruments	Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) Location	Effect of Derivative Instruments	Fiscal Year 2021		Fiscal Year 2020		Fiscal Year 2019
Forward contracts designated as cash flow hedging instruments	Cost of sales	Total gain (loss) reclassified from accumulated other comprehensive income (loss)	$	2,429	$	3,748	$	9,939
Forward contracts designated as cash flow hedging instruments	Other income (expense)-net	Total gain (loss) reclassified from accumulated other comprehensive income (loss)	$	(55)	$	602	$	1,720
Forward contracts not designated as hedging instruments	Other income (expense)-net	Total gain (loss) recognized in income	$	37	$	(113)	$	(88)

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
	January 1, 2022			January 2, 2021			January 1, 2022			January 2, 2021
	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	$	3,452	Prepaid expenses and other current assets	$	345	Accrued expenses-other	$	177	Accrued expenses-other	$	2,178
Forward contracts not designated as cash flow hedging instruments	Prepaid expenses and other current assets	—		Prepaid expenses and other current assets	—		Accrued expenses-other	—		Accrued expenses-other	86


Forward contracts designated as cash flow hedging instruments	Intangible and other assets-net	—		Intangible and other assets-net	48		Other long-term liabilities	—		Other long-term liabilities	35

Total		$	3,452		$	393		$	177		$	2,299

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


	Effect of Derivative Instruments
	Fiscal Year 2021				Fiscal Year 2020
	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	$	903,662	$	(14,500)	$	842,987	$	(4,828)
Gain (loss) on cash flow hedging relationships:
Forward contracts designated as cash flow hedging instruments:
Total gain (loss) reclassified from other comprehensive income (loss)	2,429		(55)		3,748		602
Forward contracts not designated as cash flow hedging instruments:
Total gain (loss) recognized in income	—		37		—		(113)

At the end of fiscal year 2021, the Company had forward contracts designated as cash flow hedges with maturities extending through December 2022. As of January 1, 2022, an estimated net gain of $3.3 million is expected to be reclassified into earnings within the next twelve months at prevailing foreign currency exchange rates.