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DERIVATIVES AND RISK MANAGEMENT

6 Months Ended

Jul. 01, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVES AND RISK MANAGEMENT

DERIVATIVES AND RISK MANAGEMENT

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 July 1, 2023, 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						48.8						U.S. dollar						52.0
Canadian dollar						24.7						U.S. dollar						18.6
British pound						4.2						U.S. dollar						5.1
Japanese yen						596.4						U.S. dollar						4.6
Mexican peso						49.5						U.S. dollar						2.4
Australian dollar						2.8						U.S. dollar						1.9
U.S. dollar						4.1						Japanese yen						530.0

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 July 1, 2023, the Company had non-designated forward contracts of $0.4 million on 7.3 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 July 1, 2023						For the 13 Weeks Ended July 2, 2022
Cash flow hedges:
Forward contracts			$	(442)					$	6,100
Total gain (loss) recognized in other comprehensive income (loss), net of taxes			$	(442)					$	6,100

			For the 26 Weeks Ended July 1, 2023						For the 26 Weeks Ended July 2, 2022
Cash flow hedges:
Forward contracts			$	(3,123)					$	8,730
Total gain (loss) recognized in other comprehensive income (loss), net of taxes			$	(3,123)					$	8,730

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 July 1, 2023						For the 13 Weeks Ended July 2, 2022
Forward contracts designated as cash flow hedging instruments						Cost of sales						Total gain (loss) reclassified from accumulated other comprehensive income (loss)						$	(451)					$	2,038
Forward contracts designated as cash flow hedging instruments						Other income (expense)-net						Total gain (loss) reclassified from accumulated other comprehensive income (loss)						$	200					$	992
Forward contracts not designated as hedging instruments						Other income (expense)-net						Total gain (loss) recognized in income						$	38					$	61

Derivative Instruments						Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) Location						Effect of Derivative Instruments						For the 26 Weeks Ended July 1, 2023						For the 26 Weeks Ended July 2, 2022
Forward contracts designated as cash flow hedging instruments						Cost of sales						Total gain (loss) reclassified from accumulated other comprehensive income (loss)						$	(19)					$	3,040
Forward contracts designated as cash flow hedging instruments						Other income (expense)-net						Total gain (loss) reclassified from accumulated other comprehensive income (loss)						$	(127)					$	1,523
Forward contracts not designated as hedging instruments						Other income (expense)-net						Total gain (loss) recognized in income						$	63					$	7

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
						July 1, 2023												December 31, 2022												July 1, 2023												December 31, 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						$	635					Prepaid expenses and other current assets						$	2,783					Accrued expenses-other						$	2,985					Accrued expenses-other						$	2,659
Forward contracts not designated as cash flow hedging instruments						Prepaid expenses and other current assets						2						Prepaid expenses and other current assets						—						Accrued expenses-other						—						Accrued expenses-other						16
Forward contracts designated as cash flow hedging instruments						Intangible and other assets-net						—						Intangible and other assets-net						112						Other long-term liabilities						—						Other long-term liabilities						318
Total												$	637											$	2,895											$	2,985											$	2,993

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 July 1, 2023												For the 13 Weeks Ended July 2, 2022
						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						$	165,299					$	7,172					$	179,819					$	(1,674)
Gain (loss) on cash flow hedging relationships:
Forward contracts designated as cash flow hedging instruments:
Total gain (loss) reclassified from other comprehensive income (loss)						$	(451)					$	200					$	2,038					$	992
Forward contracts not designated as hedging instruments:
Total gain (loss) recognized in income						$	—					$	38					$	—					$	61

						Effect of Derivative Instruments
						For the 26 Weeks Ended July 1, 2023												For the 26 Weeks Ended July 2, 2022
						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						$	329,618					$	9,906					$	371,359					$	(56)
Gain (loss) on cash flow hedging relationships:
Forward contracts designated as cash flow hedging instruments:
Total gain (loss) reclassified from other comprehensive income (loss)						$	(19)					$	(127)					$	3,040					$	1,523
Forward contracts not designated as hedging instruments:
Total gain (loss) recognized in income						$	—					$	63					$	—					$	7

At the end of the Second Quarter, the Company had forward contracts designated as cash flow hedges with maturities extending through June 2024. As of July 1, 2023, a $2.1 million loss is expected to be reclassified into earnings within the next twelve months at prevailing foreign currency exchange rates.

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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

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