DERIVATIVES AND RISK MANAGEMENT

3 Months Ended

Apr. 02, 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 the 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 accumulated other comprehensive income (loss), net of taxes and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.

As of April 2, 2022, the Company had the following outstanding forward contracts designated as cash flow hedges that were entered into to hedge future payments of inventory transactions (in millions):


Functional Currency		Contract Currency
Type	Amount	Type	Amount
Euro	80.2	U.S. dollar	93.8
Canadian dollar	28.6	U.S. dollar	22.7
Japanese yen	1,075.0	U.S. dollar	9.6
British pound	6.7	U.S. dollar	9.2
Mexican peso	183.1	U.S. dollar	8.8
Australian dollar	6.7	U.S. dollar	4.9
U.S. dollar	12.5	Japanese yen	1,430.0

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 April 2, 2022, the Company had non-designated forward contracts of $2.0 million on 30.3 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 gains and losses on cash flow hedges that were recognized in other comprehensive income (loss), net of taxes are set forth below (in thousands):


	For the 13 Weeks Ended April 2, 2022		For the 13 Weeks Ended April 3, 2021
Cash flow hedges:
Forward contracts	$	2,631	$	1,056

Total gain (loss) recognized in other comprehensive income (loss), net of taxes	$	2,631	$	1,056

The following tables disclose the gains and losses on derivative instruments recorded in accumulated 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 (in thousands):


Derivative Instruments	Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) Location	Effect of Derivative Instruments	For the 13 Weeks Ended April 2, 2022		For the 13 Weeks Ended April 3, 2021
Forward contracts designated as cash flow hedging instruments	Cost of sales	Total gain (loss) reclassified from accumulated other comprehensive income (loss)	$	1,002	$	681
Forward contracts designated as cash flow hedging instruments	Other income (expense)-net	Total gain (loss) reclassified from accumulated other comprehensive income (loss)	$	531	$	(1,367)
Forward contracts not designated as hedging instruments	Other income (expense)-net	Total gain (loss) recognized in income	$	(54)	$	(59)

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 condensed consolidated balance sheets in which the fair value amounts for these categories of derivative instruments are included (in thousands):


	Asset Derivatives						Liability Derivatives
	April 2, 2022			January 1, 2022			April 2, 2022			January 1, 2022
Derivative Instruments	Condensed Consolidated Balance Sheets Location	Fair Value		Condensed Consolidated Balance Sheets Location	Fair Value		Condensed Consolidated Balance Sheets Location	Fair Value		Condensed Consolidated Balance Sheets Location	Fair Value
Forward contracts designated as cash flow hedging instruments	Prepaid expenses and other current assets	$	5,420	Prepaid expenses and other current assets	$	3,452	Accrued expenses-other	$	1,424	Accrued expenses-other	$	177
Forward contracts not designated as cash flow hedging instruments	Prepaid expenses and other current assets	—		Prepaid expenses and other current assets	—		Accrued expenses-other	55		Accrued expenses-other	—



Forward contracts designated as cash flow hedging instruments	Intangible and other assets-net	233		Intangible and other assets-net	—		Other long-term liabilities	18		Other long-term liabilities	—

Total		$	5,653		$	3,452		$	1,497		$	177

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


	Effect of Derivative Instruments
	For the 13 Weeks Ended April 2, 2022				For the 13 Weeks Ended April 3, 2021
	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 condensed consolidated statements of income (loss) and comprehensive income (loss) in which the effects of cash flow hedges are recorded	$	191,540	$	1,618	$	180,453	$	1,864
Gain (loss) on cash flow hedging relationships:
Forward contracts designated as cash flow hedging instruments:
Total gain (loss) reclassified from other comprehensive income (loss)	$	1,002	$	531	$	681	$	(1,367)
Forward contracts not designated as hedging instruments:
Total gain (loss) recognized in income	$	—	$	(54)	$	—	$	(59)

At the end of the First Quarter, the Company had forward contracts designated as cash flow hedges with maturities extending through June 2023. As of April 2, 2022, an estimated net gain of $4.4 million is expected to be reclassified into earnings within the next twelve months at prevailing foreign currency exchange rates.