Note 4 – Derivatives
We use derivative instruments to manage exposures to changes in
foreign currency exchange rates. The fair value of these hedges is
recorded on the balance sheet. Please refer to Note 2 Fair Value
Measurements for further information about
the fair value of derivatives.
Foreign Currency Derivatives. We use foreign currency
forward contracts to hedge a portion of our forecasted foreign
exchange denominated revenues and expenses. We monitor our foreign
currency exposures in an effort to maximize the overall
effectiveness of our foreign currency hedge positions. Our
objective for holding derivatives is to minimize the risks using
the most effective methods to eliminate or reduce the impacts of
these exposures. The maturities of the cash flow hedges are 12
months or less as of June 28, 2015.
Changes in the fair value of derivative instruments related to time
value are included in the assessment of hedge effectiveness. Hedge
ineffectiveness did not have a material impact on earnings for the
six months ended June 28, 2015. No cash flow hedges were
derecognized or discontinued in the six months ended June 28,
2015.
Derivative gains and losses included in accumulated other
comprehensive income (AOCI) are reclassified into earnings at the
time the forecasted transaction is recognized. We estimate that
$1.0 million of net unrealized derivative losses included in AOCI
will be reclassified into earnings within the next twelve
months.
The following tables present derivatives designated as hedging
instruments:
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As of June 28, 2015 |
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As of December 28,
2014 |
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Balance Sheet
Classification |
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Notional
Amount |
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Fair
Value |
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Amount of
Gain (Loss)
Recognized
In AOCI |
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Balance Sheet
Classification |
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Notional
Amount |
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Fair
Value |
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Amount of
Gain (Loss)
Recognized
In AOCI |
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(In
millions) |
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(In
millions) |
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Derivatives Designated as Cash Flow Hedges
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Derivatives for forecasted revenues
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Current assets |
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$ |
44.6 |
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$ |
1.3 |
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$ |
1.3 |
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Current assets |
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$ |
43.3 |
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$ |
2.7 |
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$ |
2.7 |
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Derivatives for forecasted revenues
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Current liabilities |
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— |
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— |
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— |
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Current liabilities |
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— |
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— |
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— |
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Derivatives for forecasted expenses
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Current assets |
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55.1 |
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0.6 |
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0.6 |
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Current assets |
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13.7 |
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— |
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— |
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Derivatives for forecasted expenses
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Current liabilities |
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120.1 |
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(2.9 |
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(2.9 |
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Current liabilities |
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205.2 |
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(5.5 |
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(5.5 |
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Total foreign exchange contracts, net
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$ |
219.8 |
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$ |
(1.0 |
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$ |
(1.0 |
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$ |
262.2 |
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$ |
(2.8 |
) |
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$ |
(2.8 |
) |
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For the Six Months Ended June 28,
2015 |
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For the Six Months Ended June 29,
2014 |
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Income
Statement
Classification of
Gain (Loss) |
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Amount of
Gain (Loss)
Recognized
In Income |
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Amount of
Gain (Loss)
Reclassified
from AOCI |
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Income
Statement
Classification of
Gain (Loss) |
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Amount of
Gain (Loss)
Recognized
In Income |
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Amount of
Gain (Loss)
Reclassified
from AOCI |
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(In
millions) |
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(In
millions) |
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Derivatives Designated as Cash Flow Hedges
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Foreign exchange contract
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Revenue |
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$ |
4.1 |
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$ |
4.1 |
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Revenue |
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$ |
(0.9 |
) |
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$ |
(0.9 |
) |
Foreign exchange contract
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Expenses |
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(3.5 |
) |
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(3.5 |
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Expenses |
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5.9 |
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5.9 |
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Net gain (loss) recognized in income
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$ |
0.6 |
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$ |
0.6 |
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$ |
5.0 |
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$ |
5.0 |
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Gain (Loss)
Recognized in
OCI for Derivative
Instruments (1) |
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For the Six Months
Ended June 28, 2015 |
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(In
millions) |
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Foreign exchange contracts
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$ |
1.7 |
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(1) |
This amount is inclusive of both
realized and unrealized gains and losses recognized in OCI. |
The following tables present derivatives not designated as hedging
instruments.
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As of June 28, 2015 |
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As of December 28, 2014 |
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Balance Sheet
Classification |
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Notional
Amount |
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Fair Value |
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Balance Sheet
Classification |
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Notional
Amount |
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Fair Value |
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(In millions) |
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(In millions) |
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Derivatives Not Designated as Hedging Instruments
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Foreign exchange contracts
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Current assets |
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$ |
4.6 |
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$ |
— |
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Current assets |
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$ |
8.5 |
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$ |
0.1 |
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Foreign exchange contracts
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Current liabilities |
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25.2 |
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(0.1 |
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Current liabilities |
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20.1 |
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— |
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Total foreign exchange contracts, net
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$ |
29.8 |
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$ |
(0.1 |
) |
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$ |
28.6 |
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$ |
0.1 |
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For the Six Months Ended
June 28, 2015 |
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For the Six Months Ended
June 29, 2014 |
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Income
Statement
Classification of
Gain (Loss) |
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Amount of
Gain (Loss)
Recognized
In Income |
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Income
Statement
Classification of
Gain (Loss) |
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Amount of
Gain (Loss)
Recognized
In Income |
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(In millions) |
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(In millions) |
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Derivatives Not Designated as Hedging Instruments
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Foreign exchange contracts
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Revenue |
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$ |
0.1 |
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Revenue |
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$ |
— |
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Foreign exchange contracts
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Expenses |
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(0.7 |
) |
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Expenses |
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— |
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Net gain (loss) recognized in income
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$ |
(0.6 |
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$ |
— |
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We net the fair value of all derivative financial instruments with
counter-parties for which a master netting arrangement is
utilized.
The gross amounts of the derivative assets and liabilities are as
follows:
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As of |
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June 28,
2015 |
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December 28,
2014 |
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(In
millions) |
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Gross Assets
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$ |
2.1 |
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$ |
2.8 |
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Gross Liabilities
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(0.2 |
) |
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— |
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Current Assets
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$ |
1.9 |
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$ |
2.8 |
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Gross Assets
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$ |
— |
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$ |
0.1 |
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Gross Liabilities
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(3.0 |
) |
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(5.6 |
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Current Liabilities
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$ |
(3.0 |
) |
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$ |
(5.5 |
) |
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